-----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, FWoAPe+533FYwrwJPwHD2sW6F8ub2JhnmFnBW4A17RbSZL3v5UIyfmnueFXg/nKv 26u+9TaluK8W1TdnQBObug== 0000950129-99-003656.txt : 19990816 0000950129-99-003656.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950129-99-003656 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC /TX/ CENTRAL INDEX KEY: 0000795662 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: SEC FILE NUMBER: 001-10059 FILM NUMBER: 99687476 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: SEC FILE NUMBER: 333-04343-01 FILM NUMBER: 99687477 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 STERLING CHEMICALS HOLDINGS, INC. - 06/30/1999 1 ================================================================================ 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 June 30, 1999 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 (713) 650-3700 HOUSTON, TEXAS 77002-4312 (REGISTRANT'S TELEPHONE NUMBER, (ADDRESS OF PRINCIPAL EXECUTIVE 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 (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 SMITH STREET, SUITE 1900 (713) 650-3700 HOUSTON, TEXAS 77002-4312 (REGISTRANT'S TELEPHONE NUMBER, (ADDRESS OF PRINCIPAL EXECUTIVE 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 July 30, 1999, Sterling Chemicals Holdings, Inc. had 12,752,907 shares of common stock outstanding. As of July 30, 1999, all outstanding equity securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals Holdings, Inc. ================================================================================ 2 IMPORTANT INFORMATION REGARDING THIS FORM 10-Q Readers should consider the following information as they review this Form 10-Q. FORWARD-LOOKING STATEMENTS This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements include all statements contained in this Form 10-Q (other than statements of historical facts) regarding the cyclicality of the industries in which the Company (as defined herein) is engaged, current and future industry conditions, the cost of remediating Year 2000 issues and the effect of any unremediated or undiscovered Year 2000 issues on the Company's operations, and the potential effects of such matters on the Company's business strategy, results of operations, and financial position, including without limitation the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations". Although the Company believes that the expectations reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Certain important factors that could cause actual results to differ materially from expectations ("Cautionary Statements") are stated herein in conjunction with the forward-looking statements or are included elsewhere in this Form 10-Q or Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal year ended September 30, 1998 (the "Annual Report"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Known Events, Trends, Uncertainties, and Risk Factors" contained in the Annual Report. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. SUBSEQUENT EVENTS, ETC. All statements contained in this Form 10-Q, including the forward-looking statements discussed above, are made as of August 12, 1999, except for those statements that are expressly made as of another date. The Company disclaims any responsibility for the correctness of any information contained in this Form 10-Q to the extent such information is affected or impacted by events, circumstances, or developments occurring after August 12, 1999, or by the passage of time after such date and, except as required by applicable securities laws, the Company does not intend to update such information. 2 3 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 Consolidated Financial Statements included herein. PART I.--FINANCIAL INFORMATION ITEM 1.--FINANCIAL STATEMENTS 3 4 STERLING CHEMICALS HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
JUNE 30, SEPTEMBER 30, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ..................................................... $ 6,327 $ 11,168 Accounts receivable ........................................................... 117,678 114,571 Inventories ................................................................... 78,915 73,225 Prepaid expenses .............................................................. 11,202 15,571 Deferred tax asset ............................................................ 8,817 5,140 ------------ ------------ Total current assets ........................................................ 222,939 219,675 Property, plant and equipment, net ............................................... 432,827 450,315 Deferred tax asset ............................................................... 7,370 -- Other assets ..................................................................... 94,597 95,966 ------------ ------------ Total assets ................................................................ $ 757,733 $ 765,956 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable .............................................................. $ 64,912 $ 46,983 Accrued liabilities ........................................................... 64,297 71,873 Current portion of long-term debt ............................................. 2,633 8,909 ------------ ------------ Total current liabilities ................................................... 131,842 127,765 Long-term debt ................................................................... 923,613 873,616 Deferred tax liability ........................................................... -- 11,123 Deferred credits and other liabilities ........................................... 78,095 80,289 Common stock held by ESOP ........................................................ 2,946 5,938 Less: unearned compensation ..................................................... (595) (2,845) Redeemable preferred stock ....................................................... 20,225 18,249 Commitments and contingencies (Note 4) ........................................... -- -- Stockholders' equity (deficiency in assets): Common stock, $.01 par value, 20,000,000 shares authorized, 12,305,000 shares issued and 12,098,000 outstanding at June 30, 1999, and 12,273,000 shares issued and 12,073,000 outstanding at September 30, 1998 .............. 123 123 Additional paid-in capital .................................................... (542,712) (542,701) Retained earnings ............................................................. 174,892 229,590 Pension adjustment ............................................................ (121) (121) Accumulated translation adjustment ............................................ (28,052) (32,559) Deferred compensation ......................................................... (70) (111) ------------ ------------ (395,940) (345,779) Treasury stock, at cost, 207,000 and 200,000 shares at June 30, 1999 and September 30, 1998, respectively ............................................ (2,453) (2,400) ------------ ------------ Total stockholders' equity (deficiency in assets) ......................... (398,393) (348,179) ------------ ------------ Total liabilities and stockholders' equity (deficiency in assets) ....... $ 757,733 $ 765,956 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 4 5 STERLING CHEMICALS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Revenues ..................................................... $ 181,789 $ 205,414 $ 506,190 $ 640,154 Cost of goods sold ........................................... 169,591 182,886 472,963 586,968 ------------ ------------ ------------ ------------ Gross profit ................................................. 12,198 22,528 33,227 53,186 Selling, general and administrative expenses ................. 9,137 10,641 27,594 28,094 Other expense ................................................ 1,733 3,022 10,809 5,962 Interest and debt related expenses, net of interest income ... 24,760 25,748 74,711 76,021 ------------ ------------ ------------ ------------ Loss before income taxes ..................................... (23,432) (16,883) (79,887) (56,891) Benefit for income taxes ..................................... (7,017) (3,765) (25,552) (17,340) ------------ ------------ ------------ ------------ Net loss ..................................................... (16,415) (13,118) (54,335) (39,551) Preferred stock dividends .................................... 672 607 1,975 1,826 ------------ ------------ ------------ ------------ Net loss attributable to common stockholders ................. $ (17,087) $ (13,725) $ (56,310) $ (41,377) ============ ============ ============ ============ Net loss per common share (Note 5) ........................... $ (1.37) $ (1.13) $ (4.43) $ (3.40) ============ ============ ============ ============ Weighted average shares outstanding .......................... 12,516 12,185 12,469 12,007 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 5 6 STERLING CHEMICALS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED JUNE 30, ------------------------------ 1999 1998 ------------ ------------ Cash flows from operating activities: Net loss .................................................. $ (54,335) $ (39,551) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization .......................... 42,375 42,205 Interest amortization .................................. 1,781 2,830 Deferred tax benefit ................................... (19,198) (14,557) Discount notes amortization ............................ 13,738 12,898 Early retirement programs and benefit changes .......... 6,782 -- Other .................................................. 1,089 1,890 Change in assets/liabilities: Accounts receivable .................................... (2,604) 36,246 Inventories ............................................ (5,195) 9,810 Prepaid expenses ....................................... (4,896) (1,672) Other assets ........................................... (12,553) 1,055 Accounts payable ....................................... 31,747 (19,247) Accrued liabilities .................................... (16,616) (2,221) Other liabilities ...................................... 6,366 7,836 ------------ ------------ Net cash provided (used in) by operating activities ............ (11,519) 37,522 ------------ ------------ Cash flows from investing activities: Capital expenditures ...................................... (17,836) (18,861) ------------ ------------ Cash flows from financing activities: Proceeds from long-term debt .............................. 220,769 48,562 Repayment of long-term debt ............................... (196,412) (62,448) Other ..................................................... (58) 104 ------------ ------------ Net cash provided (used in) by financing activities ............ 24,299 (13,782) ------------ ------------ Effect of United States /Canadian exchange rate on cash ........ 215 (390) ------------ ------------ Net increase (decrease) in cash and cash equivalents ........... (4,841) 4,489 Cash and cash equivalents - beginning of year .................. 11,168 7,958 ------------ ------------ Cash and cash equivalents - end of period ...................... $ 6,327 $ 12,447 ============ ============ Supplement disclosures of cash flow information: Interest paid, net of interest income received ............ $ (56,534) $ (58,534) Income tax refunds received ............................... 5,042 6,833
The accompanying notes are an integral part of the consolidated financial statements. 6 7 STERLING CHEMICALS, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
JUNE 30, SEPTEMBER 30, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ......................................... $ 6,307 $ 11,159 Accounts receivable ............................................... 117,701 116,398 Inventories ....................................................... 78,915 73,225 Prepaid expenses .................................................. 9,031 13,632 Deferred tax asset ................................................ 8,817 5,140 ------------ ------------ Total current assets ............................................ 220,771 219,554 Property, plant and equipment, net ................................... 432,827 450,315 Other assets ......................................................... 91,635 92,634 ------------ ------------ Total assets .................................................... $ 745,233 $ 762,503 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable .................................................. $ 63,008 $ 46,764 Accrued liabilities ............................................... 64,051 71,884 Current portion of long-term debt ................................. 2,633 8,909 ------------ ------------ Total current liabilities ......................................... 129,692 127,557 Long-term debt ....................................................... 781,180 745,709 Deferred tax liability ............................................... 9,431 23,301 Deferred credits and other liabilities ............................... 81,095 83,288 Common stock held by ESOP ............................................ 2,946 5,938 Less: unearned compensation ......................................... (595) (2,845) Commitments and contingencies (Note 4) ............................... -- -- Stockholder's equity (deficiency in assets): Common stock, $.01 par value ...................................... -- -- Additional paid-in capital ........................................ (140,013) (139,786) Accumulated deficit ............................................... (90,260) (47,868) Pension adjustment ................................................ (121) (121) Accumulated translation adjustment ................................ (28,052) (32,559) Deferred compensation ............................................. (70) (111) ------------ ------------ Total stockholder's equity (deficiency in assets) ................. (258,516) (220,445) ------------ ------------ Total liabilities and stockholder's equity (deficiency in assets) . $ 745,233 $ 762,503 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 7 8 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues .................................................... $ 181,789 $ 205,414 $ 506,190 $ 640,154 Cost of goods sold .......................................... 169,591 182,886 472,963 586,968 ----------- ----------- ----------- ----------- Gross profit ................................................ 12,198 22,528 33,227 53,186 Selling, general and administrative expenses ................ 9,034 10,393 27,235 27,066 Other expense ............................................... 1,733 3,022 10,809 5,962 Interest and debt related expenses, net of interest income .. 19,640 21,188 59,881 62,867 ----------- ----------- ----------- ----------- Loss before income taxes .................................... (18,209) (12,075) (64,698) (42,709) Benefit for income taxes .................................... (5,814) (3,027) (20,694) (13,219) ----------- ----------- ----------- ----------- Net loss .................................................... $ (12,395) $ (9,048) $ (44,004) $ (29,490) =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 8 9 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED
NINE MONTHS ENDED JUNE 30, ---------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net loss ........................................... $ (44,004) $ (29,490) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ................... 42,375 42,205 Debt fee amortization ........................... 1,461 2,362 Deferred tax benefit ............................ (19,198) (10,451) Early retirement programs and benefit changes ... 6,782 -- Other ........................................... 307 1,890 Change in assets/liabilities: Accounts receivable ............................. 188 36,208 Inventories ..................................... (5,195) 9,810 Prepaid expenses ................................ (4,662) (1,658) Other assets .................................... (7,928) 1,017 Accounts payable ................................ 28,612 (20,182) Accrued liabilities ............................. (16,616) (2,221) Other liabilities ............................... 6,348 8,030 ----------- ----------- Net cash provided by operating activities ............... (11,530) 37,520 ----------- ----------- Cash flows from investing activities: Capital expenditures ................................. (17,836) (18,861) ----------- ----------- Cash flows from financing activities: Proceeds from long-term debt ......................... 220,769 48,562 Repayment of long-term debt .......................... (196,412) (62,448) Other ................................................ (58) 104 ----------- ----------- Net cash provided by (used in) financing activities .... 24,299 (13,782) ----------- ----------- Effect of United States /Canadian exchange rate on cash . 215 (390) ----------- ----------- Net increase (decrease) in cash and cash equivalents .... (4,852) 4,487 Cash and cash equivalents - beginning of year ........... 11,159 7,958 ----------- ----------- Cash and cash equivalents - end of period ............... $ 6,307 $ 12,445 =========== =========== Supplement disclosures of cash flow information: Interest paid, net of interest income received ....... $ (56,545) $ (58,534) Income tax refunds received .......................... 5,042 6,833
The accompanying notes are an integral part of the consolidated financial statements. 9 10 STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of Sterling Chemicals Holdings, Inc. ("Holdings") and its subsidiaries (Holdings and its subsidiaries collectively, the "Company") and Sterling Chemicals, Inc. and its subsidiaries (Sterling Chemicals, Inc. and its subsidiaries collectively, "Chemicals") as of June 30, 1999, and their consolidated results of operations and cash flows for the applicable three month and nine month periods ended June 30, 1999 and 1998. 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 to be expected for the full year. The accompanying unaudited 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, 1998 (the "Annual Report"). The accompanying consolidated balance sheets as of September 30, 1998, have been derived from the audited consolidated balance sheets as of September 30, 1998, included in the Annual Report. The accompanying consolidated financial statements as of and for the three month and nine month periods ended June 30, 1999, have been reviewed 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 loss or stockholders' equity (deficiency in assets). 2. INVENTORIES
JUNE 30, SEPTEMBER 30, 1999 1998 ----------- ----------- Inventories consisted of the following (in thousands): Finished products ...................................... $ 46,641 $ 42,436 Raw materials .......................................... 14,753 8,089 Inventories under exchange agreements .................. 1,830 3,031 Stores and supplies .................................... 15,691 19,669 ----------- ----------- $ 78,915 $ 73,225 =========== ===========
3. LONG-TERM DEBT
JUNE 30, SEPTEMBER 30, 1999 1998 ----------- ----------- Long-term debt consisted of the following (in thousands): Revolving credit facility ................................. $ 36,450 $ -- Term loans ................................................ 273,000 274,000 Saskatoon term loans ...................................... 44,764 49,552 ESOP term loan ............................................ 2,031 3,250 11-1/4% Notes ............................................. 152,568 152,816 11-3/4% Notes ............................................. 275,000 275,000 ----------- ----------- Total Chemicals' debt outstanding .................... 783,813 754,618 13-1/2% Notes ............................................. 142,433 127,907 ----------- ----------- Total Holdings' debt outstanding .................. 926,246 882,525 Less: Current maturities ................................... (2,633) (8,909) ----------- ----------- Total long-term debt ...................................... $ 923,613 $ 873,616 =========== ===========
10 11 On July 23, 1999, Chemicals completed a private offering (the "12-3/8% Notes Offering") of $295,000,000 of its 12-3/8% Senior Secured Notes due 2006 (the "12-3/8% Notes"). The 12-3/8% Notes are senior secured obligations of Chemicals and rank equally in right of payment with all other existing and future senior indebtedness of Chemicals and senior in right of payment to all existing and future subordinated indebtedness of Chemicals. The 12-3/8% Notes are guaranteed by all of Chemicals' existing direct and indirect U.S. subsidiaries (other than Sterling Chemicals Acquisitions, Inc.) on a joint and several basis. Each subsidiary's guarantee ranks equally in right of payment with all of such subsidiary's existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness of such subsidiary. However, the 12-3/8% Notes, and each subsidiary's guarantee, is subordinated to the extent of the collateral securing Chemicals' new secured revolving credit facilities described below. The 12-3/8% Notes and the subsidiary guarantees are secured by (i) a second priority lien on all of Chemicals' U.S. chemical production facilities and related assets, (ii) a second priority pledge of all of the capital stock of each subsidiary guarantor, and (iii) a first priority pledge of 65% of the stock of certain of the Company's subsidiaries incorporated outside of the United States. In addition, on July 23, 1999, Chemicals established two new secured revolving credit facilities providing for up to $155,000,000 in revolving credit loans (the "New Revolvers") under a single Revolving Credit Agreement (the "New Credit Agreement"). Under the New Credit Agreement, Chemicals and each of its direct and indirect U.S. subsidiaries (other than Sterling Chemicals Acquisitions, Inc.) are co-borrowers and are jointly and severally liable for any indebtedness thereunder. The New Revolvers consist of (i) a $70,000,000 revolving credit facility (the "Fixed Assets Revolver") secured by a first priority lien on all of Chemicals' U.S. chemical production facilities and related assets, all of the capital stock of Chemicals and all of the capital stock of each co-borrower and a second priority lien on all accounts receivable, inventory and other specified assets of Chemicals and each co-borrower, and (ii) an $85,000,000 revolving credit facility (the "Current Assets Revolver") secured by a first priority lien on all accounts receivable, inventory and other specified assets of Chemicals and each co-borrower. Funding under the 12-3/8% Notes Offering and the New Revolvers occurred on July 23, 1999. The proceeds of the 12-3/8% Notes Offering and the initial borrowings under the New Revolvers were used to completely repay all outstanding indebtedness under Chemicals existing senior credit facility. Accordingly, amounts classified as current under the terms of the existing senior credit facility have been reclassified as long-term under the terms of the 12-3/8% Notes and the New Revolvers. Borrowings under the Fixed Assets Revolver bear interest, at Chemicals' option, at an annual rate of either the "LIBOR Rate" (as defined in the New Credit Agreement) plus 3.75% or the Alternate Base Rate plus 2.25%. Borrowings under the Current Assets Revolver bear interest, at Chemicals' option, at an annual rate of either the LIBOR Rate plus 3.00% or the Alternate Base Rate plus 1.50%. The "Alternate Base Rate" is equal to the greater of the Base Rate as announced from time to time by The Chase Manhattan Bank in New York, New York or the "Federal Funds Effective Rate" plus 1/2% (as such terms are defined in the New Credit Agreement.). The New Credit Agreement also requires Chemicals and the co-borrowers to pay an aggregate commitment fee ranging from 0.75% to 1.25% on the unused portion of the commitment for the Fixed Assets Revolver, depending on the amount drawn, and an aggregate commitment fee of 0.5% on the unused portion of the commitment for the Current Assets Revolver. Available credit under the Current Assets Revolver is subject to a monthly borrowing base consisting of 85% of eligible accounts receivable and 65% of eligible inventory with an inventory cap of $42,500,000. In addition, the borrowing base for the Current Assets Revolver must exceed outstanding borrowings thereunder by $12,000,000 at all times. The Fixed Assets Revolver matures in five years, with quarterly commitment reductions totalling 30% of the total commitment in year four and 70% in year five. The Current Assets Revolver matures in five years, with no scheduled commitment reductions prior to that time. However, the commitments for each of the Fixed Assets Revolver and the Current Assets Revolvers will be permanently reduced to the extent required under the New Credit Agreement upon prepayments made out of specific sources of funds, including asset sales and certain equity issuances by Holdings. The indenture governing the 12-3/8% Notes (the "Indenture") and the New Credit Agreement contain numerous covenants, including, but not limited to, restrictions on the ability of Chemicals and certain of its subsidiaries to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions and refinance existing indebtedness. In addition, the Indenture and the New Credit Agreement specify various circumstances that will constitute, upon occurrence and subject in certain cases to notice and grace periods, an event of default thereunder. However, neither the Indenture nor the New Credit Agreement requires the Company to satisfy any financial ratios or maintenance tests. The Indenture, the indenture governing the 11-1/4% Notes, the indenture governing the 11-3/4% Notes, and the New Credit Agreement contain provisions which restrict the payment of advances, loans and dividends from Chemicals to Holdings. The most restrictive of the covenants limits such payments during fiscal 1999 to approximately $2.0 million, plus any amounts due Holdings from Chemicals under the intercompany tax sharing agreement. 11 12 4. 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 dedicates a significant portion of its acrylonitrile, methanol, and styrene production under long-term arrangements. Some of these agreements provide for cost recovery plus an agreed profit margin based upon market prices. Environmental Regulations The Company's operations involve the handling, production, transportation, treatment, and disposal of materials that are classified as hazardous or toxic waste and that are extensively regulated by environmental and health and safety laws, regulations, and permit requirements. Environmental permits required for the Company's operations are subject to periodic renewal and can be revoked or modified for cause or when new or revised environmental requirements are implemented. Changing and increasingly strict environmental requirements can affect the manufacturing, handling, processing, distribution, and use of the Company's chemical products and the raw materials used to produce such products and, if so, the Company's business and operations may be materially and adversely affected. In addition, changes in environmental requirements can cause the Company to incur substantial costs in upgrading or redesigning its facilities and processes, including waste treatment, storage, disposal, and other waste handling practices and equipment. While the Company believes that its business operations and facilities generally are operated in compliance in all material respects with all applicable environmental and health and safety requirements, there can be no assurance that past practices or future operations will not result in material claims or regulatory action, require material environmental expenditures, or result in exposure or injury claims by employees, contractors and their employees or the public. Some risk of environmental costs and liabilities is inherent in the operations and products of the Company, as it is with other companies engaged in similar businesses. In addition, a catastrophic event at any of the Company's facilities could result in liabilities to the Company substantially in excess of its insurance coverages. Legal Proceedings Ammonia Release. A description of the ammonia release lawsuits 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, the Company continues to vigorously defend against the claims of the approximately 100 remaining plaintiffs. The Company has settled the claims of a majority of the original plaintiffs and is engaged in ongoing settlement discussions with the remaining plaintiffs. The Company believes that all or substantially all of its future out-of-pocket costs and expenses (including settlement payments and judgements) relating to these lawsuits will be covered by the Company's liability insurance policies. Nickel Carbonyl Release. A description of the nickel carbonyl 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, a total of eighteen contractor employees allegedly exposed to nickel carbonyl have filed a lawsuit against Chemicals seeking unspecified damages for personal injuries. A majority of these claims have been settled. Additional claims and litigation against Chemicals relating to this incident may ensue. The Company believes that all or substantially all of its future out-of-pocket costs and expenses (including settlement payments and judgements) relating to these lawsuits will be covered by the Company's liability insurance policies and/or indemnification from third parties. Ethylbenzene Release. A description of this release 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. There is no lawsuit pending against the Company based on this release, but the Company has received, and in some instances resolved, claims from individuals for alleged damage from this incident. The Company believes that its liability insurance coverage is sufficient to cover all out-of-pocket costs and expenses stemming from this incident in excess of its $1 million deductible. Other Lawsuits. The Company is subject to various other claims and legal actions that arise in the ordinary course of its business. 12 13 Litigation Contingency The Company has made estimates of the reasonably possible range of liability with regard to its outstanding litigation for which it may incur any liability. These estimates are based on the Company'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 or by contractual indemnification obligations of third parties to the benefit of the Company. The Company, therefore, has also made estimates of its probable recoveries under insurance policies or from third-party indemnitors based on its understanding of its insurance policies and indemnification arrangements, discussions with its insurers and indemnitors, and consultation with outside legal counsel, in addition to the Company's judgments. Based on the foregoing, as of June 30, 1999, the Company has accrued approximately $9.9 million as its estimate of its aggregate contingent liability for these matters and has also recorded aggregate receivables from its insurers and third-party indemnitors of approximately $8.8 million. At June 30, 1999, management estimates that the aggregate reasonably possible range of loss for all litigation combined, in addition to the amount accrued, is between zero and $12 million. The Company believes that this additional reasonably possible loss would be substantially covered by insurance or indemnification. While the Company has based its estimates on its evaluation of available information and the other matters described above, much of the litigation remains in the discovery stage and it is impossible to predict with certainty the ultimate outcome of such litigation. 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 and indemnity recoveries and 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. 5. LOSS PER SHARE CALCULATION For purposes of computing net loss per common share, net loss has been reduced by an amount equal to the fair market value of Released Shares (as hereinafter defined) at the end of the period minus the sum of the amount previously recognized as compensation expense with respect to Released Shares and the amount of depreciation/appreciation in value of Released Shares in prior periods. This reduction results from the Company being required, under certain circumstances, to purchase for cash common stock distributed to participants by Chemicals' employee stock ownership plan (the "ESOP"). "Released Shares" are shares held by the ESOP but allocated to employees. The weighted average number of outstanding shares and computation of the net loss per common share is as follows (in thousands, except net loss per common share):
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30, --------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net loss attributable to common stockholders ..... $ (17,087) $ (13,725) $ (56,310) $ (41,377) Plus depreciation in value of Released Shares .... -- -- 1,048 505 ----------- ----------- ----------- ----------- Net loss for purpose of computing loss per share . $ (17,087) $ (13,725) $ (55,262) $ (40,872) =========== =========== =========== =========== Net loss per common share ........................ $ (1.37) $ (1.13) $ (4.43) $ (3.40) =========== =========== =========== =========== Weighted average shares outstanding .............. 12,516 12,185 12,469 12,007 =========== =========== =========== ===========
6. CAPITAL STOCK In December 1998, the Company entered into separate Standby Purchase Agreements (collectively, the "Standby Purchase Agreements") with each of Gordon A. Cain, William A. McMinn, James Crane, Frank P. Diassi, Frank J. Hevrdejs and Koch Capital Services, Inc. (collectively, the "Standby Purchasers"). Pursuant to the terms of the Standby Purchase Agreements, the Standby Purchasers committed to purchase up to 2.5 million shares of the common stock, par value $0.01 per share, of Holdings ("Common Stock"), at a price of $6.00 per share, if, as, and when requested by Holdings at any time or from time to time prior to December 15, 2001. Under each of the Standby Purchase Agreements, Holdings may only require the Standby Purchasers to purchase such shares if it believes that the purchase price paid by the Standby Purchasers for such shares is necessary to maintain, reestablish, or enhance the Company's borrowing ability under its revolving credit facilities or to satisfy any requirement 13 14 thereunder to raise additional equity. In order to induce the Standby Purchasers to enter into the Standby Purchase Agreements, Holdings issued to them warrants to purchase an aggregate of 300,000 shares of Common Stock at an exercise price of $6.00 per share. In addition, under the terms of the Standby Purchase Agreements, Holdings agreed to issue to the Standby Purchasers additional warrants to purchase up to 300,000 additional shares of Common Stock if, as, and when they purchase shares of Common Stock under the Standby Purchase Agreements. Any shares of Common Stock purchased under the Standby Purchase Agreements, any warrants issued to the Standy Purchasers pursuant to the Standby Purchase Agreements and any shares of Common Stock purchased pursuant to such warrants will be subject to the terms of the Third Amended and Restated Voting Agreement dated as of February 1, 1999, the Sterling Chemicals Holdings, Inc. Stockholders Agreement dated effective as of August 21, 1996, as amended, the Tag-Along Agreement dated as of August 21, 1996, and the Registration Rights Agreement dated as of August 21, 1996. 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS The Company recorded a net $6.8 million charge, included in Other Expense, increasing its pension liability and other post-retirement benefits liability in the second quarter of fiscal 1999, as a result of an early retirement program for employees at the Texas City, Texas plant and certain benefit changes for all U.S. employees. The early retirement program resulted in curtailment expense for the pension plan and special termination benefits expenses for both the pension and the other post-retirement benefits plans, partially offset by the curtailment gain from the reduction of post-retirement life insurance benefits for currently active U.S. employees. 8. NEW ACCOUNTING STANDARDS As of October 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and displaying of comprehensive net income and its components. The components of comprehensive net loss, net of tax, are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net loss attributable to common stockholders . $ (17,087) $ (13,725) $ (56,310) $ (41,377) Depreciation in value of Released Shares ..... -- -- 1,048 505 Change in accumulated translation adjustment . 3,007 (5,143) 4,507 (9,371) ----------- ----------- ----------- ----------- Comprehensive net loss ....................... $ (14,080) $ (18,868) $ (50,755) $ (50,243) =========== =========== =========== ===========
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information", establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", establishes revisions to employers' disclosures about pension and other post retirement benefit plans. The Company adopted these statements as of October 1, 1998, and the disclosures required thereby will be included in Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal year ending September 30, 1999. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The Company is evaluating the disclosures that will be required when this statement is adopted in the first quarter of fiscal 2001. 14 15 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals Holdings, Inc. We have reviewed the accompanying consolidated balance sheet of Sterling Chemicals Holdings, Inc. and subsidiaries (the "Company") as of June 30, 1999, and the related consolidated statements of operations and cash flows for the three month and nine month periods ended June 30, 1999 and 1998. 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 such consolidated financial statements 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, 1998, and the related consolidated statements of operations, stockholders' equity (deficiency in assets), and cash flows for the year then ended (not presented herein); and in our report dated December 4, 1998 (December 17, 1998 as to Notes 4, 11, and 12), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of September 30, 1998 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 August 10, 1999 15 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholder of Sterling Chemicals, Inc. We have reviewed the accompanying consolidated balance sheet of Sterling Chemicals, Inc. and subsidiaries ("Chemicals") as of June 30, 1999, and the related consolidated statements of operations and cash flows for the three month and nine month periods ended June 30, 1999 and 1998. 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 such consolidated financial statements 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, 1998, and the related consolidated statement of operations, stockholder's equity (deficiency in assets), and cash flows for the year then ended (not presented herein); and in our report dated December 4, 1998 (December 17, 1998 as to Notes 4, 11, and 12), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of September 30, 1998 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 August 10, 1999 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain capitalized terms used but not defined in this Item 2 have the meanings assigned to them in the Notes To Consolidated Financial Statements included in this Form 10-Q or in the Notes to Consolidated Financial Statements included in Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal year ended September 30, 1998. OVERVIEW Holdings is a holding company whose only material asset is its investment in Chemicals. Holdings' only material liabilities are its obligation to repay its outstanding 13-1/2% Senior Secured Discount Notes due 2008 (the "13-1/2% Notes"), its obligation to redeem its outstanding shares of preferred stock, and certain contingent obligations. Chemicals directly or indirectly owns substantially all of the consolidated operating assets, and is obligated for substantially all remaining liabilities, of the Company. Other than the additional interest expense associated with the 13-1/2% Notes, 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 would not, in the opinion of the Company, provide any additional meaningful information. RECENT DEVELOPMENTS In April 1999, the Company restarted its methanol facility, which had been shut down since August 1998 for economic reasons. A significant disparity between prices for domestic and foreign natural gas, one of the primary raw materials for methanol, has put domestic methanol producers at a disadvantage when compared to foreign competitors. One of the primary uses of methanol is in the production of MTBE used in reformulated gasolines. The State of California has recently announced that MTBE must be phased out of reformulated gasoline used in that state by December 31, 2002. In addition, in July 1999, the Environmental Protection Agency announced that it would ask Congress to develop legislation aimed at phasing out MTBE from the existing reformulated gasoline program, and to give states the authority to ban MTBE completely. These developments are expected to negatively impact the Company's methanol business, as well as the global methanol market. The Company continues to evaluate the best use for its methanol facility. The Company's styrene monomer unit at its facilities in Texas City, Texas (the "Texas City Plant") was shutdown for approximately one month during the second quarter of fiscal 1999 for scheduled maintenance. Although the styrene unit was restarted on March 22, 1999, the restart of the ethylbenzene unit, an important component of the styrene unit, was delayed until April 30, 1999 so that unscheduled maintenance work could be performed on a process vessel. During this delay, the Company purchased most of its ethylbenzene requirements on the spot market. The unscheduled work on the process vessel and the resulting delay in restarting the ethylbenzene unit negatively impacted pretax earnings for the third quarter of fiscal 1999 by approximately $3 million. In May 1999, the Company reduced its pulp chemicals business workforce by 27 employees. The Company recorded a pre-tax charge of $1.7 million, primarily associated with this reduction, in the third quarter of fiscal 1999. The Company expects this workforce reduction to generate annual savings of approximately $1.5 million, although no assurances can be given as to the level of savings that will actually be achieved. On July 23, 1999, Chemicals completed a private offering (the "12-3/8% Notes Offering") of $295,000,000 of its 12-3/8% Senior Secured Notes due 2006 (the "12-3/8% Notes"). In addition, on July 23, 1999, Chemicals established two new secured revolving credit facilities providing for up to $155,000,000 in revolving credit loans (the "New Revolvers") under a single Revolving Credit Agreement (the "New Credit Agreement"). The proceeds of the 12-3/8% Notes Offering and initial borrowings under the New Revolvers were used to fully repay and terminate Chemicals' three outstanding term loans and existing revolving credit facility. RESULTS OF OPERATIONS Revenues for the third quarter of fiscal 1999 were $182 million compared to revenues of $205 million for the third quarter of fiscal 1998, a decrease of 11%. Revenues for the first nine months of fiscal 1999 were $506 million compared to $640 million in the prior year period, a decrease of 20%. The decrease in revenues for the third quarter of fiscal 1999 as compared to the same period of fiscal 1998 was primarily due to lower acrylonitrile and acrylic fibers sales volumes and lower acrylonitrile, methanol, acrylic fibers, and sodium chlorate sales prices. The decrease in revenues for the first nine months of fiscal 1999 as compared to 17 18 the corresponding period of fiscal 1998 was primarily due to lower acrylonitrile, styrene, methanol, and acrylic fibers sales volumes and prices and lower sodium chlorate sales prices. A net loss attributable to common stockholders of $17.1 million, or $1.37 per share, was recorded for the third quarter of fiscal 1999, compared to a net loss attributable to common stockholders of $13.7 million, or $1.13 per share, for the third quarter of fiscal 1998. A net loss attributable to common stockholders of $56.3 million, or $4.43 per share, was recorded for the first nine months of fiscal 1999, compared to a net loss attributable to common stockholders of $41.4 million, or $3.40 per share, for the same period of fiscal 1998. The increase in net loss for the third quarter of fiscal 1999 as compared to the same period of fiscal 1998 was primarily due to: (i) reduced acrylonitrile and sodium chlorate margins, (ii) the negative impact of the aforementioned delay in the restart of the ethylbenzene unit, (iii) weak markets in acrylic fibers, and (iv) costs associated with the aforementioned pulp chemicals business workforce reduction. The increase in the net loss for the first nine months of fiscal 1999 as compared to the same period of fiscal 1998 was primarily due to: (i) reduced acrylonitrile, methanol, and sodium chlorate margins, (ii) shutdowns in styrene for routine maintenance and acetic acid for expansion in the second quarter of fiscal 1999, (iii) the negative impact of the aforementioned delay in the restart of the ethylbenzene unit, (iv) weak markets in acrylic fibers, and (v) costs associated with workforce reduction programs and benefit changes, all partially offset by a modest improvement in styrene margins. Revenues, Cost of Goods Sold, and Gross Profit Petrochemicals and Acrylic Fibers For the third quarter of fiscal 1999, the Company's revenues from its petrochemicals and acrylic fibers businesses decreased to $134 million, from $155 million for the same period of fiscal 1998. For the first nine months of fiscal 1999, the Company's revenues from its petrochemicals and acrylic fibers businesses decreased to $366 million, from $486 million for the same period of fiscal 1998. The 14% decrease in revenues for the third quarter of fiscal 1999, as compared to the same period of fiscal 1998, was primarily due to reduced acrylonitrile and acrylic fibers sales volumes and reduced acrylonitrile, methanol, and acrylic fibers sales prices, partially offset by an increase in styrene sales prices. The 25% decrease in revenues for the first nine months of fiscal 1999 as compared to the same period of fiscal 1998, was primarily due to reduced styrene, acrylonitrile, methanol, and acrylic fibers sales prices and volumes. The economic conditions in Asia continued to negatively impact market conditions in the fiscal 1999 periods, particularly for the Company's styrene, acrylonitrile, and acrylic fibers products. The Company's petrochemicals and acrylic fibers businesses recorded combined operating losses of $5 million and $26 million for the third quarter and first nine months of fiscal 1999, respectively, compared to an operating loss of $1 million and $10 million for the third quarter and first nine months of fiscal 1998, respectively. The increase in operating loss for the third quarter of fiscal 1999 was primarily due to weaker operational performance in acrylonitrile, methanol, and acrylic fibers and the negative impact of the aforementioned delay in the restart of the ethylbenzene unit. The increase in operating loss for the first nine months of fiscal 1999 was primarily due to weaker operational performance in acrylonitrile, methanol, and acrylic fibers, and costs associated with workforce reduction programs and benefit changes, partially offset by a modest improvement in styrene margins. Styrene revenues increased 2% to $62 million in the third quarter of fiscal 1999 and decreased 12% to $163 million for the first nine months of fiscal 1999, compared to the same periods in fiscal 1998. Styrene sales prices increased 6% and decreased 5% for the third quarter and first nine months of fiscal 1999, respectively, compared to the prior fiscal year periods. Styrene sales volumes decreased 5% and 8% for the third quarter and first nine months of fiscal 1999, respectively, compared to the prior fiscal year periods. The decrease in sales volumes for the first nine months of fiscal 1999 was primarily due to the month-long scheduled maintenance shutdown of the styrene unit during the second quarter of fiscal 1999. The major raw materials for styrene are benzene and ethylene. The price of benzene increased 12% in the third quarter of fiscal 1999 and decreased 12% in the first nine months of fiscal 1999, compared to the same periods of fiscal 1998. The price of ethylene increased 35% in the third quarter of fiscal 1999 and decreased 14% in the first nine months of fiscal 1999, compared to the same periods of fiscal 1998. Styrene margins decreased in the third quarter of fiscal 1999, compared to the same period of fiscal 1998, as higher sales prices and lower fixed manufacturing costs were insufficient to cover the increased raw materials and energy costs. Styrene margins increased in the first nine months of fiscal 1999, compared to the same period of fiscal 1998, as lower raw materials costs and lower fixed manufacturing costs more than offset the lower sales prices. Acrylonitrile revenues decreased 35% to $17 million in the third quarter of fiscal 1999 and 40% to $53 million for the first nine months of fiscal 1999, compared to the same periods in fiscal 1998. Acrylonitrile sales prices decreased 24% and 29% for the third quarter and first nine months of fiscal 1999, respectively, compared to the prior fiscal year periods. In addition, acrylonitrile sales volumes decreased 14% for both the third quarter and first nine months of fiscal 1999, compared to the prior fiscal year periods. The lower sales prices and volumes were primarily due to weaker market conditions, primarily in Asia. The major raw materials for acrylonitrile are propylene and ammonia. The price of propylene decreased 14% and 29% in the third quarter of fiscal 1999 and the first nine months of fiscal 1999, respectively, compared to the same periods of fiscal 1998. The price of ammonia remained constant in the third quarter of fiscal 1999 and decreased 13% in the first nine months of fiscal 1999, compared to the same periods of fiscal 1998. Acrylonitrile margins decreased in the third quarter and first nine months of fiscal 1999, compared to the same periods of fiscal 1998, as significantly lower sales prices more than offset the lower raw materials costs and fixed manufacturing costs. 18 19 Acrylic fibers revenues decreased 32% to $17 million in the third quarter of fiscal 1999 and 37% to $48 million for the first nine months of fiscal 1999, compared to the same periods in fiscal 1998. Acrylic fibers sales volumes decreased 18% and 31% for the third quarter and first nine months of fiscal 1999, respectively, compared to the prior fiscal year periods. The performance of the Company's acrylic fibers business in the third quarter and first nine months of fiscal 1999 continued to be negatively impacted by weak market conditions and imports from foreign suppliers. Revenues from the Company's business unit that produces acetic acid, methanol, plasticizers, and certain other petrochemicals ("AMP") decreased 11% to $37 million in the third quarter of fiscal 1999 and 25% to $103 million for the first nine months of fiscal 1999, compared to the same periods in fiscal 1998. The decreases in revenues for the third quarter and first nine months of fiscal 1999 were primarily due to a 26% and 44% decrease in methanol sales prices, respectively, and a 1% and 19% decrease in methanol sales volumes, respectively, compared to the prior fiscal year periods. The decrease in methanol revenues and sales volumes was primarily a result of continued overcapacity in the global methanol market. The Company's AMP products reported an increase in operating earnings in the third quarter of fiscal 1999 compared to the prior period of fiscal 1998 as lower methanol margins were more than offset by cost reductions. The Company's AMP products reported a decrease in operating earnings in the first nine months of fiscal 1999 compared to the prior periods of fiscal 1998 primarily due to the aforementioned weak methanol market conditions and acetic acid shutdown for expansion in the second quarter of fiscal 1999. Pulp Chemicals Revenues from the Company's pulp chemicals business decreased 5% to $48 million in the third quarter of fiscal 1999 and decreased 9% to $140 million in the first nine months of fiscal 1999, compared to the same periods in fiscal 1998. The decrease in revenues in the third quarter and first nine months of fiscal 1999 was primarily due to a decrease in average sodium chlorate sales prices compared to the prior periods of fiscal 1998. The decline in sodium chlorate sales prices was primarily due to an increase in North American sodium chlorate capacity. The Company's pulp chemicals business recorded operating earnings of $6 million and $21 million for the third quarter and first nine months of fiscal 1999, respectively, compared to operating earnings of $9 million and $29 million for the same periods of fiscal 1998. This reduction in operating earnings was primarily due to reduced sodium chlorate sales prices. Selling, General, and Administrative ("SG&A") Expenses SG&A expenses were $9 million and $28 million for the third quarter and first nine months of fiscal 1999, respectively, compared to $11 million and $28 million for the same periods of fiscal 1998. SG&A expenses were impacted favorably by cost reduction programs which were mostly offset by costs associated with upgrades of certain of the Company's information technology systems, including Year 2000 compliance activities. Other Expense Other expense was $2 million and $11 million for the third quarter and first nine months of fiscal 1999, respectively, compared to $3 million and $6 million for the same periods of fiscal 1998. The fiscal 1999 amounts relate to the aforementioned one-time non-cash charge related to early retirement programs and benefit changes and workforce reductions in the petrochemicals business and pulp chemical business. The fiscal 1998 amounts relate to voluntary severance programs in the petrochemicals business. Interest and Debt Related Expenses Interest and debt related expense was $25 million and $75 million for the third quarter and nine months of fiscal 1999, respectively, compared to $26 million and $76 million for the same periods of fiscal 1998. Benefit for Income Taxes Benefit for income taxes for the third quarter and first nine months of fiscal 1999 were $7 million (effective tax rate of 30%) and $26 million (effective tax rate of 32%), respectively, compared to $4 million (effective tax rate of 22%) and $17 million (effective tax rate of 30%) for the comparable periods of fiscal 1998. The increase in the benefit was primarily the result of the increase in the Company's pre-tax losses in the fiscal 1999 periods. 19 20 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1999, the Company's old long-term debt (including current maturities) totaled approximately $926 million and consisted of: (i) three term loans under the Old Credit Agreement (defined below); (ii) loans under the Old Revolver (defined below); (iii) two term loans under the Sask Credit Agreement (defined below); (iv) Chemicals' 11-1/4% Senior Subordinated Notes due 2007 (the "11-1/4% Notes"); (v) Chemicals' 11-3/4% Senior Subordinated Notes due 2006 (the "11-3/4 Notes"); and (vi) the 13-1/2% Notes. In July 1997, Chemicals entered into an Amended and Restated Credit Agreement (as amended, the "Old Credit Agreement") with Chase Bank of Texas, National Association, individually and as administrative agent, Credit Suisse First Boston, individually and as documentation agent, and certain other financial institutions. The Old Credit Agreement established a revolving credit facility (the "Old Revolver") under which Chemicals could borrow, repay and reborrow funds for general corporate purposes. As of June 30, 1999, Chemicals had drawn approximately $36 million and had approximately $4 million in letters of credit outstanding under the Old Revolver. In December 1998, Chemicals obtained certain amendments to the financial covenants contained in the Old Credit Agreement which made the financial covenants less restrictive through December 31, 1999. Chemicals was in compliance with the covenants at all times, but requested the amendments based on its revised financial projections. Chemicals was in compliance with all covenants in the Old Credit Agreement at June 30, 1999. On July 23, 1999, Chemicals completed a refinancing of its senior debt outstanding under the Old Credit Agreement by issuing the 12-3/8% Notes and establishing the New Revolvers with aggregate borrowing capacity of $155 million, approximately $47 million of which was drawn under the Fixed Assets Revolver (defined below) at closing. The Old Credit Agreement was terminated upon consummation of the refinancing. The refinancing increased Chemicals' liquidity by eliminating near-term debt amortization and financial covenants associated with the Old Credit Agreement that limited availability under the Old Revolver, as well as by increasing revolving credit availability. Although no assurances can be given, the Company believes the additional liquidity provided by the refinancing, when combined with cash flows from operations and other sources of available capital, will be sufficient to enable Chemicals to operate through the current cyclical downturn in the markets for its primary petrochemicals products. Such belief is largely based upon published predictions of industry experts as to the timing of improvements in those markets. If conditions in those markets do not improve as predicted, the Company may be unable to fund its operations and meet its debt service requirements over an extended period. The 12-3/8% Notes are senior secured obligations of Chemicals and rank equally in right of payment with all other existing and future senior indebtedness of Chemicals and senior in right of payment to all existing and future subordinated indebtedness of Chemicals. The 12-3/8% Notes are guaranteed by all of Chemicals' existing direct and indirect U.S. subsidiaries (other than Sterling Chemicals Acquisitions, Inc.) on a joint and several basis. Each subsidiary's guarantee ranks equally in right of payment with all of such subsidiary's existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness of such subsidiary. However, the 12-3/8% Notes, and each subsidiary's guarantee, is subordinated to the extent of the collateral securing the New Revolvers. The 12-3/8% Notes and the subsidiary guarantees are secured by (i) a second priority lien on all of Chemicals' U.S. chemical production facilities and related assets, (ii) a second priority pledge of all of the capital stock of each subsidiary guarantor, and (iii) a first priority pledge of 65% of the stock of certain of the Company's subsidiaries incorporated outside of the United States. Under the New Credit Agreement, Chemicals and each of its direct and indirect U.S. subsidiaries (other than Sterling Chemicals Acquisitions, Inc.) are co-borrowers and are jointly and severally liable for any indebtedness thereunder. The New Revolvers consist of (i) a $70,000,000 revolving credit facility (the "Fixed Assets Revolver") secured by a first priority lien on all of Chemicals' U.S. chemical production facilities and related assets, all of the capital stock of Chemicals and all of the capital stock of each co-borrower and a second priority lien on all accounts receivable, inventory and other specified assets of Chemicals and each co-borrower, and (ii) an $85,000,000 revolving credit facility (the "Current Assets Revolver") secured by a first priority lien on all accounts receivable, inventory and other specified assets of Chemicals and each co-borrower. The commitments for each of the Fixed Assets Revolver and the Current Assets Revolver will be permanently reduced to the extent required under the New Credit Agreement upon prepayments made out of specific sources of funds, including assets sales and certain equity issuances by Holdings. The indenture governing the 12-3/8% Notes (the "Indenture") and the New Credit Agreement contain numerous covenants, including, but not limited to, restrictions on the ability of Chemicals and certain of its subsidiaries to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions and refinance existing indebtedness. In addition, the Indenture and the New Credit Agreement specify various circumstances that will constitute, upon occurrence and subject in certain cases to notice and grace periods, an event of default thereunder. However, neither the Indenture nor the New Credit Agreement requires the Company to satisfy any financial ratios or maintenance tests. 20 21 The Indenture, the indenture governing the 11-1/4% Notes, the indenture governing the 11-3/4% Notes, and the New Credit Agreement contain provisions which restrict the payment of advances, loans and dividends from Chemicals to Holdings. The most restrictive of these covenants limits such payments during fiscal 1999 to approximately $2.0 million, plus any amounts due Holdings from Chemicals under the intercompany tax sharing agreement. Available credit under the Current Assets Revolver is subject to a monthly borrowing base consisting of 85% of eligible accounts receivable and 65% of eligible inventory with an inventory cap of $42,500,000. In addition, the borrowing base for the Current Assets Revolver must exceed outstanding borrowings thereunder by $12,000,000 at all times. As Sterling Sask is designated as an "Unrestricted Subsidiary" under the New Credit Agreement and the indentures governing the 13-1/2% Notes, the 11-3/4% Notes, the 11-1/4% Notes, and the 12-3/8% Notes, Sterling Sask is generally not subject to, nor are its results considered in determining Chemicals' compliance with, the restrictive covenants contained therein. In July 1997, Sterling Sask entered into a Credit Agreement (the "Sask Credit Agreement") with The Chase Manhattan Bank of Canada, individually and as administrative agent, and certain other financial institutions. The Sask Credit Agreement requires that certain amounts of Excess Cash Flow (as defined therein) be used to prepay amounts outstanding under the Sask Term Loans. A mandatory prepayment in the amount of approximately Cdn. $5 million was made in the first quarter of fiscal 1999 pursuant to such obligation. The Sask Credit Agreement provides for a revolving credit facility of Cdn. $8 million to be used by Sterling Sask solely for its general corporate purposes (the "Saskatoon Revolver"). No borrowings were outstanding under the Sask Revolver as of June 30, 1999. Because of restrictions in the Sask Credit Agreement, the Company will generally not have access to the cash flows of Sterling Sask. The Saskatoon Credit Agreement contains provisions which restrict the payment of advances, loans, and dividends from Sterling Sask to Chemicals or Holdings. The most restrictive of the covenants limits such payments during fiscal 1999 to less than $1 million, plus any amounts due to Chemicals or Holdings from Sterling Sask under the intercompany tax sharing agreement. The indebtedness under the Sask Credit Agreement is secured by substantially all the assets of Sterling Sask. In December 1998, Holdings entered into the Standby Purchase Agreements with the Standby Purchasers. Pursuant to the terms of the Standby Purchase Agreements, the Standby Purchasers committed to purchase up to 2.5 million shares of Common Stock, at a price of $6.00 per share, if, as and when requested by Holdings at any time or from time to time prior to December 15, 2001. Under each of the Standby Purchase Agreements, Holdings may only require the Standby Purchasers to purchase such shares if it believes that the purchase price paid by the Standby Purchasers for such shares is necessary to maintain, reestablish, or enhance the Company's borrowing ability under its revolving credit facilities or to satisfy any requirement thereunder to raise additional equity. In order to induce the Standby Purchasers to enter into the Standby Purchase Agreements, Holdings issued to them warrants to purchase an aggregate of 300,000 shares of Common Stock at an exercise price of $6.00 per share. In addition, under the terms of the Standby Purchase Agreements, Holdings agreed to issue to the Standby Purchasers additional warrants to purchase 300,000 additional shares of Common Stock if, as, and when they purchase shares of Common Stock under the Standby Purchase Agreements. Working Capital Working capital of the Company was $91 million at June 30, 1999, down from $92 million at September 30, 1998. This $1 million decrease in working capital was primarily due to the timing of working capital items and improved working capital management. Cash Flow Net cash used in operations was $12 million for the nine months ended June 30, 1999, compared to net cash provided by operations of $38 million for the nine months ended June 30, 1998. This $50 million decrease in net cash provided by operations was primarily due to the increase in operating losses. Capital Expenditures The Company's capital expenditures for the first nine months of fiscal 1999 were $18 million compared to $19 million in the same period in fiscal 1998. The capital expenditures in the first nine months of fiscal 1999 were primarily related to the acetic acid expansion, the Company's phenylacetylene reduction ("PAR") project, the Company's disodium iminodiacetic acid project ("DSIDA") with Monsanto Company, and routine safety, environmental, and replacement capital. During the remainder of fiscal 1999, the Company expects to spend approximately $8 million to $10 million on the PAR project, the DSIDA project, and routine safety, environmental, and replacement capital. The Company expects to fund its remaining fiscal 1999 capital expenditures from operating cash flow, plus borrowings under the New Revolvers, if needed. 21 22 Year 2000 Issue Some computer systems and other equipment with computer chips store dates as two digits rather than four to define the applicable year. For example, these computer systems would store the year "1999" as "99". Any clock or date recording mechanism (including date sensitive software) which uses only two digits to represent the year may interpret the digits "00" as the Year 1900 rather than the Year 2000. This could result in a system failure or miscalculations causing serious disruption of operations. The Company is in the process, using both internal and external resources, of addressing the Year 2000 issue. The Company is currently engaged in a comprehensive project intended to upgrade its information technology systems (such as computer systems and software) and non-information technology systems (such as process control systems and other equipment that utilize embedded chips to control various functions) to systems that will consistently and properly recognize the Year 2000 and subsequent years. The Company has conducted an inventory of its hardware and software and made a preliminary assessment of the Year 2000 compliance of its business and process control systems. This preliminary assessment determined which of the Company's business and process control systems are critical to its business. Those systems deemed to be critical were assigned a higher priority in the Year 2000 remediation effort. In this phase of the project, the Company discovered some Year 2000 deficiencies in its business systems and initiated plans to rectify these issues in the remediation and replacement phase of the project. The preliminary assessment of the Company's process control systems did not detect any material Year 2000 difficulties. The Company then engaged a nationally recognized independent consultant to perform a more detailed survey of all of its business and process control systems (both critical and non-critical) to confirm the absence of any additional material Year 2000 deficiencies. This survey has been completed and did not reveal any additional material Year 2000 deficiencies. In the second phase of the Company's Year 2000 project, the Company believes it is taking the necessary steps to rectify all material Year 2000 deficiencies. A major component of this effort involves the replacement of all critical business systems which may not be Year 2000 compliant with new business systems intended to be Year 2000 compliant. All of such projects are scheduled to be completed by October 1999. If the Company determines that any additional systems under review have material Year 2000 deficiencies, the Company plans to take appropriate remedial action. At this time, the instrumentation in the laboratory at the Company's Texas City, Texas facilities requires significant remediation or replacement. However, that instrumentation can be successfully operated in its current state with minimal manual intervention. Even without remediation or replacement, this instrumentation would not jeopardize the successful operation of the Company's Texas City, Texas facility. The final phase of the Company's Year 2000 project involves testing all critical systems to confirm that such systems will react properly to the advent of the Year 2000. The Company is in the process of conducting tests on all of its current information technology and non-information technology systems that were not identified as having Year 2000 deficiencies and anticipates that all such testing will be completed by October 1999. Once the remediation and replacement phase is completed, the Company will conduct tests on all newly installed and updated systems to determine if they are Year 2000 compliant. Such testing is scheduled to be completed by September 30, 1999. The total estimated expense for the Company's Year 2000 compliance projects is approximately $13 to $15 million, of which the Company has incurred approximately $6 million through June 30, 1999. Such expense has been and will continue to be funded by the Company out of its operating cash flow and/or borrowings under its credit facilities. Irrespective of the efforts of the Company, certain Year 2000 problems, such as processing failures, error messages, or incorrect data may still occur in some of its computer systems if the Company receives programs and/or data from third parties who are not Year 2000 compliant. Moreover, the Company's business may be disrupted in other ways by Year 2000 problems of third parties, which may affect, for example, the Company's ability to obtain needed materials or deliver its products. The Company is in the process of determining whether its significant vendors, customers, and others with whom it deals are Year 2000 compliant and has requested that such persons (other than those that the Company believes do not have a material impact on the business of the Company or its operations) complete and return surveys with respect to their Year 2000 issues. The Company has not received any survey response which indicates that any of such persons has any specific Year 2000 problems. However, no assurances can be given that a Year 2000 problem will not occur for the Company as a result of a Year 2000 problem of a vendor or customer of the Company or some other person with whom the Company deals. While the Company's Year 2000 projects are scheduled to be completed by September 30, 1999, it is possible that one or more of such projects may not be completed or that compliance efforts may be ineffective. A failure to properly and timely correct any Year 2000 deficiencies would affect the Company on several levels. If the Company's Year 2000 remediation efforts were to prove unsuccessful, the Company might be unable to take orders, sell products, operate one or more of its manufacturing facilities, or otherwise generally conduct its business. Since the Company's business is characterized by large volume sales to a relatively limited number of customers, the Company believes that, with the engagement of additional personnel, orders could be processed and deliveries completed through manual means. In preparation for such a scenario, the Company has outlined a contingency plan to guide the hiring and training of additional personnel and the processing of paperwork manually. 22 23 Although the Company believes that it is taking the appropriate courses of action to ensure that it is Year 2000 compliant, there can be no assurance that the actions discussed herein will have the anticipated results or that Year 2000 problems will not have a material adverse effect on the Company's financial condition or results of operations. Specific factors that might affect the success of the Company's Year 2000 efforts and the occurrence of Year 2000 disruption or expense include (i) failure of the Company or its consultant to properly identify deficient systems, (ii) the failure of the selected remedial action to adequately address any deficiencies, (iii) the failure of the Company's consultant to complete the remediation in a timely manner (due to shortages of qualified labor or other factors), (iv) unforeseen expenses related to the remediation of existing systems or the transition to replacement systems, and (v) the failure of third parties to become compliant or to adequately notify the Company of potential noncompliance. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk disclosures set forth in the Annual Report had not changed significantly through the period ended June 30, 1999. 23 24 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information under "Legal Proceedings" in Note 4 of the Notes to Consolidated Financial Statements herein is hereby incorporated by reference. See also "Item 3. Legal Proceedings" in the Annual Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 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 - Revolving Credit Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as the Borrowers, The CIT Group/Business Credit, Inc., as the Administrative Agent, Credit Suisse First Boston, as the Documentation Agent, DLJ Capital Funding, Inc., as the Syndication Agent, and various financial institutions, as the Lenders. 4.2 - Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 by Sterling Chemicals, Inc., Trustor, to Linda H. Earle, Trustee for the benefit of The CIT Group/Business Credit, Inc., as Administrative and Collateral Agent, Beneficiary. 4.3 - Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 by Sterling Fibers, Inc., Mortgagor, to The CIT Group/Business Credit, Inc., Mortgagee 4.4 - Leasehold Deed to Secure Debt, Assignment and Security Agreement dated as of July 23, 1999 by Sterling Pulp Chemicals, Inc. to The CIT Group/Business Credit, Inc., as Administrative Agent, and U.S. Bank Trust National Association, as Georgia co-agent. 4.5 - Fixed Assets Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as the Grantors, and The CIT Group/Business Credit, Inc., as Administrative Agent for each of the Fixed Assets Secured Parties. 4.6 - Current Assets Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as the Grantors, and The CIT Group/Business Credit, Inc., as Administrative Agent for each of the Current Assets Secured Parties. 4.7 - Parent Pledge Agreement dated as of July 23, 1999 between Sterling Chemicals Holdings, Inc. and The CITGroup/ Business Credit, Inc., as Administrative Agent for each of the Fixed Assets Secured Parties. 4.8 - Obligor Pledge Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc. and Sterling Pulp Chemicals US, Inc., as the Pledgors, and The CIT Group/Business Credit, Inc., as Administrative Agent for each of the Fixed Assets Secured Parties. 4.9 - Indenture dated as of July 23, 1999 among Sterling Chemicals, Inc., as Issuer, Sterling Canada, Inc., Sterling Chemicals Energy, Inc., Sterling Chemicals International, Inc., Sterling Fibers, Inc., Sterling Pulp Chemicals US, Inc. and Sterling Pulp Chemicals, Inc., as Guarantors, and Harris Trust Company of New York, as Trustee. 4.10 - Second Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 by Sterling Chemicals, Inc., Trustor, to John Dorris, Trustee for the benefit of Harris Trust Company of New York, Beneficiary. 24 25 4.11 - Second Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 between Sterling Fibers, Inc., Mortgagor, and The CIT Group/Business Credit, Inc., Mortgagee 4.12 - Second Leasehold Deed to Secure Debt, Assignment and Security Agreement dated as of July 23, 1999 by Sterling Pulp Chemicals, Inc., Grantor, to Harris Trust Company of New York, as Collateral Agent, and U.S. Bank Trust National Association, as Georgia co-agent. 4.13 - Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals, Inc., Sterling Pulp Chemicals US, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as Assignors, and Harris Trust Company of New York, as Collateral Agent. 4.14 - Stock Pledge and Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc. and Sterling Pulp Chemicals US, Inc., as Pledgors, and Harris Trust Company of New York, as Collateral Agent. 4.15 - Stock Pledge and Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc. and Sterling Canada, Inc., as Pledgors, and Harris Trust Company of New York, as Collateral Agent. 4.16 - A/B Exchange Registration Rights Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., as the Company, Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as Guarantors, and Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse First Boston Corporation, as Initial Purchasers. 4.17 - Senior Debt Intercreditor Agreement dated as of July 23, 199 among Harris Trust Company of New York, as Trustee, The CIT Group/Business Credit, Inc., as Administrative Agent, and Sterling Chemicals, Inc. 4.18 - Amendment Of Intercreditor Agreement dated as of July 23, 1999, among Sterling Chemicals Holdings, Inc., Chase Bank of Texas, N.A. (formerly known as Texas Commerce Bank National Association), as Administrative Agent, and State Street Bank And Trust Company, as Trustee. 11.1 - Earnings Per Share Calculation. 15.1 - Letter of Deloitte & Touche LLP regarding unaudited interim financial information. 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 July 15, 1999, the Company filed a Current Report on Form 8-K, reporting under Items 5 and 7. 25 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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: August 13, 1999 /s/ PETER W. DE LEEUW --------------------------------------- Peter W. De Leeuw President and Chief Executive Officer (Principal Executive Officer) Date: August 13, 1999 /s/ GARY M. SPITZ --------------------------------------- Gary M. Spitz Vice President-Finance and Chief Financial Officer (Principal Financial Officer) 26 27 INDEX TO EXHIBITS 4.1 - Revolving Credit Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as the Borrowers, The CIT Group/Business Credit, Inc., as the Administrative Agent, Credit Suisse First Boston, as the Documentation Agent, DLJ Capital Funding, Inc., as the Syndication Agent, and various financial institutions, as the Lenders. 4.2 - Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 by Sterling Chemicals, Inc., Trustor, to Linda H. Earle, Trustee for the benefit of The CIT Group/Business Credit, Inc., as Administrative and Collateral Agent, Beneficiary. 4.3 - Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 by Sterling Fibers, Inc., Mortgagor, to The CIT Group/Business Credit, Inc., Mortgagee 4.4 - Leasehold Deed to Secure Debt, Assignment and Security Agreement dated as of July 23, 1999 by Sterling Pulp Chemicals, Inc. to The CIT Group/Business Credit, Inc., as Administrative Agent, and U.S. Bank Trust National Association, as Georgia co-agent. 4.5 - Fixed Assets Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as the Grantors, and The CIT Group/Business Credit, Inc., as Administrative Agent for each of the Fixed Assets Secured Parties. 4.6 - Current Assets Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as the Grantors, and The CIT Group/Business Credit, Inc., as Administrative Agent for each of the Current Assets Secured Parties. 4.7 - Parent Pledge Agreement dated as of July 23, 1999 between Sterling Chemicals Holdings, Inc. and The CITGroup/ Business Credit, Inc., as Administrative Agent for each of the Fixed Assets Secured Parties. 4.8 - Obligor Pledge Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc. and Sterling Pulp Chemicals US, Inc., as the Pledgors, and The CIT Group/Business Credit, Inc., as Administrative Agent for each of the Fixed Assets Secured Parties. 4.9 - Indenture dated as of July 23, 1999 among Sterling Chemicals, Inc., as Issuer, Sterling Canada, Inc., Sterling Chemicals Energy, Inc., Sterling Chemicals International, Inc., Sterling Fibers, Inc., Sterling Pulp Chemicals US, Inc. and Sterling Pulp Chemicals, Inc., as Guarantors, and Harris Trust Company of New York, as Trustee. 4.10 - Second Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 by Sterling Chemicals, Inc., Trustor, to John Dorris, Trustee for the benefit of Harris Trust Company of New York, Beneficiary. 4.11 - Second Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July 23, 1999 between Sterling Fibers, Inc., Mortgagor, and The CIT Group/Business Credit, Inc., Mortgagee 4.12 - Second Leasehold Deed to Secure Debt, Assignment and Security Agreement dated as of July 23, 1999 by Sterling Pulp Chemicals, Inc., Grantor, to Harris Trust Company of New York, as Collateral Agent, and U.S. Bank Trust National Association, as Georgia co-agent. 4.13 - Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals, Inc., Sterling Pulp Chemicals US, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as Assignors, and Harris Trust Company of New York, as Collateral Agent. 4.14 - Stock Pledge and Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., Sterling Canada, Inc. and Sterling Pulp Chemicals US, Inc., as Pledgors, and Harris Trust Company of New York, as Collateral Agent. 4.15 - Stock Pledge and Security Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc. and Sterling Canada, Inc., as Pledgors, and Harris Trust Company of New York, as Collateral Agent. 4.16 - A/B Exchange Registration Rights Agreement dated as of July 23, 1999 among Sterling Chemicals, Inc., as the Company, Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International. Inc., as Guarantors, and Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse First Boston Corporation, as Initial Purchasers. 4.17 - Senior Debt Intercreditor Agreement dated as of July 23, 199 among Harris Trust Company of New York, as Trustee, The CIT Group/Business Credit, Inc., as Administrative Agent, and Sterling Chemicals, Inc. 4.18 - Amendment Of Intercreditor Agreement dated as of July 23, 1999, among Sterling Chemicals Holdings, Inc., Chase Bank of Texas, N.A. (formerly known as Texas Commerce Bank National Association), as Administrative Agent, and State Street Bank And Trust Company, as Trustee. 11.1 - Earnings Per Share Calculation. 15.1 - Letter of Deloitte & Touche LLP regarding unaudited interim financial information. 27.1 - Financial Data Schedule of Sterling Chemicals Holdings, Inc. 27.2 - Financial Data Schedule of Sterling Chemicals, Inc. EX-4.1 2 REVOLVING CREDIT AGREEMENT - DATED JULY 23M 1999 1 EXHIBIT 4.1 ================================================================================ U.S. $155,000,000 REVOLVING CREDIT AGREEMENT, dated as of July 23, 1999, among STERLING CHEMICALS, INC., STERLING CANADA, INC., STERLING PULP CHEMICALS US, INC., STERLING PULP CHEMICALS, INC., STERLING FIBERS, INC., STERLING CHEMICALS ENERGY, INC., and STERLING CHEMICALS INTERNATIONAL, INC., as the Borrowers, VARIOUS FINANCIAL INSTITUTIONS, as the Lenders, DLJ CAPITAL FUNDING, INC., as the Syndication Agent, CREDIT SUISSE FIRST BOSTON, as the Documentation Agent, and THE CIT GROUP/BUSINESS CREDIT, INC. as the Administrative Agent. LEAD ARRANGER AND BOOK MANAGER: DLJ CAPITAL FUNDING, INC. ================================================================================ 2 TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms...................................................................................3 1.2. Use of Defined Terms...........................................................................43 1.3. Cross-References...............................................................................43 1.4. Accounting and Financial Determinations........................................................44 ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT 2.1. Commitments....................................................................................44 2.1.1. Loan Commitments...............................................................................44 2.1.2. Letter of Credit Commitment....................................................................44 2.1.3. Lenders Not Permitted or Required to Make Loans................................................45 2.2. Reduction of the Commitment Amounts............................................................46 2.2.1. Optional.......................................................................................46 2.2.2. Mandatory......................................................................................46 2.3. Borrowing Procedures and Funding Maintenance...................................................47 2.3.1. Current Assets Loans and Fixed Assets Loans....................................................47 2.3.2. Swing Line Loans...............................................................................48 2.4. Continuation and Conversion Elections..........................................................50 2.5. Funding........................................................................................50 2.6. Issuance Procedures............................................................................50 2.6.1. Other Lenders' Participation...................................................................51 2.6.2. Disbursements; Conversion to Current Assets Loans..............................................51 2.6.3. Reimbursement..................................................................................52 2.6.4. Deemed Disbursements...........................................................................52 2.6.5. Nature of Reimbursement Obligations............................................................53 2.7. Register, Reserves, Notes......................................................................53 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES 3.1. Repayments and Prepayments; Application........................................................56 3.1.1. Repayments and Prepayments.....................................................................56 3.1.2. Application....................................................................................59 3.2. Interest Provisions............................................................................60 3.2.1. Rates..........................................................................................60 3.2.2. Post-Maturity Rates............................................................................60
-i- 3 3.2.3. Payment Dates..................................................................................61 3.3. Fees...........................................................................................61 3.3.1. Commitment Fees................................................................................61 3.3.2. The Agents' Fees and the Lead Arranger's Fees..................................................62 3.3.3. Letter of Credit Fees..........................................................................62 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1. LIBO Rate Lending Unlawful.....................................................................62 4.2. Deposits Unavailable...........................................................................62 4.3. Increased LIBO Rate Loan Costs, etc............................................................63 4.4. Funding Losses.................................................................................63 4.5. Increased Capital Costs........................................................................64 4.6. Taxes..........................................................................................64 4.7. Payments, Computations, etc....................................................................68 4.8. Sharing of Payments............................................................................69 4.9. Setoff.........................................................................................69 4.10. Guaranty Provisions............................................................................70 4.10.1. Guaranty.......................................................................................70 4.10.2. Guaranty Absolute, etc.........................................................................70 4.10.3. Reinstatement, etc.............................................................................71 4.10.4. Waiver, etc....................................................................................71 4.10.5. Postponement of Subrogation, etc...............................................................71 ARTICLE V CONDITIONS TO CREDIT EXTENSIONS 5.1. Initial Credit Extension.......................................................................72 5.1.1. Resolutions, etc...............................................................................72 5.1.2. Senior Secured Notes...........................................................................72 5.1.3. Issuance of Senior Secured Notes, etc..........................................................72 5.1.4. Consummation of Transaction, etc...............................................................72 5.1.5. Intercreditor Agreements.......................................................................73 5.1.6. Closing Date Certificate.......................................................................73 5.1.7. Delivery of Notes..............................................................................73 5.1.8. Payment of Outstanding Indebtedness, etc.......................................................73 5.1.9. Closing Fees, Expenses, etc....................................................................73 5.1.10. Financial Information, etc.....................................................................73 5.1.11. Borrowing Base Certificate.....................................................................74 5.1.12. Opinions of Counsel............................................................................74 5.1.13. Filing Agent, etc..............................................................................74 5.1.14. Intercreditor Amendment........................................................................75 5.1.15. Appraisals and Audit Analyses; Environmental Audit Report......................................75
-ii- 4 5.1.16. Pledge Agreements..............................................................................75 5.1.17. Security Agreements Filings, Lockboxes, etc....................................................76 5.1.18. Intellectual Property Security Agreements......................................................77 5.1.19. Insurance......................................................................................77 5.1.20. Mortgage.......................................................................................77 5.1.21. Cash Management Accounts.......................................................................78 5.1.22. Perfection Certificate.........................................................................78 5.1.23. Solvency, etc..................................................................................78 5.1.24. Required Consents and Approvals................................................................78 5.1.25. Statement of Sources and Uses..................................................................78 5.2. All Credit Extensions..........................................................................78 5.2.1. Compliance With Warranties, No Default, etc....................................................78 5.2.2. Credit Extension Request, etc..................................................................79 5.2.3. Satisfactory Legal Form........................................................................79 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Organization, etc..............................................................................79 6.2. Due Authorization, Non-Contravention, etc......................................................79 6.3. Government Approval, Regulation, etc...........................................................80 6.4. Validity, etc..................................................................................80 6.5. Financial Information..........................................................................80 6.6. No Material Adverse Change.....................................................................81 6.7. Litigation, Labor Controversies, etc...........................................................81 6.8. Subsidiaries...................................................................................81 6.9. Ownership of Properties........................................................................81 6.10. Taxes..........................................................................................81 6.11. Pension and Welfare Plans......................................................................82 6.12. Environmental Warranties.......................................................................82 6.13. Accuracy of Information........................................................................84 6.14. Regulations U and X............................................................................84 6.15. Year 2000......................................................................................84 6.16. Issuance of Subordinated Debt; Status of Obligations as Senior Debt, etc.......................85 6.17. Solvency.......................................................................................85 6.18. Intellectual Property Collateral...............................................................86 6.19. Ownership of Stock.............................................................................86 ARTICLE VII COVENANTS 7.1. Affirmative Covenants..........................................................................87 7.1.1. Financial Information, Reports, Notices, etc...................................................87 7.1.2. Maintenance of Existence; Compliance With Laws, etc............................................89
-iii- 5 7.1.3. Maintenance of Properties......................................................................89 7.1.4. Insurance......................................................................................90 7.1.5. Books and Records..............................................................................90 7.1.6. Foreign Employee Benefit Plan Compliance.......................................................90 7.1.7. Use of Proceeds................................................................................91 7.1.8. Future Borrowers, Security, etc................................................................91 7.1.9. Cash Management Accounts.......................................................................91 7.1.10. Environmental Covenant.........................................................................92 7.1.11. As to Intellectual Property Collateral.........................................................92 7.1.12. Future Real Estate Properties..................................................................93 7.1.13. Non-Consolidation of Unrestricted Subsidiaries.................................................93 7.1.15. ANEXCO Receivables.............................................................................94 7.2. Negative Covenants.............................................................................95 7.2.1. Business Activities............................................................................95 7.2.2. Indebtedness...................................................................................95 7.2.3. Liens..........................................................................................97 7.2.4. Excess Availability............................................................................98 7.2.5. Investments....................................................................................99 7.2.6. Restricted Payments, etc......................................................................101 7.2.7. Capital Expenditures, etc.....................................................................101 7.2.8. No Prepayment of Subordinated Debt or the Senior Secured Notes................................102 7.2.9. Capital Securities of Subsidiaries............................................................103 7.2.10. Consolidation, Merger, etc....................................................................103 7.2.11. Permitted Dispositions........................................................................103 7.2.12. Modification of Certain Agreements............................................................104 7.2.13. Transactions With Affiliates..................................................................104 7.2.14. Restrictive Agreements, etc...................................................................104 7.2.15. Sale and Leaseback............................................................................105 7.2.16. Transfer of the Fibers Business...............................................................105 7.2.17. Canadian Facility.............................................................................107 7.2.18. Attornment....................................................................................107 8.1. Listing of Events of Default..................................................................108 8.1.1. Non-Payment of Obligations....................................................................108 8.1.2. Breach of Warranty............................................................................108 8.1.3. Non-Performance of Certain Covenants and Obligations..........................................108 8.1.4. Non-Performance of Other Covenants and Obligations............................................108 8.1.5. Default on Other Indebtedness.................................................................109 8.1.6. Judgments.....................................................................................109 8.1.7. Pension Plans.................................................................................109 8.1.8. Change in Control.............................................................................109 8.1.9. Bankruptcy, Insolvency, etc...................................................................109 8.1.10. Impairment of Security, etc...................................................................110
-iv- 6 8.1.11. Failure of Subordination......................................................................110 8.1.12. Default Under Senior Secured Discount Notes...................................................111 8.2. Action if Bankruptcy..........................................................................111 8.3. Action if Other Event of Default..............................................................111 ARTICLE IX THE ADMINISTRATIVE AGENT 9.1. Actions.......................................................................................111 9.2. Funding Reliance, etc.........................................................................112 9.3. Exculpation...................................................................................112 9.4. Successor.....................................................................................113 9.5. Credit Extensions by Each Agent and Issuer....................................................114 9.6. Credit Decisions..............................................................................114 9.7. Copies, etc...................................................................................114 9.8. Reliance by Agents............................................................................114 9.9. Defaults......................................................................................115 9.10. The Documentation Agent.......................................................................115 ARTICLE X MISCELLANEOUS PROVISIONS 10.1. Waivers, Amendments, etc......................................................................115 10.2. Notices; Time.................................................................................117 10.3. Payment of Costs and Expenses.................................................................118 10.4. Indemnification...............................................................................119 10.5. Survival......................................................................................120 10.6. Severability..................................................................................120 10.7. Headings......................................................................................120 10.8. Execution in Counterparts, Effectiveness, etc.................................................120 10.9. Governing Law; Entire Agreement...............................................................121 10.10. Successors and Assigns........................................................................121 10.11. Sale and Transfer of Loans; Participations in Loans and Notes.................................121 10.11.1. Assignments...................................................................................121 10.11.2. Participations................................................................................123 10.12. Confidentiality...............................................................................124 10.13. Other Transactions............................................................................125 10.14. Forum Selection and Consent to Jurisdiction...................................................125 10.15. Waiver of Jury Trial..........................................................................126 10.16. Certain Collateral Matters....................................................................126
-v- 7
Section Page - ------- ---- SCHEDULE I - Disclosure Schedule SCHEDULE II - Percentages; LIBO Office; Domestic Office SCHEDULE III - Account Obligor Schedule EXHIBIT A-1 - Form of Current Assets Note EXHIBIT A-2 - Form of Fixed Assets Note EXHIBIT A-3 - Form of Swing Line Note EXHIBIT B-1 - Form of Borrowing Request EXHIBIT B-2 - Form of Issuance Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Closing Date Certificate EXHIBIT E - Form of Borrowers' Solvency Certificate EXHIBIT F - Form of Borrowing Base Certificate EXHIBIT G-1 - Form of Parent Pledge Agreement EXHIBIT G-2 - Form of Obligor Pledge Agreement EXHIBIT H-1 - Form of Current Assets Security Agreement EXHIBIT H-2 - Form of Fixed Assets Security Agreement EXHIBIT I - Form of Mortgage EXHIBIT J - Form of Joinder Agreement EXHIBIT K-1 - Form of Revolver Intercreditor Agreement EXHIBIT K-2 - Form of Senior Debt Intercreditor Agreement EXHIBIT L - Form of Lender Assignment Agreement EXHIBIT M - Form of Perfection Certificate EXHIBIT N - Form of Exemption Certificate
-iv- 8 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT, dated as of July 23, 1999, among STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), STERLING CANADA, INC., a Delaware corporation, STERLING PULP CHEMICALS US, INC., a Delaware corporation, STERLING PULP CHEMICALS, INC., a Georgia corporation, STERLING FIBERS, INC., a Delaware corporation, STERLING CHEMICALS ENERGY, INC., a Delaware corporation, and STERLING CHEMICALS INTERNATIONAL, INC., a Delaware corporation, and each other Person who becomes a party hereto pursuant to Section 7.1.8 (each such Person, together with the Company, each individually a "Borrower" and collectively the "Borrowers"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as the syndication agent (the "Syndication Agent") for the Lenders, CREDIT SUISSE FIRST BOSTON ("CSFB"), as the documentation agent (the "Documentation Agent"), and THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT"), as the administrative agent and the collateral agent (the "Administrative Agent", and, together with the Syndication Agent, sometimes referred to herein collectively as the "Agents" and each as an "Agent") for the Lenders and DLJ, as lead arranger and book manager (the "Lead Arranger"). W I T N E S S E T H: WHEREAS, the Borrowers are Wholly-Owned Subsidiaries (such capitalized term and other capitalized terms used in the preamble and in the recitals without definition shall have the meanings provided for in Section 1.1) of Sterling Chemicals Holdings, Inc., a Delaware corporation (the "Parent"); WHEREAS, the Borrowers have proposed a refinancing (the "Refinancing") of certain of their existing Indebtedness, and approximately $349,302,500 will be required to consummate such Refinancing, including fees and expenses related to the Transaction (as defined below), which the Borrowers intend to finance through: (a) the issuance by the Company of its Series A 12 3/8 % Senior Secured Notes Due 2006 (the "Senior Secured Notes") for gross cash proceeds of $295,000,000; (b) a Borrowing of approximately $50,393,800 of Fixed Assets Loans hereunder; and (c) the issuance of Letters of Credit in an aggregate amount of approximately $3,908,700; WHEREAS, such proceeds will be used: 9 (a) to refinance approximately $50,204,200 of Indebtedness outstanding under the Company's existing revolving credit facility under that certain Amended and Restated Credit Agreement, dated as of July 10, 1997, with Chase Bank of Texas, N.A., as administrative agent thereunder (as amended, the "Existing Loan Agreement") including accrued interest, commitment fees and letter of credit fees thereon; (b) to refinance approximately $273,157,100 of term loan Indebtedness outstanding under the Existing Loan Agreement including accrued interest thereon; (c) to refinance approximately $2,032,100 of employee stock ownership plan term loan Indebtedness outstanding under the Existing Loan Agreement including accrued interest thereon; (d) to replace outstanding letters of credit in an aggregate amount of approximately $3,908,700; and (e) to pay fees and expenses associated with the Refinancing, the issuance of the Senior Secured Notes, the financing contemplated hereunder and all other transactions related thereto (collectively, the "Transaction") in an amount not to exceed $20,000,000; WHEREAS, in connection with the Transaction and the ongoing working capital and general corporate needs of the Borrowers, the Borrowers desire to obtain the following financing facilities from the Lenders: (a) a Current Assets Loan Commitment (to include availability for Current Assets Loans, Swing Line Loans and Letters of Credit) pursuant to which Borrowings of Current Assets Loans, in a maximum aggregate principal amount outstanding at any time (together with all Swing Line Loans and Letter of Credit Outstandings) not to exceed the lesser of (i) the Borrowing Base Amount less the Minimum Excess Availability and (ii) the Current Assets Loan Commitment Amount, will be made from time to time on and subsequent to the Closing Date but prior to the Current Assets Loan Commitment Termination Date; (b) a Letter of Credit Commitment sub-facility pursuant to which the Issuer will issue Letters of Credit from time to time on and subsequent to the Closing Date but prior to the Current Assets Loan Commitment Termination Date in a maximum aggregate Stated Amount at any one time outstanding not to exceed the Letter of Credit Commitment Amount; -2- 10 (c) a Swing Line Loan Commitment sub-facility pursuant to which Borrowings of Swing Line Loans, in an aggregate outstanding principal amount not to exceed the Swing Line Loan Commitment Amount outstanding at any time, will be made from time to time on and subsequent to the Closing Date but prior to the Current Assets Loan Commitment Termination Date; and (d) a Fixed Assets Loan Commitment pursuant to which Borrowings of Fixed Assets Loans, in a maximum aggregate principal amount not to exceed the Fixed Assets Loan Commitment Amount outstanding at any time, will be made from time to time on and subsequent to the Closing Date but prior to the Fixed Assets Loan Commitment Termination Date; and WHEREAS, the Lenders and the Issuer are willing, on the terms and subject to the conditions hereinafter set forth, to extend the Commitments and make Loans to the Borrowers and issue (or participate in) Letters of Credit; NOW, THEREFORE, the parties hereto agree as follows. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION I.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Acceptable Account" means any Foreign Account for which the obligor has long-term debt ratings, or is a Wholly-Owned Subsidiary of a Person having long-term debt ratings, of at least A- and A3 or short-term debt ratings of at least A2 and P2, in each case by S&P and Moody's, respectively. "Account Obligor Schedule" means the Account Obligor Schedule attached hereto as Schedule III, as it may be supplemented or otherwise modified from time to time by the Borrowers upon, in the case of Items A and C, the written consent of the Administrative Agent and in the case of Item B, written notice to the Administrative Agent of the name of such account obligors that meet all of the requirements set forth in the definition of "Acceptable Account." "Additional Senior Subordinated Notes" means the Company's 11-1/4% Senior Subordinated Notes Due 2007 in an original principal amount of $150,000,000. "Additional Senior Subordinated Notes Indenture" means the Indenture dated as of April 7, 1997 between the Company and Fleet National Bank (now known as State Street Bank and Trust Company), as trustee, that governs the terms of the Additional Senior Subordinated -3- 11 Notes, as the same has heretofore been supplemented and may hereafter be amended, supplemented, amended and restated or otherwise modified in accordance with Section 7.2.12. "Administrative Agent" is defined in the preamble and includes each other Person appointed as the successor Administrative Agent pursuant to Section 9.4. "Administrative Agent's Fee Letter" means the confidential fee letter, dated July 23, 1999, among the Borrowers and CIT, as amended, supplemented, amended and restated or otherwise modified from time to time. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person. "Control" of a Person means (a) the power, directly or indirectly, to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors, managing members or general partners (as applicable); (b) beneficial ownership of 10% or more of any class of the Voting Stock of such Person or 10% or more of all outstanding Capital Securities of such Person; or (c) the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person (whether by contract or otherwise). "Agents" is defined in the preamble and includes each other Person appointed as a successor Agent pursuant to Section 9.4. "Agreement" means, on any date, this Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified from time to time and in effect on such date. "Alternate Base Rate" means, for any day and with respect to all Base Rate Loans, the higher of (a) 0.50% per annum above the latest Federal Funds Rate and (b) the rate of interest in effect for such day as most recently publicly announced or established by The Chase Manhattan Bank in New York, New York (the "Reference Bank"), as its "Base Rate". (The "Base Rate" is a rate set by the Reference Bank based upon various factors including the Reference Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate.) Any change in the Alternate Base Rate established or announced by the Reference Bank shall take effect at the opening of business on the day of such establishment or announcement. "Amount Drawn" is defined in the definition of Applicable Commitment Fee. -4- 12 "ANEXCO LLC Agreement" means the Limited Liability Company Agreement of ANEXCO, as amended, supplemented, amended and restated or otherwise modified from time to time pursuant to Section 7.1.15. "ANEXCO" means ANEXCO, LLC, a Delaware limited liability company. "Applicable Commitment Fee" means for (a) the Current Assets Loan Commitment, 0.50%, and (b) the Fixed Assets Loan Commitment, the applicable percentage set forth below corresponding to the sum of the average outstanding daily principal amount of Fixed Assets Loans (the "Amount Drawn") during the Fiscal Quarter ending on the applicable Quarterly Payment Date: Amount of Fixed Assets Loans Drawn Applicable Commitment Fee Greater than $50,000,000 0.75% Less than or equal to $50,000,000 and greater 1.00% than $25,000,000 Less than or equal to $25,000,000 1.25%
"Applicable Margin" means for (a) Current Assets Loans maintained as (i) LIBO Rate Loans, 3.00%, and (ii) Base Rate Loans, 1.50%, and (b) Fixed Assets Loans maintained as (i) LIBO Rate Loans, 3.75%, and (ii) Base Rate Loans, 2.25%. "Assignee Lender" is defined in Section 10.11.1. "Assignor Lender" is defined in Section 10.11.1. "Authorized Officer" is defined in clause (b) of Section 5.1.1. "Availability Reserve" means the sum of (without duplication), at the Administrative Agent's election, reserves: (a) for any matters affecting the priority of the Administrative Agent's Liens, including (i) rental payments or similar charges for any Borrower's leased premises or other Current Assets Collateral locations for which the Borrowers have not delivered to the Administrative Agent a landlord's waiver or mortgagee's waiver or other similar subordination agreement, as applicable, all in form and substance reasonably satisfactory to the Administrative Agent, and (ii) estimated payments due by the Borrowers to any applicable warehousemen or third party processor, for which the Borrowers have not delivered to the Administrative Agent a waiver or some other similar subordination agreement as determined by and in form and -5- 13 substance satisfactory to the Administrative Agent; provided, that any of the foregoing amounts shall be adjusted from time to time hereafter upon (A) delivery to the Administrative Agent of any such acceptable waiver or subordination agreement, (B) the opening or closing of a Current Assets Collateral location and/or (C) any change in the amount of rental, storage or processor payments or similar charges; (b) upon the occurrence of a Material Adverse Effect, in the good faith, reasonable judgment of the Administrative Agent, the Administrative Agent shall have the right to reserve the lesser amount of (i) 10% of the (Borrowing Base Amount minus the Minimum Excess Availability) and (ii) $10 million; and (c) pursuant to the explicit terms of this Agreement; provided, however, it is understood and agreed that no such reserves shall be taken with respect to those items of Collateral already excluded from the definitions of "Eligible Inventory" and "Eligible Accounts". "Backed By Letter of Credit" means an account (a) that is backed by a letter of credit (payable in Dollars) in form and substance reasonably acceptable to the Administrative Agent and that is issued or confirmed by an issuer having ratings of at least A2 or P2 by S&P and Moody's, respectively, or a rating of at least A2 by International Bank Credit Analysis, Ltd. or at least LC-1 by Thomson Bank Watch or (b) for which a guaranty agreement guaranteeing the payment of such account has been executed by a U.S. corporation that is an Affiliate of the account obligor both in form and substance and from a U.S. corporation reasonably satisfactory to the Administrative Agent. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "Borrower" and "Borrowers" are defined in the preamble. "Borrowing" means a borrowing of Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period, made by all Lenders required to make such Loans on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1 or a continuation or conversion thereof pursuant to Section 2.4. "Borrowing Base Amount" shall mean at any time the amount equal to the sum (without duplication) of (a) 85% of Eligible Accounts plus (b) a percentage of Eligible Accounts that are Government Guaranteed where such percentage is equal to the level of insurance coverage under the applicable guaranty net of any deductibles plus (c) 65% of Eligible Inventory, provided, however, that the amount available pursuant to clause (c) of this definition shall in no event exceed $42,500,000. The Administrative Agent shall have the right to review such computations and if, in its reasonable judgment, such computations have not been computed in accordance with the terms of this Agreement, the Administrative Agent shall have the right to correct such errors. "Borrowing Base Certificate" means a certificate duly completed and executed by the treasurer, assistant treasurer, chief accounting or financial Authorized Officer of the Company, -6- 14 substantially in the form of Exhibit F hereto, together with such changes thereto as the Administrative Agent may from time to time reasonably request for the purpose of monitoring the Borrowers' compliance with the limitations on the amount of Current Assets Loans that may be outstanding at any time hereunder. "Borrowing Request" means a Loan request and certificate duly executed by an Authorized Officer of the applicable Borrower, substantially in the form of Exhibit B-1 hereto. "BP" means BP Chemicals Inc., an Ohio corporation. "BP Joint Venture Agreement" means the Joint Venture Agreement, dated March 31, 1999, between ANEXCO and BP, as amended, supplemented, amended and restated or otherwise modified from time to time pursuant to Section 7.1.15. "BP Production Agreement" means the Amended and Restated Production Agreement, dated as of March 31, 1998, between BP and the Company. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollars are carried on in the London interbank eurodollar market. "Canadian Facility" means a revolving loan and letter of credit facility for loans and letters of credit for the account of any Canadian Subsidiary in an amount not to exceed $15,000,000 U.S. Dollars or the Canadian dollar equivalent thereof established in accordance with the terms of this Agreement including Section 7.2.17. "Canadian Subsidiary" means any Foreign Restricted Subsidiary that is organized and existing under the laws of Canada or any province thereof. "Capital Expenditures" means, for any period, the aggregate amount of all expenditures of the Borrowers and the Foreign Restricted Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures. "Capital Securities" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's equity (including any instruments convertible into equity), whether now outstanding or issued after the Effective Date. -7- 15 "Capitalized Lease Liabilities" means all monetary obligations of the Borrowers or any of their Foreign Restricted Subsidiaries under any leasing or similar arrangement which have been (or, in accordance with GAAP, should be) classified as capitalized leases, and for purposes of each Loan Document, the amount of such obligations 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 premium or a penalty. "Cash Collateralize" means, with respect to a Letter of Credit, the deposit of immediately available funds into a cash collateral account maintained with (or on behalf of) the Administrative Agent on terms satisfactory to the Administrative Agent in an amount equal to the Stated Amount of such Letter of Credit. "Cash Equivalent Investment" means, at any time: (a) any direct obligation of (or unconditionally guaranteed by) the United States of America or a State (or any agency or political subdivision thereof, to the extent such obligations are supported by the full faith and credit of the United States of America or a State) maturing not more than one year after such time; (b) commercial paper maturing not more than 270 days from the date of issue, which is issued by (i) a corporation (other than an Affiliate of any Obligor) organized under the laws of any State and rated A-1 or higher by S&P or P-1 or higher by Moody's, or (ii) any Lender (or its holding company); (c) any certificate of deposit, time deposit or bankers acceptance, maturing not more than one year after its date of issuance, which is issued by either (i) any bank organized under the laws of the United States (or any State) and which has (x) a credit rating of P-1 or higher from Moody's or A-1 or higher from S&P and (y) a combined capital and surplus greater than $500,000,000, or (ii) any Lender; (d) any repurchase agreement having a term of 30 days or less entered into with any Lender or any commercial banking institution satisfying the criteria set forth in clause (c)(i) which -8- 16 (i) is secured by a fully perfected security interest in any obligation of the type described in clause (a), and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder; (e) any money market mutual fund with a daily right of redemption and a net asset value of $1.00 per share substantially all the assets of which are comprised of investments of the types described in the preceding clauses (a) through (d); or (f) participations in loans (for a tenor of not more than 90 days) to Persons having short term credit ratings of at least A-1 and P-1 by S&P and Moody's, respectively. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change in Control" means (a) a "Change in Control", as defined in any Sub Debt Document, Senior Secured Discount Notes Indenture or the Senior Secured Note Indenture; (b) a change resulting when any Unrelated Person or any Unrelated Persons, other than the designated shareholders listed on Item 1.1 of the Disclosure Schedule ("Designated Shareholders"), acting together, which would constitute a Group (as defined in Section 13(d) of the Exchange Act) together with any Affiliates or Related Persons thereof (in each case also constituting Unrelated Persons) shall at any time either (i) Beneficially Own (as defined in Rule 13d3 of the Exchange Act) more than 30% of the aggregate voting power of all classes of Voting Stock of Parent or (ii) succeed in having a sufficient number of its or their nominees elected to the Board of Directors of Parent such that such nominees, when added to any existing director remaining on the Board of Directors of Parent after such election who is an Affiliate or Related Person of such Person or Group (as defined in Section 13(d) of the Securities Exchange Act), shall constitute a majority of the Board of Directors of Parent. As used herein (a) "Unrelated Person" shall mean at any time any Person other than Parent or any of its Subsidiaries and other than any trust for any employee benefit plan of Parent or any of its Subsidiaries and (b) "Related Person" of any Person shall mean any other Person owning (i) 5% or more of the outstanding common stock of such Person or (ii) 5% or more of the Voting Stock of such Person; -9- 17 (c) the failure of Parent at any time to directly own and control beneficially and of record on a fully diluted basis 100% of the outstanding Capital Securities of the Company, such Capital Securities to be held free and clear of all Liens (other than Liens granted under a Loan Document); (d) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Parent or the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of Parent or the Company, as the case may be, was approved by a majority of the directors of Parent or the Company, 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 Parent or the Company, as the case may be, then in office; or (e) the failure of the Company at any time to directly or indirectly own and control beneficially or of record on a fully diluted basis 100% of the outstanding Capital Securities of each other Borrower and each Foreign Restricted Subsidiary, such Capital Securities to be held free and clear of all Liens (other than Liens granted under a Loan Document or pursuant to clause (e) of Section 7.2.3), provided, however, the Transfer of the Fibers Business shall not be deemed to be a Change in Control. "CIT" is defined in the preamble. "Chem Systems Appraisal" is defined in clause (b) of Section 5.1.15. "Closing Date" means the date of the initial Credit Extensions, not to be later than July 30, 1999. "Closing Date Certificate" means the closing date certificate executed and delivered by each Borrower pursuant to the terms of this Agreement, substantially in the form of Exhibit D hereto. "Code" means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, reformed or otherwise modified from time to time. "Collateral" has the meaning provided for such term in the Security Agreements, the Mortgages, the Pledge Agreements and any other related documents in which an Obligor grants a security interest in favor of the Administrative Agent on behalf of the Secured Parties. "Commitment" means, as the context may require, the Current Assets Loan Commitment, the Fixed Assets Loan Commitment, the Letter of Credit Commitment or the Swing Line Loan Commitment. -10- 18 "Commitment Amount" means, as the context may require, the Current Assets Loan Commitment Amount, the Fixed Assets Loan Commitment Amount, the Letter of Credit Commitment Amount or the Swing Line Loan Commitment Amount. "Commitment Termination Date" means, as the context may require, the Current Assets Loan Commitment Termination Date or the Fixed Assets Loan Commitment Termination Date. "Commitment Termination Event" means (a) the occurrence of any Event of Default with respect to any Borrower described in clauses (a) through (d) of Section 8.1.9; or (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of all or any portion of the Loans to be due and payable pursuant to Section 8.3, or (ii) the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Company that the Commitments have been terminated pursuant to Section 8.3. "Commodity Hedging Agreements" means with respect to any Person, all liabilities of such Person under exchange agreements, swap agreements, cap agreements, future agreements, forward agreements and all other agreements or arrangements (of a strictly non-speculative nature) designed to protect such Person against fluctuations in commodity prices. "Company" is defined in the preamble. "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise, to assure a creditor against loss) the Indebtedness of any other Person, or guarantees the payment of dividends or other distributions upon the Capital Securities of any other Person; provided that the term "Contingent Liability" shall not include endorsements for collection or deposits in the ordinary course of the Borrowers' business. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the applicable Borrower (or the Company on behalf of such Borrower), substantially in the form of Exhibit C hereto. -11- 19 "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with Parent, the Company or any Subsidiary, are treated as a single employer under Section 414 of the Code or Section 4001 of ERISA. "Copyright Security Agreement" means any Copyright Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit C to any Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Credit Extension" means, as the context may require, (a) the making of a Loan by a Lender; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit or the increase in the Stated Amount of any existing Letter of Credit, in each case by the Issuer. "CSFB" is defined in the preamble. "Current Assets" means all Collateral of the Borrowers other than the Collateral comprising Fixed Assets. "Current Assets Lender" is defined in clause (a) of Section 2.1.1. "Current Assets Loan Commitment" means, relative to any Current Assets Lender, such Current Assets Lender's obligation (if any) to make Current Assets Loans pursuant to clause (a) of Section 2.1.1. "Current Assets Loan Commitment Amount" means, on any date, $85,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Current Assets Loan Commitment Termination Date" means the earliest of (a) July 23, 2004; (b) the date on which the Current Assets Loan Commitment Amount is terminated in full or reduced to zero pursuant to the terms of this Agreement; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in the preceding clauses, the Current Assets Loan Commitments shall terminate automatically and without any further action. -12- 20 "Current Assets Loan Percentage" means, relative to any Lender, the applicable percentage set forth opposite its name on Schedule II hereto under the Current Assets Loan Commitment column or set forth in a Lender Assignment Agreement under the Current Assets Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 10.11.1. A Lender shall not have any Current Assets Loan Commitment if its percentage under the Current Assets Loan Commitment column is zero. "Current Assets Loans" is defined in clause (a) of Section 2.1.1. "Current Assets Note" means a joint and several promissory note of each Borrower payable to any Current Assets Lender, in the form of Exhibit A-1 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the joint and several aggregate Indebtedness of the Borrowers to such Current Assets Lender resulting from outstanding Current Assets Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Current Assets Obligations" means all obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of each Obligor arising under or in connection with the Current Assets Loans, this Agreement and each other Loan Document which secures or guarantees the Current Assets Obligations including obligations under a Rate Protection Agreement where the counterparty is a Current Assets Lender (or its Affiliate). "Current Assets Obligations Account" is defined in clause (c) of Section 2.7. "Current Assets Required Lenders" means, at any time, Current Assets Lenders holding greater than 50% of the aggregate Current Assets Loan Commitments. "Current Assets Secured Parties" means collectively, the Current Assets Lenders, the Agents, the Lead Arranger, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Current Assets Lender or an Affiliate thereof and (in each case), each of their respective successors, transferees and assigns. "Current Assets Security Agreement" means the Current Assets Security Agreement executed and delivered by each Borrower pursuant to the terms of this Agreement to secure the Current Assets Obligations, substantially in the form of Exhibit H-1 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" is defined in Section 2.6.2. -13- 21 "Disbursement Date" is defined in Section 2.6.2. "Disbursement Due Date" is defined in Section 2.6.2. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented, amended and restated or otherwise modified from time to time by the Borrowers with the prior written consent of the Required Lenders. "Disposition" (or similar words such as "Dispose") means any sale, transfer, lease, contribution or other conveyance (including by way of merger) of, or the granting of options, warrants or other rights to, any of any Borrower's or any Foreign Restricted Subsidiary's assets (including accounts receivables and Capital Securities of Foreign Restricted Subsidiaries) to any other Person in a single transaction or series of transactions. "Documentation Agent" is defined in the preamble and includes each other Person appointed as the successor Documentation Agent pursuant to Section 9.4. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Account" means any account for which an obligor is subject to the personal jurisdiction of federal or state courts in the United States of America (and is subject to service of process in the U.S.). "Domestic Office" means the office of a Lender designated as its "Domestic Office" on Schedule II hereto or in a Lender Assignment Agreement, or such other office within the United States as may be designated from time to time by notice from such Lender to the Administrative Agent and the Company. "Effective Date" means the date this Agreement becomes effective pursuant to Section 10.8. "Eligible Account" shall mean at any time the invoice or ledger amount owing on each account of any Borrower, which shall mean (i) any "account" as such term is defined in the U.C.C. , (ii) any receivable (including royalties) arising out of the licensing of chlorine dioxide generator technology or other technology related thereto, (iii) receivables arising out of the profit sharing component of conversion or production contracts or cost reimbursement obligations or other obligations to pay money under other contracts to the extent the parties thereto have agreed in writing as to the amount thereof that is subject to no further adjustment, or (iv) any "chattel paper" (as such term is defined in the U.C.C.) of the Borrowers (so long as such chattel paper is delivered to the Administrative Agent and the Administrative Agent has a first-priority perfected Lien in any such "chattel paper"), in each case, net of any reserves reasonably required by the Administrative Agent from time to time in accordance with the Administrative Agent's -14- 22 customary practice, for which each of the following statements is accurate and complete to the reasonable satisfaction of the Administrative Agent (and the Company, by including an account in any computation of the Borrowing Base Amount, shall be deemed to represent and warrant to the Agents, the Issuer and each Lender the accuracy and completeness of such statements): (a) Such account is a binding and valid obligation of the obligor thereon and is in full force and effect and such account debtor is not an Affiliate of any Borrower (other than Koch Industries, Inc., ANEXCO or BP or any of their respective Affiliates); (b) Such account is bona fide; (c) Payment of such account is less than 30 days past due (or 60 days past due in the case of any obligor listed in Item A of the Account Obligor Schedule on payment terms consistent with past practices of the Borrowers) as determined by the due date stated on the invoice therefor (or if such account is not paid by reference to any invoice in the ordinary course of business but instead by reference to the terms of the agreements creating such account, such account has not remained unpaid beyond 30 days (or 60 days past due in the case of any obligor listed in Item A of the Account Obligor Schedule on payment terms consistent with current practices) after the due date therefor); (d) Such account is not subject to any dispute, setoff (excluding any account payable setoff supported by a letter of credit but including (i) any Exchange Inventory Payable and (ii) any accounts payable amounts owing by any of the Borrowers to the third party which owes an Exchange Inventory Receivable to such Borrower), counterclaim or other claim or defense including rescission, cancellation or avoidance, whether by operation of law or otherwise, on the part of the account debtor or any other Person denying liability under such account; provided, however, that any such account shall constitute an Eligible Account to the extent it is not subject to any such dispute, setoff, counterclaim or other claim or defense; (e) In the case of an account owing to any Borrower, the Administrative Agent, on behalf of the Current Assets Lenders, has a first-priority perfected Lien covering such account and, on behalf the Fixed Assets Lenders, has a second-priority perfected Lien covering such account and such account is, and at all times will be, free and clear of all other Liens; (f) Such account arose in the ordinary course of business of (i) any of the Borrowers or (ii) any Foreign Restricted Subsidiary provided that such account arising in the ordinary course of business of a Foreign Restricted Subsidiary has been duly transferred to a Borrower and is reflected on the books and records of such Borrower, and such Borrower is the legal owner of such account; -15- 23 (g) Such account is not payable by an obligor who is more than 30 days (or 60 days in the case of any obligor listed in Item A of the Account Obligors Schedule on payment terms consistent with past practices of the Borrowers) past due with regard to 20% or more of the total accounts owed to the Borrowers by such obligor or any of its Affiliates; (h) All consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given in connection with the execution, delivery and performance of such account by each party obligated thereunder have been duly obtained, effected or given and are in full force and effect; (i) Such account is not an account as to which any United States federal or State Governmental Authority is the account debtor, except to the extent the applicable Borrower has complied with the Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727; 41 U.S.C. Section 15), by delivering to the Administrative Agent a notice of assignment in favor of the Administrative Agent under such Act and in compliance with applicable provisions of 31 C.F.R. Section 7-103.8 and 41 C.F.R. Section 1-30.7, or with similar State law; (j) The obligor on such account is not the subject of any bankruptcy or insolvency proceeding, has not had a trustee or receiver appointed for all or a substantial part of its property, has not made an assignment for the benefit of creditors, nor admitted its inability to pay its debts as they mature or suspended its business; (k) With respect to any Foreign Account, such account is (without duplication), (i) a Foreign Account which is Backed By Letter of Credit, (ii) an Acceptable Account that is listed on Item B of the Account Obligor Schedule, provided, however, that any such Acceptable Account shall be included in Eligible Accounts up to an aggregate amount not to exceed, at any time, 10% of the total balance due on all accounts, (iii) a Foreign Account which is not Backed By Letter of Credit, provided, however, that any such Foreign Account which is not Backed By Letter of Credit shall be included in Eligible Accounts up to an aggregate amount not to exceed, at any time, 15% of the total balance due on all accounts, or (iv) the account debtor has previously been approved in writing by the Current Assets Required Lenders as an eligible foreign account debtor for purposes of this Agreement; (l) In the case of the sale of goods, such goods have been sold to an obligor on a true sale basis or open account, or subject to contract, and not on consignment, on approval or on a "sale or return" basis or subject to any other repurchase or return agreement (other than for failure to meet specifications), no material part of such goods has been returned, rejected, lost or damaged, and such account is not evidenced by chattel -16- 24 paper or an instrument of any kind which has not been endorsed and delivered to the Administrative Agent; (m) Each of the representations and warranties set forth in each Security Agreement with respect to such account is true and correct in all material respects on such date; (n) Such account otherwise meets the above qualifications and is (i) due and owing from a Foreign Obligor to ANEXCO and (ii) owing from ANEXCO to the Company pursuant to the ANEXCO LLC Agreement and the BP Joint Venture Agreement, net of ANEXCO's operating costs; in each case subject to the requirements of Section 7.1.15; and (o) Such account has such other characteristics or criteria as the Administrative Agent, in its reasonable discretion may specify from time to time in accordance with the Administrative Agent's customary practice; provided that, if any Eligible Account, when added to all other accounts that are obligations of the same obligor and its Affiliates, results in a total sum that exceeds 15% (or 25% in the case of any obligor listed on Item C of the Account Obligor Schedule) of the total balance then due on all Eligible Accounts (without giving effect to any reduction in Eligible Accounts pursuant to this clause), the amount of such account in excess of 15% (or 25% in the case of any obligor listed on Item C of the Account Obligor Schedule) of such total balance then due shall be excluded from Eligible Accounts. "Eligible Assignee" is defined in clause (a) of Section 10.11.1. "Eligible Inventory" shall mean, at any time, all inventory (as such term is defined in the U.C.C.) of the Borrowers, net of any reserves reasonably required by the Administrative Agent from time to time in accordance with the Administrative Agent's customary practice and net of any accounts payable amounts owing by any Borrower to BP provided that such amounts do not duplicate those included in clause (d) of the definition of "Eligible Accounts", for which each of the following statements is accurate and complete to the reasonable satisfaction of the Administrative Agent and which at all times continue to be acceptable to the Administrative Agent in the exercise of its reasonable judgment (and the Company, by including such inventory in any computation of the Borrowing Base Amount, shall be deemed to represent and warrant to the Agents, each Issuer and each Lender, the accuracy and completeness of such statements): (a) Such inventory shall be valued in accordance with GAAP and (i) shall include raw materials and finished goods but (ii) shall not include goods that are classified as "work-in-progress", "parts and supplies" or "stores inventories"; -17- 25 (b) Such inventory is in good condition, meets all standards imposed by any Governmental Authority having regulatory authority over it, its use and/or sale and is either currently usable, undamaged or currently salable in the normal course of business of the Borrowers; (c) Such inventory is an Exchange Inventory Receivable or such inventory is in the possession of the Borrowers, or is in transit in the ordinary course of business but in respect of which title remains in the Borrowers and which is fully insured (subject to deductibles consistent with prudent industry standards for similarly situated companies) and is not (i) located outside the United States of America or (ii) such inventory is an Exchange Inventory Receivable or is in the possession or control of any warehouseman, bailee or any agent or processor for or customer of the Borrowers unless, it is in any such Person's possession, the Borrowers shall have notified (in a manner that effectively under applicable law creates a valid and first-priority perfected Lien in favor of the Administrative Agent, on behalf of the Current Assets Lenders, in such inventory) such warehouseman, bailee, agent, processor or customer of the Administrative Agent's Lien and such warehouseman, bailee, agent, processor or customer has subordinated or waived any Lien it may claim therein and agreed to hold all such inventory for the Administrative Agent's account subject to the Administrative Agent's instructions; (d) Each of the representations and warranties set forth in the applicable Security Agreement with respect to such inventory is true and correct in all material respects on such date; (e) In the case of inventory of the Borrowers, the Administrative Agent, on behalf of the Current Assets Lenders, has a first-priority perfected Lien covering such inventory and, on behalf of the Fixed Assets Lenders, has a second-priority perfected Lien covering such inventory (in each case, except for the Lien granted in connection with the BP Production Agreement), and such inventory is, and at all time will be, free and clear of all other Liens (other than inchoate Liens permitted under Section 7.2.3 or with respect to which all rights of the holder of such Liens have been waived or subordinated to the satisfaction of the Administrative Agent); (f) Such inventory does not include goods that are not owned by the Borrowers or that are held by the Borrowers pursuant to any consignment agreement; (g) To the extent inventory includes any Exchange Inventory Receivable (i) such Exchange Inventory Receivable shall be reduced by any accounts payable amounts owing by any of the Borrowers to the third party which owes such Exchange Inventory Receivable to such Borrower and (ii) any such accounts payable amount shall be applied first to clause (d)(ii) of the definition of Eligible Account and second to this clause (g)(i), without duplication); and -18- 26 (h) Such inventory has such other characteristics or criteria as the Administrative Agent, in its reasonable discretion, may specify from time to time in accordance with the Administrative Agent's customary practice. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "Equipment" is defined in the Fixed Assets Security Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to Sections of ERISA also refer to any successor Sections thereto. "ERISA Affiliate" means any Person which is in the same Controlled Group as any Borrower. "ESOP" means the Sterling Chemicals ESOP as in existence on the Closing Date. "Event of Default" is defined in Section 8.1. "Excess Availability" means, at any time of determination, the amount which is (a) the then existing Borrowing Base Amount less (b) the aggregate outstanding principal amount of all Current Assets Loans and Swing Line Loans, together with the aggregate amount of all Letter of Credit Outstandings. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Inventory" means any inventory which is subject to a swap, exchange or similar agreement or arrangement between any of the Borrowers and a third party. "Exchange Inventory Payable" means the net amount of Exchange Inventory owing by any of the Borrowers to a third party. "Exchange Inventory Receivable" means the net amount of Exchange Inventory owed to any Borrower by a third party. "Exemption Certificate" is defined in clause (e) of Section 4.6. -19- 27 "Existing Loan Agreement" is defined in the third recital. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) 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 (b) 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" means the confidential letter, dated July 23, 1999, between DLJ and the Company, as amended, supplemented, amended and restated or otherwise modified from time to time. "Fibers Subsidiaries" means Sterling Fibers, Inc. and Sterling Chemicals International, Inc., each of which is a Delaware corporation and a Wholly-Owned Subsidiary of the Company. "Filing Agent" is defined in Section 5.1.13. "Filing Statements" is defined in Section 5.1.13. "Fiscal Quarter" means a quarter ending on the last day of March, June, September or December. "Fiscal Year" means any period of twelve consecutive calendar months ending on September 30; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the "1999 Fiscal Year") refer to the Fiscal Year ending on September 30 of such calendar year. "Fixed Assets" means the real property, buildings, Equipment, structures and other improvements to any of the foregoing, of the Borrowers and to the extent any of the following items of property constitute fixtures and/or equipment under applicable laws, all fixtures, fittings, appliances, apparatus, Equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever (including the intellectual property and technology necessary to operate such assets) and all replacements thereof, now or hereafter affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the real property of the Borrowers or such buildings, structures and other improvements. -20- 28 "Fixed Assets Lender" is defined in clause (b) of Section 2.1.1. "Fixed Assets Loans" is defined in clause (b) of Section 2.1.1. "Fixed Assets Loan Commitment" means, relative to any Fixed Assets Lender, such Fixed Assets Lender's obligation (if any) to make Fixed Assets Loans pursuant to clause (b) of Section 2.1.1. "Fixed Assets Loan Commitment Amount" means, on any date, $70,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Fixed Assets Loan Commitment Termination Date" means the earliest of (a) July 23, 2004; (b) the date on which the Fixed Assets Loan Commitment Amount is terminated in full or reduced to zero pursuant to the terms of this Agreement; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in the preceding clauses, the Fixed Assets Loan Commitments shall terminate automatically and without any further action. "Fixed Assets Loan Percentage" means, relative to any Lender, the applicable percentage set forth opposite its name on Schedule II hereto under the Fixed Assets Loan Commitment column or set forth in a Lender Assignment Agreement under the Fixed Assets Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 10.11.1. A Lender shall not have any Fixed Assets Loan Commitment if its percentage under the Fixed Assets Loan Commitment column is zero. "Fixed Assets Note" means a joint and several promissory note of each Borrower payable to any Fixed Assets Lender, in the form of Exhibit A-2 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the joint and several aggregate Indebtedness of the Borrowers to such Fixed Assets Lender resulting from outstanding Fixed Assets Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Fixed Assets Obligations" means all obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of each Obligor arising under or in connection with the Fixed Assets Loans, this Agreement and each other Loan Document which secures or guarantees the Fixed Assets Obligations including obligations under a Rate Protection Agreement where the counterparty is a Fixed Assets Lender (or its Affiliate). -21- 29 "Fixed Assets Obligations Account" is defined in clause (c) of Section 2.7 "Fixed Assets Required Lenders" means, at any time, Lenders holding greater than 50% of the aggregate Fixed Assets Loan Commitments. "Fixed Assets Security Agreement" means the Fixed Assets Security Agreement executed and delivered by each Borrower to secure the Fixed Assets Obligations pursuant to the terms of this Agreement substantially in the form of Exhibit H-2 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Fixed Assets Security Documents" means the Fixed Assets Security Agreement, the Parent Pledge Agreement, the Obligor Pledge Agreement, each Mortgage and each other Loan Document pursuant to which the Administrative Agent is granted a Lien to secure the Fixed Assets Obligations. "Fixed Assets Secured Parties" means, collectively, the Fixed Assets Lenders, the Agents, the Lead Arranger, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Fixed Assets Lender or an Affiliate thereof and (in each case), each of their respective successors, transferees and assigns. "Foreign Account" means any account (a) for which the obligor is a Foreign Obligor or (b) due and payable by a Foreign Obligor to ANEXCO. "Foreign Employee Benefit Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Borrowers, any of its Subsidiaries or any of its ERISA Affiliates, but which is not covered by ERISA pursuant to ERISA Section 4(b)(4). "Foreign Obligor" means an obligor that is not subject to the jurisdiction of federal or state courts in the United States of America. "Foreign Pension Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which (i) is maintained or contributed to for the benefit of employees of the Borrowers, any of its Subsidiaries or any of its ERISA Affiliates, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "Foreign Restricted Subsidiary" mean each Foreign Subsidiary listed on Item 1.4 of the Disclosure Schedule that is not an Unrestricted Subsidiary. "Foreign Subsidiary" means any Subsidiary that is not a Subsidiary incorporated or organized in the United States or any State. -22- 30 "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" means generally accepted United States accounting principles, applied on a consistent basis (except for changes made due to the implementation of new or revised standards issued by the Financial Accounting Standards Board), and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles observed in a current period are comparable in all material respects to those accounting principles applied in a preceding period. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Government Guaranteed" means Eligible Accounts that are guaranteed by the full faith and credit of a U.S. or Canadian Governmental Authority. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; or (c) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance (including any petroleum product) within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended. "Hedging Obligations" means, with respect to any Person, all liabilities of such Person under currency exchange agreements, interest rate swap agreements, interest rate cap agreements, Commodity Hedging Agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity prices. "herein", "hereof", "hereto", "hereunder" and similar terms contained in any Loan Document refer to such Loan Document as a whole and not to any particular Section, paragraph or provision of such Loan Document. -23- 31 "Impermissible Qualification" means any qualification or exception to the opinion or certification of any independent public accountant as to any financial statement of the Borrowers: (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examinations of matters due to limitations imposed by the Borrowers relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrowers to be in Default. "including" and "include" means including, without limiting the generality of any description preceding such term. "Indebtedness" of any Person means (without duplication): (a) all obligations of such Person for borrowed money or advances and all obligations of such Person evidenced by bonds, debentures, notes or similar instruments and all Capital Securities which have redemption provisions exercisable at the option of the holder thereof at any time prior to the Termination Date (in the absence of any contingency) in whole or in part in cash; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all Capitalized Lease Liabilities of such Person; (d) for purposes of Section 8.1.5 only, all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services excluding trade accounts payable in the ordinary course of business which are not overdue for a period of more than 60 days or, if overdue for more than 60 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of such Person, and indebtedness of the types otherwise referred to in this definition secured by (or for which the holder of such indebtedness has an -24- 32 existing right, contingent or otherwise, to be secured by) a Lien on property owned or being acquired by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (g) obligations arising under Synthetic Leases; and (h) all Contingent Liabilities of such Person in respect of any of the foregoing. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership or joint venture in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness, ownership interest or other relationship provide that such Person is not liable therefor. "Indemnified Liabilities" is defined in Section 10.4. "Indemnified Parties" is defined in Section 10.4. "Independent Financial Advisor" means a reputable nationally recognized accounting, appraisal or investment banking firm that, in the reasonable good faith judgment of the Board of Directors of the Company, is qualified to perform the task for which such firm has been engaged and is independent in all respects with respect to the Company and its Affiliates. "Initial Syndication" is defined in clause (a) of Section 10.11.1. "Intellectual Property Collateral" has the meaning provided for such term in the Security Agreements. "Intercreditor Agreements" means, as applicable, the Revolver Intercreditor Agreement, the Parent Intercreditor Agreement and/or the Senior Debt Intercreditor Agreement. "Intercreditor Amendment" is defined in Section 5.1.14. "Interest Period" means, relative to any LIBO Rate Loan, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Sections 2.3 or 2.4 and shall end on (but exclude) the day which numerically corresponds to such date one, two, three, six or nine months thereafter, or, if available in the Administrative Agent's reasonable determination and available to all of the Lenders, either twelve months thereafter or such other time period less than one month as may be requested by the Borrowers (a "Non-Standard Period") (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the applicable Borrower may select in its relevant notice pursuant to Sections 2.3 or 2.4; provided, however, that: -25- 33 (a) such Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than ten different dates; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period for any Loan may end later than the Stated Maturity Date for such Loan. "Investment" means, relative to any Person, (a) any loan, advance or extension of credit made by such Person to any other Person, including the purchase by such Person of any bonds, notes, debentures or other debt securities of any other Person; (b) any Contingent Liability of such Person incurred in connection with loans or advances made by others to any other Person; and (c) any Capital Securities held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment. "ISP98 Rules" is defined in Section 10.9. "Issuance Request" means a Letter of Credit request duly executed by an Authorized Officer of the applicable Borrower, substantially in the form of Exhibit B-2 hereto. "Issuer" means, collectively, The Chase Manhattan Bank or the Person issuing the Letters of Credit hereunder, as designated by the Administrative Agent in its capacity as Issuer of the Letters of Credit and any other Lender designated by any Borrower that issues a Letter of Credit with the consent of the Administrative Agent which consent shall not be unreasonably withheld. "Joinder Agreement" means a Joinder Agreement, substantially in the form of Exhibit J hereto, executed and delivered by each Person who is required to become (or otherwise becomes, pursuant to the terms of this Agreement) a Borrower in accordance with Section 7.1.8. -26- 34 "Joint Venture Contribution" means any Disposition of the Capital Securities of the Fibers Subsidiaries or all or substantially all of the assets of the Fibers Subsidiaries to a Person in which the Company and its Affiliates will, immediately after giving effect to such transaction, beneficially own or hold any Capital Securities in such Person to which such contribution is made, including any such contribution made through any Merger or any agreement to operate all or substantially all of the assets of the Fibers Subsidiaries under any similar arrangement, in each case, made in accordance with the terms of this Agreement. "Lead Arranger" is defined in the preamble. "Lender Assignment Agreement" means an assignment agreement substantially in the form of Exhibit L hereto. "Lenders" is defined in the preamble and includes any Person that becomes a Lender pursuant to Section 10.11.1. "Lender's Environmental Liability" means any and all losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, costs, judgments, suits, proceedings, damages (including consequential damages), disbursements or expenses of any kind or nature whatsoever (including reasonable attorneys' fees at trial and appellate levels and experts' fees and disbursements and expenses incurred in investigating, defending against or prosecuting any litigation, claim or proceeding) which may at any time be imposed upon, incurred by or asserted or awarded against any Agent, any Lender or the Issuer or any of such Person's Affiliates, shareholders, directors, officers, employees, and agents in connection with or arising from: (a) any Hazardous Material on, in, under or affecting all or any portion of any property of the Company or any of its Subsidiaries, the groundwater thereunder, or any surrounding areas thereof to the extent caused by Releases from the Company's or any of its Subsidiaries' or any of their respective predecessors' properties; (b) any misrepresentation, inaccuracy or breach of any warranty, contained or referred to in Section 6.12; (c) any violation or claim of violation by the Company or any of its Subsidiaries of any Environmental Laws; or (d) the imposition of any Lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of Hazardous Material by the Company or any of its Subsidiaries, or in connection with any property owned or formerly owned by the Company or any of its Subsidiaries. "Letter of Credit" is defined in clause (a) of Section 2.1.2. -27- 35 "Letter of Credit Commitment" means, with respect to the Issuer, the Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.2 and, with respect to each Current Assets Loan Lender, the obligations of each such Lender to participate in such Letters of Credit pursuant to Section 2.6.1. "Letter of Credit Commitment Amount" means, on any date, a maximum amount of $20,000,000, as such amount may be permanently reduced from time to time pursuant to Section 2.2. "Letter of Credit Outstandings" means, on any date, an amount equal to the sum of (a) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, and (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate per annum equal to the rate at which Dollar deposits are offered for such Interest Period as set forth on the Telerate Screen LIBO Page, at or about 12:00 noon, New York City time, two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of the LIBO Rate Loan and for a period approximately equal to such Interest Period; provided, however, that if there shall at any time no longer exist a Telerate Screen LIBO Page, "LIBO Rate" shall mean, with respect to each day during each Interest Period pertaining to a LIBO Rate Loan, the rate per annum equal to the rate at which the Administrative Agent or its designee is offered Dollar deposits at or about 12:00 noon, New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of LIBO Rate Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the LIBO Rate Loan to be outstanding for a period approximately equal to such Interest Period. "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula:
LIBO Rate LIBO Rate (Reserve Adjusted) = 1.00 - LIBOR Reserve Percentage
-28- 36 The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect two Business Days before the first day of such Interest Period. "LIBOR Office" means the office of a Lender designated as its "LIBOR Office" on Schedule II hereto or in a Lender Assignment Agreement, or such other office designated from time to time by notice from such Lender to the Company and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining the LIBO Rate Loans of such Lender. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of or including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment for security purposes, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property, or other priority or preferential arrangement of any kind or nature whatsoever, to secure payment of a debt or performance of an obligation. "Loan Documents" means collectively this Agreement, each Letter of Credit, each Rate Protection Agreement, each Note, each Security Agreement, each Joinder Agreement, each Mortgage, each Copyright Security Agreement, each Patent Security Agreement, each Trademark Security Agreement, each Pledge Agreement, each Intercreditor Agreement, each Lockbox Agreement, the Fee Letter, each agreement pursuant to which the Administrative Agent is granted a Lien to secure the Obligations and each other agreement, certificate, document or instrument delivered in connection with any Loan Document (including the agreements executed from time to time pursuant to Section 7.1.8 and the agreements executed from time to time by the Borrowers pursuant to Section 7.1.12), whether or not specifically mentioned herein or therein. "Loans" means, as the context may require, a Current Assets Loan, a Fixed Assets Loan, or a Swing Line Loan of any type. "Lockbox" means any lockbox established at a Lockbox Bank for collection of payments in respect of receivables or other Collateral. "Lockbox Account" means any lockbox account established at a Lockbox Bank. -29- 37 "Lockbox Agreements" means the deposit account agreements, blocked account agreements, lockbox agreements or similar agreements, executed by and among the Borrowers, the Administrative Agent and the financial institutions at which the relevant accounts are being maintained, each in form and substance reasonably satisfactory to the Administrative Agent, as such agreements may be amended, supplemented, amended and restated or otherwise modified from time to time. "Lockbox Bank" means each bank identified as such in the Perfection Certificate that has executed a Lockbox Agreement and has been confirmed by the Administrative Agent not to be in uncertain financial condition, at which the Borrowers, or any of their Foreign Restricted Subsidiaries, deposit proceeds of Collateral. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or the Company and its Subsidiaries taken as a whole, (b) the rights and remedies of any Secured Party under any Loan Document or (c) the ability of the Company or the Company and the other Obligors, taken as a whole, to perform their Obligations under the Loan Documents. "Maximum Capital Expenditure Amount" is defined in Section 7.2.7. "Merge" is defined in Section 7.2.10. "Minimum Excess Availability" means (a) $12,000,000, as such amount may be reduced by the Administrative Agent from time to time pursuant to Section 7.2.4, plus (b) any Availability Reserve (as adjusted from time to time pursuant to clause (e) of Section 2.7). "Moody's" means Moody's Investors Service, Inc. "Mortgage" means each mortgage, deed of trust or agreement executed and delivered by any Borrower in favor of the Administrative Agent for the benefit of the Secured Parties pursuant to the requirements of this Agreement in substantially the form of Exhibit I hereto, as applicable, under which a Lien is granted on the real property and fixtures, or the Obligor's leasehold interest in the real property and fixtures, described therein, in each case as amended, supplemented, amended and restated or otherwise modified from time to time. "Net Debt Proceeds" means, with respect to the incurrence, sale or issuance by Parent, the Borrowers or any Foreign Restricted Subsidiary of any Indebtedness after the Effective Date (other than Indebtedness permitted by Section 7.2.2), the excess of (a) the gross cash proceeds received by Parent, the Borrowers or any Foreign Restricted Subsidiary from such incurrence, sale or issuance, less (b) the sum (without duplication) of all reasonable and customary underwriting commissions and legal, investment banking, brokerage and accounting and other professional fees, sales commissions and disbursements and all other reasonable fees, expenses -30- 38 (including any State filing taxes) and charges, in each case actually incurred in connection with such incurrence, sale or issuance. "Net Disposition Proceeds" means, with respect to any Disposition after the Effective Date, other than either a Permitted Disposition or an issuance or sale of such Person's own Capital Securities or warrants or options thereon, the excess of (a) the gross cash proceeds received by Parent, the Borrowers or any Foreign Restricted Subsidiary from any such Disposition and any cash payments received in respect of promissory notes or other non-cash consideration delivered to Parent, the Borrowers or any Foreign Restricted Subsidiary in respect thereof, less (b) the sum (without duplication) of (i) all reasonable and customary fees and expenses with respect to legal, investment banking, brokerage, accounting and other professional fees, sales commissions and disbursements and all other reasonable fees, expenses and charges, in each case actually incurred in connection with such Disposition, (ii) all Taxes and other governmental costs and expenses actually paid or estimated by Parent, the Borrowers or any Foreign Restricted Subsidiary (in good faith) to be payable in cash in connection with such Disposition, and (iii) payments made by Parent, the Borrowers or any Foreign Restricted Subsidiary to retire Indebtedness (other than the Credit Extensions) of Parent, the Borrowers or any Foreign Restricted Subsidiary where payment of such Indebtedness is required in connection with such Disposition; provided, however, that if, after the payment of all Taxes with respect to such Disposition, the amount of estimated Taxes, if any, pursuant to clause (b)(ii) above exceeded the Tax amount actually paid in cash in respect of such Disposition, the aggregate amount of such excess shall be immediately payable, pursuant to clause (d) of Section 3.1.1, as Net Disposition Proceeds. "Net Equity Proceeds" means with respect to the sale or issuance by Parent, any Borrower or any of their Subsidiaries to any Person of its own Capital Securities, warrants or options or the exercise of any such warrants or options, the excess of: (a) the gross cash proceeds received by such Person from such sale, exercise or issuance, less (b) all reasonable and customary underwriting commissions and legal, investment banking, brokerage and accounting and other professional fees, sales commissions and disbursements actually incurred (including any State filing Taxes) in connection with such sale or issuance which have not been paid to Affiliates of Parent or such Borrower in connection therewith. "No Less Favorable Terms and Conditions" means, with respect to any refinancing of any Indebtedness permitted hereunder, terms and conditions which are no less favorable to the continuing Lenders and evidenced by documentation which shall not (a) increase the principal amount of or interest rate on such outstanding Indebtedness, (b) reduce either the tenor or the average life of such Indebtedness, (c) change the respective primary obligor(s) on the refinancing Indebtedness (other than a change from any Borrower to Parent or any other Borrower or a Foreign Restricted Subsidiary or a change from any Foreign Restricted Subsidiary to Parent or -31- 39 any other Foreign Restricted Subsidiary), (d) change the security, if any, for the refinancing Indebtedness (except to the extent that less security is granted to holders of such refinancing Indebtedness) and (e) afford the holders of such refinancing Indebtedness other covenants, defaults, rights or remedies, taken as a whole, more burdensome to the obligor(s) than those contained in such Indebtedness (and in the case of Subordinated Debt, none of the subordination provisions contained in the refinancing Indebtedness shall be less favorable to the Lenders, the Issuer, and the Agents than the Indebtedness so refinanced). "Non-Excluded Taxes" means any Taxes other than net income and franchise taxes imposed with respect to any Secured Party by (a) any jurisdiction (or political subdivision thereof) of which such Secured Party is a citizen or resident, (b) any jurisdiction (or political subdivision thereof) in which such Secured Party is presently engaged in the active conduct of its banking business through an office, branch or other permanent establishment, or (c) the jurisdiction (or any political subdivision thereof) under the laws of which such Secured Party is organized or in which it maintains its applicable lending office. "Non-Standard Period" is defined in the definition of "Interest Period." "Non-U.S. Lender" means any Lender that is not a "United States person", as defined under Section 7701(a)(30) of the Code. "Note" means, as the context may require, a Current Assets Note, a Fixed Assets Note, or a Swing Line Note. "Obligation Accounts" is defined in clause (c) of Section 2.7 "Obligations" means all Current Assets Obligations, all Fixed Assets Obligations and all other obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of each Obligor arising under or in connection with this Agreement, each Note and each other Loan Document. "Obligor" means, as the context may require, Parent, each Foreign Restricted Subsidiary, each Borrower and each other Person (other than a Secured Party) obligated under any Loan Document. "Obligor Pledge Agreement" means the Pledge Agreement executed and delivered by an Authorized Officer of each Borrower that owns a Pledged Subsidiary, substantially in the form of Exhibit G-2 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Offering Memorandum" means the offering memorandum of the Company, dated July 19, 1999, used in connection with the offer and sale of the Senior Secured Notes. -32- 40 "Organic Document" means, with respect to any Obligor, as applicable, its certificate of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, limited liability company agreement and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Obligor's partnership interests, limited liability company interests or authorized shares of Capital Securities. "Other Taxes" means any and all stamp, documentary or similar taxes, or any other excise or property taxes or similar levies that arise on account of any payment made or required to be made under any Loan Document or from the execution, delivery, registration, recording or enforcement of any Loan Document. "Overadvance Amount" means an amount, determined at the sole discretion of the Administrative Agent and subject to any additional terms the Administrative Agent deems necessary, which is no more than the lesser of (a) 10% of ((i) the Borrowing Base Amount less (ii) $12,000,000) or (b) $5,000,000; provided, however, that in no event shall (x) the Overadvance Amount when added to the outstanding Current Assets Loan and Swing Line Loans, together with all Letter of Credit Outstandings exceed the Current Assets Loan Commitment Amount or (y) any Overadvance Amount be outstanding for more than 30 days except with consent of the Required Lenders. "Overadvance Rate" means, with respect to any Overadvance Amount, an interest rate equal to 0.5% per annum plus the Applicable Margin for Current Assets Loans of the type of Loan for which such Overadvance Amount is maintained. "Parent" is defined in the first recital. "Parent Intercreditor Agreement" means the Intercreditor Agreement, dated as of August 21, 1996, between Texas Commerce Bank, National Association (now known as Chase Bank of Texas, N.A.) and the trustee under the Senior Secured Discount Notes Indenture as amended by the Intercreditor Amendment and as amended, supplemented, amended and restated or otherwise modified from time to time. "Parent Pledge Agreement" means the Pledge Agreement executed and delivered by an Authorized Officer of Parent, substantially in the form of Exhibit G-1 hereto, as amended and restated or otherwise modified from time to time. "Participant" is defined in Section 10.11.2. "Patent Security Agreement" means any Patent Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit A to any Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. -33- 41 "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which Parent or the Company or any corporation, trade or business that is, along with Parent or the Company, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Percentage" means, as the context may require, any Lender's Current Assets Loan Percentage or Fixed Assets Loan Percentage. "Perfection Certificate" means the Perfection Certificate executed and delivered by an Authorized Officer of each Obligor that is a party to a Security Agreement pursuant to the terms of this Agreement, substantially in the form of Exhibit M hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Permitted Consideration" means (a) the express assumption of Indebtedness of any Borrower and the release of such Borrower from all liability on such Indebtedness in connection solely with the Transfer of the Fibers Business and (b) securities received by any Borrower that are converted by such Borrower into cash within 90 days of the receipt of such securities. "Permitted Disposition" means any Disposition that is: (a) a Disposition of inventory, accounts receivable or any other assets Disposed of in the ordinary course of business; (b) the Disposition of personal property (including pipe, equipment, machinery and vehicles) in the ordinary course of business or when, in the reasonable judgment of the Company, such property is worn out or obsolete or no longer used or useful in the conduct of its business or the business of its Subsidiaries; (c) a Disposition from a Borrower or a Foreign Restricted Subsidiary to another Borrower; (d) a Disposition of assets in exchange for or in connection with the purchase of replacement assets or assets useful in the ordinary course of any business meeting all the requirements of Section 7.2.1; provided, that if the Disposition is by a Borrower, such Disposition shall only be a Permitted Disposition if the replacement assets are acquired by a Borrower; -34- 42 (e) a Disposition that constitutes a Lien which is a Permitted Lien; provided, however, this shall not include any Lien that secures any Indebtedness; (f) the granting of leases (including subleases) and grounds leases of any underutilized or vacant properties of any Borrower or any Foreign Restricted Subsidiary to third parties with which such Borrower or Foreign Restricted Subsidiary has a production, co-production, co-generation, operating or other agreement or to third party providers of energy or raw materials in the ordinary course of business, provided such leases do not materially interfere with the operation of the business of any Borrower or any Foreign Restricted Subsidiary or materially diminish the value of any of the Collateral; (g) sales of the Capital Securities of any Unrestricted Subsidiary; and (h) a Disposition of all or substantially all of the Assets of any Borrower or any Foreign Restricted Subsidiary expressly permitted under Section 7.2.10. "Permitted Investment" is defined in Section 7.2.5. "Permitted Liens" is defined in Section 7.2.3. "Permitted Parent Dividends" means any of the following, to the extent permitted by clause (d) of Section 7.2.6: (a) cash dividends payable to Parent in any Fiscal Year not to exceed $2,000,000; and (b) cash dividends to Parent so long as Parent promptly, and in any event within five Business Days, utilizes the full amount of such cash dividends for the sole purpose of paying cash 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 August 21, 1996 and without giving effect to any amendment or modification thereof unless agreed to in writing by the Required 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 cash 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 August 21, 2001. "Permitted Real Estate Liens" means: -35- 43 (a) minor irregularities in title, boundaries or other survey defects, easements, rights-of-way, restrictions, servitudes, permits, reservations, exceptions, zoning regulations, conditions, covenants, mineral or royalty rights or reservations of oil, gas or mineral leases, rights of others in any property of any Borrower or any Foreign Restricted Subsidiary for streets, roads, bridges, pipes, pipelines, railroads, electric transmission and distribution lines, telegraph and telephone lines, the removal of oil, gas or other minerals or other similar purposes, flood control, water rights, rights of others with respect to navigable waters, sewage and drainage rights and other similar charges or encumbrances existing as of the Effective Date and disclosed in a Mortgage or shown in the survey (or granted by any Borrower or any Foreign Restricted Subsidiary in the ordinary course of business) that do not, in the aggregate, materially impair the value or ability to sell of the property of any Borrower and the occupation, use and enjoyment by any Borrower or any Foreign Restricted Subsidiary of any of their respective properties in the normal course of business: (b) Liens securing Indebtedness neither created, assumed nor guaranteed by any Borrower or any of their Foreign Restricted Subsidiaries upon lands over which easements or similar rights are acquired by any Borrower or any of their Foreign Restricted Subsidiaries in the ordinary course of business of any Borrower or any of their Foreign Restricted Subsidiaries; (c) terminable or short term leases or permits for occupancy, which leases or permits expressly grant to any Borrower or any Foreign Restricted Subsidiary the right to terminate them at any time on not more than six months' notice and which occupancy does not interfere with the operation of the business of any Borrower or any of their Foreign Restricted Subsidiaries; (d) any obligations or duties affecting any of the property of any Borrower or any of their Foreign Restricted Subsidiaries to any municipal or public authority with respect to any franchise, grant, license or permit that do not materially impair the use of such property for the purpose for which it is held; (e) Liens on any property in favor of any Governmental Authority to secure partial, progress, advance or other payments pursuant to any contract or statute, not yet due and payable; (f) Liens with respect to the so-called "greenbelt" or "buffer zone" properties, for as long as those properties are used solely for "greenbelt" or "buffer zone" purposes; (g) leases and ground leases of underutilized or vacant properties of any Borrower or any Foreign Restricted Subsidiary to third parties with which such Borrower or such Foreign Restricted Subsidiary has a production, co-production, co-generation, operating or other arrangement or to third party providers of energy or raw materials in -36- 44 the ordinary course of business of such Borrower or such Foreign Restricted Subsidiary, provided such leases do not materially interfere with the operations, of any Borrower or any Foreign Restricted Subsidiary, provided such leases do not materially interfere with the operations of any Borrower or any Foreign Restricted Subsidiary or materially diminish the value of any Collateral; (h) easements, rights-of-way, restrictions and other similar charges or encumbrances granted to others, in each case incidental to, and not interfering with, the ordinary conduct of the business of any Borrower or any Foreign Restricted Subsidiary, provided that such Liens are not violated by the existing property and do not, in the aggregate, materially diminish the value or ability to sell the Collateral; (i) the burdens of any law or governmental regulation or permit requiring any Borrower or any Foreign Restricted Subsidiary to maintain certain facilities or perform certain acts as a condition of its occupancy of or interference with any public lands or any river or stream or navigable waters; (j) 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 any Borrowers and its Foreign Restricted Subsidiaries; and (k) and any extensions, renewals, modifications or replacements thereof. Notwithstanding the foregoing, no such Permitted Real Estate Liens shall in any way materially impair the value of or ability to sell any Collateral or materially impact the occupation, right or enjoyment of the relevant property by the Borrowers or any Foreign Restricted Subsidiary. "Person" means any natural person, corporation, limited liability company, partnership, joint venture, association, trust or unincorporated organization, Governmental Authority or any other legal entity, whether acting in an individual, fiduciary or other capacity. "Pledge Agreement" means, as the context may require, the Parent Pledge Agreement or the Obligor Pledge Agreement. "Pledged Subsidiary" means each Subsidiary in respect of which the Administrative Agent has been granted a security interest in or a pledge of any of the Capital Securities of such Subsidiary. "Quarterly Payment Date" means the last day of March, June, September and December, or, if any such day is not a Business Day, the next succeeding Business Day. -37- 45 "Rate Protection Agreement" means, collectively, any interest rate swap, cap, collar or similar agreement entered into by a Borrower under which the counterparty of such agreement is (or at the time such agreement was entered into, was) a Lender or an Affiliate of a Lender. "Refinancing" is defined in the second recital. "Refunded Swing Line Loans" is defined in clause (b) of Section 2.3.2. "Register" is defined in clause (b) Section 2.7. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of July 23, 1999, among the Borrowers, Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. "Reimbursement Obligation" is defined in Section 2.6.3. "Related Fund" means, with respect to any Lender which is a fund that invests in loans, any other fund that invests in loans and is controlled by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Release" means a "release", as such term is defined in CERCLA. "Required Lenders" means, at any time, the Current Assets Required Lenders and the Fixed Assets Required Lenders. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended. "Restricted Payment" means the declaration or payment of any dividend (other than dividends payable solely in Capital Securities of the Company) on, or the making of any payment or distribution on account of, or setting apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any class of Capital Securities of the Borrowers or any Foreign Restricted Subsidiary or any warrants or options to purchase any such Capital Securities, whether now or hereafter outstanding, or the making of any other distribution in respect thereof, either directly or indirectly, whether in cash or property, obligations of the Borrowers or any Foreign Restricted Subsidiary or otherwise other than any such dividends, payments or distributions that are payable to any Borrower or any Foreign Restricted Subsidiary (so long as such dividend, payment or distribution payable to a Foreign Restricted Subsidiary is not payable from a Borrower) or any such dividends, payments or distributions made by a Foreign Restricted Subsidiary (solely from such Foreign Restricted Subsidiary's assets) that is not a Wholly Owned Subsidiary to minority stockholders (or owners -38- 46 of an equivalent interest in the case of a Foreign Restricted Subsidiary that is an entity other than a corporation). "Return of Capital" means, with respect to any Capital Securities, any sums paid on or in respect of such Capital Securities (a) as a return, in whole or in part, of the capital of the issuer of such Capital Securities as constituted immediately following the consummation of a Transfer of the Fibers Business pursuant to which such Capital Securities were issued to any Borrower or either of the Fibers Subsidiaries, (ii) in redemption of, or in exchange for, such Capital Securities or (iii) in connection with a partial or total liquidation or dissolution of the issuer of such Capital Securities. "Revolver Intercreditor Agreement" means the Intercreditor Agreement executed and delivered pursuant to the terms of this Agreement by the Administrative Agent and each Lender, and acknowledged by the Company, substantially in the form of Exhibit K-1 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill, Inc. "Sale of the Fibers Business" means any Disposition of the Capital Securities of the Fibers Subsidiaries or all or substantially all of the assets of the Fibers Subsidiaries (other than pursuant to a Joint Venture Contribution), including, in either case, any such Disposition made through any Merger. "SEC" means the Securities and Exchange Commission. "Secured Parties" means, collectively, the Lenders, the Issuer, the Agents, the Lead Arranger, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Lender or an Affiliate thereof and (in each case) each of their respective successors, transferees and assigns to the extent permitted by this Agreement. "Security Agreement" means, as the context may require, the Current Assets Security Agreement and the Fixed Assets Security Agreement. "Senior Debt Intercreditor Agreement" means the Intercreditor Agreement executed and delivered pursuant to the terms of this Agreement by the Administrative Agent and the Trustee under the Senior Secured Note Indenture, and acknowledged by the Company, substantially in the form of Exhibit K-2 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Senior Secured Discount Notes" means Parent's 13-1/2% Senior Secured Discount Notes Due 2008 in an original stated amount of $191,751,000. -39- 47 "Senior Secured Discount Notes Indenture" means the Indenture dated as of August 15, 1996 between Parent and Fleet National Bank (now known as State Street Bank and Trust Company), as trustee, that governs the terms of the Senior Secured Discount Notes, as the same has heretofore been supplemented and may hereafter be amended, supplemented, amended and restated or otherwise modified in accordance with Section 7.2.12. "Senior Secured Note Documents" means, collectively, the Senior Secured Note Indenture, the Senior Secured Notes and each of the other loan agreements, indentures, note purchase agreements, promissory notes, guarantees, and other instruments and agreements executed and delivered in connection with the issuance of the Senior Secured Notes other than the Registration Rights Agreement and the Senior Secured Note Purchase Agreement, and evidencing the terms thereof, as amended, supplemented, amended, restated and otherwise modified from time to time in accordance with Section 7.2.12. "Senior Secured Note Indenture" means the Indenture, dated as of July 23, 1999, among the Borrowers and the Trustee, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with Section 7.2.12. "Senior Secured Note Purchase Agreement" means the Purchase Agreement, dated as of July 19, 1999, among the Borrowers, Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse First Boston Corporation, as amended, supplemented, amended, restated and otherwise modified from time to time. "Senior Secured Notes" is defined in the second recital. "Senior Subordinated Notes" means the Company's 11 3/4% Senior Subordinated Notes Due 2006 in an original principal amount of $275,000,000. "Senior Subordinated Notes Indenture" means the Indenture dated as of August 15, 1996 between the Company and Fleet National Bank (now known as State Street Bank and Trust Company), as trustee, that governs the terms of the Senior Subordinated Notes, as the same has heretofore been supplemented and may hereafter be amended, supplemented, amended and restated or otherwise modified in accordance with Section 7.2.12. "Solvent" means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person and its Subsidiaries on a consolidated basis is greater than the total amount of liabilities, including Contingent Liabilities, of such Person and its Subsidiaries on a consolidated basis, (b) the present fair salable value of the assets of such Person and its Subsidiaries on a consolidated basis, is not less than the amount that will be required to pay the probable liability of such Person and its Subsidiaries on a consolidated basis on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it or its Subsidiaries will, on a consolidated basis, incur debts or liabilities beyond the ability of such Person and its Subsidiaries on a consolidated basis to pay as such debts and liabilities -40- 48 mature, and (d) such Person and its Subsidiaries on a consolidated basis are not engaged in business or a transaction, and such Persons and its Subsidiaries on a consolidated basis are not about to engage in business or a transaction, for which the property of such Person and its Subsidiaries would constitute an unreasonably small capital. The amount of Contingent Liabilities at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, can reasonably be expected to become an actual or matured liability. "Standby Purchase Agreements" means the Standby Purchase Agreements, between the Parent and Gordon A. Cain, William A. McMinn, James Crane, Frank P. Diassi, Frank J. Hevrdejs, Koch Capital Services, Inc., each dated as of December 15, 1998. "State" means the several states of the United States of America, including the District of Columbia, and their political subdivisions. "Stated Amount" means, on any date and with respect to a particular Letter of Credit, the total amount then available to be drawn under such Letter of Credit. "Stated Expiry Date" is defined in Section 2.6. "Stated Maturity Date" means with respect to all Loans, July 23, 2004. "Sub Debt Documents" means, collectively, the Additional Senior Subordinated Notes Indenture, the Additional Senior Subordinated Notes, the Senior Subordinated Notes Indenture, the Senior Subordinated Notes, each other document executed in connection therewith and any other loan agreements, indentures, note purchase agreements, promissory notes, guarantees, and other instruments and agreements evidencing the terms of Subordinated Debt, as amended, supplemented, amended and restated or otherwise modified in accordance with Section 7.2.12. "Subordinated Debt" means the Indebtedness evidenced by the Additional Senior Subordinated Notes, the Senior Subordinated Notes and any other Indebtedness of any Borrower or any Foreign Restricted Subsidiaries subordinated in right of payment to the Obligations pursuant to documentation containing redemption and other prepayment events, maturities, amortization schedules, covenants, events of default, remedies, acceleration rights, subordination provisions and other material terms satisfactory to the Agents. "Subsidiary" means, with respect to any Person, (a) any corporation, limited liability company, partnership or other entity of which more than 50% of the Voting Stock is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person or (b) any partnership, joint venture or other entity as to which such Person, such Person and one or more of its Subsidiaries or one or more Subsidiaries of such Person owns more than a 50% ownership, equity or similar interest or has power to direct or cause the direction of management and -41- 49 policies (directly or indirectly), or the power to elect the managing partner (or the equivalent), of such partnership, joint venture or other entity, as the case may be. Unless the context otherwise specifically requires, the term "Subsidiary" shall be a reference to a Subsidiary of the Company. "Swing Line Lender" means the Administrative Agent (or another Lender designated by the Administrative Agent with the consent of the Company (such consent not to be unreasonably withheld), if such Lender agrees to be the Swing Line Lender hereunder), in such Person's capacity as the maker of Swing Line Loans. "Swing Line Loans" is defined in clause (c) of Section 2.1.1. "Swing Line Loan Commitment" is defined in clause (c) of Section 2.1.1. "Swing Line Loan Commitment Amount" means, on any date, $10,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Swing Line Note" means a joint and several promissory note of each Borrower payable to the Swing Line Lender, in the form of Exhibit A-3 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the joint and several aggregate Indebtedness of the Borrowers to the Swing Line Lender resulting from outstanding Swing Line Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Syndication Agent" is defined in the preamble and includes each other Person appointed as the successor Syndication Agent pursuant to Section 9.4. "Synthetic Lease" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (a) that is not a capital lease in accordance with GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for federal income tax purposes, other than any such lease under which that Person is the lessor. "Tax Benefit" is defined in clause (d) of Section 4.6. "Tax Sharing Agreement" means the tax sharing agreement among Parent, the Company and certain Subsidiaries of the Company delivered pursuant to the terms of this Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time in accordance with Section 7.2.12. "Taxes" means any and all income, stamp or other taxes, duties, levies, imposts, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and all interest, penalties or similar liabilities with respect thereto. -42- 50 "Telerate Screen LIBO Page" means the display designated as "Page 3750" on the Telerate System Incorporated Service (or such other page as may replace Page 3750 on the service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association interest settlement rates for Dollar deposits). "Termination Date" means the date on which all Obligations have been paid in full in cash, all Letters of Credit have been terminated, expired or Cash Collateralized, all Rate Protection Agreements have been terminated and all Commitments have been permanently terminated. "Toronto Office" means the corporate office building located at 2 Gibbs Road, Toronto, Ontario, Canada. "Trademark Security Agreement" means any Trademark Security Agreement executed and delivered by any Obligor substantially in the form of Exhibit B to any Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Transaction" is defined in the second recital. "Transfer of the Fibers Business" means any Joint Venture Contribution or any Sale of the Fibers Business or any combination thereof consummated in accordance with the terms of this Agreement. "Trustee" means Harris Trust Company of New York, as trustee under the Senior Secured Note Indenture. "type" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "U.C.C." means the Uniform Commercial Code as may be amended and in effect from time to time in the State of New York; provided, that, if, with respect to any Filing Statement or by reason of any provision of law, the perfection or the effect of perfection or non-perfection of the security interests granted to the Administrative Agent pursuant to the applicable Loan Document is governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other than New York, U.C.C. means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of each Loan Document and any Filing Statement relating to such perfection or effect of perfection or non-perfection. "United States" or "U.S." means the United States of America and all States. -43- 51 "Unrestricted Subsidiary" means (a) any Subsidiary of the Company which is listed on Item 1.2 of the Disclosure Schedule and (b) (i) any other Subsidiary of the Company designated as an Unrestricted Subsidiary by the Company, and (ii) any Subsidiary created or acquired by another Unrestricted Subsidiary or designated as such pursuant to the terms of this Agreement; provided, that, in each case, with respect to any designation under clause (b)(i), at the time of such designation such Unrestricted Subsidiary (A) has not acquired any property of the Borrowers or any of their Foreign Restricted Subsidiaries in excess of $10,000 since the Effective Date, except as specifically permitted by this Agreement, (B) has no Indebtedness which is recourse to any of the Borrowers or any of the Foreign Restricted Subsidiaries and (C) does not own any Capital Securities of the Borrowers or any Foreign Restricted Subsidiary. Notice of any such designation shall be delivered to the Administrative Agent by the Company by promptly filing with the Administrative Agent a copy of the resolutions of the Board of Directors of the Company approving such designation and a certificate of an Authorized Officer certifying that such designation complies with the requirements of this definition. Such designation shall become effective upon receipt by the Administrative Agent of the foregoing. Each Unrestricted Subsidiary shall continue as such until the Company delivers a copy of the resolutions of the Board of Directors of the Company redesignating such Unrestricted Subsidiary as a Foreign Restricted Subsidiary or a Borrower and the Company, such Borrower and/or such Subsidiary shall comply with the requirements of Section 7.1.8; provided that at the time of such redesignation no Default has occurred and is continuing or would result therefrom. "Vancouver Release Parcel" means the parcel described in Item 1.3 of the Disclosure Schedule. "Voting Stock" means, with respect to any Person, Capital Securities of any class or kind ordinarily having the power to vote (directly or indirectly) for the election of directors, managers, representatives or other voting members of the governing body of such Person. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. "Wholly-Owned Subsidiary" means any Subsidiary, all of the outstanding Capital Securities of which (other than any director's qualifying shares or investments by foreign nationals mandated by applicable laws) are owned directly or indirectly by the Company, Parent or one or more other Wholly-Owned Subsidiaries. SECTION I.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each other Loan Document and the Disclosure Schedule. SECTION I.3. Cross-References. Unless otherwise specified, references in a Loan Document to any Article or Section are references to such Article or Section of such Loan Document, and references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. -44- 52 SECTION I.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used in each Loan Document shall be interpreted, and all accounting determinations and computations hereunder or thereunder shall be made, in accordance with GAAP. Unless otherwise expressly provided, all financial covenants and defined financial terms shall be computed on a consolidated basis for the Parent and its Subsidiaries, in each case without duplication. All financial information provided on a consolidating basis shall be prepared consistently with the financial information delivered pursuant to Section 5.1.10. ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT SECTION II.1. Commitments. On the terms and subject to the conditions of this Agreement (including Article V), the Lenders and the Issuer severally agree to make Credit Extensions as set forth below. SECTION II.1.1. Loan Commitments. From time to time on any Business Day occurring from and after the Effective Date but prior to the applicable Commitment Termination Date, (a each Lender that has a Current Assets Loan Commitment (referred to as a "Current Assets Lender"), agrees that it will make loans (relative to such Lender, its "Current Assets Loans") to each Borrower requesting Current Assets Loans equal to such Lender's Current Assets Loan Percentage of the aggregate amount of each Borrowing of Current Assets Loans requested by such Borrower to be made on such day; (b each Lender that has a Fixed Assets Loan Commitment (referred to as a "Fixed Assets Lender") agrees that it will make loans (relative to such Lender, its "Fixed Assets Loans") to each Borrower requesting Fixed Assets Loans equal to such Lender's Fixed Assets Loan Percentage of the aggregate amount of each Borrowing of Fixed Assets Loans requested by such Borrower on such day; and (c the Swing Line Lender agrees that it will make loans (its "Swing Line Loans") to each Borrower requesting Swing Line Loans equal to the principal amount of the Swing Line Loan requested by such Borrower to be made on such day. The Commitment of the Swing Line Lender described in this clause is herein referred to as its "Swing Line Loan Commitment". On the terms and subject to the conditions hereof, each Borrower may from time to time borrow, repay and reborrow Loans. -45- 53 SECTION II.1.2. Letter of Credit Commitment. From time to time on any Business Day occurring from and after the Effective Date but prior to the Current Assets Loan Commitment Termination Date, the Issuer agrees that it will (a issue one or more documentary or standby letters of credit (a "Letter of Credit") for the account of any Borrower in the Stated Amount requested by such Borrower on such day; or (b extend the Stated Expiry Date of an existing standby Letter of Credit previously issued hereunder. No Stated Expiry Date shall extend beyond the earlier of (i) the Current Assets Loan Commitment Termination Date and (ii) unless otherwise agreed to by the Issuer in its sole discretion, one year from the date of such extension. The Issuer shall not be permitted or required to issue any Letter of Credit if, after giving effect thereto, (A) the aggregate amount of all Letter of Credit Outstandings would exceed the Letter of Credit Commitment Amount or (B) the sum of the aggregate amount of all Letter of Credit Outstandings plus the aggregate principal amount of all Current Assets Loans and Swing Line Loans then outstanding would exceed the lesser of (x) the then existing Borrowing Base Amount less the Minimum Excess Availability and (y) the Current Assets Loan Commitment Amount. SECTION II.1.3. Lenders Not Permitted or Required to Make Loans. (a No Current Assets Lender shall be required to, and no Borrower shall request any Current Assets Lender to, make any Current Assets Loan if, after giving effect thereto, the aggregate outstanding principal amount of all the Current Assets Loans and Swing Line Loans (i of all the Current Assets Lenders, together with the aggregate amount of all Letter of Credit Outstandings, would exceed the lesser of (A) the then existing Borrowing Base Amount less the Minimum Excess Availability and (B) the Current Assets Loan Commitment Amount; or (ii of such Current Assets Lender, together with such Current Assets Lender's Percentage of the aggregate amount of all Swing Line Loans and Letter of Credit Outstandings, would exceed such Current Assets Lender's Percentage of the lesser of (A) the then existing Borrowing Base Amount less the Minimum Excess Availability and (B) the Current Assets Loan Commitment Amount. (b The Swing Line Lender shall not be required to, and no Borrower shall request the Swing Line Lender to, make any Swing Line Loan if after giving effect thereto, (a) the aggregate outstanding principal amount of all the Swing Line Loans would exceed the then existing Swing Line Loan Commitment Amount or (b) the aggregate outstanding principal amount of all the Current Assets Loans and Swing Line Loans, together with the -46- 54 aggregate amount of all Letter of Credit Outstandings, would exceed the lesser of (i) the then existing Borrowing Base Amount less the Minimum Excess Availability and (ii) the Current Assets Loan Commitment Amount. (c No Fixed Assets Lender shall be permitted or required to, and no Borrower shall request any Fixed Assets Lender to, make any Fixed Assets Loan if, after giving effect thereto, the aggregate outstanding principal amount of all the Fixed Assets Loans (i of all the Fixed Assets Lenders would exceed the Fixed Assets Loan Commitment Amount; or (ii of such Fixed Assets Lender would exceed such Fixed Assets Lender's Percentage of the Fixed Assets Loan Commitment Amount. SECTION II.2. Reduction of the Commitment Amounts. The Commitment Amounts are subject to reduction from time to time pursuant to this Section 2.2. SECTION II.2.1. Optional. The Company may, from time to time on any Business Day occurring after the Closing Date, voluntarily reduce the amount of any Commitment Amount on the Business Day so specified by the Company, provided, however, that all such reductions shall require at least one Business Day's prior notice to the Administrative Agent and be permanent, and any partial reduction of any Commitment Amount shall be in a minimum amount of $1,000,000 and in an integral multiple of $500,000. Any optional reduction of the Current Assets Loan Commitment Amount pursuant to the terms of this Agreement which reduces the Current Assets Loan Commitment Amount below the sum of (i) the Swing Line Loan Commitment Amount and (ii) the Letter of Credit Commitment Amount shall result in an automatic and corresponding reduction of the Swing Line Loan Commitment Amount and/or Letter of Credit Commitment Amount (as directed by the Company in a notice to the Administrative Agent delivered together with the notice of such voluntary reduction in the Current Assets Loan Commitment Amount) to an aggregate amount not in excess of the Current Assets Loan Commitment Amount, as so reduced, without any further action on the part of the Swing Line Lender or the Issuer. SECTION II.2.2. Mandatory. The Commitment Amounts shall be reduced as set forth below. (a Upon the receipt of mandatory prepayments made pursuant to clauses (d), (e) and (f) of Section 3.1.1, the Fixed Assets Loan Commitment Amount will be reduced as specified in clauses (b) and (c) of Section 3.1.2. -47- 55 (b Commencing on September 30, 2002, and on each subsequent Quarterly Payment Date set forth below, the Fixed Assets Loan Commitment Amount will be permanently reduced in an amount set forth opposite such period (subject to adjustment for any commitment reductions occurring subsequent to the Effective Date applied to recurring quarterly payments on a pro rata basis):
Period Amount of Reduction ------ ------------------- September 30, 2002 $ 2,000,000 December 31, 2002 $ 4,000,000 March 31, 2003 $ 5,000,000 June 30, 2003 $10,000,000 September 30, 2003 $12,250,000 December 31, 2003 $12,250,000 March 31, 2004 $12,250,000 June 30, 2004 $12,250,000
Each Commitment Amount shall, without any further action, automatically and permanently be reduced on the applicable Commitment Termination Date so that the applicable reduced Commitment Amount equals $0. Prior to the applicable Commitment Termination Date, any mandatory reduction of the Current Assets Loan Commitment Amount which reduces the Current Assets Loan Commitment Amount below the sum of (i) the Letter of Credit Commitment Amount and (ii) the Swing Line Loan Commitment Amount shall result in an automatic and corresponding reduction of the Letter of Credit Commitment Amount and/or the Swing Line Loan Commitment Amount (as specified by the Company) to an aggregate amount not in excess of the Current Assets Loan Commitment Amount, as so reduced, without any further action on the part of the Issuer or the Swing Line Lender. SECTION II.3. Borrowing Procedures and Funding Maintenance. Current Assets Loans and Fixed Assets Loans shall be made by the applicable Lenders in accordance with Section 2.3.1, and Swing Line Loans shall be made by the Swing Line Lender in accordance with Section 2.3.2. -48- 56 SECTION II.3.1. Current Assets Loans and Fixed Assets Loans. In the case of Loans (other than Swing Line Loans), by delivering a Borrowing Request to the Administrative Agent on or before 12:00 noon (and following such Borrowing Request, the Administrative Agent shall promptly notify each applicable Lender of such Borrowing Request), New York City time, on a Business Day, any Borrower may from time to time irrevocably request, on the same Business Day's notice (in the case of Base Rate Loans) or three Business Days' notice (in the case of LIBO Rate Loans with an Interest Period of one, two, three, six or nine months) nor more than five Business Days' notice (in the case of any Loans (other than Swing Line Loans) and on five Business Day's notice (in the case of LIBO Rate Loans with an Interest Period of twelve months subject to the definition of "Interest Period"), that a Borrowing be made in an aggregate amount of $500,000 or any larger integral multiple of $100,000 or in the unused amount of the applicable Loan Commitment Amount; provided, that all initial Loans on the Closing Date will be made as Base Rate Loans. No Borrowing Request shall be required, and the minimum aggregate amounts specified under this Section 2.3.1 shall not apply, in the case of Current Assets Loans deemed made under Section 2.6.2 in respect of unreimbursed Disbursements or made under clause (b) of Section 2.3.2 to refund Refunded Swing Line Loans. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 1:00 p.m., New York City time, on such Business Day each Lender with a Commitment to lend the Loans requested shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall promptly and in any event prior to 3:00 p.m., New York City time, make such funds available to such Borrower by wire transfer to the accounts such Borrower shall have specified in its Borrowing Request. In the event that only one Lender fails to fund its Percentage of Loans as required above prior to 3:00 p.m., New York City time, the Administrative Agent shall advance such Loans required to be funded by such Lender and such Loan shall be deemed to be a Swing Line Loan in the amount of such advance. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. SECTION 2.3.2. Swing Line Loans. (a) By telephonic notice, promptly followed (within one Business Day) by the delivery of a confirming Borrowing Request, to the Swing Line Lender and the Administrative Agent on or before 12:00 noon, New York City time, on the Business Day the proposed Swing Line Loan is to be made, any Borrower may from time to time irrevocably request that a Swing Line Loan be made by the Swing Line Lender in a minimum principal amount of $100,000 or any larger integral multiple of $10,000. All Swing Line Loans shall be made as Base Rate Loans and shall not be entitled to be converted into LIBO Rate Loans. The proceeds of each Swing Line Loan shall be made available by the Swing Line Lender, by 3:00 p.m., New York City time, on the Business Day telephonic notice is received by it as provided in this clause (a), to such Borrower by wire transfer to the account such Borrower shall have specified in its notice therefor. -49- 57 (b If (i) any Swing Line Loan, (A) shall be outstanding for more than four Business Days or (B) is or will be outstanding on a date when any Borrower requests that a Current Assets Loan be made or (ii) any Default shall occur and be continuing, each Current Assets Lender (other than the Swing Line Lender) irrevocably agrees that it will, at the request of the Swing Line Lender (and at the discretion of the Swing Line Lenders) and upon notice from the Administrative Agent, make a Current Assets Loan (which shall initially be funded as a Base Rate Loan) in an amount equal to such Current Assets Lender's Percentage of the aggregate principal amount of all such Swing Line Loans then outstanding (such outstanding Swing Line Loans hereinafter referred to as the "Refunded Swing Line Loans"). On or before 12:00 noon, New York City time on the first Business Day following receipt by each Current Assets Lender of a request to make Current Assets Loans as provided in the preceding sentence, each such Current Assets Lender shall deposit in an account specified by the Swing Line Lender the amount so requested in same day funds and such funds shall be applied by the Swing Line Lender to repay the Refunded Swing Line Loans. At the time the Current Assets Lenders make the above referenced Current Assets Loans, the Swing Line Lender shall be deemed to have made, in consideration of the making of the Refunded Swing Line Loans, a Current Assets Loan in an amount equal to the Swing Line Lender's Percentage of the aggregate principal amount of the Refunded Swing Line Loans. Upon the making (or deemed making, in the case of the Swing Line Lender) of any Current Assets Loans pursuant to this clause (b), the amount so funded shall become outstanding under such Lender's Current Assets Loans and shall no longer be owed under the Swing Line Lender's Swing Line Loans. All interest payable with respect to any Current Assets Loans made (or deemed made, in the case of the Swing Line Lender) pursuant to this clause (b) shall be appropriately adjusted to reflect the period of time during which the Swing Line Lender had outstanding Swing Line Loans in respect of which such Current Assets Loans were made. (c If, at any time prior to the making of Current Assets Loans to replace any outstanding Swing Line Loans pursuant to clause (b) above, any Default of the nature set forth in Section 8.1.9 shall have occurred, each Current Assets Lender with a Current Assets Loan Commitment (other than the Swing Line Lender) irrevocably agrees that it will, at the request of the Swing Line Lender and upon notice from the Administrative Agent, purchase an undivided participation interest in all such Swing Line Loans in an amount equal to its Percentage of the aggregate outstanding amount of such Swing Line Loans and transfer immediately to an account identified by the Swing Line Lender, in immediately available funds, the amount of its participation. The Swing Line Lender will deliver to each such Current Assets Lender, promptly following receipt of such funds, a participation certificate, dated the date of receipt of such funds and in the amount of such Current Assets Lender's participation if requested to do so by such Current Assets Lender. (d Each Borrower expressly agrees that, in respect of each Current Assets Lender's funded participation interest in any Swing Line Loan, such Current Assets Lender shall be deemed to be in privity of contract with each Borrower and have the same rights and remedies -50- 58 against each Borrower under the Loan Documents as if such funded participation interest in such Swing Line Loan were a Current Assets Loan. (e Each Current Assets Lender's obligation to make Current Assets Loans or purchase participation interests in Swing Line Loans, as contemplated by clause (b) or (c) above, shall be absolute and unconditional and without recourse to the Swing Line Lender and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Current Assets Lender may have against the Swing Line Lender, each Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect, (iii) the acceleration or maturity of any Loans or the termination of any Commitment after the making of any Swing Line Loan, (iv) any breach of this Agreement or any other Loan Document by any Person, or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION II.4. Continuation and Conversion Elections. By delivering a Continuation/ Conversion Notice to the Administrative Agent on or before 12:00 noon, New York City time, on a Business Day, the Company may from time to time irrevocably elect, on not less than one Business Day's notice (in the case of a conversion of LIBO Rate Loans to Base Rate Loans) or three Business Days' notice (in the case of a continuation of LIBO Rate Loans or a conversion of Base Rate Loans into LIBO Rate Loans) nor more than five Business Days' notice (in the case of any Loans) that all, or any portion in a minimum amount of $500,000 or an integral multiple of $100,000, of any Loans be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days (but not more than five Business Days) before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically be continued as a LIBO Rate Loan having a one month Interest Period); provided, however, that (a) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Current Assets Lenders or Fixed Assets Lenders, as applicable, and (b) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION II.5. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the joint and several obligation of the Borrowers to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. SECTION II.6. Issuance Procedures. By delivering to the Issuer (if applicable) and the Administrative Agent an Issuance Request on or before 12:00 noon, New York City time, on a -51- 59 Business Day, any Borrower may, from time to time irrevocably request, on not less than three nor more than ten Business Days' notice (or such shorter or longer notice as may be acceptable to the Issuer), in the case of an initial issuance of a Letter of Credit, and not less than three nor more than ten Business Days' notice (unless a shorter or longer notice period is acceptable to the Issuer) prior to the then existing Stated Expiry Date of a Letter of Credit, in the case of a request for the extension of the Stated Expiry Date of a Letter of Credit, that the Issuer issue, or extend the Stated Expiry Date of, as the case may be, an irrevocable Letter of Credit on behalf of such Borrower in such form as may be requested by such Borrower and approved by the Issuer; provided, however, that no extension of the Stated Expiry Date of an outstanding Letter of Credit may provide for a Stated Expiry Date subsequent to the earlier of (a) the Current Assets Loan Commitment Termination Date and (b) one year from the date of such extension. Notwithstanding anything to the contrary contained herein or in any separate application for any Letter of Credit, each Borrower hereby jointly and severally acknowledges and agrees that it shall be obligated to reimburse the Issuer upon each Disbursement paid under a Letter of Credit, and it shall be deemed to be the obligor for purposes of each such Letter of Credit issued hereunder (whether the account party on such Letter of Credit is the Company or any other Borrower). Upon receipt of an Issuance Request, the Administrative Agent shall promptly notify the Issuer and each Lender thereof and shall cause: (i) the Letter of Credit requested by the Issuance Request to be issued and (ii) the Issuer to (A) comply with the terms and conditions of this Agreement relating to the Letter of Credit and (B) to fulfill the duties and obligations of the Issuer hereunder. Each Letter of Credit shall by its terms be stated to expire on a date (its "Stated Expiry Date") no later than the earlier to occur of (a) the Current Assets Loan Commitment Termination Date or (b) one year from the date of its issuance. SECTION II.6.1. Other Lenders' Participation. Upon the issuance of each Letter of Credit issued by the Issuer pursuant hereto, and without further action, each Lender (other than the Issuer) that has a Current Assets Loan Commitment shall be deemed to have irrevocably purchased from the Issuer, to the extent of its Current Assets Loan Percentage in respect of Current Assets Loans, and the Issuer shall be deemed to have irrevocably granted and sold to such Current Assets Lender a participation interest in such Letter of Credit (including the Contingent Liability and any Reimbursement Obligation and all rights with respect thereto), and such Current Assets Lender shall, to the extent of its Current Assets Loan Percentage, be responsible for reimbursing promptly (and in any event within one Business Day) the Issuer for Reimbursement Obligations which have not been reimbursed by the Borrowers in accordance with Section 2.6.3. In addition, such Lender shall, to the extent of its Current Assets Loan Percentage, be entitled to promptly receive a ratable portion of the Letter of Credit fees payable pursuant to Section 3.3.3 with respect to each Letter of Credit and of interest payable pursuant to Section 3.2 with respect to any Reimbursement Obligation. To the extent that any Current Assets Lender has reimbursed the Issuer for a Disbursement as required by this Section, such Lender shall be entitled to receive its ratable portion of any amounts subsequently received (from the Borrowers or otherwise) in respect of such Disbursement. -52- 60 SECTION II.6.2. Disbursements; Conversion to Current Assets Loans. The Issuer will notify the Company and the Administrative Agent promptly (but in any event on the same Business Day) of the presentment for payment of any drawing under any Letter of Credit issued by the Issuer, together with notice of the date (the "Disbursement Date") such payment shall be made (each such payment, a "Disbursement"). Subject to the terms and provisions of such Letter of Credit and this Agreement, the Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 12:00 noon, New York City time, on the Business Day following the Disbursement Date (the "Disbursement Due Date"), the Borrowers will jointly and severally reimburse the Administrative Agent, for the account of the Issuer, for all amounts which the Issuer has disbursed under such Letter of Credit, together with interest thereon at the rate per annum otherwise applicable to Current Assets Loans (made as Base Rate Loans) from and including the Disbursement Date to but excluding the Disbursement Due Date and, thereafter (unless such Disbursement is converted into a Base Rate Loan on the Disbursement Due Date), at a rate per annum equal to the rate per annum then in effect with respect to overdue Current Assets Loans (made as Base Rate Loans) pursuant to Section 3.2.2 for the period from the Disbursement Due Date through but excluding the date of such reimbursement; provided, however, that if no Default shall have then occurred and be continuing and the Borrowers are able to represent and warrant to the Current Assets Lenders that the statements set forth in Section 5.2.1 are true and correct, unless such Borrower has notified the Administrative Agent no later than one Business Day prior to the Disbursement Due Date that it will reimburse the Issuer for the applicable Disbursement, then the amount of the Disbursement shall be deemed to be a Borrowing of Current Assets Loans constituting Base Rate Loans and following the giving of notice thereof by the Administrative Agent to the Lenders, each Lender with a Current Assets Loan Commitment (other than the Issuer) will deliver to the Issuer on the Disbursement Due Date immediately available funds in an amount equal to such Lender's Current Assets Loan Percentage of such Borrowing. Each conversion of Disbursement amounts into Current Assets Loans shall constitute a representation and warranty by each Borrower that on the date of the making of such Current Assets Loans all of the statements set forth in Section 5.2.1 are true and correct. SECTION II.6.3. Reimbursement. The joint and several obligation (a "Reimbursement Obligation") of the Borrowers under Section 2.6.2 to reimburse the Issuer with respect to each Disbursement (including interest thereon) not converted into Current Assets Loans constituting a Base Rate Loan pursuant to Section 2.6.2, and, upon such Borrower failing or electing not to reimburse the Issuer and the giving of notice thereof by the Administrative Agent to the Current Assets Lenders, each Current Assets Lender's obligation under Section 2.6.1 to reimburse the Issuer or fund its Percentage of any Disbursement converted into a Base Rate Loan, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which any Borrower or such Current Assets Lender, as the case may be, may have or have had against the Issuer or any such Current Assets Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (if, in the Issuer's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the -53- 61 proceeds of such Letter of Credit; provided, however, that after paying in full its Reimbursement Obligation hereunder, nothing herein shall adversely affect the right of any Borrower or such Current Assets Lender, as the case may be, to commence any proceeding against the Issuer for any wrongful Disbursement made by the Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of the Issuer. SECTION II.6.4. Deemed Disbursements. Upon the occurrence and during the continuation of any Event of Default of the type described in clauses (a) through (d) of Section 8.1.9 or, with notice from the Administrative Agent acting at the direction of the Current Assets Required Lenders pursuant to Section 8.3, upon the occurrence and during the continuation of any other Event of Default, (a an amount equal to that portion of all Letter of Credit Outstandings attributable to the then aggregate amount which is undrawn and available under all Letters of Credit issued and outstanding shall, without demand upon or notice to any Borrower or any other Person, be deemed to have been paid or disbursed by the Issuer under such Letters of Credit (notwithstanding that such amount may not in fact have been so paid or disbursed); and (b each Borrower shall be immediately jointly and severally obligated to reimburse the Issuer for the amount deemed to have been so paid or disbursed by the Issuer. Any amounts so payable by any Borrower pursuant to this Section shall be deposited in cash with the Administrative Agent and held as collateral security for the Reimbursement Obligations in connection with the Letters of Credit issued by the Issuer. At such time as the Event of Default giving rise to the deemed disbursements hereunder shall have been cured or waived, the Administrative Agent shall return to the applicable Borrower all amounts then on deposit with the Administrative Agent pursuant to this Section, together with accrued interest at the Federal Funds Rate, which have not been applied to the satisfaction of such Reimbursement Obligations. SECTION II.6.5. Nature of Reimbursement Obligations. Each Borrower and, to the extent set forth in Section 2.6.1, each Lender with a Current Assets Loan Commitment, shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Issuer (except to the extent of its own gross negligence or willful misconduct) shall not be responsible for (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged, (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason, (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter -54- 62 of Credit, (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, facsimile or otherwise, or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Issuer or any Current Assets Lender. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by the Issuer in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon each Borrower and each such Current Assets Lender, and shall not put the Issuer under any resulting liability to any Borrower or any such Current Assets Lender, as the case may be. SECTION II.7. Register, Reserves, Notes. (a Each Lender may maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. In the case of a Lender that does not request, pursuant to clause (b)(ii) below, execution and delivery of a Note evidencing the Loans made by such Lender to the Borrowers, such account or accounts shall, to the extent not inconsistent with the notations made by the Administrative Agent in the Register, be conclusive and binding on each Borrower absent manifest error; provided, however, that the failure of any Lender to maintain such account or accounts shall not limit or otherwise affect any Obligations of any Borrower. (b) (i) Each Borrower hereby designates the Administrative Agent to serve as such Borrower's agent, solely for the purpose of this clause (b), to maintain a register (the "Register") on which the Administrative Agent will record each Lender's Commitment, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans of each Lender and annexed to which the Administrative Agent shall retain a copy of each Lender Assignment Agreement delivered to the Administrative Agent pursuant to Section 10.11.1. Failure to make any recordation, or any error in such recordation, shall not affect any Borrower's obligation in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrowers, the Administrative Agent and the Lenders shall treat each Person in whose name a Loan (and as provided in clause (ii) the Note evidencing such Loan, if any) is registered as the owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary. A Lender's Commitment and the Loans made pursuant thereto may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer in the Register. Any assignment or transfer of a Lender's Commitment or the Loans made pursuant thereto shall be registered in the Register only upon delivery to the Administrative Agent of a Lender Assignment Agreement duly executed by the Assignor thereof. No assignment or transfer of a Lender's Commitment or the Loans made pursuant thereto shall be effective unless such assignment or transfer shall have been recorded in the Register by the Administrative Agent as provided in this Section 2.7. -55- 63 (ii) Each Borrower agrees that, upon the written request to the Administrative Agent by any Lender, each Borrower will execute and deliver to such Lender, as applicable, a Note evidencing the Loans made by such Lender. Each Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal amount of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall, to the extent not inconsistent with the notations made by the Administrative Agent in the Register, be conclusive and binding on the Borrowers absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of any Borrower. The Loans evidenced by any such Note and interest thereon shall at all times (including after assignment pursuant to Section 10.11.1) be payable to the order of the payee named therein and its registered assigns. Subject to the provisions of Section 10.11.1, a Note and the obligation evidenced thereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of such Note and the obligation evidenced thereby in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of an obligation evidenced by a Note shall be registered in the Register only upon surrender for registration of assignment or transfer of the Note evidencing such obligation, accompanied by a Lender Assignment Agreement duly executed by the assignor thereof and the compliance by the parties thereto with the other requirements of Section 10.11.1, and thereupon, if requested by the assignee, one or more new Notes shall be issued to the designated assignee and the old Note shall be returned by the Administrative Agent to the Company marked "exchanged". No assignment of a Note and the obligation evidenced thereby shall be effective unless it shall have been recorded in the Register by the Administrative Agent as provided in this Section. (c) In order to utilize the collective borrowing powers of the Borrowers in the most efficient and economical manner, and in order to facilitate the handling of the accounts of the Borrowers on the Administrative Agent's books, the Borrowers have requested, and the Administrative Agent has agreed to handle accounts of the Borrowers on the Administrative Agent's books on a combined basis, all in accordance with the following provisions: (i) In lieu of maintaining separate accounts on the Administrative Agent's books in the name of each of the Borrowers, the Administrative Agent shall maintain (A) one account under the name of the Company (the "Fixed Assets Obligations Account") and (B) one other account under the name of the Company (the "Current Assets Obligations Account", together with the Fixed Assets Obligations Account, the "Obligation Accounts"). Credit Extensions made by the Lenders or the Issuer to any of the Borrowers will be charged to the applicable Obligation Account, along with any and all fees, charges, expenses, indemnities or any other monies due under any Loan Document. The applicable Obligation Account will be credited with all amounts received by the Administrative Agent from any of the Borrowers or from others for their account, including all amounts received by the Administrative Agent in payment of the applicable Obligations. (ii) Each month the Administrative Agent will render to the Borrowers one extract of each Obligation Account, which shall be deemed to be an account stated as to each of the Borrowers and which will be deemed correct and accepted by all of the Borrowers unless the Administrative -56- 64 Agent receives a written statement of exceptions from them within 30 days after such extract has been rendered by the Administrative Agent. Each of the Borrowers agrees that the Administrative Agent, and the Lenders as applicable, shall have no obligation to account separately to any of the Borrowers. (iii) Requests for Loans may be made by the Company as agent for the Borrowers and the Administrative Agent is hereby authorized and directed to accept, honor and rely on such instructions and requests, subject to the limitation and provisions set forth in this Agreement. Each of the Borrowers agrees that the Administrative Agent shall have no responsibility to inquire into the correctness of the apportionment, allocation or disposition of (A) any Credit Extensions made to any of the Borrowers or (B) any of the Administrative Agent's or Lender's expenses and charges relating thereto. All Credit Extensions are made for the applicable Obligation Account. (iv) It is understood that the handling of the accounts of the Borrowers in a combined fashion is done solely as an accommodation to the Borrowers and at their request, and that the Administrative Agent shall incur no liability to the Borrowers as a result hereof. (v) The foregoing request was made because the Borrowers are engaged in an integrated operation that requires financing on a basis permitting the availability of credit from time to time to each of the Borrowers as required for the continued successful operation of each of the Borrowers. Each of the Borrowers expects to derive benefit, directly or indirectly, from such availability since the successful operation of each of the Borrowers is dependent on the continued successful performance of the functions of the integrated group. (d) Each of the Borrowers hereby authorizes the Administrative Agent to charge the applicable Obligation Account with the amount of all payments due hereunder as such payments become due. Each Borrower confirms that any charges which the Administrative Agent may so make to such Obligation Account will be made as an accommodation to the Borrowers and solely at the Administrative Agent's discretion. (e) Without limiting any other rights and remedies of the Administrative Agent or any of the Secured Parties under any Loan Document, all Current Assets Loans and Letters of Credit otherwise available to the Borrowers shall be subject to the Administrative Agent's continuing right, in its reasonable discretion, to establish an Availability Reserve. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION III.1. Repayments and Prepayments; Application. Each Borrower agrees that the Loans shall be repaid and prepaid pursuant to the following terms. SECTION III.1.1. Repayments and Prepayments. The Borrowers shall jointly and severally repay in full the unpaid principal amount of each Loan upon the applicable Stated Maturity Date therefor. Prior thereto, payments and prepayments of Loans shall or may be made as set forth below. -57- 65 (a) From time to time on any Business Day, any Borrower may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any (i) Loans (other than Swing Line Loans); provided, however, that (A) any such prepayment of the Loans shall be made among Current Assets Loans and Fixed Assets Loans as specified by such Borrower in the notice of voluntary prepayment, and pro rata among Current Assets Loans and Fixed Assets Loans of the same type and, if applicable, having the same Interest Period of all Lenders that have made such Current Assets Loans or Fixed Assets Loans; (B) all such voluntary prepayments shall require at least one but no more than five Business Days' prior written notice to the Administrative Agent; and (C) all such voluntary partial prepayments shall be, in the case of LIBO Rate Loans, in an aggregate minimum amount of $500,000 and an integral multiple of $100,000 and, in the case of Base Rate Loans, in an aggregate minimum amount of $100,000 and an integral multiple of $10,000; and (ii) Swing Line Loans; provided, that (A) all such voluntary prepayments shall require prior telephonic notice to the Swing Line Lender on or before 1:00 p.m., New York City time, on the day of such prepayment (such notice to be confirmed in writing within 24 hours thereafter); and (B) all such voluntary partial prepayments shall be in an aggregate minimum amount of $100,000 and an integral multiple of $10,000. (b) On each date when the sum of (i) the aggregate outstanding principal amount of all Current Assets Loans and Swing Line Loans and (ii) the aggregate amount of all Letter of Credit Outstandings exceeds the lesser of (A) the Current Assets Loan Commitment Amount (as it may be reduced from time to time pursuant to this Agreement) and (B) the then applicable Borrowing Base Amount less the Minimum Excess Availability, the Borrowers shall make a mandatory prepayment of Current Assets Loans or Swing Line Loans or, if necessary, Cash Collateralize all Letter of Credit Outstandings, as specified by the applicable Borrower, in an aggregate amount equal to such excess. (c) On each date when the aggregate outstanding principal amount of all Fixed Assets Loans exceeds the Fixed Assets Loan Commitment Amount (as it may be reduced from time to time pursuant to this Agreement), the Borrowers shall make a mandatory prepayment of Fixed Assets Loans in an aggregate amount equal to such excess. (d) Concurrently with the receipt of any Net Disposition Proceeds by any Borrower or any Foreign Restricted Subsidiary, the Company shall deliver to the Administrative Agent a calculation of the amount of such Net Disposition Proceeds and make a mandatory prepayment of the Loans in an amount equal to 100% of such Net Disposition Proceeds, to be applied as set forth in Section 3.1.2; provided, however, that -58- 66 solely with respect to Net Disposition Proceeds received in connection with a Transfer of the Fibers Business no such mandatory prepayment of the Loans shall be required under this clause to the extent that the Company (i) notifies the Administrative Agent no later than three days following the receipt of such Net Disposition Proceeds that it is the Company's good faith intention to apply such Net Disposition Proceeds toward the acquisition of other assets or property used in connection with the business of any Borrower or any Foreign Restricted Subsidiary or any business reasonably related thereto, (ii) places the proceeds of such Disposition in an escrow account maintained by the Administrative Agent pending such application (which proceeds shall be invested in Cash Equivalent Investments at all times during which they are deposited in such escrow account), (iii) the Company in fact so uses such Net Disposition Proceeds within 365 days following the receipt by such Person of Net Disposition Proceeds, with the amount of Net Disposition Proceeds unused after such 365 day period being applied to prepay the Fixed Assets Loans pursuant to this clause to be applied as set forth in clause (b) of Section 3.1.2 and (iv) the Company (or, if applicable, the Fibers Subsidiaries) shall legally and effectively grant the Administrative Agent, on behalf of the Fixed Assets Lenders, a first priority Lien in any non-cash proceeds received by the Company (or the Fibers Subsidiaries) in such Transfer of the Fibers Business, including any Capital Securities, as additional security for the repayment of the Fixed Assets Obligations, and provided further that a mandatory prepayment of the Loans shall not be required under this clause in the case of the sale of the Toronto Office and the Vancouver Release Parcel except for that portion (if any) of such Net Disposition Proceeds that, in the aggregate, exceed $5,000,000. (e) Concurrently with the receipt of any Net Debt Proceeds by Parent, any Borrower or any Foreign Restricted Subsidiary, the Company shall deliver to the Administrative Agent a calculation of the amount of such Net Debt Proceeds and make a mandatory prepayment of the Loans in an amount equal to 100% of such Net Debt Proceeds, to be applied as set forth in clause (c) of Section 3.1.2. (f) Concurrently with the receipt of any Net Equity Proceeds by Parent, any Borrower or any Foreign Restricted Subsidiary, the Company shall deliver to the Administrative Agent a calculation of the amount of such Net Equity Proceeds (satisfactory to the Administrative Agent) and Parent, such Borrower or such Foreign Restricted Subsidiary shall make a mandatory prepayment of the Loans in an amount equal to 50% of such Net Equity Proceeds, to be applied as set forth in clause (c) of Section 3.1.2, provided, however, that a mandatory prepayment of the Loans shall not be required under this clause, in the case of (i) any exercise of warrants or options outstanding prior to the Effective Date, (ii) the issuance or exercise of any options granted pursuant to any stock option, compensation or similar plan of Parent, any Borrower or any Foreign Restricted Subsidiary, (iii) the sale or issuance of any Capital Securities to any employee stock ownership plan of Parent, any Borrower or any Foreign Restricted Subsidiary, (iv) the issuance of any Capital Securities by way of dividend or -59- 67 other distribution, subdivision or split on or of any Capital Securities of Parent, any Borrower or any Foreign Restricted Subsidiary and (v) the issuance and sale by Parent of its Capital Securities to an Unrestricted Subsidiary to the extent that the proceeds received from such Unrestricted Subsidiary are used solely to pay interest that is currently due and payable on the Senior Secured Discount Notes within 180 days of the receipt of such proceeds provided that to the extent that any proceeds received from such Unrestricted Subsidiary are not so applied, 50% of such unapplied proceeds shall be applied as set forth in clause (c) of Section 3.1.2. (g) Immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or Section 8.3, the Borrowers shall jointly and severally repay all the Loans, unless, pursuant to Section 8.3, only a portion of all the Loans is so accelerated (in which case the portion so accelerated shall be so repaid). Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.4. SECTION III.1.2. Application. Amounts prepaid pursuant to Section 3.1.1 shall be applied as set forth in this Section. (a) Subject to clause (b), each prepayment or repayment of the principal of the Loans shall be applied, to the extent of such prepayment or repayment, first, to the principal amount thereof being maintained as Base Rate Loans, and second, subject to the terms of Section 4.4, to the principal amount thereof being maintained as LIBO Rate Loans. (b) Each prepayment of Loans pursuant to clause (d) of Section 3.1.1 shall be applied (i) in the case of a Disposition of assets that are Fixed Assets to a mandatory prepayment of the outstanding Fixed Assets Loans until all outstanding Fixed Assets Loans have been repaid in full and immediately upon the Administrative Agent's receipt of such Net Disposition Proceeds, the Fixed Assets Loan Commitment Amount shall be reduced by the aggregate amount of (A) Net Disposition Proceeds used to prepay the outstanding principal amount of such Fixed Assets Loans plus (B) any additional amount of such Net Disposition Proceeds remaining after the outstanding amount of Fixed Assets Loans have been reduced to zero; provided that the first $2,500,000 of Net Disposition Proceeds prepaid pursuant to a Disposition permitted under clause (d) of Section 7.2.11 in any Fiscal Year shall not result in a reduction of the Fixed Assets Loan Commitment Amount and (ii) in the case of a Disposition of assets other than Fixed Assets, first, to a mandatory prepayment of the outstanding Current Assets Loans until all outstanding Current Assets Loans have been repaid in full and second, to a mandatory prepayment of the outstanding Fixed Assets Loans until all outstanding Fixed Assets Loans have been repaid in full provided that any such prepayment pursuant to this clause (b) (ii) will not automatically result in a reduction of the Fixed Assets Loan Commitment Amount or the -60- 68 Current Assets Loan Commitment Amount. Upon any Disposition of assets that are not Current Assets, an amount equal to the Net Disposition Proceeds minus the aggregate amount required to repay all outstanding Fixed Assets Obligations may be paid to the Trustee to hold in escrow pending any offer to purchase the Senior Secured Notes required under the Senior Secured Note Indenture in connection with such Disposition. (c) Each prepayment of Loans made pursuant to clauses (e) and (f) of Section 3.1.1 shall be applied (i) first, pro rata based on the aggregate Commitment Amount to a mandatory prepayment of the outstanding principal amount of all Current Assets Loans and all Fixed Assets Loans until the outstanding principal amount of all Fixed Assets Loans is equal to zero, (ii) second, if (A) the outstanding principal amount of Fixed Assets Loans is equal to zero, then to a mandatory prepayment of the outstanding principal amount of all Current Assets Loans with a corresponding permanent reduction in the Fixed Assets Loan Commitment Amount by the amount of such Net Equity Proceeds or Net Debt Proceeds which would have otherwise been applied pro rata based on the aggregate Commitment Amount to the outstanding principal amount of all Fixed Assets Loans until the outstanding principal amount of all such Current Assets Loans has been reduced to zero or (B) the outstanding principal amount of Current Assets Loans has been reduced to zero, the remaining amount of Net Equity Proceeds or Net Debt Proceeds shall be applied to the prepayment of the outstanding principal amount of all Fixed Assets Loans until the outstanding principal amount of all Fixed Assets Loans is equal to zero and (iii) third, once the outstanding principal amount of all Current Assets Loans has been reduced to zero, the Fixed Assets Loan Commitment Amount shall be reduced by the amount of such Net Equity Proceeds or Net Debt Proceeds prepaid pursuant to clauses (i) and (ii) above and the amount of such Net Equity Proceeds or Net Debt Proceeds remaining unapplied. SECTION III.2. Interest Provisions. Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with the terms set forth below. SECTION III.2.1. Rates. Subject to Section 2.3.2, pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, any Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum: (a) (i) on that portion (other than the Overadvance Amount) maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Margin, and (ii) on that portion that is the Overadvance Amount maintained as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Overadvance Rate; provided that all Swing Line Loans shall always accrue interest at the then effective Applicable Margin for Current Assets Loans maintained as Base Rate Loans; and -61- 69 (b) (i) on that portion (other than the Overadvance Amount) maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin, and (ii) on that portion that is the Overadvance Amount maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Overadvance Rate. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate applicable to such LIBO Rate Loan. SECTION III.2.2. Post-Maturity Rates. After the date any principal amount of any Loan or Reimbursement Obligation is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrowers shall have become due and payable, the Borrowers shall jointly and severally pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Alternate Base Rate from time to time in effect plus the Applicable Margin for Fixed Assets Revolving Loans plus, a margin of 2%. SECTION III.2.3. Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan on the principal amount so paid or prepaid; (c) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the Closing Date; (d) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the date occurring on each three-month interval occurring after the first day of such Interest Period); (e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and (f) on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration. -62- 70 Interest accrued on Loans or other monetary Obligations after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION III.3. Fees. Each Borrower agrees to pay the fees set forth below. All such fees shall be non-refundable. SECTION III.3.1. Commitment Fees. The Borrowers agree to pay, jointly and severally, to the Administrative Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrowers' inability to satisfy any condition of Article V) commencing on the Effective Date and continuing through the applicable Commitment Termination Date, a commitment fee in an aggregate amount equal to the Applicable Commitment Fee, in each case on such Lender's Percentage of the sum of the average daily unused portion of the applicable Commitment Amount (less Letter of Credit Outstandings, in the case of the Current Assets Loan Commitment Amount). All commitment fees payable pursuant to this Section shall be calculated on a year comprised of 360 days and payable by the Borrowers in arrears on the Effective Date and thereafter on each Quarterly Payment Date, commencing with the first Quarterly Payment Date following the Effective Date, and (a) with respect to the Current Assets Loan Commitment, on the Current Assets Loan Commitment Termination Date, and (b) with respect to the Fixed Assets Loan Commitment, on the Fixed Assets Loan Commitment Termination Date. The making of Swing Line Loans shall not constitute usage of the Current Assets Loan Commitment with respect to the calculation of commitment fees to be paid by the Borrowers to the Lenders. SECTION III.3.2. The Agents' Fees and the Lead Arranger's Fees. The Borrowers agree to pay, jointly and severally, to each of the Syndication Agent, the Administrative Agent and the Lead Arranger, for each such Person's own account, an aggregate amount equal to the fees set forth in the Fee Letter and the Administrative Agent's Fee Letter, in each case in accordance with their respective terms. SECTION III.3.3. Letter of Credit Fees. The Borrowers agree to pay, jointly and severally, to the Administrative Agent, for the pro rata account of the Issuer and each Current Assets Loan Lender, an aggregate Letter of Credit fee on the daily average Stated Amount of each Letter of Credit, in each case for the period from and including the date of issuance of such Letter of Credit to and excluding the date expiration or termination of such Letter of Credit computed at a per annum rate for each day equal to the then effective Applicable Margin for Current Assets Loans maintained as LIBO Rate Loans in effect on such day, such fees being payable quarterly in arrears on each Quarterly Payment Date and on the Current Assets Loan Commitment Termination Date. The Borrowers further agree to pay, jointly and severally, to the Issuer quarterly in arrears on each Quarterly Payment Date following the date of issuance of a Letter of Credit until the earlier of the expiration of such Letter of Credit and the Current Assets Loan Commitment Termination Date, an issuance fee as specified in the Administrative Agent's Fee Letter or as otherwise agreed to by the Borrowers and the Issuer. -63- 71 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION IV.1. LIBO Rate Lending Unlawful. If any Lender shall reasonably determine (which determination shall, in the absence of manifest error and upon notice thereof to the Company and the Administrative Agent, be conclusive and binding on each Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any Governmental Authority asserts that it is unlawful, for such Lender to make or continue any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue or convert any such LIBO Rate Loan shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all outstanding LIBO Rate Loans payable to such Lender shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION IV.2. Deposits Unavailable. If the Administrative Agent shall have determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to it in its relevant market; or (b) by reason of circumstances affecting it's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans; then, upon notice from the Administrative Agent to the Company and the Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist; provided that, in such case, the Lenders shall use their reasonable efforts to obtain funding of the Loans at a rate comparable with the LIBO Rate (Reserve Adjusted) in other Eurodollar markets. SECTION IV.3. Increased LIBO Rate Loan Costs, etc. Each Borrower agrees, jointly and severally, to reimburse each Lender and Issuer for any increase in the cost to such Lender or Issuer of, or any reduction in the amount of any sum receivable by such Secured Party in respect of, such Secured Party's Commitments and the making of Credit Extensions hereunder (including the making, continuing or maintaining (or of its obligation to make or continue) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans) that arise in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in after the date hereof of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority, except for such changes with respect to increased capital costs and -64- 72 Taxes which are governed by Sections 4.5 and 4.6, respectively. Each affected Secured Party shall promptly notify the Administrative Agent and the Company in writing of the occurrence of any such event, stating the reasons therefor and the additional amount required fully to compensate such Secured Party for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrowers directly to such Secured Party within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrowers. SECTION IV.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make or continue any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) not recovered in connection with the redeployment of such funds (and excluding any loss of anticipated profits) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Article III or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor (unless due to the responsibility of the Lender or inability of the Lender to fund in accordance with the terms hereof); or (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor (unless due to the responsibility of the Lender or inability of the Lender to fund in accordance with the terms hereof); then, upon the written notice of such Lender to the Company (with a copy to the Administrative Agent), the Borrowers shall, jointly and severally, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice shall set forth the basis for requesting such amounts and shall, in the absence of manifest error, be conclusive and binding on each Borrower. SECTION IV.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (having the force of law) of any Governmental Authority affects or would affect the amount of capital required or expected to be maintained by any Secured Party or any Person controlling such Secured Party, and such Secured Party determines (in good faith but in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of the Commitments or the Credit Extensions made, or the Letters of Credit participated in, by such Secured Party is reduced to a level below that which such Secured Party or such controlling Person could have achieved but for the occurrence of any such circumstance, then upon notice from time to time by such Secured Party to the Company, the Borrowers shall, within five days following receipt of such notice (which notice shall be sent to the Company promptly (but in no event later than 180 days) after obtaining actual knowledge by such Lender of any such amounts owed by the Borrowers and the amount shall be conclusively determined by such Lender), jointly and severally, pay directly to such Secured Party additional amounts sufficient to compensate such Secured -65- 73 Party or such controlling Person for such reduction in rate of return to the extent allocable to such Lender's Commitments or the Credit Extensions made, or the Letters of Credit participated in by such Lender. A statement of such Secured Party as to any such additional amount or amounts shall, in the absence of manifest error, be conclusive and binding on each Borrower. In determining such amount, such Secured Party may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable, provided that the determination of such amount is made in good faith and in a manner generally consistent with such Secured Party's standard practice therefor. SECTION IV.6. Taxes. Each Borrower covenants and agrees as follows with respect to Taxes. (a) Any and all payments by the Borrowers under each Loan Document shall be made without setoff, counterclaim or other defense, and free and clear of, and without deduction or withholding for or on account of, any Taxes. In the event that any Taxes are required by law to be deducted or withheld from any payment required to be made by the Borrowers to or on behalf of any Secured Party under any Loan Document, then: (i) subject to clause (f), if such Taxes are Non-Excluded Taxes, the amount of such payment shall be increased as may be necessary such that such payment is made, after withholding or deduction for or on account of such Taxes, in an amount that is not less than the amount provided for in such Loan Document; and (ii) the Borrowers shall withhold the full amount of such Taxes from such payment (as increased pursuant to clause (a) (i)) and shall pay such amount to the Governmental Authority imposing such Taxes in accordance with applicable law. (b) In addition, the Borrowers shall pay any and all Other Taxes imposed to the relevant Governmental Authority imposing such Other Taxes in accordance with applicable law. (c) As promptly as practicable after the payment of any Taxes or Other Taxes, and in any event within 45 days of any such payment being due, the Borrowers shall furnish to the Administrative Agent a copy of an official receipt (or a certified copy thereof) evidencing the payment of such Taxes or Other Taxes. The Administrative Agent shall make copies thereof available to any Lender upon request therefor. -66- 74 (d) Subject to clause (f), each Borrower, on a joint and several basis, shall indemnify each Secured Party for any Non-Excluded Taxes and Other Taxes levied, imposed or assessed on (and whether or not paid directly by) such Secured Party. Promptly upon having knowledge that any such Non-Excluded Taxes or Other Taxes have been levied, imposed or assessed, and promptly upon notice thereof by any Secured Party, the Borrowers shall pay such Non-Excluded Taxes or Other Taxes directly to the relevant Governmental Authority. If a Secured Party receives a refund in respect of any Non-Excluded Taxes or Other Taxes with respect to which any Borrower has paid additional amounts pursuant to this Section 4.6, it shall within 30 days from the date of such receipt pay over to the Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section 4.6 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Secured Party and without interest (other than interest paid by the relevant jurisdiction or taxing authority with respect to such refund) the portion of such refund which, in the good faith judgment of such Secured Party, is attributable to the payment of such additional amounts by the Borrowers and in an amount as will leave such Secured Party in no better or worse position than it would have been in if the payment of such additional amounts had not been required; provided, however, that the Borrowers, upon the request of such Secured Party, agree to repay the amount paid over to the Borrowers (plus penalties, interest or other charges payable to the relevant jurisdiction or taxing authority) to such Secured Party in the event such Secured Party is required to repay such refund to such jurisdiction or taxing authority. In addition, each Borrower, on a joint and several basis, shall indemnify each Secured Party for any incremental Taxes that may become payable by such Secured Party as a result of any failure of the Borrowers to pay any Taxes when due to the appropriate Governmental Authority or to deliver to the Administrative Agent, pursuant to clause (c), documentation evidencing the payment of Taxes or Other Taxes. With respect to indemnification for Non-Excluded Taxes and Other Taxes actually paid by any Secured Party or the indemnification provided in the immediately preceding sentence, such indemnification shall be made within 30 days after the date such Secured Party makes written demand therefor. Each Borrower acknowledges that any payment made to any Secured Party or to any Governmental Authority in respect of the indemnification obligations of the Borrowers provided in this clause shall constitute a payment in respect of which the provisions of clause (a) and this clause shall apply. (e) 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 or any State or is otherwise a "United States-person" within the meaning of Section 7701(a)(30) of the Code, (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 -67- 75 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 such payments to be received by it hereunder is effectively connected with a trade or business in the United States or (C) because it is a recipient of portfolio interest within the meaning of Section 871(h) or 881(c) of the Code. Each Non-U.S. Lender, on or prior to the date on which such non-U.S. Lender becomes a Lender hereunder shall deliver to the Company and the Administrative Agent either: (i) two duly completed copies of either (x) Internal Revenue Service Form W-8BEN or (B) Internal Revenue Service Form W-8ECI, or in either case an applicable successor form; or (ii) in the case of a Non-U.S. Lender that is not legally entitled to deliver either form listed in clause (e)(i), (x) a certificate of a duly authorized officer of such Non-U.S. Lender in substantially the form of Exhibit N attached hereto to the effect that such Non-U.S. Lender is not (A) a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (B) a "10 percent shareholder" of any Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code (such certificate, an "Exemption Certificate") and (y) two duly completed copies of Internal Revenue Service Form W-8BEN or applicable successor form. In addition, each Non-U.S. Lender shall redeliver to the Company and the Administrative Agent the forms prescribed by this clause (e) from time to time thereafter upon the request of the Company or the Administrative Agent or as required by applicable law or regulation and prior to the date of expiration of the most recently delivered form, but only for so long as such Non-U.S. Lender is legally entitled to do so. (f) The Borrowers shall not be obligated to gross up any payments to any Lender pursuant to clause (a)(i), or to indemnify any Lender pursuant to clause (d), in respect of United States federal withholding taxes to the extent imposed as a result of (i) the failure of such Lender to deliver to the Company the form or forms and/or an Exemption Certificate, as applicable to such Lender, pursuant to clause (e), (ii) such form or forms and/or Exemption Certificate not establishing a complete exemption from U.S. federal withholding tax or the information or certifications made therein by the Lender being untrue or inaccurate on the date delivered in any material respect, or (iii) the Lender designating a successor lending office at which it maintains its Loans which has the effect of causing such Lender to become obligated for tax payments in excess of those in effect immediately prior to such designation; provided, however, that the Borrowers shall be jointly and severally obligated to gross up any payments to any such Lender pursuant to clause (a)(i), and to indemnify any such Lender pursuant to clause (d), in respect of United States federal withholding taxes if (i) any such failure to deliver a form or forms -68- 76 or an Exemption Certificate or the failure of such form or forms or Exemption Certificate to establish a complete exemption from U.S. federal withholding tax or inaccuracy or untruth contained therein resulted from a change in any applicable statute, treaty, regulation or other applicable law or any interpretation of any of the foregoing occurring after the date hereof, which change rendered such Lender no longer legally entitled to deliver such form or forms or Exemption Certificate or otherwise ineligible for a complete exemption from U.S. federal withholding tax, or rendered the information or certifications made in such form or forms or Exemption Certificate untrue or inaccurate in a material respect, (ii) the redesignation of the Lender's lending office was made at the request of the Borrowers or (iii) the obligation to gross up payments to any such Lender pursuant to clause (a)(i) or to indemnify any such Lender pursuant to clause (d) is with respect to an Assignee Lender that becomes an Assignee Lender as a result of an assignment made at the request of the Borrowers. (g) Each Lender also agrees at the reasonable request of the Borrowers to deliver to the Borrowers 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 make it legally entitled to do so. Each Person that shall become a Lender or a Participant pursuant to Section 10.11.1 or Section 10.11.2 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, such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased. (h) Each Lender agrees that it will use reasonable efforts to designate an alternate lending office with respect to its LIBO Rate Loans affected by any of the matters or circumstances described in this Section 4.6 to reduce the obligation of the Borrowers to gross up any payments to any Lenders pursuant to clause(a)(i), or to indemnify any Lenders pursuant to clause (d), 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. Any Lender claiming any additional amounts payable pursuant to this Section 4.6 shall use reasonable efforts (consistent with legal and regulatory restrictions) to deliver to the Borrowers or the Administrative Agent any certificate or document reasonably requested by any Borrower or the Administrative Agent if the delivery of such certificate or document 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. (i) If any Lender that does not make a LIBO Rate Loan pursuant to Section 4.1 or Section 4.2, is subject to increased costs pursuant to Section 4.3, or is owed or reasonably -69- 77 anticipates being owed additional amounts pursuant to this Section 4.6 and fails to take action required under clause (h) of this Section 4.6, any Borrower shall have the right, if no Default then exists, to replace such Lender with another bank or financial institution with the written consent of the Administrative Agent, which consent shall not be unreasonably withheld, provided that (i) the obligations of any Borrower 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, (ii) the replacement lender shall execute a Lender Assignment Agreement and Acceptance pursuant to which it shall become a party hereto as provided in Section 10.11.1, and (iii) upon compliance with the provisions for assignment provided in Section 10.11.1 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 IV.7. Payments, Computations, etc. Unless otherwise expressly provided in a Loan Document, all payments by the Borrowers pursuant to each Loan Document shall be made by such Borrower to the Administrative Agent for the pro rata account of the Secured Parties entitled to receive such payment. All payments shall be made without setoff, deduction or counterclaim not later than 12:00 noon New York City time on the date due in same day or immediately available funds to such account as the Administrative Agent shall specify from time to time by notice to the Company. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Secured Party its share, if any, of such payments received by the Administrative Agent for the account of such Secured Party. All interest (including interest on LIBO Rate Loans) and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (calculated at other than the Federal Funds Rate), 365 days or, if appropriate, 366 days). Payments due on other than a Business Day shall (except as otherwise required by clause (c) of the definition of the term "Interest Period") be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees in connection with that payment. SECTION IV.8. Sharing of Payments. If any Secured Party shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Credit Extension or Reimbursement Obligation (other than pursuant to the terms of Sections 4.3, 4.4, 4.5 or 4.6) in excess of its pro rata share of payments obtained by all Secured Parties entitled to receive such payment, such Secured Party shall purchase from the other Secured Parties such participations in Credit Extensions made by them as shall be necessary to cause such purchasing Secured Party to share the excess payment or other recovery ratably (to the extent such other Secured Parties were entitled to receive a portion of such payment or recovery) with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Secured Party, the purchase shall -70- 78 be rescinded and each Secured Party which has sold a participation to the purchasing Secured Party shall repay to the purchasing Secured Party the purchase price to the ratable extent of such recovery together with an amount equal to such selling Secured Party's ratable share (according to the proportion of (a) the amount of such selling Secured Party's required repayment to the purchasing Secured Party to (b) total amount so recovered from the purchasing Secured Party) of any interest or other amount paid or payable by the purchasing Secured Party in respect of the total amount so recovered. The Borrowers agree that any Secured Party purchasing a participation from another Secured Party pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Secured Party were the direct creditor of the Borrowers in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law any Secured Party receives a secured claim in lieu of a setoff to which this Section applies, such Secured Party shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Secured Parties entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION IV.9. Setoff. Each Secured Party shall, upon the occurrence and during the continuance of any Default described in clauses (a) through (d) of Section 8.1.9 or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) each Borrower hereby grants to each Secured Party a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of such Borrower then or thereafter maintained with such Secured Party; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Secured Party agrees promptly to notify such Borrower and the Administrative Agent after any such setoff and application made by such Secured Party; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Secured Party may have. SECTION IV.10. Guaranty Provisions. Each Borrower acknowledges and agrees that, whether or not specifically indicated as such in a Loan Document, all Obligations shall be joint and several Obligations of each individual Borrower, and in furtherance of such joint and several Obligations, each Borrower hereby irrevocably guarantees the payment of all Obligations of each other Borrower as set forth below. SECTION IV.10.1. Guaranty. Each Borrower hereby jointly and severally, absolutely, unconditionally and irrevocably guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations; provided, however, that each Borrower shall only be liable under this Agreement for the maximum amount of such liability that can be hereby incurred without rendering this Agreement, as it relates to such Borrower, voidable under applicable law relating to fraudulent -71- 79 conveyance or fraudulent transfer, and not for any greater amount. This guaranty constitutes a guaranty of payment when due and not of collection, and each Borrower specifically agrees that it shall not be necessary or required that any Secured Party exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Obligor or any other Person before or as a condition to the obligations of such Borrower hereunder. SECTION IV.10.2. Guaranty Absolute, etc. The guaranty agreed to above shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until the Termination Date. Each Borrower jointly and severally guarantees that the Obligations will be paid strictly in accordance with the terms of each Loan Document under which such Obligations arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Secured Party with respect thereto. The liability of each Borrower under this Agreement shall be joint and several, absolute, unconditional and irrevocable irrespective of (a) any lack of validity, legality or enforceability of any Loan Document; (b) the failure of any Secured Party (i) to assert any claim or demand or to enforce any right or remedy against any Obligor or any other Person (including any other guarantor) under the provisions of any Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor (including any Obligor) of, or collateral securing, any Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Obligations, or any other extension, compromise or renewal of any Obligation; (d) any reduction, limitation, impairment or termination of any Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Borrower hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to or departure from, any of the terms of any Loan Document; (f) any addition, exchange, release, surrender or non-perfection of any collateral, or any amendment to or waiver or release or addition of, or consent to or departure from, any other guaranty held by any Secured Party securing any of the Obligations; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Obligor, any surety or any guarantor. SECTION IV.10.3. Reinstatement, etc. Each Borrower agrees that its guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Secured Party, upon the insolvency, bankruptcy or reorganization of any other Borrower, any other Obligor or otherwise, all as though such payment had not been made. SECTION IV.10.4. Waiver, etc. Each Borrower hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Agreement and any requirement that any Secured Party protect, secure, perfect or insure any Lien, or any property subject thereto, or exhaust any right or take any action against any other -72- 80 Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations, as the case may be. SECTION IV.10.5. Postponement of Subrogation, etc. Each Borrower agrees that it will not exercise any rights which it may acquire by way of rights of subrogation under any Loan Document to which it is a party, nor shall any Borrower seek or be entitled to seek any contribution or reimbursement from any Obligor, in respect of any payment made hereunder, under any other Loan Document or otherwise, until following the Termination Date. Any amount paid to any Borrower on account of any such subrogation rights prior to the Termination Date shall be held in trust for the benefit of the Secured Parties and shall immediately be paid and turned over to the Administrative Agent for the benefit of the Secured Parties in the exact form received by such Borrower (duly endorsed in favor of the Administrative Agent, if required), to be credited and applied against the Obligations, whether matured or unmatured, in accordance with Section 4.8; provided, however, that if (a) any Borrower has made payment to the Secured Parties of all or any part of the Obligations; and (b) the Termination Date has occurred; then at such Borrower's request, the Administrative Agent, (on behalf of the Secured Parties) will, at the expense of such Borrower, execute and deliver to such Borrower appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Borrower of an interest in the Obligations resulting from such payment. In furtherance of the foregoing, at all times prior to the Termination Date, each Borrower shall refrain from taking any action or commencing any proceeding against any Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in the respect of payments made under any Loan Document to any Secured Party. ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION V.1. Initial Credit Extension. The obligations of the Lenders and, if applicable, the Issuer to fund the initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1 to the satisfaction of the Agents. SECTION V.1.1. Resolutions, etc. The Agents shall have received from Parent and each Borrower, as applicable, (i) a copy of a good standing certificate, dated a date reasonably close to the Effective Date, for each such Person and (ii) a certificate, dated the Closing Date and with counterparts for each Lender, duly executed and delivered by such Person's secretary or assistant secretary as to (a) resolutions of each such Person's Board of Directors then in full force and effect authorizing, to the extent relevant, all aspects of the transactions contemplated hereby applicable to such Person and the execution, delivery and performance of each -73- 81 Loan Document to be executed by such Person and the transactions contemplated hereby and thereby; (b) the incumbency and signatures of those of its officers authorized to act with respect to each Loan Document to be executed by such Person (each an "Authorized Officer"); and (c) the full force and validity of each Organic Document of such Person and copies thereof; upon which certificates each Secured Party may conclusively rely until it shall have received a further certificate of the secretary or assistant secretary of any such Person canceling or amending the prior certificate of such Person. SECTION V.1.2. Senior Secured Notes. The Agents shall have received fully executed copies of the Senior Secured Note Documents and all certificates, opinions and other documents delivered thereunder, certified to be true and complete copies thereof by an Authorized Officer of the Company. SECTION V.1.3. Issuance of Senior Secured Notes, etc. The Company shall have received $295,000,000 in gross proceeds from the issuance of the Senior Secured Notes pursuant to the Senior Secured Note Indenture to the purchasers of the Senior Secured Notes which shall have been duly executed by each of the respective parties thereto, and which Senior Secured Note Indenture shall be in form and substance reasonably satisfactory to the Agents. SECTION V.1.4. Consummation of Transaction, etc. The Agents shall have received evidence satisfactory to each of them that all actions necessary to consummate the transactions contemplated hereby shall have been taken in accordance with all applicable law and in accordance with the terms of each applicable transaction document. The Agents shall be satisfied with (i) the final structure of the Transaction, (ii) the sources and uses of the proceeds used to consummate the Transaction, and (iii) the terms and conditions of the Transaction Documents. There shall exist at and as of the Closing Date (after giving effect to the Transaction and the initial Credit Extensions hereunder) no conditions that would constitute a default or an event of default under any of the Senior Secured Note Documents, the Senior Secured Discount Notes, the Sub Debt Documents or any other material document or material agreement. SECTION V.1.5. Intercreditor Agreements. The Agents shall have received executed counterparts of each of the Revolver Intercreditor Agreement and the Senior Debt Intercreditor Agreement, dated as of the Closing Date, in each case, duly executed and delivered by all parties thereto and in form and substance reasonably satisfactory to the Agents. SECTION V.1.6. Closing Date Certificate. The Agents shall have received, with counterparts for each Lender, the Closing Date Certificate, dated the Closing Date and duly -74- 82 executed and delivered by an Authorized Officer of each Borrower, in which certificate each Borrower shall agree and acknowledge that the statements made therein shall be deemed to be representations and warranties of such Borrower as of such date, and, at the time the certificate is delivered, such statements shall in fact be true and correct in all material respects. All documents and agreements required to be appended to the Closing Date Certificate shall be in form and substance satisfactory to the Agents. SECTION V.1.7. Delivery of Notes. The Agents shall have received, for the account of each Lender that has requested a Note, such Lender's Notes duly executed and delivered by an Authorized Officer of each Borrower. SECTION V.1.8. Payment of Outstanding Indebtedness, etc. All Indebtedness identified in Item 7.2.2(b) of the Disclosure Schedule, together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full from the proceeds of the initial Credit Extension and the proceeds of the Senior Secured Notes and the commitments in respect of such Indebtedness shall have been terminated, and all Liens securing payment of any such Indebtedness have been released and the Agents shall have received all Uniform Commercial Code Form UCC-3 termination statements or other instruments as may be suitable or appropriate in connection therewith. SECTION V.1.9. Closing Fees, Expenses, etc. The Agents shall have received for their own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 10.3, if then invoiced. SECTION V.1.10. Financial Information, etc. The Agents shall have received, with counterparts for each Lender, (a) audited consolidated financial statements of Parent, the Company and its Subsidiaries as at September 30, 1993, September 30, 1994, September 30, 1995, September 30, 1996, September 30, 1997 and September 30, 1998; (b) unaudited monthly and quarterly consolidated financial statements of Parent, the Company and its Subsidiaries for each fiscal month and Fiscal Quarter ending after September 30, 1998 (including June 30, 1999, if available) and prior to the Closing Date; and (c) a pro forma consolidated balance sheet of Parent, the Company and its Subsidiaries (other than Unrestricted Subsidiaries), as of the Closing Date certified by the chief financial or accounting Authorized Officer of the Company or the Treasurer or any Assistant Treasurer of the Company, giving effect to the consummation of the Transaction and all the transactions contemplated by this Agreement and reflecting the proposed capital structure of Parent, the Company and its Subsidiaries. SECTION V.1.11. Borrowing Base Certificate. The Agents shall have received, with copies for each Lender, an initial Borrowing Base Certificate, dated the Closing Date, in respect of the Borrowers' Eligible Accounts and Eligible Inventory as of a recent date satisfactory to the Agents, duly executed by the chief financial or accounting Authorized Officer, or the Treasurer or Assistant Treasurer of the Company (and showing that the Borrowing Base Amount on the -75- 83 Closing Date will exceed the initial Current Assets Loans by no less than the Minimum Excess Availability). SECTION V.1.12. Opinions of Counsel. The Agents shall have received opinions, dated the Closing Date and addressed to the Agents and all Lenders, from (a) Andrews & Kurth, New York and Texas counsel to Parent and the Borrowers, in form and substance reasonably satisfactory to the Agents; (b) David Elkins, general counsel to Parent and the Company, in form and substance reasonably satisfactory to the Agents; and (c) local counsel to the Borrowers, in the following jurisdictions, in form and substance, and from counsel, reasonably satisfactory to the Agents: (i) Florida; and (ii) Georgia. SECTION V.1.13. Filing Agent, etc. All Uniform Commercial Code financing statements or other similar financing statements (Form UCC-1) and Uniform Commercial Code (Form UCC-3) termination statements required pursuant to the Loan Documents (collectively, the "Filing Statements") shall have been delivered to CT Corporation System or another similar filing service company reasonably acceptable to the Agents (the "Filing Agent"). The Filing Agent shall have acknowledged in a writing reasonably satisfactory to the Agents and its counsel (a) the Filing Agent's receipt of all Filing Statements, (b) that the Filing Statements have either been submitted for filing in the appropriate filing offices or will be submitted for filing in the appropriate offices within ten days following the Effective Date and (c) that the Filing Agent will notify the Agents and its counsel of the results of such submissions within 30 days following the Effective Date. SECTION V.1.14. Intercreditor Amendment. The Agents shall have received (a) an executed copy of the Amendment to the Parent Intercreditor Agreement (the "Intercreditor Amendment"), dated as of July 22, 1999, among the trustee of the Senior Secured Discount Notes Indenture, the agent under the Existing Loan Agreement and the Company, in form and substance reasonably satisfactory to the Agents and (b) an opinion of counsel from Vinson & Elkins, required under the Senior Secured Discount Notes Indenture addressed to the trustee of such Senior Secured Discount Notes and the Agents and the Lenders, in form and substance satisfactory to the Agents. SECTION V.1.15. Appraisals and Audit Analyses; Environmental Audit Report. The Administrative Agent shall have received -76- 84 (a) an audit by PriceWaterhouseCoopers LLC of the accounts receivable and inventory of the Borrowers, the results of which shall be reasonably satisfactory to the Lead Arranger and the Agents; (b) an appraisal by Chem Systems of the Company's Texas City, Texas and Valdosta, Georgia manufacturing facilities (the "Chem Systems Appraisal") which shall indicate that such facilities have an aggregate orderly liquidation value in use of no less than $300,000,000 and which shall be reasonably satisfactory to the Lead Arranger and the Agents; and (c) an environmental audit report (or an update of a recently completed environment audit report) and any necessary phase I environmental assessment reports prepared in accordance with ASTM Standards of the real property of the Borrowers (or an update of an existing appraisal and audit analysis thereof) and a preliminary review of the environmental condition of the real property on which any Foreign Subsidiary conducts manufacturing operations, in each case, completed by Pilko & Associates, the results of which audit report shall be reasonably satisfactory to the Lead Arranger and the Agents. SECTION V.1.16. Pledge Agreements. The Agents shall have received, with counterparts for each Lender (a) the Parent Pledge Agreement, dated as of the date hereof, duly executed and delivered by an Authorized Officer of Parent, together with certificates evidencing all of the issued and outstanding Capital Securities of the Company, which certificates in each case shall be accompanied by undated instruments of transfer duly executed in blank; and (b) the Obligor Pledge Agreement, dated as of the date hereof, duly executed and delivered by an Authorized Officer of each Borrower party thereto, together with certificates evidencing all of the issued and outstanding Capital Securities owned by (i) the Company in each other Borrower and (ii) each other Borrower in any other Borrower, which certificates, in each case, shall be accompanied by undated instruments of transfer duly executed in blank; and (c) the Agents and their counsel shall be satisfied that (i) the Lien granted to the Administrative Agent, for the benefit of the Secured Parties in the collateral described above is a first priority (or local equivalent thereof) security interest; and (ii) no Lien exists on any of the collateral described above other than (A) the Lien created in favor of the Administrative Agent, for the benefit of the Secured Parties, pursuant to a Loan Document, (B) the second priority Lien on the Capital Securities of the Company in favor of the trustee under the Senior Secured Discount Notes Indentures to secure the obligations of Parent related to the Senior Secured Discount Notes and (C) the second priority Lien on the Capital Securities of each other Borrower in favor of the Trustee -77- 85 under the Senior Secured Notes Indenture to secure the obligations of the Company related to the Senior Secured Notes; and (d) certified copies of searches conducted with respect to all patents, trademarks and copyrights of the Borrowers at the applicable United States filing office. SECTION V.1.17. Security Agreements Filings, Lockboxes, etc. The Agents shall have received, with counterparts for each Lender, executed counterparts of each Security Agreement and each Lockbox Agreement, each dated as of the date hereof, duly executed by each Borrower, together with (a) executed copies of proper Uniform Commercial Code Form UCC-1 or similar instruments naming the applicable Borrower as a debtor and the Administrative Agent as the secured party, or other similar instruments or documents to be filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Agents, desirable to perfect the security interests of the Administrative Agent pursuant to such Security Agreement and each Lockbox Agreement; (b) executed copies of proper Uniform Commercial Code Form UCC-3 assignment or termination statements, if any, necessary to release or assign all Liens and other rights of any Person in any collateral described in any Security Agreement securing any of the Indebtedness identified in Item 7.2.2(b) of the Disclosure Schedule, together with such other Uniform Commercial Code Form UCC-3 termination statements as the Agents may reasonably request from such Obligors; (c) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party reasonably acceptable to the Agents, dated a date reasonably near to the Closing Date, listing all effective financing statements which name each Borrower (under its present name and any previous names) as the debtor and which are filed in the jurisdictions in which filings were made pursuant to clause (a) above, together with copies of such financing statements reflecting no prior Liens on any of the collateral described in any Loan Document other than Permitted Liens; and (d) all Pledged Notes (as defined in each Security Agreement), if any, evidencing Indebtedness payable to the Company by any Foreign Restricted Subsidiary duly endorsed to the order of the Administrative Agent, together with Filing Statements (or similar instruments) in respect of such Pledged Notes executed by the Company to be filed in such jurisdictions as the Agents may reasonably request. SECTION V.1.18. Intellectual Property Security Agreements. The Agents shall have received the Patent Security Agreement and the Trademark Security Agreement, as applicable, -78- 86 each dated as of the Closing Date, duly executed and delivered by each Borrower that owns such Collateral. SECTION V.1.19. Insurance. The Agents shall have received, with copies for each Lender, certificates of the insurance policies, evidencing coverage required to be maintained pursuant to each Loan Document. SECTION V.1.20. Mortgages. The Agents shall have received counterparts of each Mortgage, dated as of the date hereof, duly executed by the applicable Borrower, together with (a) evidence of the completion (or satisfactory arrangements for the completion) of all recordings and filings of each Mortgage as may be necessary or, in the reasonable opinion of the Agents, desirable to effectively create a valid, perfected first priority Lien against the properties purported to be covered thereby subject however, to any Permitted Liens; (b) mortgagee's title insurance policies in favor of the Administrative Agent for the benefit of the Secured Parties in amounts and in form and substance and issued by insurers, reasonably satisfactory to the Agents, with respect to the property purported to be covered by each Mortgage, insuring that title to such property is good and indefeasible and that the interests created by each Mortgage constitute valid first Liens thereon free and clear of all defects and encumbrances other than Permitted Liens and such other defects and encumbrances as approved by the Agents, and such policies shall also include, if required by the Agents and if available, revolving credit endorsement, comprehensive endorsement, variable rate endorsement, access and utilities endorsements, mechanic's lien endorsement and such other endorsements as the Agents shall reasonably request and shall be accompanied by evidence of the payment in full of all premiums thereon; and (c) such other approvals, opinions or documents as the Agents may request including consents and estoppel agreements from landlords, a survey of each property purported to be covered by a Mortgage in form and substance satisfactory to the Agents and the title insurer for each such property. SECTION V.1.21. Cash Management Accounts. The Agents shall have received evidence satisfactory to each of them that each Borrower shall have provided full cash dominion over its cash management accounts as specified by the Administrative Agent (the "Cash Management Accounts") to the Administrative Agent, all on terms and conditions and pursuant to documentation reasonably satisfactory to the Agents. SECTION V.1.22. Perfection Certificate. The Agents shall have received the Perfection Certificate, dated as of the Closing Date, duly executed and delivered by an Authorized Officer of each Borrower. -79- 87 SECTION V.1.23. Solvency, etc. The Agents shall have received, with counterparts for each Lender, a certificate duly executed and delivered by the chief financial or accounting Authorized Officer of Parent and the Company, dated as of the Closing Date, in the form of Exhibit E attached hereto. SECTION V.1.24. Required Consents and Approvals. All required consents and approvals shall have been obtained and be in full force and effect with respect to the Transaction contemplated hereby from (a) all relevant Governmental Authorities and (b) any other Person whose consent or approval the Agents reasonably deem necessary or appropriate to effect the transactions contemplated hereby. SECTION V.1.25. Statement of Sources and Uses. The Agents shall have received from the Company, a detailed statement of sources and uses giving effect to the consummation of the Transaction contemplated by this Agreement as of the Effective Date, reasonably satisfactory to the Agents. SECTION V.2. All Credit Extensions. The obligation of each Lender and the Issuer to make any Credit Extension (including the initial Credit Extension) shall be subject to and the satisfaction of each of the conditions precedent set forth below. SECTION V.2.1. Compliance With Warranties, No Default, etc. Both before and after giving effect to any Credit Extension (but, if any Default of the nature referred to in Section 8.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds thereof) the following statements shall be true and correct: (a) the representations and warranties set forth in this Agreement and each other Loan Document shall, in each case, be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (b) the sum of the aggregate outstanding principal amount of all Current Assets Loans and Swing Line Loans, together with the aggregate amount of all Letter of Credit Outstandings, does not exceed the lesser of (i) the then existing Borrowing Base Amount less the Minimum Excess Availability and (ii) the Current Assets Loan Commitment Amount; and (c) no Default shall have then occurred and be continuing. SECTION V.2.2. Credit Extension Request, etc. Subject to Section 2.3.2, the Administrative Agent shall have received a Borrowing Request if Loans are being requested, or an Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of -80- 88 a Borrowing Request or Issuance Request and the acceptance by any Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by each Borrower that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the statements made in Section 5.2.1 are true and correct in all material respects. SECTION V.2.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of any Obligor shall be reasonably satisfactory in form and substance to the Agents and its counsel and the Agents and its counsel shall have received all information, approvals, opinions, documents or instruments as the Agents or its counsel may reasonably request. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Secured Parties to enter into this Agreement and to make Credit Extensions hereunder, each Borrower represents and warrants to each Secured Party as set forth in this Article. SECTION VI.1. Organization, etc. Each of the Borrowers and each of their respective Foreign Restricted Subsidiaries is validly organized and existing and in good standing under the laws of the state or jurisdiction of its incorporation or organization, is duly qualified to do business and is in good standing as a foreign entity in each jurisdiction where the nature of its business requires such qualification (except where the failure to be so qualified and in good standing could not reasonably be expected to have a Material Adverse Effect), and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under each Loan Document to which it is a party (except for failures to hold such governmental licenses, permits and other approvals which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect) and to own and hold under lease its material property and to conduct its business substantially as currently conducted by it. SECTION VI.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by each Borrower of this Agreement and each Borrower and Parent of each other Loan Document executed or to be executed by it, each Borrower's and Parent's participation in the consummation of all aspects of the Transaction and the execution, delivery and performance by any Borrower or Parent of the agreements executed and delivered in connection with the Transaction are in each case within each such Person's powers, have been duly authorized by all necessary corporate (or other equivalent) action, and do not (a) contravene any (i) Obligor's Organic Documents, (ii) material contract or indenture binding on or affecting any Obligor, (iii) court decree or order binding on or -81- 89 affecting any Obligor or (iv) law or governmental regulation binding on or affecting any Obligor; or (b) result in, or require the creation or imposition of, any Lien on any Obligor's properties (except as contemplated by the Transaction or any of the Loan Documents or as otherwise permitted by this Agreement). SECTION VI.3. Government Approval, Regulation, etc. No material authorization or material approval or other action by, and no material notice to or material filing with, any Governmental Authority or regulatory body or other Person (other than those that have been, or on the Effective Date will be, duly obtained or made and which are, or on the Effective Date will be, in full force and effect) is required for the consummation of the Transaction or the due execution, delivery or performance by any Obligor of any Loan Document to which it is a party, or for the due execution, delivery and/or performance of the Senior Secured Note Documents, in each case by the parties thereto or the consummation of the Transaction other than in connection with the registration of the Exchange Notes (as defined in the Senior Secured Note Indenture). No Obligor nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or 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", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION VI.4. Validity, etc. This Agreement and the Notes have been duly executed and delivered by the Borrowers. The Senior Secured Note Indenture has been duly executed and delivered by the Borrowers. Each Loan Document and the Senior Secured Note Documents executed by any Obligor will, on the due execution and delivery thereof, constitute, assuming the due authorization, execution and delivery of each Loan Document by the parties thereto other than the Obligors, the legal, valid and binding obligations of such Obligor, enforceable against such Obligor in accordance with their respective terms (except, in any case, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by principles of equity). SECTION VI.5. Financial Information. The financial statements of Parent, the Company and its Subsidiaries furnished to the Administrative Agent and each Lender pursuant to Section 5.1.10 have been prepared in accordance with GAAP consistently applied (except as may be indicated in the notes thereto), and present fairly subject, in the case of unqualified financial statements and other unaudited financial information, to normal recurring audit adjustments, the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. All balance sheets, all statements of operations, shareholders' equity and cash flow and all other financial information of each of Parent, the Company and its Subsidiaries furnished pursuant to Section 7.1.1 have been and will for periods following the Effective Date be prepared in accordance with GAAP consistently applied (except as may be indicated in the notes thereto), and do or will present fairly subject, in -82- 90 the case of unqualified financial statements and other unaudited financial information, to normal recurring audit adjustments, the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. SECTION VI.6. No Material Adverse Change. There has been no material adverse change in the financial condition, results of operations, assets, business, properties or prospects of the Company or the Borrowers and their Subsidiaries, taken as a whole, since May 31, 1999. SECTION VI.7. Litigation, Labor Controversies, etc. There is no pending or, to the knowledge of the Borrowers or their Subsidiaries, threatened litigation, action, proceeding or labor controversy (a) except as disclosed in Item 6.7 of the Disclosure Schedule, affecting any Obligor, or any of their respective properties, businesses, assets or revenues, which could reasonably be expected to have a Material Adverse Effect, and no adverse development has occurred in any labor controversy, litigation, arbitration or governmental investigation or proceeding disclosed in Item 6.7 which could reasonably be expected to have a Material Adverse Effect; or (b) which purports to affect the legality, validity or enforceability of any Loan Document, the Senior Secured Note Documents or the Transaction. SECTION VI.8. Subsidiaries. Parent has no Subsidiaries except those Subsidiaries (a) which are identified in Item 6.8 of the Disclosure Schedule or (b) which are permitted to have been organized or acquired in accordance with Sections 7.1.8 or 7.2.5. SECTION VI.9. Ownership of Properties. The Borrowers and each of their Foreign Restricted Subsidiaries owns (a) in the case of owned real property, good and indefeasible fee title to, and (b) in the case of owned personal property, good and valid title to, or, in the case of leased real or personal property, valid and enforceable leasehold interests (as the case may be) in, all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever, free and clear in each case of all Liens or claims, except for Permitted Liens. SECTION VI.10. Taxes. The Borrowers and each of their Subsidiaries have filed all tax returns and reports required by U.S., Canadian or Barbados law to have been filed by it and has paid all Taxes and governmental charges thereby shown to be due and owing, except any such Taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books or which the failure to file or pay, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. SECTION VI.11. Pension and Welfare Plans. During the twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of -83- 91 any Credit Extension hereunder, no steps have been taken to terminate any Pension Plan other than a standard termination under Section 4041(b) of ERISA, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Borrowers or any member of the Controlled Group of any liability, fine or penalty which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Each Foreign Employee Benefit Plan maintained or contributed to by the Borrowers, any Foreign Restricted Subsidiaries or any ERISA Affiliate is in compliance with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan except for such failures which, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. The aggregate of the liabilities to provide all of the accrued benefits under any Foreign Pension Plan maintained or contributed to by the Borrowers, any Foreign Restricted Subsidiaries or any ERISA Affiliate does not exceed the current fair market value of the assets held in the trust or other funding vehicle for such Plan in a manner that could reasonably be expected to have a Material Adverse Effect. With respect to any Foreign Employee Benefit Plan maintained by the Borrowers, any Foreign Restricted Subsidiaries or any ERISA Affiliate (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained. The aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, with respect to such Plans are not reasonably expected to have a Material Adverse Effect. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against the Borrowers, any Foreign Restricted Subsidiaries or any ERISA Affiliate with respect to any Foreign Employee Benefit Plan. SECTION VI.12. Environmental Warranties. Except as set forth in Item 6.12 of the Disclosure Schedule: (a) all facilities and property (including underlying groundwater) owned or leased by the Borrowers or any of the Foreign Restricted Subsidiaries have been, and continue to be, owned or leased by the Borrowers and their Foreign Restricted Subsidiaries in compliance with all Environmental Laws except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (b) there have been no past, and there are no pending or threatened (i) claims, complaints, notices or requests for information received by any Borrower or any of their Foreign Restricted Subsidiaries with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices or inquiries to the Borrowers or any of their Foreign Restricted Subsidiaries regarding potential liability under any Environmental Law which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; -84- 92 (c) there have been no Releases of Hazardous Materials at, on or under any property now or previously owned or leased by the Borrowers or any of their Foreign Restricted Subsidiaries that have had, or could reasonably be expected to have, a Material Adverse Effect; (d) the Borrowers and their Foreign Restricted Subsidiaries have been issued and are in compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (e) no property now or previously owned or leased by the Borrowers or any of their Foreign Restricted Subsidiaries is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar State list of sites requiring investigation or clean-up which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by the Borrowers or any of their Foreign Restricted Subsidiaries that, singly or in the aggregate, have had, or could reasonably be expected to have, a Material Adverse Effect; (g) neither the Borrowers nor any Foreign Restricted Subsidiaries has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar State list or which is the subject of federal, State or local enforcement actions or other investigations which may lead to material claims against the Borrowers or such Foreign Restricted Subsidiaries for any remedial work, damage to natural resources or personal injury, including claims under CERCLA which individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by the Borrowers or any Foreign Restricted Subsidiary that, singly or in the aggregate, have had, or could reasonably be expected to have, a Material Adverse Effect; and (i) no conditions exist at, on or under any property now or previously owned or leased by the Borrowers or any Foreign Restricted Subsidiary which, with the passage of time, or the giving of notice or both, would give rise to material or contingent liability under any Environmental Law which individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. -85- 93 SECTION VI.13. Accuracy of Information. (a) None of the factual information heretofore or contemporaneously furnished in writing to any Secured Party by or on behalf of any Obligor in connection with any Loan Document or any transaction contemplated hereby (including the Transaction) contains any untrue statement of a material fact, or omits to state any material fact necessary to make any information not misleading, and no other factual information hereafter furnished in connection with any Loan Document by or on behalf of any Obligor to any Secured Party will contain any untrue statement of a material fact or will omit to state any material fact necessary to make any information not misleading on the date as of which such information is dated or certified. (b) All written information prepared by any consultant or professional advisor on behalf of any Borrower or any of its Foreign Restricted Subsidiaries which was furnished to the Agents or any Lender in connection with the preparation, execution and delivery of this Agreement has been reviewed by the Borrowers, and nothing has come to the attention of the Borrowers in the context of such review which would lead them to believe that such information (or the assumptions on which such information is based) is not, taken as a whole, true and correct in all material respects or that such information, taken as a whole, omits to state any material fact necessary to make such information not misleading in any material respect. (c) Insofar as any of the information described above includes assumptions, estimates, projections or opinions, the Borrowers have reviewed such matters and nothing has come to the attention of the Borrowers in the context of such review which would lead them to believe that such assumptions, estimates, projections or opinions, omit to state any material fact necessary to make such assumptions, estimates, projections or opinions not reasonable or not misleading in any material respect. All projections and estimates have been prepared in good faith on the basis of reasonable assumptions. SECTION VI.14. Regulations U and X. No Obligor is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extensions will be used to purchase or carry margin stock or otherwise for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation U or Regulation X. Terms for which meanings are provided in F.R.S. Board Regulation U or Regulation X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION VI.15. Year 2000. Each Borrower has reviewed the areas within its business and operations which could be adversely affected by, and has developed or is developing a program to address on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by such Obligor may be unable to recognize and properly perform date-sensitive functions involving certain dates prior to and any date after December 31, 1999). Based on such review and program, each Borrower believes that the Year 2000 Problem could not reasonably be expected to have a Material Adverse Effect. It is acknowledged and agreed by -86- 94 each Secured Party that the foregoing representation does not include any representation or warranty with respect to any Year 2000 Problem or Material Adverse Effect caused by or resulting from any matter which is beyond the Borrowers' reasonable control, including a Year 2000 Problem which (a) is caused by, results from or is experienced by any non-affiliated Person or a Year 2000 Problem at any non-affiliated Person, any Secured Party or any Governmental Authority (or any Year 2000 Problem of or at any such Person) or (b) is caused by or results from the failure of any consultants of the Borrowers to properly identify deficient systems, to propose or select remedial action that adequately addresses any deficiencies or to complete the remediation in a timely manner. SECTION VI.16. Issuance of Subordinated Debt; Status of Obligations as Senior Debt, etc. (a) The Company had the power and authority to incur the Subordinated Debt as provided for under the Sub Debt Documents applicable thereto and had duly authorized, executed and delivered the Sub Debt Documents applicable to such Subordinated Debt. The Company had issued, pursuant to due authorization, the Subordinated Debt under the applicable Sub Debt Documents, and such Sub Debt Documents constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by principles of equity). The subordination provisions of the Subordinated Debt contained in the Sub Debt Documents are enforceable against the holders of the Subordinated Debt by the holder of any "Senior Debt" (as defined in the Sub Debt Documents) or similar term referring to the Obligations. All Obligations, including those to pay principal of and interest (including post-petition interest, whether or not allowed as a claim under bankruptcy or similar laws) on the Loans and Reimbursement Obligations, and fees and expenses in connection therewith, constitute "Senior Debt" (as defined in the Sub Debt Documents) or similar term relating to the Obligations and all such Obligations are entitled to the benefits of the subordination created by the Sub Debt Documents. Each Borrower acknowledges that the Administrative Agent, each Lender and the Issuer is entering into this Agreement and is extending its Commitments in reliance upon the subordination provisions of the Sub Debt Documents. (b) the Senior Secured Notes have been issued and sold to the initial purchasers thereof on or prior to the Closing Date in accordance with and pursuant to the terms of the Senior Secured Notes Indenture and in compliance with all laws, including Rule 144A of the Securities Act of 1933, as amended, and all other applicable federal and State securities laws. SECTION VI.17. Solvency. The Transaction (including the incurrence of the initial Credit Extension hereunder and the application of the proceeds of the Credit Extensions), will not involve or result in any fraudulent transfer or fraudulent conveyance under the provisions of Section 548 of the Bankruptcy Code (11 U.S.C. Section 101 et seq., as from time to time hereafter amended, and any successor or similar statute) or any applicable State law respecting fraudulent transfers or fraudulent conveyances. On the Closing Date, prior to and after giving effect to the Transaction and the making of each Credit Extension made on the Closing Date and after giving -87- 95 effect to the application of the proceeds of such Credit Extensions, each of the Borrowers and each of their Subsidiaries is Solvent. The Borrowers and their Subsidiaries are Solvent. SECTION VI.18. Intellectual Property Collateral. With respect to any Intellectual Property Collateral owned by the Borrowers, the loss, impairment or infringement of which might have a material adverse effect on the financial condition, operations, assets, business, properties, revenues or prospects of the Borrowers and their Subsidiaries taken as whole, except as set forth in Item 6.18 of the Disclosure Schedule: (a) such Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or in part; (b) such Intellectual Property Collateral is valid and enforceable; (c) the Borrowers have made all necessary filings and recordations to protect their respective interests in such Intellectual Property Collateral, including (if permissible) recordations of all such interests in the Intellectual Property Collateral in the United States Patent and Trademark Office and/or the United States Copyright Office; (d) the Borrowers are the exclusive owners of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral (except for (i) Liens created under the Loan Documents, (ii) the second priority Lien on such Intellectual Property Collateral in favor of the Trustee to secure the obligations of the Borrowers related to the Senior Secured Notes (if any) and (iii) Permitted Liens and except for rights of licensees under licenses of such Intellectual Property Collateral in the ordinary course of business) and no claim has been made that the use of such Intellectual Property Collateral does or may violate the asserted rights of any third party except for claims that could not reasonably be expected to have a material adverse effect on the financial condition, operations, assets, business, properties, revenues or prospects of the Borrowers, taken as a whole; and (e) the Borrowers have performed and will continue to perform all acts and have paid and will continue to pay all required fees and taxes relating to registrations are current. SECTION VI.19. Ownership of Stock. Parent owns free and clear of all Liens (other than the first priority Liens pursuant to the Parent Pledge Agreement and the second priority Lien pursuant to the Discount Notes Pledge Agreement), 100% of the outstanding shares of common stock (whether voting or non-voting) of the Company on a fully diluted basis. The Company owns (directly or indirectly) free and clear of all Liens (other than pursuant to the Obligor Pledge Agreement and the second priority Lien on such Collateral in favor of the Trustee to secure the obligations of the Company related to the Senior Secured Notes) 100% of the outstanding Capital Securities (whether voting or non-voting) of each other Borrower on a fully diluted basis. -88- 96 There are no outstanding options, warrants or convertible securities with respect to the Capital Securities of any Borrower. ARTICLE VII COVENANTS SECTION VII.1. Affirmative Covenants. Each Borrower agrees with each Lender, the Issuer and the Administrative Agent that until the Termination Date has occurred, each Borrower will, and will cause its Foreign Restricted Subsidiaries to, perform or cause to be performed the obligations set forth below. SECTION VII.1.1. Financial Information, Reports, Notices, etc. The Company will furnish or cause to be furnished to the Administrative Agent and each Lender copies of the following financial statements, reports, notices and information: (a) (i) as soon as available and in any event within 50 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, an unaudited consolidated and consolidating balance sheet of the Borrowers and their Foreign Restricted Subsidiaries as of the end of such Fiscal Quarter and consolidated and consolidating statements of income and cash flow of the Borrowers and their Foreign Restricted Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, and including (in each case), in comparative form the figures for the corresponding Fiscal Quarter in, and year to date portion of, the immediately preceding Fiscal Year, certified as complete and correct by the chief financial or accounting Authorized Officer of the Company or the Treasurer or any Assistant Treasurer of the Company and (ii) as soon as available and in any event within 30 days after the end of each month, a copy of the consolidated and consolidating balance sheet of the Borrowers and their Foreign Restricted Subsidiaries as of the end of such month, and the related consolidated and consolidating statements of income and cash flow of the Borrowers and their Foreign Restricted Subsidiaries for such month and for the period commencing at the end of the previous Fiscal Year and ending with the end of such month, and, in each case, setting forth in comparative form the figures for the same monthly accounting periods ending in the immediately preceding Fiscal Year (to the extent available) and certified by the chief financial or chief accounting Authorized Officer of the Company or the Treasurer or any Assistant Treasurer of the Company; (b) as soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the consolidated and unaudited consolidating balance sheet of the Borrowers and their Foreign Restricted Subsidiaries, and the related consolidated and consolidating statements of income and cash flow of the Borrowers and their Foreign Restricted Subsidiaries for such Fiscal Year, setting forth in comparative form the figures for the immediately preceding Fiscal Year, audited (without any Impermissible -89- 97 Qualification) by independent public accountants of recognized national standing and stating that such consolidated financial statements present fairly the consolidated financial condition as of the end of such Fiscal Year, and the consolidated results of operations and cash flows for such Fiscal Year, of the Borrowers and their Foreign Restricted Subsidiaries in accordance with GAAP, applied on a consistent basis; provided, however that any consolidating statements delivered pursuant to this clause shall be unaudited; (c) as soon as available and in any event within 20 days after the end of each calendar month, a Borrowing Base Certificate dated and reflecting amounts as of the close of business on the last day of the preceding calendar month; (d) as soon as possible and in any event within three Business Days after the Borrowers obtains knowledge of the occurrence of a Default, a statement of an Authorized Officer of the Company setting forth details of such Default and the action which the Company or such Borrower has taken and proposes to take with respect thereto; (e) as soon as possible and in any event within three Business Days after the Borrowers obtains knowledge of (i) the occurrence of any material adverse development with respect to any litigation, action, proceeding or labor controversy described in Item 6.7 of the Disclosure Schedule or (ii) the commencement of any litigation, action, proceeding or labor controversy of the type and materiality described in Section 6.7, notice thereof and, to the extent the Administrative Agent requests, copies of all documentation relating thereto; (f) promptly after the sending or filing thereof, copies of all reports, notices, prospectuses and registration statements which any Obligor files with the SEC or any national securities exchange; (g) immediately upon becoming aware of (i) the institution of any steps by any Person to terminate any Pension Plan other than a standard termination under 4041(b) of ERISA, (ii) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, (iii) the taking of any action with respect to a Pension Plan which could result in the requirement that any Obligor furnish a bond or other security to the PBGC or such Pension Plan, or (iv) the occurrence of any event with respect to any Pension Plan which could result in the incurrence by any Obligor of any material liability, fine or penalty, notice thereof and copies of all documentation relating thereto; (h) promptly upon receipt thereof, copies of all "management letters" submitted to the Borrowers or any other Obligor by the independent public accountants referred to in clause (b) in connection with each audit made by such accountants; -90- 98 (i) promptly following the mailing or receipt of any notice or report delivered under the terms of any Subordinated Debt, the Senior Secured Discount Notes Indenture or the Senior Secured Note Documents, copies of such notice or report; (j) at the cost of the Borrowers, a report or reports of an independent (or an employee of the Administrative Agent) collateral field examiner approved (i) by the Company, whose approval shall not be unreasonably withheld, and (ii) by the Administrative Agent (and which collateral field examiner may be the Administrative Agent or an affiliate thereof) with respect to the Eligible Accounts and Eligible Inventory components included in the Borrowing Base. The Administrative Agent may (and, at the direction of the Current Assets Required Lenders, shall) request such reports or additional reports as it (or the Current Assets Required Lenders) shall reasonably deem necessary; (k) each calendar year (on or about June 30) a desktop update of the Chem System Appraisal which shall confirm that the Company's Texas City, Texas and Valdosta, Georgia manufacturing facilities have an aggregate orderly liquidation value in use of no less than $300,000,000, such update to be reasonably satisfactory in all other material respects to the Agents; (l) such other financial and other information as any Lender or the Issuer through the Administrative Agent may from time to time reasonably request; and (m) any amendment or modification to the Standby Purchase Agreements. SECTION VII.1.2. Maintenance of Existence; Compliance With Laws, etc. The Borrowers' will, and will cause each of their Foreign Restricted Subsidiaries to, (a) except as otherwise permitted by Section 7.2.10, preserve and maintain its legal existence; and (b) comply in all material respects with all applicable laws, rules, regulations and orders, including the payment (before the same become delinquent), of all Taxes, assessments and governmental charges imposed upon the Borrowers or their Foreign Restricted Subsidiaries or upon their property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on the books of the Borrowers or their Foreign Restricted Subsidiaries, as applicable. SECTION VII.1.3. Maintenance of Properties. The Borrowers will, and will cause each of their Foreign Restricted Subsidiaries to, maintain, preserve, protect and keep its and their respective properties in good repair, working order and condition (ordinary wear and tear excepted), and make necessary repairs, renewals and replacements so that the business carried on -91- 99 by the Borrowers and their Foreign Restricted Subsidiaries may be properly conducted at all times, unless the Borrowers or any such Foreign Restricted Subsidiary determines in good faith that the continued maintenance of such property is no longer economically desirable (provided that any such determination with respect to any property material to the operations of the Borrowers or its Foreign Restricted Subsidiaries shall be made only after consultation with the Administrative Agent). SECTION VII.1.4. Insurance. The Borrowers will, and will cause each of their Foreign Restricted Subsidiaries to: (a) maintain insurance on its property with financially sound and reputable insurance companies against loss and damage in at least the amounts (and with only those deductibles) customarily maintained, and against such risks as are typically insured against in the same general area, by Persons of comparable size engaged in the same or similar business as the Borrowers and their Foreign Restricted Subsidiaries; and (b) all worker's compensation, employer's liability insurance or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business. Without limiting the foregoing, all insurance policies required pursuant to this Section for each Borrower shall (i) list the Administrative Agent on behalf of the applicable Secured Parties as mortgagee (in the case of property insurance) or additional insured (in the case of liability insurance), as applicable, and provide that no cancellation or modification of the policies will be made without 30 days' prior written notice to the Administrative Agent and (ii) be in addition to any requirements to maintain specific types of insurance contained in the other Loan Documents. SECTION VII.1.5. Books and Records. The Borrowers will, and will cause each of their Foreign Restricted Subsidiaries to, keep books and records in accordance with GAAP which accurately reflect all of its business affairs and transactions and permit each Secured Party or any of their respective representatives, at reasonable times and intervals upon reasonable notice to the Company, to visit each Borrower's offices, to discuss such Borrower's financial matters with its officers and employees, and its independent public accountants (and each Borrower hereby authorizes such independent public accountant to discuss the Borrowers' and each Obligor's financial matters with each Secured Party or their representatives whether or not any representative of the Company or such Borrower is present) and to examine (and photocopy extracts from) any of its books and records. The Borrowers shall jointly and severally pay any fees of such independent public accountant incurred in connection with the Administrative Agent's exercise of its rights pursuant to this Section at any time and any other Secured Party's exercise of their rights pursuant to this Section if a Default has occurred and is continuing. SECTION VII.1.6. Foreign Employee Benefit Plan Compliance. The Borrowers shall cause each of its Foreign Restricted Subsidiaries and ERISA Affiliates to establish, maintain and -92- 100 operate all Foreign Employee Benefit Plans (other than government-sponsored plans) in compliance in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such plans. SECTION VII.1.7. Use of Proceeds. Each Borrower will apply the proceeds of the Credit Extensions as follows: (a) for the purposes described in the third recital; (b) for working capital and general corporate purposes of the Borrowers; and (c) for issuing Letters of Credit for the account of each Borrower. SECTION VII.1.8. Future Borrowers, Security, etc. The Borrowers will, and will cause each Subsidiary that is not a Foreign Restricted Subsidiary or an Unrestricted Subsidiary to execute any documents, Filing Statements, agreements and instruments, and take all further action (including filing Mortgages) that may be required under applicable law, or that the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Loan Documents. The Borrowers will cause any subsequently acquired or organized Subsidiary that is not a Foreign Restricted Subsidiary or an Unrestricted Subsidiary to execute a Joinder Agreement and each applicable Loan Document (including a supplement to the applicable Security Agreements) in favor of the Secured Parties. In addition, from time to time, the Borrowers will, at their cost and expense, promptly secure the appropriate Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its assets and properties as the Administrative Agent or the Required Lenders shall designate, it being understood that it is the intent of the parties that the Obligations shall be secured by, among other things, substantially all the assets of the Borrowers and each Subsidiary that is not a Foreign Restricted Subsidiary or Unrestricted Subsidiary (including real and other properties acquired subsequent to the Effective Date but excluding the Capital Securities of any Foreign Restricted Subsidiary or Unrestricted Subsidiary owned by such Borrower or Subsidiary). Such security interests and Liens will be created under the Loan Documents in form and substance satisfactory to the Administrative Agent, and each Borrower shall deliver or cause to be delivered to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Administrative Agent shall reasonably request to evidence compliance with this Section. SECTION VII.1.9. Cash Management Accounts. The applicable Borrower shall provide instructions to the appropriate Person as often as necessary to ensure that any and all amounts deposited in the Cash Management Accounts are transferred, either directly or indirectly, to the Administrative Agent, to be applied against any outstanding Loans as specified by the applicable Borrower so long as no Default is occurring and no Borrower shall close or transfer any such -93- 101 account, or open any new deposit account, in any case without the prior written consent of the Administrative Agent and such new deposit account shall be subject to a cash management account agreement similar to those controlling the Cash Management Accounts. SECTION VII.1.10. Environmental Covenant. The Borrowers will, and will cause each of its Foreign Restricted Subsidiaries to, (a) use and operate all of its facilities and properties in compliance in all material respects with all Environmental Laws, keep (and, when applicable, obtain in a timely manner) all necessary material permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in compliance in all material respects therewith, and handle all Hazardous Materials (including the disposition and storing thereof) in compliance with all applicable Environmental Laws which in the good faith judgment of the Company are of a material nature, except in each case where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (b) promptly notify the Administrative Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries from third parties relating to Releases of Hazardous Materials from its facilities and properties or compliance with Environmental Laws which in the good faith judgment of the Company are of a material nature and which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and (c) provide such information and certifications which the Administrative Agent may reasonably request from time to time to evidence compliance with this Section. SECTION VII.1.11. As to Intellectual Property Collateral. (a) The Borrowers shall not, except in the exercise of their reasonable business judgment, do any act, or omit to do any act, whereby any item of material Intellectual Property Collateral may lapse or become abandoned or dedicated to the public or unenforceable other than upon the natural expiration of protective periods under applicable law. (b) The Borrowers shall notify the Administrative Agent as soon as practicable if it knows, or has reason to know, that any application or registration relating to any material item of the Intellectual Property Collateral may become abandoned or dedicated to the public or placed in the public domain or invalid or unenforceable other than upon the natural expiration of protective periods under applicable law, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or the United States Copyright Office) regarding the ownership by the Borrowers of any material item of the Intellectual Property Collateral or the Borrowers' right to register the same or to keep and maintain and enforce the same. -94- 102 (c) In no event shall the Borrowers, or any of their respective agents, employees, designees or licensees, file an application for the registration of any Intellectual Property Collateral with the United States Patent and Trademark Office or the United States Copyright Office, unless it promptly informs the Administrative Agent, and upon request of the Administrative Agent, executes and delivers any and all agreements, instruments, documents and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent's security interest in such Intellectual Property Collateral and the goodwill and general intangibles of the Borrowers relating thereto or represented thereby. (d) Unless the Borrowers shall otherwise determine in the exercise of its reasonable business judgment, the Borrowers shall take all necessary steps, including in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office, to maintain and pursue any application (and to obtain the relevant registration) filed with respect to, and to maintain any registration of, any material item of the Intellectual Property Collateral, including the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and the payment of fees and taxes (except to the extent that dedication, abandonment or invalidation is permitted under the foregoing clauses (a), (b) and (c)). SECTION VII.1.12. Future Real Estate Properties. Within 30 days after the acquisition by the Borrowers of any real property owned in fee with a value in excess of $150,000, the Borrowers shall take all steps necessary, at their own cost and expense, to (a) grant the Administrative Agent a first priority mortgage Lien on such real property, fixtures and buildings and improvements thereon and (b) obtain title insurance coverage on such property in an amount, containing such terms and exceptions and issued by an insurance company, acceptable to the Administrative Agent in the Administrative Agent's reasonable discretion (together with such favorable legal opinions with respect thereto as the Administrative Agent may reasonably request). SECTION VII.1.13. Non-Consolidation of Unrestricted Subsidiaries. The Borrowers will be, and shall cause each of their Foreign Restricted Subsidiaries to be, operated at all times in such a manner that its assets and liabilities may not be substantively consolidated with those of any Unrestricted Subsidiary in the event of the bankruptcy or insolvency of such Unrestricted Subsidiary. In this regard, the Borrowers shall, and shall cause each of its Foreign Restricted Subsidiaries to: (a) not (i) consolidate or merge with or into any Unrestricted Subsidiary or (ii) sell, lease or otherwise transfer, directly or indirectly, all or substantially all of its assets to any Unrestricted Subsidiary; -95- 103 (b) maintain separate financial statements to the extent done in the ordinary course of business, corporate records and books of account separate from each Unrestricted Subsidiary; (c) maintain its assets separately from the assets of any Unrestricted Subsidiary (including through maintenance of a separate bank account); (d) not guarantee the obligations of any Unrestricted Subsidiary, or advance funds for the payment of expenses or otherwise, to any Unrestricted Subsidiary (excluding overhead items, tax sharing and similar items); (e) conduct all of its business correspondence and other communications in its own name and on its own stationery; (f) maintain a board of directors that is separate from the boards of directors of all Unrestricted Subsidiaries; (g) maintain the requisite legal formalities in order that the Borrowers and their Foreign Restricted Subsidiaries may each be treated as a legally separate entity from any Unrestricted Subsidiary; and (h) cause each Unrestricted Subsidiary, at the time of its creation or acquisition, to be adequately capitalized. SECTION 7.1.15. ANEXCO Receivables. Receivables owing by ANEXCO to the Company shall not be counted in the definition of Eligible Receivables unless the Company (i) causes all amounts received by ANEXCO by the applicable account debtors to be transferred to the Company at the times required by the ANEXCO LLC Agreement, (ii) causes all amounts received by the Company from ANEXCO to be immediately transferred to the Company's depositary account maintained with the Administrative Agent as soon as such amounts are paid to the Company by ANEXCO, (iii) promptly remits notice to the Administrative Agent with respect to any legal action commenced against ANEXCO or any Lien that is imposed on the assets of ANEXCO, in either case, of which the Company becomes aware, (iv) to the extent that audited financial statements are prepared for ANEXCO, promptly provides the Administrative Agent with a copy of such financial statements (subject to the execution by the Administrative Agent of an appropriate confidentiality agreement in form and substance reasonably satisfactory to the Administrative Agent, the Company and BP), (v) provides notice to the Administrative Agent with respect to the occurrence of any event with respect to ANEXCO that could reasonably be expected to have a Material Adverse Effect with respect to ANEXCO and (vi) provides a detailed list of all account obligors with respect to the ANEXCO account receivables and provides such other information regularly provided by the Borrowers to the Administrative Agent with respect to all other accounts receivable included in "Eligible Accounts." In addition, unless the Administrative Agent otherwise consents in writing, in the event that the Company (i) -96- 104 consents to the granting of any Lien by ANEXCO on any of its accounts receivable, (ii) transfers any of its rights or obligations under the ANEXCO, LLC Agreement or the BP Joint Venture Agreement, including any membership interest in ANEXCO, in a manner which will result in the Board of Managers of ANEXCO being able to authorize the granting of any Lien on the accounts receivable of ANEXCO without the consent of the Company or (iii) amends the ANEXCO LLC Agreement or the BP Joint Venture Agreement in any manner which extends the period of time during which ANEXCO must make any payment to the Company on account of sales of acrylonitrile to or through ANEXCO or permits the granting of any Lien on the accounts receivable of ANEXCO without the consent of the Company, then all receivables owing to the Company by ANEXCO shall immediately cease to be Eligible Receivables. SECTION VII.2. Negative Covenants. Each Borrower covenants and agrees with each Lender, the Issuer and the Administrative Agent that until the Termination Date has occurred each Borrower will, and will cause its Foreign Restricted Subsidiaries to, perform or cause to be performed the obligations set forth below. SECTION VII.2.1. Business Activities. No Borrower will, nor will any Borrower permit any of its Foreign Restricted Subsidiaries to, engage in any business activity except those business activities engaged in on the date of this Agreement and business activities reasonably related or incidental thereto. SECTION VII.2.2. Indebtedness. The Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, other than (without duplication): (a) Indebtedness in respect of the Obligations and refinancing of such Indebtedness; (b) until the Closing Date, Indebtedness that is to be repaid in full as further identified in Item 7.2.2(b) of the Disclosure Schedule; (c) Indebtedness existing as of the Effective Date which is identified in Item 7.2.2(c) of the Disclosure Schedule, and refinancing of such Indebtedness on No Less Favorable Terms and Conditions; (d) unsecured Indebtedness (i) incurred in the ordinary course of business of the Borrowers and their Foreign Restricted Subsidiaries (including open accounts extended by suppliers on normal trade terms in connection with purchases of goods and services which are not overdue for a period of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of such Borrower or such Foreign Restricted Subsidiary) and (ii) in respect of performance, surety or appeal bonds provided in the ordinary course -97- 105 of business, but excluding (in each case), Indebtedness incurred through the borrowing of money or Contingent Liabilities in respect thereof; (e) Indebtedness (and refinancings of such Indebtedness on No Less Favorable Terms and Conditions) (i) in respect of industrial revenue bonds or other similar governmental or municipal bonds, and (ii) Capitalized Lease Liabilities; provided, that the aggregate amount of all Indebtedness outstanding pursuant to this clause (e) shall not at any time exceed $2,000,000 in the aggregate in any Fiscal Year; (f) unsecured Indebtedness owing by (i) any Borrower to a Canadian Subsidiary not to exceed $5,000,000 in the aggregate at any one time outstanding, (ii) a Canadian Subsidiary to any Borrower not to exceed $2,000,000 in the aggregate at any one time outstanding, (iii) any Canadian Subsidiary to any other Canadian Subsidiary; and (iv) any Borrower to another Borrower; which Indebtedness shall, if payable by a Canadian Subsidiary to the Borrowers be evidenced by one or more promissory notes in form and substance reasonably satisfactory to the Administrative Agent, duly executed and delivered in pledge to the Administrative Agent pursuant to a Loan Document, and shall not be forgiven or otherwise discharged for any consideration other than payment in full or in part in cash (provided, that only the amount repaid in part shall be discharged) ; (g) obligations for current taxes, assessments and other governmental charges and taxes, assessments and 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 therefore so long as no Lien is filed by such Person with respect to such Indebtedness; (h) Indebtedness of the Company evidenced by the Senior Secured Notes, and Indebtedness of any other Borrower in respect of its guaranty of such Senior Secured Notes and refinancings of such Indebtedness on No Less Favorable Terms and Conditions; (i) unsecured Subordinated Debt of the Company incurred pursuant to the terms of the Sub Debt Documents in a principal amount not to exceed $425,000,000 (minus any repayments, redemptions or repurchases in respect thereof) and refinancings of such Subordinated Debt which continue to satisfy the terms of the definition of "Subordinated Debt" and are on No Less Favorable Terms and Conditions; (j) other unsecured Indebtedness of the Borrowers and their Foreign Restricted Subsidiaries (other than Indebtedness of Foreign Restricted Subsidiaries owing to the Borrowers) in an aggregate amount at any time outstanding not to exceed $5,000,000; (k) Indebtedness in respect of Hedging Obligations entered into in the ordinary course of business; -98- 106 (l) non-recourse Indebtedness of an Unrestricted Subsidiary; (m) Indebtedness evidencing the deferred purchase price of newly acquired property or incurred to finance the acquisition of equipment or construction by the Borrowers and their Foreign Restricted Subsidiaries (pursuant to purchase money mortgages or otherwise, whether owed to the seller or a third party) used in the ordinary course of business of the Borrowers and their Foreign Restricted Subsidiaries (provided, that such Indebtedness is incurred within 60 days of the acquisition or construction of such property) in an amount not to exceed $2,000,000 in any Fiscal Year; and (n) Indebtedness under the Canadian Facility; provided, however, that no Indebtedness otherwise permitted by clauses (e), (f)(ii), (j), (k), (m) or (n) shall be assumed or otherwise incurred if a Default has occurred and is then continuing or would result therefrom. SECTION VII.2.3. Liens. No Borrower will, nor will any Borrower permit any of its Foreign Restricted Subsidiaries to, create, incur, assume or permit to exist any Lien upon any of its property (including Capital Securities of any Person), revenues or assets, whether now owned or hereafter acquired, except the following (collectively, "Permitted Liens"): (a) Liens securing payment of the Obligations; (b) until the Closing Date, Liens securing payment of Indebtedness of the type described in clause (b) of Section 7.2.2; (c) Liens existing as of the Effective Date and disclosed in Item 7.2.3(c) of the Disclosure Schedule, which Item 7.2.3(c) shall include all Liens securing Indebtedness described in clause (c) of Section 7.2.2, and extensions thereof and refinancings of such Indebtedness; provided, that no such Lien that secures Indebtedness shall encumber any additional property and the amount of Indebtedness secured by such Lien is not increased from that existing on the Effective Date (as such Indebtedness may have been permanently reduced subsequent to the Effective Date); (d) Liens securing Indebtedness of the type permitted under clauses (e) and (m) of Section 7.2.2; provided, that (i) such Lien is granted within 60 days after such Indebtedness is incurred, (ii) the Indebtedness secured thereby does not exceed 80% of the lesser of the cost or the fair market value of the applicable property, improvements or equipment at the time of such lease, acquisition or construction and (iii) such Lien secures only the assets that are the subject of the Indebtedness referred to in such clause; -99- 107 (e) a second priority and subordinated Lien on both the Capital Securities of the Borrowers (other than the Company) and the Fixed Assets of the Borrowers and a first priority Lien on the Capital Securities of the Canadian Subsidiaries of the Company, in each case, securing the Senior Secured Notes or any refinancing of the Senior Secured Notes on No Less Favorable Terms and Conditions and a second priority Lien on the stock of the Company to secure the Indebtedness of Parent under the Senior Secured Discount Notes or any refinancing of such Indebtedness on No Less Favorable Terms and Conditions; (f) Liens in favor of carriers, warehousemen, mechanics, repairmen, workmen, crews, materialmen and landlords, maritime Liens and other Liens imposed by law granted or imposed in the ordinary course of business for amounts not overdue more than 60 days (other than any such Liens securing amounts overdue for any period that can, with the filing of any document or any other action, "prime" any Liens securing the Obligations) or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on the Borrowers' books; (g) Liens incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, surety and appeal bonds, government contracts, performance bonds, bids, leases or other similar obligations (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety and appeal bonds or performance bonds; (h) judgment Liens in existence for less than 45 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies and which do not otherwise result in an Event of Default under Section 8.1.6; (i) Permitted Real Estate Liens; (j) Liens for Taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on the Borrowers' books; (k) Liens securing a Canadian Facility on collateral comprising similar assets to the Current Assets Collateral owned by the applicable Canadian Subsidiary; and -100- 108 (l) Ordinary course of business Liens not described above or in the definition of Permitted Real Estate Liens that do not secure any Indebtedness and could not, in any event, be prior to any Liens granted under the Loan Documents in an amount not to exceed $2,000,000 in the aggregate. SECTION VII.2.4. Excess Availability. The Borrowers will not permit Excess Availability at any time to be less than the Minimum Excess Availability, provided, however, that from time to time the Administrative Agent may decrease the Minimum Excess Availability by the amount of the Overadvance Amount, when in the reasonable judgment of the Administrative Agent such adjustment, is deemed necessary. SECTION VII.2.5. Investments. The Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, purchase, make, incur, assume or permit to exist any Investment in any other Person, other than the following (collectively, "Permitted Investments"): (a) Investments existing on the Effective Date and identified in Item 7.2.5(a) of the Disclosure Schedule; (b) Cash Equivalent Investments; (c) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; (d) Investments permitted as Capital Expenditures pursuant to Section 7.2.7; (e) Investments by way of contributions to capital or purchases of Capital Securities (i) by any Borrower in any other Borrower, (ii) by any Borrower in any Foreign Restricted Subsidiary pursuant to clause (f)(ii) of Section 7.2.2 and (iii) by any Borrower in any Canadian Subsidiary in order to keep such Canadian Subsidiary's debt to equity ratio in compliance with applicable Canadian Tax law so that such Canadian Subsidiary can receive Canadian tax deductions for its interest payments on Indebtedness (the "Net Canadian Capital Contribution"); provided, that (A) the amount of such Net Canadian Contribution made by such Borrower to such Canadian Subsidiary less any dividends or distributions received by such Borrower from such Canadian Subsidiary in connection with such capital contribution and (B) such Net Canadian Capital Contribution be no greater than the amount required by such Canadian Subsidiary to keep its debt to equity ratio in compliance with such law, and in any event, not in excess of $2,000,000 in any Fiscal Year. (f) Investments constituting (i) accounts receivable arising, (ii) trade debt granted, or (iii) deposits made in connection with the purchase price of goods or services, in each case, in the ordinary course of business; -101- 109 (g) Investments made by Parent, any Borrower or any Foreign Restricted Subsidiary solely in the form of Capital Securities of Parent issued to (but not sold to) or contributed to the capital of an Unrestricted Subsidiary with an aggregate market value of such Capital Securities of Parent not to exceed (i) prior to the Fixed Assets Loan Commitment Termination Date, $50,000,000 and (ii) on or subsequent to the Fixed Assets Loan Commitment Termination Date, $100,000,000; provided, however, that such Capital Securities are used to make an acquisition by such Unrestricted Subsidiary of another Person or all or substantially all of the assets of such Person (or any business or division of such other Person), provided, further, however, that (a) at the time of such acquisition, the business activities of such Person or assets acquired complies with the limitations on business activities set forth in Section 7.2.1. and (b) immediately before and after giving effect to such acquisition no Default shall have occurred and be continuing or would result therefrom; (h) Investments consisting of routine loans or advances to employees (including payroll, travel and related expenses) 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; (i) Investments consisting of loans to finance the purchase of homes by employees who have been relocated by any Borrower or any Foreign Restricted Subsidiary in an aggregate principal amount outstanding at any one time not to exceed $500,000; (j) Investments consisting of loans or advances by any Borrower or any Foreign Restricted Subsidiary to any employee stock ownership plan of Parent, any Borrower or any Foreign Restricted Subsidiary; provided that (i) the aggregate amount of any such loan or advance does not exceed 5% of the cash received by the Borrowers or any Foreign Restricted Subsidiary (either directly or through a capital contribution from Parent) after the date hereof from any contemporaneous issuance or sale of any Capital Securities of Parent made in connection with or to provide part of the consideration for a direct or indirect acquisition by any Borrower or any Foreign Restricted Subsidiary of the Capital Securities of a third party that is not an Affiliate of the Borrower or the all or substantially all of the assets of a third party or any business or division of a third party that is not an Affiliate of the Borrower, (ii) immediately after giving effect to such acquisition, the entity whose Capital Securities are acquired is a Borrower or a Foreign Restricted Subsidiary or the assets acquired are held by a Borrower or a Foreign Restricted Subsidiary, as applicable, and (iii) any individuals that become employees of a Borrower or a Foreign Restricted Subsidiary in connection with such acquisition, to the extent eligible, are permitted to participate in the ESOP; (k) Investments resulting from purchases of shares of the Capital Securities of Parent pursuant to put options arising under any employee stock ownership plan of -102- 110 Parent, any Borrower or any Foreign Restricted Subsidiary, but only to the extent such purchases are expressly required by (i) the provisions of such employee stock ownership plan as in effect on the date hereof; or (ii) Section 409(h)(1)(B) of the Code and the regulations thereunder; (l) Investments consisting of any deferred portion of the sales price or any non-cash portion of the consideration received by any Borrower in connection with any Disposition permitted under Section 7.2.11; (m) investments in any Person resulting from a Transfer of the Fibers Business, consummated in accordance with Section 7.2.16; and (n) other Investments in an amount not to exceed $5,000,000 at any one time outstanding; provided, however, that (o) any Investment which when made complies with the requirements of clauses (a), (b) or (c) of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (p) no Investment otherwise permitted by clauses (d), (e)(i), (g), (h), (i), (j), (k), (l), (m) or (n) shall be permitted to be made if any Default has occurred and is continuing or would result therefrom. SECTION VII.2.6. Restricted Payments, etc. The Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, declare or make a Restricted Payment, or make any deposit for any Restricted Payment, other than Restricted Payments made by Subsidiaries to the Borrowers, except that (a) the Company may declare and deliver dividends payable solely in shares of its Capital Securities or in options, warrants or rights to purchase shares of its Capital Securities, (b) the Company may make contributions to any employee stock ownership plan of Parent, the Company or any other Borrower on behalf of the employees of the Borrowers and their 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 Borrowers and their Subsidiaries who are eligible to participate in such employee stock ownership plan, (c) any Subsidiary of the Borrowers other than any U.S. Subsidiary of a Canadian Subsidiary may declare and deliver dividends to any Borrower or any Wholly Owned Subsidiary, and any Canadian Subsidiary or any Unrestricted Subsidiary may redeem shares of its own Capital Securities, and (d) the Company may declare and pay in any Fiscal Year Permitted Parent 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 for the making of Loans set forth in Section 5.2. -103- 111 SECTION VII.2.7. Capital Expenditures, etc. Subject (in the case of Capitalized Lease Liabilities), to clause (e) of Section 7.2.2, the Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, make or commit to make Capital Expenditures in any period below which aggregate in excess of the amount set forth below opposite such Fiscal Year (the "Maximum Capital Expenditure Amount"):
Maximum Capital Period Expenditure Amount ------ ------------------ Closing Date - September 30, 1999 $ 8,000,000 October 1, 1999 - September 30, 2000 $ 40,000,000 October 1, 2000 - September 30, 2001 $ 35,000,000 October 1, 2001 - September 30, 2002 $ 40,000,000 October 1, 2002 - September 30, 2003 $ 33,000,000 October 1, 2003 - June 30, 2004 $ 30,000,000; and thereafter
provided, however, that (a) to the extent Capital Expenditures are made in any Fiscal Year in an amount less than the Maximum Capital Expenditure Amount, the Capital Expenditures the Borrowers or the Foreign Restricted Subsidiaries may make in the next following Fiscal Year (the "Carry-Forward Year") shall be increased by 50% of the amount of the permitted Capital Expenditures not so made or accrued in the immediately preceding Fiscal Year (the "Carry-Forward Amount"); (b) no Carry-Forward Amount may be carried forward beyond the Carry-Forward Year; (c) any Carry-Forward Amount shall be used in the Carry-Forward Year before any amount of the Capital Expenditures permitted to be made or committed to be made in such Fiscal Year are used; and (d) Capital Expenditures made for the restoration, repair or replacement of any fixed or capital asset that was destroyed or damaged, in whole in part, shall not be included in the calculation of the amount of Capital Expenditures made in any Fiscal Year to the extent that such Capital Expenditures are made with insurance proceeds received in connection with such destruction or damage. -104- 112 SECTION VII.2.8. No Prepayment of Subordinated Debt or the Senior Secured Notes. The Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to: (a) make any payment or prepayment of principal of, or premium or interest on, any Subordinated Debt, the Senior Secured Discount Notes or the Senior Secured Notes (i) other than, so long as no Event of Default has occurred and is continuing, on the stated, scheduled date for payment of interest or other mandatory payments expressly set forth in the applicable Sub Debt Documents, the Senior Secured Discount Notes, the Senior Discount Notes Indenture or the Senior Secured Note Documents, or (ii) which would violate the terms of this Agreement, the applicable Sub Debt Documents, the Senior Secured Discount Notes or the Senior Secured Note Documents; (b) redeem, retire, purchase, defease or otherwise acquire any Subordinated Debt, the Senior Secured Discount Notes or the Senior Secured Notes unless expressly required to redeem or purchase such Indebtedness under the Sub Debt Documents, the Senior Secured Discount Notes Indenture, the Senior Secured Discount Notes or the Senior Secured Note Documents following compliance with Section 3.1.1; or (c) make any deposit (including the payment of amounts into a sinking fund or other similar fund) for any of the foregoing purposes. Furthermore, neither the Borrowers nor any Foreign Restricted Subsidiary will designate any Indebtedness other than the Obligations and the obligations under the Senior Secured Note Documents as "Senior Debt" (or any analogous term) in any Sub Debt Document. SECTION VII.2.9. Capital Securities of Subsidiaries. Except (in the case of the Fibers Subsidiaries) for a Transfer of the Fibers Business, the Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, (a) issue any Capital Securities (whether for value or otherwise) to any Person other than (in the case of Subsidiaries) the Borrowers or another Wholly-Owned Subsidiary or (b) become liable in respect of any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or make any other payment in respect of any Capital Securities of the Borrowers or any Subsidiary or any option, warrant or other right to acquire any such Capital Securities. SECTION VII.2.10. Consolidation, Merger, etc. Other than in connection with a Transfer of the Fibers Business, the Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with (collectively, to "Merge") any other Person, or purchase or otherwise acquire all or substantially all of the assets of any Person (or any division thereof other than through an Unrestricted Subsidiary), except any Borrower may Merge with and into another Borrower, and the assets or Capital Securities of any Borrower may be purchased or otherwise acquired by any other Borrower; provided, that in no event shall any Borrower or Pledged Subsidiary Merge with and into any Subsidiary other than another Borrower or a Pledged Subsidiary unless after giving -105- 113 effect thereto, the Administrative Agent shall have a perfected pledge of, and security interest in and to, at least the same percentage of the issued and outstanding interests of Capital Securities (on a fully diluted basis) of the surviving Person as the Administrative Agent had immediately prior to such Merger in form and substance reasonably satisfactory to the Administrative Agent and its counsel, pursuant to such documentation and opinions as shall be necessary in the opinion of the Administrative Agent to create, perfect or maintain the collateral position of the Secured Parties therein. SECTION VII.2.11. Permitted Dispositions. The Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, Dispose of any of the Borrowers' or such Foreign Restricted Subsidiaries' assets (including accounts receivable, inventory and Capital Securities) to any Person in one transaction or series of transactions unless such Disposition is either (a) a Permitted Disposition, (b) the Transfer of the Fibers Business, (c) is permitted by Section 7.2.10 or (d) Dispositions of other property (real, mixed or personal) in an aggregate amount not to exceed $5,500,000 in the aggregate in any Fiscal Year and so long as no Default has occurred and is continuing. Upon the consummation of the Transfer of the Fibers Business, the Company or the Fibers Subsidiaries shall Cash Collateralize all Letters of Credit issued for the account of any Fibers Subsidiary. Each Borrower, the Agents, each Lender and the Issuer acknowledges that after the Transfer of the Fibers Business, the Fibers Subsidiaries shall no longer be considered to be Borrowers hereunder. SECTION VII.2.12. Modification of Certain Agreements. Except in connection with a Transfer of the Fibers Business the Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, consent to any amendment, supplement, waiver or other modification of, or enter into any forbearance from exercising any rights with respect to the terms or provisions contained in, (a) the Sub Debt Documents, the Senior Note Documents, the Senior Secured Discount Notes or the Senior Secured Discount Notes Indenture, other than any amendment, supplement, waiver or modification for which no fee is payable to the holders of the relevant Indebtedness and which (i) extends the date or reduces the amount of any required repayment, prepayment or redemption of the principal of such Indebtedness, (ii) reduces the rate or extends the date for payment of the interest, premium (if any) or fees payable on such Indebtedness or (iii) makes the covenants, events of default or remedies therein less restrictive on the Company, (iv) cures any ambiguity, omission, defect or inconsistency therein, and could not in any way adversely affect the Lenders, (v) provides for the assumption of the issuer of such Indebtedness's obligations to the holders of such Indebtedness in the case of a Merger permitted hereunder, (vi) provides for uncertificated notes, or (vii) complies with requirements of an SEC order to effect or maintain the qualification of the indenture for such Indebtedness under the Trust Indenture Act of 1939, as amended, in each case, after written notice to the Administrative Agent; or -106- 114 (b) the Tax Sharing Agreement or the terms of any preferred stock, if any, in any manner that is adverse to the Lenders. SECTION VII.2.13. Transactions With Affiliates. The Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, enter into or cause or permit to exist any arrangement, transaction or contract (including for the purchase, lease or exchange of property or the rendering of services) with any of its other Affiliates (other than between Borrowers) unless such arrangement, transaction or contract (a) is on fair and reasonable terms no less favorable to the Borrowers or such Foreign Restricted Subsidiary than they could obtain in an arm's-length transaction with a Person that is not an Affiliate and (b) is of the kind which would be entered into by a prudent Person in the position of the Borrowers or such Foreign Restricted Subsidiary with a Person that is not one of their Affiliates. SECTION VII.2.14. Restrictive Agreements, etc. Except as otherwise expressly provided for in the Senior Secured Note Documents as in effect on the date hereof, the Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, enter into any agreement prohibiting (a) the creation or assumption of any Lien upon their properties, revenues or assets, whether now owned or hereafter acquired; (b) the ability of any Obligor to amend or otherwise modify any Loan Document; or (c) the ability of any Foreign Restricted Subsidiary to make any payments, directly or indirectly, to the Borrowers, or the ability of the Borrowers to make any payments, directly or indirectly, to other Borrowers, including by way of dividends, advances, repayments of loans, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments. The foregoing prohibitions shall not apply to restrictions contained (i) in any Loan Document, (ii) in the case of clause (a), any agreement governing any Indebtedness permitted by clause (e) of Section 7.2.2 as to the assets financed with the proceeds of such Indebtedness or (iii) in the case of clauses (a) and (c) above, in a Canadian Facility entered into by a Foreign Restricted Subsidiary in accordance with Section 7.2.17. The Administrative Agent is hereby authorized to release any Foreign Restricted Subsidiary from its obligations under this Section in connection with a transaction permitted under Section 7.2.17. SECTION VII.2.15. Sale and Leaseback. The Borrowers will not, and will not permit any of their Foreign Restricted Subsidiaries to, directly or indirectly enter into any agreement or arrangement providing for the sale or transfer by it of any property (now owned or hereafter acquired) to a Person and the subsequent lease or rental of such property or other similar property from such Person in an aggregate amount not in excess of (a) $2,000,000 in the case of the -107- 115 Borrowers and (b) $10,000,000 in the case of Foreign Restricted Subsidiaries; provided that this Section 7.2.15 shall not apply to the lease of the laboratory facilities currently located at the Toronto Office after the sale of the Toronto Office. SECTION VII.2.16. Transfer of the Fibers Business. (a) The Borrowers can in a single transaction or series of related transactions make a Transfer of the Fibers Business if each of the following conditions is satisfied: (i) no Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) the Transfer of the Fibers Business shall be in the best interests of the Borrowers and the consideration received by the Borrowers from such Transfer of the Fibers Business shall be at least equal to the fair market value of such transaction, in each case, as determined by a written resolution adopted in good faith by the Board of Directors of the Company; (iii) if less than 85% of the consideration received in a Transfer of the Fibers Business is in the form of cash or Permitted Consideration, the Company must deliver an opinion to the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent, as to the fairness of the transaction to the Company from a financial point of view, issued by an Independent Financial Advisor; (iv) in the case of any Joint Venture Contribution, immediately after giving effect to such transaction, the Company will be the beneficial owner of 60% or less of the Capital Securities of the entity to which such Joint Venture Contribution is made; (v) in the case of any Sale of the Fibers Business, the transferee in such Transfer of the Fibers Business shall be a Person other than an Affiliate of the Company; (vi) the Company (or, if applicable, the Fibers Subsidiaries) shall legally and effectively grant the Administrative Agent for the benefit of the Fixed Assets Secured Parties a first priority security interest in any non-cash proceeds received by the Company (or the Fibers Subsidiaries) in such Transfer of the Fibers Business, including any Capital Securities, as additional security for the repayment of the Fixed Assets Loans and deliver an opinion of counsel as to the validity of the creation and the perfection of such security interest in form and substance satisfactory to the Administrative Agent; (vii) the Fibers Subsidiaries shall have repaid all Credit Extensions for which they submitted the applicable Borrowing Request and are outstanding; and (viii) all Net Disposition Proceeds received in such Transfer of the Fibers Business shall be applied as provided in clause (d) of Section 3.1.1. -108- 116 (b) Upon any Transfer of the Fibers Business, (i) any Lien created under any Loan Document with respect to the Fibers Subsidiaries and (ii) if more than 50% of the Capital Securities of the Fibers Subsidiaries is transferred by the Company in connection with such Transfer of the Fibers Business, any Lien in such Capital Securities and the Obligations as a "Borrower" under any Loan Documents made by the Fibers Subsidiaries shall immediately cease and terminate. Upon the receipt of written notice from the Company of a proposed Transfer of the Fibers Business, the Administrative Agent is authorized and directed to execute and deliver to the Company, concurrently with the closing of such Transfer of the Fibers Business, at the Company's expense, such documents as the Company shall reasonably request to evidence such release of Liens and, if applicable, the termination of the Obligations as a "Borrower" hereunder made by the Fibers Subsidiaries; and (c) Unless a Default or an Event of Default shall have occurred and be continuing, the Company (or, if applicable, the Fibers Subsidiaries) shall be entitled to (i) receive cash interest payments on any deferred payment of principal under any promissory note, installment receivable or other arrangement received in connection with any Transfer of the Fibers Business and use such payments for general corporate purposes, (ii) receive and use all distributions in respect of any Capital Security for general corporate purposes, (iii) vote any Capital Security and (iv) give consents, approvals, waivers and ratifications in respect of any Capital Security; provided, however, that (A) the Company shall legally and effectively grant the Administrative Agent a first priority security interest for the benefit of the Fixed Assets Lenders in any distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Capital Securities as additional security for the Fixed Assets Loans and deliver to the Administrative Agent an opinion of counsel as to the validity of the creation and perfection of such security interest in form and substance and from counsel reasonably satisfactory to the Administrative Agent, (B) no vote shall be cast or consent, approval, waiver or ratification given or action taken which would have a Material Adverse Effect on the value of any Capital Securities or be inconsistent with or violate the provisions of this Agreement and (C) the Company shall apply the proceeds of any distribution received as a Return of Capital as Net Disposition Proceeds. SECTION VII.2.17. Canadian Facility. The Borrowers will not permit any Foreign Restricted Subsidiary to enter into a Canadian Facility unless such Foreign Restricted Subsidiary first proposes a term sheet to the Agents on commercially reasonable terms and conditions which the Agents will negotiate in good faith toward a goal of providing a Canadian Facility on substantially the terms and conditions of this Agreement. If the Agents do not provide a commitment to enter into a Canadian Facility based on such terms and conditions presented by the Borrowers within 60 days of receiving such proposed terms and conditions, such Foreign Restricted Subsidiaries may obtain a Canadian Facility on similar commercially reasonable terms and conditions from other financial institutions (with the consent of the Agents, such consent not to be unreasonably withheld or delayed). Upon entering into the Canadian Facility, the applicable Foreign Restricted Subsidiaries will automatically be released from their Obligations solely with respect to clauses (a) and (c) of Section 7.2.14. -109- 117 SECTION VII.2.18. Attornment. To the extent expressly required under the leases set forth in Item 7.2.18 of the Disclosure Schedule, the Agents and each Lender hereby acknowledge and agree that the Liens granted pursuant to the Loan Documents are subject to the rights of certain lessees under the leases disclosed in Item 7.2.3(c) of the Disclosure Schedule and will be subject to the rights of lessees under any leases entered into by any Borrower or any Foreign Restricted Subsidiary after the date hereof which are permitted pursuant to this Agreement (collectively, the "Leases") subject to the express rights contained in the applicable Lease. The rights of the tenants under the Leases to the leased premises shall not be adversely affected by the exercise by any Agent or any Lender of any of their rights under any Loan Document, nor shall any such tenant be in any other way deprived of its rights under the applicable Lease except in accordance with the terms of such Lease. In the event that any Agent or any Lender succeeds to the interest of any Borrower or any Foreign Restricted Subsidiary under a Lease, such Lease shall not be terminated or affected thereby except as set forth therein, and any sale of the applicable leased premises by any Agent or any Lender or pursuant to the judgment of any court in an action to enforce the remedies provided for in the Loan Documents shall be made subject to such Lease and the rights of such tenant expressly set forth thereunder. If any Agent or any Lender succeeds to the interests of any Borrower or any Foreign Restricted Subsidiary in and to the applicable leased premises or under such Lease or enters into possession of such leased premises, such Agent and Lenders, and such tenants, shall be bound to each other under all of the express terms, covenants and conditions of such Lease, as if such Agent or Lender were originally the applicable Borrower or Foreign Restricted Subsidiary as lessor thereunder. ARTICLE VIII EVENTS OF DEFAULT SECTION VIII.1. Listing of Events of Default. Each of the following events or occurrences described in this Article shall constitute an "Event of Default". SECTION VIII.1.1. Non-Payment of Obligations. The Borrowers shall default in the payment or prepayment when due of (a) any payment or prepayment when due of any principal on any Loan or any Reimbursement Obligation or any deposit of cash for collateral purposes pursuant to Section 2.6.4; (b) any interest on any Loan or any Reimbursement Obligation and such default shall remain unremedied for a period of 3 days after such amount was due; or (c) any fee described in Article III or any other monetary Obligation, and such default shall continue unremedied for a period of five days after such amount was due. -110- 118 SECTION VIII.1.2. Breach of Warranty. Any representation or warranty of any Obligor made or deemed to be made in any Loan Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made or deemed to have been made in any material respect. SECTION VIII.1.3. Non-Performance of Certain Covenants and Obligations. Any Borrower shall default in the due performance or observance of any of its obligations under clause (d) of Section 7.1.1, Section 7.1.7, Section 7.1.10, Section 7.1.12, Section 7.1.13 or Section 7.2 or any Obligor shall default in the due performance or observance of its obligations in respect of such Sections as such Sections are incorporated by reference or otherwise in any Loan Document to which such Obligor is a party. Any Borrower shall default in the due performance or observance of any of its obligations under clauses (c), (e) or (g) of Section 7.1.1 or Section 7.1.6, and such default shall continue unremedied for a period of five Business Days. SECTION VIII.1.4. Non-Performance of Other Covenants and Obligations. Any Obligor shall default in the due performance and observance of any other agreement contained in any Loan Document executed by it, and such default shall continue unremedied for a period of 30 days after written notice thereof shall have been given to the Company by the Administrative Agent or any Lender. SECTION VIII.1.5. Default on Other Indebtedness. A default shall occur in the payment of any amount when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 8.1.1) of Parent, the Company or any of its Subsidiaries or any other Obligor having a principal amount, individually or in the aggregate, in excess of $5,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause or declare such Indebtedness to become due and payable or to require such Indebtedness to be prepaid, redeemed, purchased or defeased, or require an offer to purchase or defease such Indebtedness to be made, prior to its expressed maturity or which such default shall continue unremedied for at least 30 days. SECTION VIII.1.6. Judgments. Any judgment or order for the payment of money individually or in the aggregate in excess of $2,000,000, exclusive of (a) any amounts covered by insurance (less any applicable deductible) and as to which the insurer has acknowledged its responsibility to cover such judgment or order, and (b) any amounts covered by an indemnitor (with a long-term senior unsecured debt rating greater than BBB and Baa2 by S&P and Moody's) where such indemnitor has acknowledged, in writing, in form and substance reasonably satisfactory to the Administrative Agent, that it will indemnify such judgment or order, shall be rendered against one or more Borrowers or any of their Subsidiaries or any other Obligor and such judgment shall not have been vacated or discharged or stayed or bonded pending appeal within 30 days after the entry thereof or enforcement proceedings shall have been commenced by any creditor upon such judgment or order. -111- 119 SECTION VIII.1.7. Pension Plans. Any of the following events shall occur with respect to any Pension Plan (a) the institution of any steps by any Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan other than a standard termination under Section 4041(b) of ERISA if, as a result of such termination, any such Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $1,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION VIII.1.8. Change in Control. Any Change in Control shall occur. SECTION VIII.1.9. Bankruptcy, Insolvency, etc. Any Obligor shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness generally to pay, debts as they become due; (b) apply for, consent to, or acquiesce in the appointment of a trustee, receiver, sequestrator or other custodian for any substantial part of the property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence in or permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; provided, that each Borrower hereby expressly authorizes each Secured Party to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law or any dissolution, winding up or liquidation proceeding, in respect thereof, and, if any such case or proceeding is not commenced by any Obligor, such case or proceeding shall be consented to or acquiesced in by such Obligor, as the case may be, or shall result in the entry of an order for relief which case, proceeding or order shall continue undischarged, unstayed or undismissed for 60 days; provided, that each Borrower hereby expressly authorizes each Secured Party to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or -112- 120 (e) take any action authorizing, or in furtherance of, any of the foregoing. SECTION VIII.1.10. Impairment of Security, etc. Any Loan Document or any Lien granted thereunder shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; any Obligor or any other party shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or, except as permitted under any Loan Document, any Lien (i) securing any Fixed Assets Obligation shall, in whole or in part, cease to be a perfected (A) first registered priority Lien in the case of Fixed Assets or the Capital Securities of any Borrower (except in the case of a Transfer of the Fibers Business) and (B) second registered priority Lien in the case of Current Assets or (ii) securing any Current Assets Obligation shall, in whole or in part, cease to be a perfected first registered priority Lien in the case of Current Assets, in each case, subject to Permitted Liens. SECTION VIII.1.11. Failure of Subordination. Unless otherwise waived or consented to by the Administrative Agent, the Lenders and the Issuer in writing, the subordination provisions relating to any Subordinated Debt (the "Subordination Provisions") shall fail to be enforceable by the Administrative Agent, the Lenders and the Issuer in accordance with the terms thereof, or the monetary Obligations shall fail to constitute "Senior Debt" (or similar term) referring to such Obligations; or the Company or any of its Subsidiaries shall, directly or indirectly, disavow or contest in any manner (a) the effectiveness, validity or enforceability of any of the Subordination Provisions, (b) that the Subordination Provisions exist for the benefit of the Administrative Agent, the Lenders and the Issuer or (c) that all payments of principal of or premium and interest on the Subordinated Debt, or realized from the liquidation of any property of any Obligor, shall be subject to any of such Subordination Provisions. SECTION VIII.1.12. Default Under Senior Secured Discount Notes. Parent 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. SECTION VIII.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to any Borrower shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations (including Reimbursement Obligations) shall automatically be and become immediately due and payable, without notice or demand to any Person and each Borrower shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings. SECTION VIII.3. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to any -113- 121 Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Company declare all or any portion of the outstanding principal amount of the Loans and other Obligations (including Reimbursement Obligations) to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Borrowers shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings. ARTICLE IX THE ADMINISTRATIVE AGENT SECTION IX.1. Actions. Each Lender hereby appoints DLJ as its Syndication Agent and CIT as its Administrative Agent under and for purposes of this Agreement and each other Loan Document. Each Lender authorizes the Agents to act on behalf of such Lender under this Agreement and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Agents (with respect to which each of the Agents agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agents by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. The Agents may execute any of their respective duties under this Agreement and each other Loan Document by or through their respective employees, agents and attorneys-in-fact. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Agents, pro rata according to such Lender's percentage of each existing Loan Commitment Amount, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, either of the Agents in any way relating to or arising out of this Agreement and any other Loan Document, including reasonable attorneys' fees, and as to which any Agent is not reimbursed by any Obligor (and without limiting the obligation of any Obligor to do so); provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from such Agent's gross negligence or wilful misconduct. No Agent shall be required to take any action hereunder or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement or any other Loan Document, unless it is indemnified hereunder to such Agent's satisfaction. If any indemnity in favor of either of the Agents shall be or become, in such Agent's determination, inadequate, such Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. -114- 122 SECTION IX.2. Funding Reliance, etc. Unless the Administrative Agent shall have been notified by telephone, confirmed in writing, by any Lender by 3:00 p.m., New York City time, on the day prior to a Borrowing or Disbursement with respect to a Letter of Credit pursuant to Section 2.6.2 that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and such Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to such Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing. SECTION IX.3. Exculpation. None of the Agents or the Lead Arranger nor any of their respective directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own willful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by each Borrower or any other Obligor of its obligations hereunder or under any other Loan Document. None of the Agents, the Documentation Agent or the Lead Arranger nor any of their respective directors, officers, employees or agents shall be responsible for or have any duty to ascertain, inquire into or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder (other than a statement, warranty or representation made by the Agent in writing), (b) the performance or observance of any of the covenants or agreements of any Obligor under any Loan Document, including, without limitation, any agreement by an Obligor to furnish information directly to each Lender, (c) the satisfaction of any condition specified in Article V, expect receipt of items required to be delivered solely to the Agents, (d) the existence or possible existence of any Default or Event of Default, or (e) the financial condition of any Obligor. Any such inquiry which may be made by an Agent or the Issuer shall not obligate it to make any further inquiry or to take any action. The Agents and the Issuer shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Agents or the Issuer, as applicable, believe to be genuine and to have been presented by a proper Person. SECTION IX.4. Successor. The Syndication Agent and the Documentation Agent may resign as such upon one Business Day's notice to the Company and the Administrative Agent. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Company and all Lenders. The Administrative Agent may be removed at any time with or -115- 123 without cause by written notice received by the Administrative Agent from the Required Lenders, such removal to be effective on the date specified in such notice. If the Administrative Agent at any time shall resign or be removed, the Required Lenders may, with the prior consent of the Company (which consent shall not be unreasonably withheld or delayed and which shall not be required if an Event of Default has occurred and is continuing) appoint another Lender as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent 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 notice of resignation or receiving notice of removal, then the retiring Administrative Agent may, on behalf of the Lenders, with the consent of the Company, which consent shall not be unreasonably withheld and which shall not be required if an Event of Default has occurred and is continuing, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as the successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as such, the provisions of (a) this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement, and (b) Section 10.3 and Section 10.4 shall continue to inure to its benefit. Notwithstanding anything else to the contrary in this Section 9.4, the Administrative Agent may at any time, without the consent of the Company, any Obligor or any Lender, appoint an Affiliate which is a commercial banking institution as a successor Administrative Agent. SECTION IX.5. Credit Extensions by Each Agent and Issuer. Each Agent and the Issuer shall have the same rights and powers with respect to (a) in the case of the Agents, the Credit Extensions made by it or any of its Affiliates and (b) in the case of the Issuer, the Loans made by it or any of its Affiliates, as any other Lender and may exercise the same as if it were not an Agent or the Issuer. Each Agent, the Issuer and each of their respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Subsidiary or Affiliate of the Company as if such Agent or Issuer were not an Agent or Issuer hereunder. SECTION IX.6. Credit Decisions. Each Lender acknowledges that it has, independently of the Agents, the Lead Arranger, the Documentation Agent, the Issuer and each other Lender, and based on such Lender's review of the financial information of each Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also -116- 124 acknowledges that it will, independently of the Agents, the Documentation Agent, the Lead Arranger, the Issuer and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under the Loan Documents. SECTION IX.7. Copies, etc. The Administrative Agent shall give prompt notice to each Lender of each material notice or material request required or permitted to be given to the Administrative Agent by the Borrowers pursuant to the terms of the Loan Documents (unless concurrently delivered to the Lenders by the Borrowers). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrowers for distribution to the Lenders by the Administrative Agent in accordance with the terms of the Loan Documents. The Agents shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrowers to the Agents, but that may be voluntarily furnished by the Borrowers to the Agents (either in their capacity as Agent or in their individual capacity). SECTION IX.8. Reliance by Agents. The Agents shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agents. As to any matters not expressly provided for by the Loan Documents, the Agents shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Lenders or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Secured Parties. For purposes of applying amounts in accordance with this Section, the Agents shall be entitled to rely upon any Secured Party that has entered into a Rate Protection Agreement with any Obligor for a determination (which such Secured Party agrees to provide or cause to be provided upon request of the Agents) of the outstanding Obligations owed to such Secured Party under any Rate Protection Agreement. Unless it has actual knowledge evidenced by way of written notice from any such Secured Party and any Borrower to the contrary, the Agents, in acting in such capacity under the Loan Documents, shall be entitled to assume that no Rate Protection Agreements or Obligations in respect thereof are in existence or outstanding between any Secured Party and any Obligor. SECTION IX.9. Defaults. The Agents shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Agents have received a written notice from a Lender or a Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agents receive such a notice of the occurrence of a Default, the Agents shall give prompt notice thereof to the Lenders. The Agents shall (subject to Section 10.1) take such action with respect to such Default as shall be directed by the Required Lenders; provided, that unless and until the Agents shall have received such directions, the Agents may (but shall not be -117- 125 obligated to) take such action, or refrain from taking such action, with respect to such Default as they shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Required Lenders or all Lenders. SECTION IX.10. The Documentation Agent. Notwithstanding anything else to the contrary contained in this Agreement or any other Loan Document, the Documentation Agent, in such capacity, shall have no duties or responsibilities under this Agreement or any other Loan Document nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Documentation Agent, in such capacity except as are explicitly set forth herein or in the other Loan Documents. ARTICLE X MISCELLANEOUS PROVISIONS SECTION X.1. Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to in writing by each Borrower and each Obligor party thereto and the Required Lenders; provided, however, that no such amendment, modification or waiver shall be effective which would: (a) modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders unless consented to in writing by each Lender; (b) (i) modify this Section 10.1, or clause (a) of Section 10.10, (ii) change the definition of "Required Lenders", (iii) reduce any fees described in Article III, (iv) release Parent from its obligations under the Parent Pledge Agreement, (v) release all or substantially all of the collateral security (except in each case as otherwise specifically provided in this Agreement, the Revolver Intercreditor Agreement, a Pledge Agreement or a Security Agreement) without the written consent of each Lender adversely affected thereby (it being understood and agreed that with respect to the release of any such collateral security securing or guaranteeing the Current Assets Obligations or the Fixed Assets Obligations, as the case may be, the approval of the Current Assets Required Lenders or the Fixed Assets Required Lenders, as applicable, shall be required), (vi) amend, modify or waive the provisions of Section 3.1.1 or Section 3.1.2 or clause (b) of Section 2.2.2 or (vii) extend any Loan Commitment Termination Date, in each case, without the written consent of each Lender adversely affected thereby; (c) increase the Fixed Assets Loan Commitment Amount or the Percentage of any Fixed Assets Lender without the consent of each Fixed Assets Lender adversely affected thereby; -118- 126 (d) increase the Current Assets Loan Commitment Amount or the Percentage of any Current Assets Lender or the Letter of Credit Commitment Amount without the consent of each Current Assets Lender adversely affected thereby; (e) (i) extend the final Stated Maturity Date for any Lender's Loan, (ii) reduce the principal amount of or rate of interest on any Lender's Loan or reduce any fee payable to any Lender or (iii) extend the date on which any principal payment, interest or fees are payable on any Lender's Loans, in each case without the written consent of such Lender (it being understood and agreed, however, that any vote to rescind any acceleration made pursuant to Section 8.2 and Section 8.3 of amounts owing with respect to the Loans and other Obligations shall only require the vote of the Required Lenders); (f) increase the Stated Amount of any Letter of Credit unless consented to by the Issuer of such Letter of Credit; (g) affect adversely the interests, rights or obligations of any Agent, the Issuer, the Swing Line Lender, or the Lead Arranger (in its capacity as Agent, Issuer, the Swing Line Lender, or Lead Arranger), unless consented to in writing by such Agent, the Issuer, the Swing Line Lender or the Lead Arranger, as the case may be; (h) change the definition of "Borrowing Base Amount", "Eligible Account", "Eligible Inventory" or "Overadvance Amount", in each case if the effect of such change would be to require a Current Assets Lender to make or participate in a Credit Extension in an amount that is greater than such Current Assets Lender would have had to make or participate in immediately prior to such amendment, modification or waiver without the written consent of each Current Assets Lender; provided, however, nothing contained in this clause shall limit the Administrative Agent's ability to adjust the Borrowing Base Amount, the amount of Eligible Accounts, the amount of Eligible Inventory or the Overadvance Amount to the extent otherwise permitted by this Agreement; (i) have the effect (either immediately or at some later time) of enabling the Borrowers to satisfy a condition precedent set forth in Section 5.2 to the making of a Loan or the issuance of a Letter of Credit without the written consent of applicable Lenders holding at least 51% of the applicable Loan Commitments; or (j) amend (i) the Fixed Assets Security Documents without the consent of the Fixed Assets Required Lenders or (ii) amend the Current Assets Security Agreement, the Revolving Intercreditor Agreement or Section 7.1.15 without the consent of the Current Assets Required Lenders. Notwithstanding anything to the contrary contained in this Section 10.1, the Agents may, without the consent of any Lender, execute amendments or modifications of any Loan Document to cure -119- 127 any ambiguity, omission, defect or inconsistency therein or which otherwise are immaterial or would otherwise not have any adverse affect the rights or interests of any Lender hereunder. No failure or delay on the part of any Agent, the Issuer, any Lender in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on any Obligor in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Agent, the Issuer, any Lender under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. For purposes of this Section 10.1, the Syndication Agent, in coordination with the Administrative Agent, shall have primary responsibility, together with the Company, in the negotiation, preparation and documentation relating to any amendment, modification or waiver of this Agreement, any other Loan Document or any other agreement or document related hereto or thereto contemplated pursuant to this Section. SECTION X.2. Notices; Time. All notices, requests and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth on Schedule II hereto or, in the case of a Lender which becomes a party hereto after the date hereof, as set forth in the Lender Assignment Agreement pursuant to which such Lender becomes a Lender hereunder or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, (a) if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when has been received or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). Unless otherwise indicated, all references to the time of a day in a Loan Document shall refer to New York City time. SECTION X.3. Payment of Costs and Expenses. Each Borrower, jointly and severally, agrees to pay on demand all reasonable expenses of each Agent (including the reasonable fees and out-of-pocket expenses of Mayer, Brown & Platt, counsel to the Agents and of local or foreign counsel, if any, who may be retained by counsel to the Agents) in connection with (a) the syndication by the Syndication Agent and the Lead Arranger of the Loans, the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules, opinions and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; -120- 128 (b) the filing, recording or refiling or rerecording of any Loan Document and/or any Filing Statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms of any Loan Document; (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document; and (d) post-closing U.C.C.-11 searches (within 120 days of the Effective Date) to confirm that the Liens granted to the Administrative Agent for the benefit of the Secured Parties have been perfected. Each Borrower further jointly and severally agrees to pay, and to save the Agents and the Lenders harmless from all liability for, any stamp or other similar Taxes which may be payable in connection with the execution or delivery of this Agreement, the Borrowings hereunder, the issuance of the Notes, the issuance of the Letters of Credit or any other Loan Documents. Each Borrower also agrees to jointly and severally reimburse each Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by such Agent or such Lender in connection with (i) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (ii) the enforcement of any Obligations. In addition, the Borrowers jointly and severally also agree, subject to the terms of this Agreement, to reimburse the Administrative Agent on demand for all reasonable third party administration, audit and monitoring expenses incurred in connection with the Borrowing Base and determinations in respect thereof. SECTION X.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Commitment, each Borrower jointly and severally indemnifies, exonerates and holds each Agent, the Lead Arranger, the Issuer and each Lender and each of their respective partners, trustees, officers, directors, attorneys, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements, whether incurred in connection with actions between or among the parties hereto or the parties hereto and third parties (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension, including all Indemnified Liabilities arising in connection with the Transaction; -121- 129 (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of any Borrower as the result of any determination by the Required Lenders pursuant to Article V not to make any Credit Extension hereunder but excluding any such action in which a court of competent jurisdiction in a final non-appealable judgment determined that such Lenders breached their obligations hereunder in respect of such Credit Extension); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by any Obligor or any Subsidiary thereof of all or any portion of the Capital Securities or assets of any Person, whether or not an Indemnified Party is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by any Obligor or any Subsidiary thereof of any Hazardous Material; (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by any Obligor or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, such Obligor or Subsidiary; or, (f) each Lender's Environmental Liability (the indemnification herein shall survive repayment of the Obligations and any transfer of the property of any Obligor or its Subsidiaries by foreclosure or by a deed in lieu of foreclosure for any Lender's Environmental Liability, regardless of whether caused by, or within the control of, such Obligor or such Subsidiary); except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. Each Borrower and its permitted successors and assigns hereby waive, release and agree not to make any claim, or bring any cost recovery action against, any Indemnified Party under CERCLA or any state equivalent, or any similar law now existing or hereafter enacted. It is expressly understood and agreed that to the extent that any Indemnified Party is strictly liable under any Environmental Laws, such Borrower's obligation to such Indemnified Party under this indemnity shall likewise be without regard to fault on the part of such Borrower, to the extent permitted under applicable law, with respect to the violation or condition which results in liability of an Indemnified Party. If and to the extent that the foregoing undertaking may be unenforceable for any reason, such Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. -122- 130 SECTION X.5. Survival. The obligations of each Borrower under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4 and the obligations of the Lenders under Section 9.1, shall in each case survive any termination of this Agreement (including in the event of any release of any Borrower pursuant to the terms of this Agreement other than in connection with a Transfer of the Fibers Business), the payment in full in cash of all Obligations, the termination of all Commitments and any assignment from one Lender to another (in the case of Sections 10.3 and 10.4) and the occurrence of the Termination Date. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION X.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION X.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION X.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original and each party hereto other than the Agents and the Company expressly waives its rights to receive originally executed documents other than with respect to any Notes) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective as of the date first above written when counterparts hereof executed on behalf of each Borrower, the Agents and each Lender (or notice thereof satisfactory to the Agents) shall have been received by the Syndication Agent. SECTION X.9. Governing Law; Entire Agreement. THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO LAWS OR RULES ARE DESIGNATED, THE INTERNATIONAL STANDBY PRACTICES (ISP98--INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NUMBER 590 (THE "ISP98 RULES")) AND, AS TO MATTERS NOT GOVERNED BY THE ISP98 RULES, THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement and the other Loan Documents constitute the entire -123- 131 understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede any prior agreements, written or oral, with respect thereto. SECTION X.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) no Borrower may assign or transfer its rights or obligations hereunder without the prior written consent of the Administrative Agent and all Lenders other than pursuant to Section 7.2.10; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 10.11. SECTION X.11. Sale and Transfer of Loans; Participations in Loans and Notes. Each Lender may assign, or sell participations in, its Loans and Commitments to one or more other Persons in accordance with this Section 10.11. SECTION X.11.1. Assignments. Any Lender (an "Assignor Lender"), may (a) with notice to the Administrative Agent and with the written consents (whether by originally executed counterpart or electronic copy thereof) of the Company and the Syndication Agent, (i) which consents shall not be unreasonably delayed or withheld, (ii) which consents shall not be required in the case of assignments made (A) to the Agents or any of their Affiliates, (B) by the Agents, the Documentation Agent or any of their Affiliates, to any commercial bank, fund which is regularly engaged in making, purchasing or investing in loans or securities or any other financial institution or commercial finance company (an "Eligible Assignee") during the initial syndication (which shall be within thirty days of the Closing Date, such period the "Initial Syndication") and (C) which consent of the Company shall not be required at any time when an Event of Default shall have occurred and be continuing; and (b) with notice to the Company and the Agents, but without the consent of the Company, the Agents or the Issuer, may assign and delegate to any of its Affiliates or to any other Lender or to a Related Fund of any Lender (each such Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), at any time assign and delegate to one or more Eligible Assignees all or any fraction of such Lender's total Loans, participations in each Letter of Credit and Letter of Credit Outstandings with respect thereto and Commitments in a minimum aggregate amount equal to the lesser of (i) $5,000,000 or (ii) the then remaining amount of such Lender's Loans and Commitments; provided, however, that any such Assignee Lender will comply, if applicable, with the provisions -124- 132 contained in Section 4.6 and each Obligor and the Agents shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (A) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to each Borrower and the Agents by such Lender and such Assignee Lender, (B) the Assignor Lender and such Assignee Lender shall have executed and delivered to each Borrower and the Agents a Lender Assignment Agreement, accepted by the Agents, and (C) the processing fees described below shall have been paid. From and after the date that the Agents accept such Lender Assignment Agreement, (i) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (ii) the Assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within ten Business Days after its receipt of notice that the Administrative Agent has received an executed Lender Assignment Agreement, if the Assignor Lender or Assignee Lender so requests, the Borrowers shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender), new Notes evidencing such Assignee Lender's assigned Loans and Commitments and, if the Assignor Lender has retained Loans and Commitments hereunder, replacement Notes in the principal amount of the Loans and Commitments retained by the Assignor Lender hereunder (such Notes to be in exchange for, but not in payment of, those Notes then held by such Assignor Lender). Each such Note shall be dated the date of the predecessor Notes. The Assignor Lender shall mark the predecessor Notes "exchanged" and deliver them to the Company. Accrued interest and accrued fees on the Loans prior to assignment shall be paid to the assignee Lender and following assignment shall be paid to the Assignor Lender at the same time or times provided in this Agreement. Such Assignor Lender or such Assignee Lender must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $2,500, unless such assignment and delegation is by a Lender to its Affiliate or to a Related Fund, if such assignment and delegation is by a Lender to a Federal Reserve Bank (or, if such Lender is an investment fund, to the trustee under the indenture to which such fund is a party in support of its obligations to such trustee), as provided below, is otherwise consented to by the Administrative Agent or if such assignment is by the Agents or the Documentation Agent during the Initial Syndication. Any attempted assignment and delegation not made in accordance with this Section 10.11.1 shall be null and void. Nothing contained in this Section 10.11.1 shall prevent or prohibit any Lender from pledging its rights (but not its obligations to make Loans or participate in Letters of Credit of Letter of Credit Outstandings) under this Agreement and/or its Loans hereunder (i) to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank or (ii) in the case of a Lender that is an investment fund, to the trustee under the indenture to which such fund is a party in support of its obligations to such trustee; provided, that any such assignment to a trustee shall be subject to the provisions of -125- 133 clause (a) of this Section 10.11.1. In the event that S&P, Moody's or Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Lender with a Commitment to make Revolving Loans or participate in Letters of Credit becomes a Lender, downgrade the long-term certificate of deposit rating or long-term senior unsecured debt rating of such Lender, and the resulting rating shall be below BBB-, Baa3 or C (or BB, in the case of Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)) respectively, then the Borrowers (with the consent of the Administrative Agent such consent not to be unreasonably withheld) shall have the right, but not the obligation, upon notice to such Lender and the Agents, to replace such Lender with an Assignee Lender in accordance with and subject to the restrictions contained in this Section, and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in this Section) all its interests, rights and obligations in respect of its Revolving Loan Commitment under this Agreement to such Assignee Lender; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) such Assignee Lender shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest and fees (if any) accrued to the date of payment on the Loans made, and Letters of Credit participated in, by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. SECTION X.11.2. Participations. Any Lender may at any time sell to one or more commercial banks or other Persons (each such commercial bank and other Person being herein called a "Participant") participating interests in any of the Loans, Commitments, participations in each Letter of Credit and Letters of Credit Outstandings or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations and such Participant shall not become a Lender hereunder unless such Lender and such Participant comply with the provisions set forth in this Section 10.11; (c) each Obligor and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, agree -126- 134 to any reduction in the interest rate or amount of fees that such Participant is otherwise entitled to, a decrease in the principal amount, or an extension of the final Stated Maturity Date, of any Loan in which such Participant has purchased a participating interest or a release of all or substantially all of the collateral security under the Loan Documents or any Subsidiary under the Subsidiary Guaranty, in each case except as otherwise specifically provided in a Loan Document; and (e) the Borrowers shall not be required to pay any amount under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4 that is greater than the amount which it would have been required to pay had no participating interest been sold. Each Borrower acknowledges and agrees, subject to clause (e) above, that, to the fullest extent permitted under applicable law, each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a Lender. SECTION X.12. Confidentiality. The Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to any of their examiners, Affiliates, outside auditors, counsel and other professional advisors in connection with this Agreement or as reasonably required by any bona fide transferee, participant or assignee or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided, however, that (a) unless specifically prohibited by applicable law or court order, each Lender shall notify the Company of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; (b) prior to any such disclosure pursuant to this Section 10.12, each Lender shall require any such bona fide transferee, participant and assignee receiving a disclosure of non-public information to agree (i) to be bound by this Section 10.12; and (ii) to require such Person to require any other Person to whom such Person discloses such non-public information to be similarly bound by this Section 10.12; and (c) except as may be required by an order of a court of competent jurisdiction and to the extent set forth therein, no Lender shall be obligated or required to return any materials furnished by any Borrower or any Subsidiary. -127- 135 SECTION X.13. Other Transactions. Nothing contained herein shall preclude the Secured Parties from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with any Borrower or any of its Affiliates in which such Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION X.14. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWERS THAT IS BROUGHT IN THE STATE OF NEW YORK SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWERS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AND EXPRESSLY AND IRREVOCABLY APPOINTS CT CORPORATION SYSTEM AS ITS DOMICILE AND ADDRESS FOR SERVICE OF PROCESS FOR PURPOSES OF ANY ACTION AS TO WHICH IT HAS SUBMITTED TO JURISDICTION AS SET FORTH IN THIS SECTION, AND AGREES THAT SERVICE UPON SUCH AUTHORIZED AGENT SHALL BE DEEMED IN EVERY RESPECT SERVICE OF PROCESS UPON ANY BORROWER OR ITS SUCCESSORS AND ASSIGNS, AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON IT. EACH BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING IN THIS SECTION SHALL -128- 136 AFFECT THE RIGHT OF ANY AGENT, ANY LENDER OR THE ISSUER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY SUCH PERSON TO BRING ANY ACTION OR PROCEEDING AGAINST SUCH BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. TO THE EXTENT THAT ANY BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH BORROWER HEREBY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION X.15. Waiver of Jury Trial. THE AGENTS, THE LENDERS, THE ISSUER AND THE BORROWERS HEREBY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS, THE ISSUER OR THE BORROWERS. EACH BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS, THE LENDERS AND THE ISSUER ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION X.16. Certain Collateral Matters. The Administrative Agent is authorized on behalf of all the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time to take any action with respect to any Collateral or the Loan Documents which may be necessary to perfect and maintain perfected the security interest in and Liens upon the Collateral granted pursuant to the Loan Documents. The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release or modify any security interest or Lien granted to or held by the Administrative Agent (a) on any Collateral subject to the Fixed Assets Security Documents on the Fixed Assets Termination Date; (b) on any Collateral subject to the Current Assets Security Documents on the Current Assets Termination Date; (c) on any property Disposed of as part or in connection with any Permitted Disposition; (d) on any property in which the Borrowers owned no interest at the time the security interest and/or Lien was granted or at any time thereafter owns no interest; (e) on property leased to the Borrowers under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is -129- 137 not intended by the Borrowers to be, renewed or extended; (f) on an instrument evidencing Indebtedness or other debt instrument, if the Indebtedness evidenced thereby has been paid in full; (g) to effectuate the Transfer of the Fibers Business and release the Fibers Subsidiaries from their Obligations hereunder in connection therewith in accordance with the terms hereof; or (h) if approved, authorized or ratified in writing by the applicable Required Lenders or each Lender required by Section 10.1. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent's authority to release or modify particular types or items of collateral pursuant to this Section. Additionally, the Lenders hereby irrevocably authorize the Administrative Agent to enter into the Revolver Intercreditor Agreement and the Senior Debt Intercreditor Agreement and agree to be bound by all of the terms and conditions contained therein. -130- 138 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. STERLING CHEMICALS, INC., as a Borrower By: ------------------------------- Title: STERLING CANADA, INC., as a Borrower By: ------------------------------- Title: STERLING PULP CHEMICALS US, INC., as a Borrower By: ------------------------------- Title: STERLING PULP CHEMICALS, INC., as a Borrower By: ------------------------------- Title: STERLING FIBERS, INC., as a Borrower By: ------------------------------- Title: 139 STERLING CHEMICALS ENERGY, INC., as a Borrower. By: ------------------------------- Title: STERLING CHEMICALS INTERNATIONAL, INC., as a Borrower By: ------------------------------- Title: DLJ CAPITAL FUNDING, INC., as the Syndication Agent and as a Lender By: ------------------------------- Title: CREDIT SUISSE FIRST BOSTON as the Documentation Agent and as a Lender By: ------------------------------- Title: By: ------------------------------- Title: 140 THE CIT GROUP/BUSINESS CREDIT, INC., as the Administrative Agent and as a Lender By: ------------------------------- Title: 141 LENDERS: IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: ------------------------------- Title: 142 FLEET CAPITAL CORPORATION By: ------------------------------- Title: 143 COAST BUSINESS CREDIT A DIVISION OF SOUTHERN PACIFIC BANK By: ------------------------------- Title: 144 FINOVA CAPITAL CORPORATION By: ------------------------------- Title: 145 TEXTRON FINANCIAL CORP. By: ------------------------------- Title: 146 GREEN TREE FINANCIAL SERVICING CORPORATION By: ------------------------------- Title: 147 GMAC BUSINESS CREDIT, LLC By: ------------------------------- Title: 148 THE PROVIDENT BANK By: ------------------------------- Title: 149 GPSF SECURITIES, INC. By: ------------------------------- Title: 150 FOOTHILL CAPITAL CORPORATION By: ------------------------------- Title: 151 CONGRESS FINANCIAL CORPORATION (SOUTHWEST) By: ------------------------------- Title: 152 COMERICA BANK By: ------------------------------- Title: 153 SCHEDULE I DISCLOSURE SCHEDULE TO REVOLVING CREDIT AGREEMENT ITEM 1.1. Designated Shareholders ITEM 1.2 Unrestricted Subsidiaries ITEM 1.3 Legal Description of Vancouver Release Parcel ITEM 1.4 Foreign Restricted Subsidiaries ITEM 6.7. Litigation ITEM 6.8. Existing Subsidiaries ITEM 6.12. Environmental Matters ITEM 6.16. Intellectual Property ITEM 7.2.2(b) Indebtedness to be Paid CREDITOR OUTSTANDING PRINCIPAL AMOUNT ITEM 7.2.2(c) Ongoing Indebtedness ITEM 7.2.3(c) Ongoing Liens ITEM 7.2.5(a) Ongoing Investments ITEM 7.2.18 Existing Leases ITEM 7.2.18 Attornment Leases -1- 154 SCHEDULE II PERCENTAGES; LIBO OFFICE; DOMESTIC OFFICE
PERCENTAGES --------------------------------------- CURRENT ASSETS NAME AND NOTICE DOMESTIC LOAN FIXED ASSETS LOAN ADDRESS OF LENDER LIBO OFFICE OFFICE COMMITMENT COMMITMENT ------------------ ----------- -------- -------------- -------------------
-2- 155 SCHEDULE III ACCOUNT OBLIGOR SCHEDULE ITEM A: 60 DAYS PAYMENT ACCOUNT OBLIGORS BP Amoco PLC E.I. du Pont de Nemours & Co. The Goodyear Tire and Rubber Co. Monsanto Company Solutia Inc. ITEM B: ACCEPTABLE ACCOUNTS BASF Group (including Polioles S.A. de C.V.) Bayer AG BP Amoco PLC Mitsubishi International Corporation ITEM C: 25% DESIGNATED ACCOUNT OBLIGORS BASF Group Bayer AG BP Amoco PLC Dow Chemical Company E.I. du Pont de Nemours & Co. Monsanto Company Nissho Iwai Phillips Petroleum Co. Solutia Inc. -3- EX-4.2 3 DEED OF TRUST, ASSIGNMENT OF LEASES & RENTS 1 EXHIBIT 4.2 STERLING CHEMICALS, INC., Trustor, to LINDA H. EARLE, Trustee and THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative and Collateral Agent, Beneficiary --------------------------------------------------- DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING --------------------------------------------------- Dated as of July 23, 1999 This instrument affects certain real and personal property located in Galveston County, State of Texas. ______________________________________________________________ Record and return to: Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Michael Sloyer, Esq. This instrument was prepared by the above-named attorney. Notice: This instrument contains inter alia obligations which may provide for: (a) a variable rate of interest and/or (b) future and/or revolving credit advances or readvances, which when made, shall have the same priority as advances or readvances made on the date hereof whether or not (i) any advances or readvances were made on the date hereof and (ii) any indebtedness is outstanding at the time any advance or re-advance is made. Notwithstanding anything to the contrary contained herein, the maximum principal indebtedness secured under any contingency by this instrument shall in no event exceed $70,000,000 2 TABLE OF CONTENTS
Section Page ------- ---- ARTICLE I COVENANTS AND AGREEMENTS OF THE TRUSTOR 1.1. Payment of Secured Obligations..................................................-6- 1.2. Title to Trust Premises, etc....................................................-6- 1.3. Title Insurance.................................................................-7- 1.3.1. Title Insurance Policy..........................................................-7- 1.3.2. Title Insurance Proceeds........................................................-7- 1.4. Recordation.....................................................................-7- 1.5. Payment of Impositions, etc.....................................................-8- 1.6. Insurance and Legal Requirements................................................-8- 1.7. Security Interests, etc.........................................................-8- 1.8. Permitted Contests..............................................................-9- 1.9. Leases..........................................................................-9- 1.10. Compliance with Instruments....................................................-10- 1.11. Maintenance and Repair, etc....................................................-10- 1.12. Alterations, Additions, etc....................................................-10- 1.13. Acquired Property Subject to Lien..............................................-10- 1.14. Assignment of Rents, Proceeds, etc.............................................-11- 1.15. No Claims Against the Trustee or the Beneficiary...............................-12- 1.16. Indemnification................................................................-12- 1.17. No Credit for Payment of Taxes.................................................-13- 1.18. Intentionally Omitted..........................................................-13- 1.19. No Transfer of the Property....................................................-13- 1.20. Security Agreement.............................................................-14- 1.21. Representations and Warranties.................................................-15- 1.22. Trustor's Covenants............................................................-15- 1.23. Attornment.....................................................................-15- ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. 2.1. Insurance......................................................................-15- 2.1.1. Risks to be Insured............................................................-16-
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Section Page ------- ---- 2.1.2. Policy Provisions..............................................................-16- 2.1.3. Delivery of Certificates, etc..................................................-17- 2.1.4. Separate Insurance.............................................................-17- 2.2. Damage, Destruction or Taking; Trustor to Give Notice; Assignment of Awards.......................................................-17- 2.3. Application of Proceeds and Awards.............................................-18- 2.4 Total Taking and Total Destruction.............................................-20- ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. 3.1. Events of Default; Acceleration................................................-21- 3.2. Legal Proceedings; Judicial Foreclosure........................................-21- 3.3. Power of Sale..................................................................-21- 3.4. Uniform Commercial Code Remedies...............................................-23- 3.5. Trustee and Beneficiary Authorized to Execute Deeds, etc.......................-23- 3.6. Purchase of Trust Premises by Beneficiary......................................-23- 3.7. Receipt a Sufficient Discharge to Purchaser....................................-24- 3.8. Waiver of Appraisement, Valuation, etc.........................................-24- 3.9. Sale a Bar Against Trustor.....................................................-24- 3.10. Secured Obligations to Become Due on Sale......................................-24- 3.11. Application of Proceeds of Sale and Other Moneys...............................-24- 3.12. Appointment of Receiver........................................................-25- 3.13. Possession, Management and Income..............................................-25- 3.14. Right of Trustee and the Beneficiary to Perform Trustor's Covenants, etc.......-26- 3.15. Subrogation....................................................................-26- 3.16. Remedies, etc., Cumulative.....................................................-26- 3.17. Provisions Subject to Applicable Law...........................................-27- 3.18. No Waiver, etc.................................................................-27- 3.19. Compromise of Actions, etc.....................................................-27- ARTICLE IV DEFINITIONS 4.1. Terms Defined in this Deed of Trust............................................-27- 4.2. Use of Defined Terms...........................................................-29- 4.3. Credit Agreement Definitions...................................................-29- ARTICLE V MISCELLANEOUS 5.1. Further Assurances; Financing Statements.......................................-30- 5.1.1. Further Assurances.............................................................-30- 5.1.2. Financing Statements...........................................................-30-
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Section Page ------- ---- 5.2. Additional Security............................................................-30- 5.3. Defeasance, Partial Release, etc...............................................-31- 5.3.1. Defeasance.....................................................................-31- 5.3.2. Partial Release, etc...........................................................-31- 5.4. Notices, etc...................................................................-31- 5.5. Waivers, Amendments, etc.......................................................-31- 5.6. Cross-References...............................................................-31- 5.7. Headings.......................................................................-31- 5.8. Currency.......................................................................-32- 5.9. Governing Law..................................................................-32- 5.10. Successors and Assigns, etc....................................................-32- 5.11. Concerning the Trustee.........................................................-32- 5.11.1. Acceptance of Trusts; Certain Terms of the Trusts..............................-32- 5.11.2. Duties and Responsibility of Trustee; In Case of Default; Prior to Default; When Acting Under Direction of Beneficiary.................................-33- 5.11.3. Notice of Default..............................................................-34- 5.11.4. Resignation and Removal; Appointment of Successor Trustee......................-34- 5.12. Waiver of Jury Trial; Submission to Jurisdiction...............................-34- 5.13. Severability; Conflicts........................................................-35- 5.14. Loan Document..................................................................-36- 5.15. Usury Savings Clause...........................................................-36- 5.16. Future Advances................................................................-36- 5.17. Entire Agreement...............................................................-37-
Acknowledgments Schedule 1 Description of the Land Schedule 2 Permitted Encumbrances -iii- 5 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING dated as of July 23, 1999 (this "Deed of Trust") made by STERLING CHEMICALS, INC., a Delaware corporation (the "Trustor"), having an address at 1200 Smith St., Suite 1900, Houston, Harris County, Texas 77002-4312 to LINDA H. EARLE, having an address of c/o Mayer, Brown & Platt, 700 Louisiana, Suite 3600, Houston, Harris County, Texas 77002, as trustee (the "Trustee") for the benefit of THE CIT GROUP/BUSINESS CREDIT, INC., a corporation, having an address at 1211 Avenue of the Americas, 22nd Floor, New York, New York 10036, as the Administrative Agent and Collateral Agent under the Credit Agreement referred to below, as beneficiary (together with its successors and assigns from time to time acting as Administrative Agent and Collateral Agent under such Credit Agreement, the "Beneficiary"). WITNESSETH THAT: WHEREAS, the Trustor is on the date of delivery hereof the owner of fee title (or easement or leasehold title if otherwise indicated on Schedule 1 hereto) to the parcels of land described in Schedule 1 hereto (the "Land") and of the Improvements (such term and other capitalized terms used in this Deed of Trust having the respective meanings specified or referred to in Article IV); WHEREAS, pursuant to the terms, conditions and provisions of the Revolving Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Trustor, Sterling Canada, Inc., Sterling Pulp Chemicals U.S., Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International, Inc., as Borrowers (collectively, the "Borrowers"), various financial institutions, as the Lenders, DLJ Capital Funding, Inc., as the Syndication Agent, The CIT Group/Business Credit, Inc. as the Administrative Agent and Collateral Agent, and Credit Suisse First Boston, as the Documentation Agent, the Lenders and the Issuer have agreed to make Loans to, and to issue Letters of Credit for the account of, the Borrowers in the maximum original principal amount of One Hundred Fifty Five Million Dollars ($155,000,000)(such Loans and Letters of Credit are hereinafter referred to collectively as the "Credit Extensions"). WHEREAS, the Credit Extensions consist of, inter alia, Fixed Assets Loans in a maximum principal amount not to exceed Seventy Million Dollars ($70,000,000) having a Stated Maturity Date of July 23, 2004; and WHEREAS, the Trustor has duly authorized the execution, delivery and performance of this Deed of Trust. -2- 6 GRANT: NOW, THEREFORE, for and in consideration of the premises, and of the mutual covenants herein contained, and in order to induce the Fixed Assets Lenders to make the Fixed Assets Loans pursuant to the Credit Agreement, and in order to secure the full, timely and proper payment and performance of and compliance with each and every one of the Secured Obligations (as hereinafter defined), the Trustor hereby irrevocably grants, bargains, sells, mortgages, warrants, aliens, demises, releases, hypothecates, pledges, assigns, transfers and conveys to the Trustee, the successors, successors in trust and assigns of Trustee, IN TRUST, WITH POWER OF SALE, for the benefit of the Beneficiary and its successors and assigns, forever, all of the following (the "Trust Premises"): (a) Real Estate. All of Trustor's right, title and interest in and to all of the Land and all additional lands and estates therein now owned or hereafter acquired by the Trustor for use or development with the Land or any portion thereof, together with all and singular the tenements, rights, easements, hereditaments, rights of way, privileges, liberties, appendages and appurtenances now or hereafter belonging or in any way pertaining to the Land and such additional lands and estates therein (including, without limitation, all rights relating to storm and sanitary sewer, water, gas, electric, railway and telephone services); all development rights, air rights, riparian rights, water, water rights, water stock, all rights in, to and with respect to any and all oil, gas, coal, minerals and other substances of any kind or character underlying or relating to the Land and such additional lands and estates therein and any interest therein; all estate, claim, demand, right, title or interest of the Trustor in and to any street, road, highway or alley, vacated or other, adjoining the Land or any part thereof and such additional lands and estates therein; all strips and gores belonging, adjacent or pertaining to the Land or such additional lands and estates; and any after-acquired property (herein collectively referred to as the "Real Estate"); (b) Improvements. All of Trustor's right, title and interest in and to all buildings, structures and other improvements and any additions and alterations thereto or replacements thereof, now or hereafter built, constructed or located upon the Real Estate; and, to the extent that any of the following items of property constitutes fixtures under applicable laws, all furnishings, fixtures, fittings, appliances, apparatus, equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever and all replacements thereof, now or hereafter affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Real Estate or such buildings, structures and other improvements, including, but not limited to, partitions, furnaces, boilers, oil burners, radiators and piping, plumbing and bathroom fixtures, refrigeration, heating, ventilating, air conditioning and sprinkler systems, other fire prevention and extinguishing apparatus and materials, vacuum cleaning systems, gas and electric fixtures, incinerators, compactors, elevators, engines, motors, generators and -3- 7 all other articles of property which are considered fixtures under applicable law (such buildings, structures and other improvements and such other property are herein collectively referred to as the "Improvements"; the Real Estate and the Improvements are herein collectively referred to as the "Property"); (c) Goods. All of Trustor's right, title and interest in and to all building materials, construction materials, appliances (including, without limitation, stoves, ranges, ovens, disposals, refrigerators, water fountains and coolers, fans, heaters, dishwashers, clothes washers and dryers, water heaters, hood and fan combinations, kitchen equipment, laundry equipment, kitchen cabinets and other similar equipment), stocks, supplies, blinds, window shades, drapes, carpets, floor coverings, manufacturing equipment and machinery, office equipment, growing plants and shrubberies, control devices, equipment (including window cleaning, building cleaning, swimming pool, recreational, monitoring, garbage, pest control and other equipment), motor vehicles, tools, furnishings, furniture, lighting, non-structural additions to the Real Estate and Improvements and all other tangible property of any kind or character, together with all replacements thereof, now or hereafter located on or in or used or useful in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Property, regardless of whether or not located on or in the Property or located elsewhere for purposes of storage, fabrication or otherwise (herein collectively referred to as the "Goods"); (d) [INTENTIONALLY OMITTED] (e) Leases. All rights of the Trustor in, to and under all leases, licenses, occupancy agreements, concessions and other arrangements, oral or written, now existing or hereafter entered into, whereby any Person agrees to pay money or any other consideration for the use, possession or occupancy of, or any estate in, the Property or any portion thereof or interest therein (herein collectively referred to as the "Leases"), and the right, subject to applicable law, upon the occurrence of any Event of Default hereunder, to receive and collect the Rents (as hereinafter defined) paid or payable thereunder; (f) Plans. All rights of the Trustor in and to all plans and specifications, designs, drawings and other information, materials and matters heretofore or hereafter prepared relating to the Improvements or any construction on the Real Estate (herein collectively referred to as the "Plans"); (g) Permits. All rights of the Trustor, to the extent assignable, in, to and under all permits, franchises, licenses, approvals and other authorizations respecting the use, occupation and operation of the Property and every part thereof and respecting any business or other activity conducted on or from the Property, and any product or proceed thereof or therefrom, including, without limitation, all building permits, certificates of -4- 8 occupancy and other licenses, permits and approvals issued by governmental authorities having jurisdiction (herein collectively referred to as the "Permits"); (h) Contracts. All right, title and interest of the Trustor, to the extent assignable, in and to all certificates, warranties, appraisals, engineering, environmental, soils, insurance and other reports and studies, books, records, correspondence, files and advertising materials, and other documents, now or hereafter obtained or entered into, as the case may be, pertaining to the construction, use, occupancy, possession, operation, management, leasing, maintenance and/or ownership of the Property and all right, title and interest of the Trustor therein (herein collectively referred to as the "Contracts"); (i) Leases of Furniture, Furnishings and Equipment. All right, title and interest of the Trustor as lessee in, to and under any leases of furniture, furnishings, equipment and any other Goods now or hereafter installed in or at any time used in connection with the Property; (j) Rents. All rents, issues, profits, royalties, avails, income and other benefits derived or owned, directly or indirectly, by the Trustor from the Property, including, without limitation, all rents and other consideration payable by tenants, claims against guarantors, and any cash or other securities deposited to secure performance by tenants under the Leases (herein collectively referred to as "Rents"); (k) Proceeds. All proceeds of the conversion, voluntary or involuntary of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards (herein collectively referred to as "Proceeds"); and (l) Other Property. All other property and rights of the Trustor of every kind and character relating to the Property, and all proceeds and products of any of the foregoing; provided however, the Trust Premises shall not include any general intangibles or other rights arising under any contracts, instruments, licenses, or other documents as to which the grant of a lien and/or security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained. AND, without limiting any of the other provisions of this Deed of Trust the Trustor expressly grants to the Beneficiary, as secured party, a security interest in all of those portions of the Trust Premises which are or may be subject to the State Uniform Commercial Code provisions applicable to secured transactions subject, however, to the Permitted Encumbrances; TO HAVE AND TO HOLD the Trust Premises unto the Trustee and the successors, successors-in-trust and assigns of the Trustee for the benefit of the Beneficiary, its successors and assigns, forever subject, however, to the Permitted Encumbrances. -5- 9 FURTHER to secure the full, timely and proper payment and performance of the Secured Obligations, the Trustor hereby covenants and agrees with and warrants to the Trustee and the Beneficiary as follows: ARTICLE I COVENANTS AND AGREEMENTS OF THE TRUSTOR SECTION 1.1. Payment of Secured Obligations. (i) The Trustor agrees that: (a) it will duly and punctually pay and perform or cause to be paid and performed each of the Secured Obligations at the time and in accordance with the terms of the Loan Documents pertaining to the Fixed Assets Loans, and (b) when and as due and payable from time to time in accordance with the terms hereof or of any other Loan Documents pertaining to the Fixed Assets Loans, pay and perform, or cause to be paid and performed, all other Secured Obligations. SECTION 1.2. Title to Trust Premises, etc. The Trustor represents and warrants to and covenants with the Trustee and the Beneficiary that: (a) except as otherwise permitted by the terms of the Credit Agreement, as of the date hereof and at all times hereafter while this Deed of Trust is outstanding, the Trustor (1) is and shall be the absolute owner of the legal and beneficial title to the applicable interest in the Property and to all other property included in the Trust Premises, and (2) has and shall have good and indefeasible title in fee simple absolute, or good and sufficient easement or leasehold title, as currently represented in the granting clause as of the date hereof, to the Property; provided, however, that the portion of the Land described on Part III of Schedule 1 is hereby excluded from this covenant, subject in each case only to this Deed of Trust, the liens expressly permitted pursuant to the terms of the Credit Agreement and the encumbrances set forth in Schedule 2 hereto (collectively, the "Permitted Encumbrances"); (b) the Trustor has good and lawful right, power and authority to execute this Deed of Trust and to convey, transfer, assign, mortgage and grant a security interest in the Trust Premises, all as provided herein; (c) this Deed of Trust has been duly executed, acknowledged and delivered on behalf of the Trustor, all consents and other actions required to be taken by the officers, directors, shareholders and partners, as the case may be, of the Trustor have been duly and fully given and performed and this Deed of Trust constitutes the legal, valid and binding obligation of the Trustor, enforceable against the Trustor in accordance with its terms; and -6- 10 (d) the Trustor, at its expense, will warrant and defend the Trustee and the Beneficiary and any purchaser under the power of sale herein or at any foreclosure sale Trustor's title to the Trust Premises and the first deed of trust lien and first priority perfected security interest of this Deed of Trust thereon and therein against all claims and demands and will maintain, preserve and protect such lien and security interest and will keep this Deed of Trust a valid, direct first deed of trust lien of record on the Property and a first priority perfected security interest in the Trust Premises other than the Property, subject only to the Permitted Encumbrances. SECTION 1.3. Title Insurance. SECTION 1.3.1. Title Insurance Policy. Concurrently with the execution and delivery of this Deed of Trust, the Trustor, at its expense, has obtained and delivered to the Beneficiary a loan policy or policies of title insurance in an amount, and in form and substance, reasonably satisfactory to the Beneficiary naming the Beneficiary as the insured, insuring the title to and the first deed of trust lien of this Deed of Trust on the portion of the Land described on Part I of Schedule 1 with endorsements reasonably requested by the Beneficiary. The Trustor has duly paid in full all premiums and other charges due in connection with the issuance of such policy or policies of title insurance. SECTION 1.3.2. Title Insurance Proceeds. All proceeds received by and payable to the Beneficiary for any loss under the loan policy or policies of title insurance delivered to the Beneficiary pursuant to Section 1.3.1, or under any policy or policies of title insurance delivered to the Beneficiary in substitution therefor or replacement thereof, shall be the property of the Beneficiary and shall be applied by the Beneficiary in accordance with the provisions of Section 2.3. SECTION 1.4. Recordation. The Trustor, at its expense, will at all times cause this Deed of Trust and any instruments amendatory hereof or supplemental hereto and any instruments of assignment hereof or thereof (and any appropriate financing statements or other instruments and continuations thereof), and each other instrument delivered in connection with the Fixed Assets Loans or any other Loan Document pertaining to the Fixed Assets Loans and intended thereunder to be recorded, registered and filed, to be kept recorded, registered and filed, in such manner and in such places, and will pay all such recording, registration, filing fees, taxes and other charges, and will comply with all such statutes and regulations as may be required by law in order to establish, preserve, perfect and protect the lien and security interest of this Deed of Trust as a valid, direct first deed of trust lien on the Property and first priority perfected security interest in the Trust Premises other than the Property, subject only to the Permitted Encumbrances. The Trustor will pay or cause to be paid, and will indemnify the Trustee and the Beneficiary in respect of, all taxes (including interest and penalties) at any time payable in connection with the filing and recording of this Deed of Trust and any and all supplements and amendments hereto. -7- 11 SECTION 1.5. Payment of Impositions, etc. Subject to Section 1.8 (relating to permitted contests), the Trustor will pay or cause to be paid before the same would become delinquent and before any fine, penalty, interest or cost may be added for non-payment, all taxes, assessments, water and sewer rates, charges, license fees, inspection fees and other governmental levies or payments, of every kind and nature whatsoever, general and special, ordinary and extraordinary, unforeseen as well as foreseen, which at any time may be assessed, levied, confirmed, imposed or which may become a lien upon the Trust Premises, or any portion thereof, or which are payable with respect thereto, or upon the rents, issues, income or profits thereof, or on the occupancy, operation, use, possession or activities thereof, whether any or all of the same be levied directly or indirectly or as excise taxes or as income taxes, and all taxes, assessments or charges which may be levied on the Secured Obligations, or the interest thereon (collectively, the "Impositions"). The Trustor will deliver to the Trustee and the Beneficiary, upon request, copies of official receipts or other satisfactory proof evidencing such payments. SECTION 1.6. Insurance and Legal Requirements. Subject to Section 1.8 (relating to permitted contests), the Trustor, at its expense, will comply in all material respects, or cause compliance in all material respects with (a) all provisions of any insurance policy covering or applicable to the Trust Premises or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Trust Premises or any part thereof or any use or condition of the Trust Premises or any part thereof (collectively, the "Insurance Requirements"); and (b) all laws, including Environmental Laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Trust Premises or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Trust Premises or any part thereof (collectively, the "Legal Requirements"); noncompliance of which could reasonably be expected to cause a Material Adverse Effect whether or not compliance therewith shall require structural changes in or interference with the use and enjoyment of the Trust Premises or any part thereof. SECTION 1.7. Security Interests, etc. The Trustor will not directly or indirectly create or permit or suffer to be created or to remain, and will promptly discharge or cause to be discharged, any deed of trust, mortgage, encumbrance or charge on, pledge of, security interest in -8- 12 or conditional sale or other title retention agreement with respect to or any other lien on or in the Trust Premises or any part thereof or the interest of the Trustor, the Trustee, or the Beneficiary therein, or any Proceeds thereof or Rents or other sums arising therefrom, other than: (a) the Permitted Encumbrances; and (b) liens of mechanics, materialmen, suppliers or vendors or rights thereto incurred in the ordinary course of the business of the Trustor for sums not yet due or any such liens or rights thereto which are at the time being contested as permitted by Section 1.8. The Trustor will not postpone the payment of any sums for which liens of mechanics, materialmen, suppliers or vendors or rights thereto have been incurred (unless such liens or rights thereto are at the time being contested as permitted by Section 1.8), for more than 60 days after the completion of the action giving rise to such liens or rights thereto. SECTION 1.8. Permitted Contests. The Trustor at its expense may contest, or cause to be contested, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition, Legal Requirement or Insurance Requirement or lien of a mechanic, materialman, supplier or vendor, provided that, (a) in the case of an unpaid Imposition, lien, encumbrance or charge, such proceedings shall suspend the collection thereof from the Trustor, the Trustee, the Beneficiary, and the Trust Premises (including any rent or other income therefrom) and shall not materially interfere with the payment of any such rent or income, (b) neither the Trust Premises nor any rent or other income therefrom nor any part thereof or interest therein would be in any material danger of being sold, forfeited, lost, impaired or interfered with, (c) in the case of a Legal Requirement, neither the Trustor, the Trustee nor the Beneficiary would be in material danger of any civil or criminal liability for failure to comply therewith, (d) the Trustor shall have furnished such security, if any, as may be required in the proceedings or as may be reasonably requested by the Beneficiary, (e) the non-payment of the whole or any part of any Imposition will not result in the delivery of a tax deed to the Trust Premises or any part thereof because of such non-payment, (f) the payment of any sums required to be paid with respect to any of the Fixed Asset Notes or under this Deed of Trust (other than any unpaid Imposition, lien, encumbrance or charge at the time being contested in accordance with this Section 1.8) shall not be interfered with or otherwise affected, (g) in the case of any Insurance Requirement, the failure of the Trustor to comply therewith shall not affect the validity of any insurance required to be maintained by the Trustor under Section 2.1, and (h) that adequate reserves, determined in accordance with GAAP, shall have been set aside on the Trustor's books. SECTION 1.9. Leases. The Trustor represents and warrants to the Trustee and the Beneficiary that, as of the date hereof, there are no written or oral leases or other agreements of any kind or nature relating to the occupancy of any portion of the Property by any Person other than the Trustor other than the Permitted Encumbrances. Except as permitted by the Credit Agreement, the Trustor will not enter into any such written or oral lease or other agreement with respect to any portion of the Property without first obtaining the written consent of the Beneficiary. SECTION 1.10. Compliance with Instruments. The Trustor at its expense will -9- 13 promptly comply in all material respects with all rights of way or use, privileges, franchises, servitudes, licenses, easements, tenements, hereditaments and appurtenances forming a part of the Property and all instruments creating or evidencing the same, in each case, to the extent compliance therewith is required of the Trustor under the terms thereof. Except as is permitted by the Credit Agreement, the Trustor will not take any action which may result in a forfeiture or termination of the rights afforded to the Trustor under any such instruments and will not, without the prior written consent of the Beneficiary, amend any of such instruments in any manner adverse to the Fixed Assets Lenders in any material respect. SECTION 1.11. Maintenance and Repair, etc. Subject to the provisions of Section 1.12, the Trustor will keep or cause to be kept all presently and subsequently erected or acquired Improvements and the sidewalks, curbs, vaults and vault space, if any, located on or adjoining the same, and the streets and the ways adjoining the same, in good and substantial order and repair and in such a fashion that neither the value nor utility of the Trust Premises will be diminished, and, at its sole cost and expense, will promptly make or cause to be made all necessary and appropriate repairs, replacements and renewals thereof, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen, so that its business carried on in connection therewith may be properly conducted at all times. The Trustor at its expense will do or cause to be done all shoring of foundations and walls of any building or other Improvements on the Property and (to the extent permitted by law) of the ground adjacent thereto, and every other act necessary or appropriate for the preservation and safety of the Property by reason of or in connection with any excavation or other building operation upon the Property and upon any adjoining property, whether or not the Trustor shall, by any Legal Requirement, be required to take such action or be liable for failure to do so. SECTION 1.12. Alterations, Additions, etc. So long as no Event of Default shall have occurred and be continuing, the Trustor shall have the right at any time and from time to time to make or cause to be made reasonable alterations of and additions to the Property or any part thereof, provided that any alteration or addition: (a) shall not change the general character or the use of the Property or reduce the fair market value thereof below its value immediately before such alteration or addition, or impair the usefulness of the Property; (b) is effected with due diligence, in a good and workmanlike manner and in compliance in all material respects with all Legal Requirements and Insurance Requirements; (c) subject to Section 1.8 is promptly and fully paid for, or caused to be paid for, by the Trustor; and (d) is made, in case the estimated cost of such alteration or addition exceeds U.S. $1,000,000, under the supervision of a qualified architect or engineer or another professional. SECTION 1.13. Acquired Property Subject to Lien. Subject to the Permitted Encumbrances and except as otherwise permitted by the Credit Agreement, all property at any time acquired by the Trustor and provided or required by this Deed of Trust to be or become subject to the lien and security interest hereof, whether such property is acquired by exchange, purchase, construction or otherwise, shall forthwith become subject to the lien and security interest of this Deed of Trust without further action on the part of the Trustor, the Trustee or the -10- 14 Beneficiary. The Trustor, at its expense, will execute and deliver to the Trustee and Beneficiary (and will record and file as provided in Section 1.4) an instrument supplemental to this Deed of Trust reasonably satisfactory in substance and form to the Beneficiary, whenever such an instrument is necessary under applicable law to subject to the lien and security interest of this Deed of Trust all right, title and interest of the Trustor in and to all property provided or required by this Deed of Trust to be subject to the lien and security interest hereof. SECTION 1.14. Assignment of Rents, Proceeds, etc. The assignment, grant and conveyance of the Leases, Rents, Proceeds and other rents, income, proceeds and benefits of the Trust Premises contained in the Granting Clause of this Deed of Trust shall constitute an absolute, present and irrevocable assignment, grant and conveyance, provided, however, that permission is hereby given to the Trustor, so long as no Event of Default has occurred and be continuing hereunder, to collect, receive and apply such Rents, Proceeds and other rents, income, proceeds and benefits as they become due and payable, but not further in advance thereof than is customary, and in accordance with all of the other terms, conditions and provisions hereof, of the Loan Documents, and of the Leases, contracts, agreements and other instruments with respect to which such payments are made or such other benefits are conferred. Upon the occurrence and continuance of an Event of Default, such permission shall terminate immediately and automatically, without notice to the Trustor or any other Person except as required by law, and shall not be reinstated upon a cure of such Event of Default without the express written consent of the Beneficiary. Such assignment shall be fully effective without any further action on the part of the Trustor, the Trustee, or the Beneficiary, and the Beneficiary shall be entitled, at its option, upon the occurrence and continuance of an Event of Default hereunder, to collect, receive and apply all Rents, Proceeds and all other rents, income, proceeds and benefits from the Trust Premises, including all right, title and interest of the Trustor in any escrowed sums or deposits or any portion thereof or interest therein, whether or not the Trustee or the Beneficiary takes possession of the Trust Premises or any part thereof. The Trustor further grants to the Beneficiary the right, at the Beneficiary's option, upon the occurrence and continuance of an Event of Default hereunder, to: (a) enter upon and take possession of the Property for the purpose of collecting Rents, Proceeds and said rents, income, proceeds and other benefits; (b) dispossess by the customary summary proceedings any tenant, purchaser or other Person defaulting in the payment of any amount when and as due and payable, or in the performance of any other obligation, under any Lease, contract or other instrument to which said Rents, Proceeds or other rents, income, proceeds or benefits relate; (c) let or convey the Trust Premises or any portion thereof or any interest therein; and (d) apply Rents, Proceeds and such rents, income, proceeds and other benefits, after the payment of all necessary fees, charges and expenses, on account of the Secured Obligations in accordance with Section 3.11. -11- 15 SECTION 1.15. No Claims Against the Trustee or the Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by the Trustee or the Beneficiary, express or implied, for the performance of any labor or the furnishing of any materials or other property in respect of the Property or any part thereof, or be construed to permit the making of any claim against the Trustee or the Beneficiary in respect of labor or services or the furnishing of any materials or other property or any claim that any lien based on the performance of such labor or the furnishing of any such materials or other property is prior to the lien and security interest of this Deed of Trust. ALL CONTRACTORS, SUBCONTRACTORS, VENDORS AND OTHER PERSONS DEALING WITH THE PROPERTY, OR WITH ANY PERSONS INTERESTED THEREIN, ARE HEREBY ADVISED TO TAKE NOTICE OF THE PROVISIONS OF THIS SECTION. SECTION 1.16. Indemnification. The Trustor will protect, indemnify, save harmless and defend the Trustee, the Beneficiary, the Fixed Assets Lenders, and each of their respective officers, directors, shareholders, employees, representatives and agents (collectively, the "Indemnified Parties" and individually, an "Indemnified Party"), from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against any Indemnified Party by reason of (a) ownership of an interest in this Deed of Trust, any other Loan Document pertaining to the Fixed Assets Loans or the Property, (b) any accident, injury to or death of persons or loss of or damage to or loss of the use of property occurring on or about the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (c) any use, non-use or condition of the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (d) any failure on the part of the Trustor to perform or comply with any of the terms of this Deed of Trust or any Loan Document pertaining to the Fixed Assets Loans, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Trust Premises or any part thereof made or suffered to be made by or on behalf of the Trustor, (f) any negligence or tortious act on the part of the Trustor or any of its agents, contractors, lessees, licensees or invitees, (g) any work in connection with any alterations, changes, new construction or demolition of or additions to the Property, or (h) (i) any Hazardous Material on, in, under or affecting all or any portion of the Property, the groundwater, or any surrounding areas, (ii) any misrepresentation, inaccuracy or breach of any warranty, covenant or agreement contained or referred to in Sections 1.21 and 1.22, (iii) any violation or claim of violation by the Trustor of any Environmental Laws, or (iv) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of any Hazardous Material, except to the extent that any of the matters described in subsections (a)-(h) arise out of the gross negligence, unlawful acts or willful misconduct of any Indemnified Party. THE TRUSTEE SHALL NOT BE LIABLE FOR ANY ACT OR OMISSION OR ERROR OF JUDGMENT IN CONNECTION WITH THIS DEED OF TRUST, IT BEING THE INTENT OF THE PARTIES HERETO THAT THE TRUSTEE SHALL NOT BE LIABLE FOR THE TRUSTEE'S SOLE OR CONTRIBUTORY NEGLIGENCE. TRUSTOR SHALL AND -12- 16 DOES INDEMNIFY THE TRUSTEE AGAINST ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, CAUSES OF ACTION, JUDGMENTS, COURT COSTS, ATTORNEYS' FEES AND EXPENSES THAT THE TRUSTEE MAY INCUR IN THE PERFORMANCE OF THE TRUSTEE'S DUTIES HEREUNDER OR OTHERWISE IN CONNECTION WITH THIS DEED OF TRUST WHETHER OR NOT SAME RESULT FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE TRUSTEE. THE FOREGOING SHALL ALSO APPLY TO ANY SUBSTITUTE TRUSTEE HEREUNDER. If any action or proceeding be commenced, to which action or proceeding any Indemnified Party is made a party by reason of the execution of this Deed of Trust or any other Loan Document pertaining to the Fixed Assets Loans, or in which it becomes necessary to defend or uphold the lien of this Deed of Trust, all sums paid by the Indemnified Parties, for the expense of any litigation to prosecute or defend the rights and lien created hereby or otherwise, shall be paid by the Trustor to such Indemnified Parties, as the case may be, as hereinafter provided. The Trustor will pay and save the Indemnified Parties harmless against any and all liability with respect to any intangible personal property tax or similar imposition of the State or any subdivision or authority thereof now or hereafter in effect, to the extent that the same may be payable by the Indemnified Parties in respect of this Deed of Trust, any Loan Document pertaining to the Fixed Assets Loans or any Secured Obligation. All amounts payable to the Indemnified Parties under this Section 1.16 shall be deemed indebtedness secured by this Deed of Trust and any such amounts which are not paid within ten (10) days after written demand therefor by any Indemnified Party shall bear interest at the rate provided for in Section 3.2.2 of the Credit Agreement from the date of such demand. In case any action, suit or proceeding is brought against any Indemnified Party by reason of any such occurrence, the Trustor, upon request of such Indemnified Party, will, at the Trustor's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel designated by the Trustor and approved by such Indemnified Party. The obligations of the Trustor under this Section 1.16 shall survive any discharge or reconveyance of this Deed of Trust and payment in full of the Secured Obligations. SECTION 1.17. No Credit for Payment of Taxes. The Trustor shall not be entitled to any credit against the Secured Obligations by reason of the payment of any tax on the Property or any part thereof or by reason of the payment of any other Imposition, and shall not apply for or claim any deduction from the taxable value of the Property or any part thereof by reason of this Deed of Trust. SECTION 1.18. Intentionally Omitted. SECTION 1.19. No Transfer of the Property. Except as is provided in the Credit Agreement, and except for the Permitted Encumbrances, the Trustor shall not, without the prior written consent of the Beneficiary, which consent may be granted or withheld in the sole and absolute discretion of the Beneficiary, (i) sell, convey, assign or otherwise transfer the Property or any portion of the Trustor's interest therein or (ii) further encumber the Property or permit the Property to become encumbered by any lien, claim, security interest or other indebtedness of any kind or nature other than the Permitted Encumbrances. -13- 17 SECTION 1.20. Security Agreement. With respect to the items of personal property and fixtures referred to and described in the Granting Clause of this Deed of Trust and included as part of the Trust Premises, this Deed of Trust is hereby made and declared to be a security agreement encumbering each and every item of personal property and fixtures now or hereafter owned by Trustor and included herein as a part of the Trust Premises, in compliance with the provisions of the Uniform Commercial Code as enacted in the State. In this respect (and notwithstanding the conveyance to the Trustee rather than directly to the Beneficiary as provided in this Deed of Trust), Trustor, as "Debtor", expressly grants to Beneficiary, as "Secured Party", a security interest in and to all of the property now or hereafter owned by Trustor which constitutes the personal property and fixtures hereinabove referred to and described in this Deed of Trust, including all extensions, accessions, additions, improvements, betterments, renewals, replacements and substitutions thereof or thereto, and all proceeds from the sale or other disposition thereof. Trustor agrees that Beneficiary may file this Deed of Trust, or a reproduction thereof, in the real estate records or other appropriate index, as, and this Deed of Trust shall be deemed to be, a financing statement filed as a fixture filing in accordance with the laws of the State. Any reproduction of this Deed of Trust or of any other security agreement or financing statement executed by Trustor shall be sufficient as a financing statement. In addition, Trustor agrees to execute and deliver to Beneficiary, upon Beneficiary's request, any other security agreement and financing statements, as well as extensions, renewals, and amendments thereof, and reproductions of this Deed of Trust, in such form as Beneficiary may reasonably require to perfect a security interest with respect to said items. Trustor shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements Beneficiary may reasonably require. Except as is provided in the Credit Agreement, and except for the Permitted Encumbrances, without the prior written consent of Beneficiary, Trustor shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the above-described personal property and fixtures, including any replacements and additions thereto. Upon the occurrence and continuance of an Event of Default under this Deed of Trust, the Beneficiary shall have and shall be entitled to exercise any and all of the rights and remedies (i) as prescribed in this Deed of Trust, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory provisions now or hereafter enacted and specified in said Uniform Commercial Code, all at Beneficiary's sole election. Trustor and Beneficiary agree that the filing of any financing statements in the records normally having to do with personal property shall not in any way affect the agreement of Trustor and Beneficiary that everything located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of, the Trust Premises, which is described or reflected as a fixture in this Deed of Trust, is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be, regarded as part of the Real Estate conveyed hereby. Trustor warrants that Trustor's name, identity and address are as set forth herein. The mailing address of the Beneficiary from which information may be obtained concerning the security interest created herein is also set forth herein. This information hereof is provided in order that this Deed of Trust shall comply with the requirements of the Uniform Commercial Code as enacted in the State for instruments to -14- 18 be filed as financing statements. In accordance with the laws of the State, this Deed of Trust shall remain effective as a fixture filing until this Deed of Trust is released or satisfied of record or its effectiveness otherwise terminates as to the Trust Premises. SECTION 1.21. Representations and Warranties. In order to induce the Beneficiary to enter into this Deed of Trust, the Credit Agreement and the other Loan Documents pertaining to the Fixed Assets Loans, the Trustor agrees that all of the representations and warranties of Trustor set forth in the Credit Agreement are incorporated into this Deed of Trust by reference as if fully set forth herein. SECTION 1.22. Trustor's Covenants. In order to induce the Beneficiary to enter into this Deed of Trust, the Credit Agreement and the other Loan Documents pertaining to the Fixed Assets Loans, the Trustor agrees that all of the covenants of Trustor set forth in the Credit Agreement are incorporated into this Deed of Trust by reference as if fully set forth herein. SECTION 1.23. Attornment. Beneficiary hereby acknowledges and agrees that the liens granted herein are subject to the rights of certain lessees under the Leases as disclosed in the Credit Agreement and will be subject to the rights of lessees under any Leases entered into by Trustor after the date hereof which are permitted as Permitted Real Estate Liens pursuant to the Credit Agreement, subject to the express rights contained in the applicable Lease. The rights of the tenants under the Leases to the leased premises shall not be adversely affected by the exercise by Beneficiary of any of its rights hereunder, nor shall any such tenant be in any other way deprived of its rights under the applicable Lease except in accordance with the terms of such Lease. In the event that Beneficiary succeeds to the interest of Trustor under a Lease, such Lease shall not be terminated or affected thereby except as set forth therein, and any sale of the applicable leased premises by Beneficiary or pursuant to the judgment of any court in an action to enforce the remedies provided for in this Deed of Trust shall be made subject to such Lease and the rights of such tenant expressly set forth thereunder. If Beneficiary succeeds to the interests of Trustor in and to the applicable leased premises or under such Lease or enters into possession of such leased premises, the Beneficiary, and such tenants, shall be bound to each other under all of the express terms, covenants and conditions of such Lease, as if the Beneficiary was originally the Trustor as lessor thereunder. ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. SECTION 2.1. Insurance. SECTION 2.1.1. Risks to be Insured. The Trustor will, at its expense, maintain or cause to be maintained with insurance carriers approved by the Beneficiary: (a) insurance with -15- 19 respect to the Improvements against loss or damage by fire, lightning and such other risks as are included in standard "all-risk" policies, in amounts sufficient to prevent the Trustor, the Trustee and the Beneficiary from becoming a co-insurer of any partial loss under the applicable policies, but in any event in amounts not less than the then full insurable value (actual replacement value) of the Improvements, as determined by the Trustor in accordance with generally accepted insurance practice and approved by the Beneficiary or, at the request of the Beneficiary, as determined at the Trustor's expense by the insurer or insurers or by an expert approved by the Beneficiary, (b) comprehensive public liability, including bodily injury and product liability and property damage, insurance, with personal injury endorsements, applicable to the Property in such amounts as are customarily carried by Persons operating similar properties in the same general locality, but in any event with a combined single limit of not less than Twenty Million Dollars ($20,000,000) per occurrence, (c) explosion insurance in respect of any steam and pressure boilers and similar apparatus located in the Property in such amounts as are usually carried by persons operating similar properties in the same general locality, but in any event in an amount not less than Twenty Million Dollars ($20,000,000), (d) business interruption insurance (including added expense coverage) against all insurable perils for a period of not fewer than twelve (12) months (subject to a reasonable aggregate deductible not exceeding ten (10) days per any occurrence), (e) worker's compensation insurance to the full extent required by applicable law for all employees of the Trustor engaged in any work on or about the Property and employer's liability insurance with a limit of not less than Ten Million Dollars ($10,000,000) for each occurrence, (f) all-risk, builders' risk insurance with respect to the Property during any period during which there is any construction work being performed, against loss or damage by fire or other risks, including vandalism, malicious mischief and sprinkler leakage, as are included in so-called "extended coverage" clauses at the time available, and (g) such other insurance with respect to the Property in such amounts and against such insurable hazards as the Beneficiary from time to time may reasonably require by written notice to the Trustor. SECTION 2.1.2. Policy Provisions. All insurance maintained by the Trustor pursuant to Section 2.1.1 shall (a) (except for worker's compensation insurance) list the Trustor and the Beneficiary, as additional insureds as their respective interests may appear, (b) (except for worker's compensation and public liability insurance) provide that the proceeds for any losses shall be adjusted by the Trustor subject to the approval of the Beneficiary in the event the proceeds shall exceed $1,000,000, and shall be payable to the Beneficiary, to be held and applied as provided in Section 2.3, (c) include effective waivers by the insurer of all rights of subrogation against any named insured, the indebtedness secured by this Deed of Trust and the Property and all claims for insurance premiums against the Trustee and the Beneficiary, (d) (except for worker's compensation and public liability insurance) provide that any losses shall be payable notwithstanding (i) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms thereof, (iii) any foreclosure or other action or proceeding taken by the Beneficiary pursuant to any provision of this Deed of Trust, or (iv) any change in title or ownership of the Property, (e) provide that no cancellation, reduction in amount or material change in coverage thereof or any portion thereof shall be -16- 20 effective until at least thirty (30) days after receipt by the Beneficiary of written notice thereof, (f) provide that any notice under such policies shall be simultaneously delivered to the Beneficiary, and (g) be satisfactory in all other reasonable respects to the Beneficiary. Any insurance maintained pursuant to this Section 2.1 may be evidenced by blanket insurance policies covering the Property and other properties or assets of the Trustor, provided that any such policy shall specify the portion, if less than all, of the total coverage of such policy that is allocated to the Property and shall in all other respects comply with the requirements of this Section 2.1. SECTION 2.1.3. Delivery of Certificates, etc. The Trustor will deliver to the Beneficiary, promptly upon request, (a) certificates of all policies evidencing all insurance required to be maintained under Section 2.1.1 (or, in the case of blanket policies, certificates thereof by the insurers together with a counterpart of each blanket policy), and (b) evidence as to the payment of all premiums due thereon (with respect to public liability insurance policies, all installments for the current year due thereon to such date), provided that the Beneficiary shall not be deemed by reason of its custody of such certificates to have knowledge of the contents thereof or of the applicable policies. The Trustor will also deliver to the Beneficiary prior to the expiration of any policy a binder or certificate of the insurer evidencing the replacement thereof and when the new policy is issued a certificate of the new policy (or, in the case of a replacement blanket policy, a certificate thereof of the insurer together with a counterpart of the blanket policy). In the event the Trustor shall fail to effect or maintain any insurance required to be effected or maintained pursuant to the provisions of this Section 2.1, the Trustor will indemnify the Trustee and the Beneficiary against damage, loss or liability resulting from all risks for which such insurance should have been effected or maintained. SECTION 2.1.4. Separate Insurance. The Trustor will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Section 2.1. SECTION 2.2. Damage, Destruction or Taking; Trustor to Give Notice; Assignment of Awards. In case of (a) any material damage to or destruction of the Trust Premises or any material part thereof, or (b) any taking, whether for permanent or temporary use, of all or any material part of the Trust Premises or any material interest therein or material right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain, or a change of grade affecting the Trust Premises or any portion thereof (a "Taking"), or the commencement of any proceedings or negotiations which may result in a Taking, the Trustor will promptly give written notice thereof to the Trustee and the Beneficiary, generally describing the nature and extent of such damage or destruction and the Trustor's best estimate of the cost of restoring the Trust Premises, or the nature of such proceedings or negotiations and the -17- 21 nature and extent of the Taking which might result therefrom, as the case may be. The Beneficiary shall be entitled to all insurance proceeds payable on account of such damage or destruction and to all awards or payments allocable to the Trust Premises on account of such Taking up to the amount of the Secured Obligations, and the Trustor hereby irrevocably assigns, transfers and sets over to the Beneficiary all rights of the Trustor to any such proceeds, awards or payments up to the amount of the Secured Obligations and irrevocably authorizes and empowers the Beneficiary, at its option, in the name of the Trustor or otherwise, to file and prosecute what would otherwise be the Trustor's claim for any such proceeds, award or payment and to collect, receipt for and retain the same for disposition in accordance with Section 2.3. The Trustor will pay all reasonable costs and expenses incurred by the Trustee or the Beneficiary in connection with any such damage, destruction or Taking and seeking and obtaining any insurance proceeds, awards or payments in respect thereof. SECTION 2.3. Application of Proceeds and Awards. The Beneficiary may, at its option, apply all amounts recovered under any insurance policy required to be maintained by the Trustor hereunder and all awards received by it on account of any Taking in any one or more of the following ways: (a) to the payment of the reasonable costs and expenses incurred by the Trustee, or the Beneficiary, in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) to the payment of the principal of the Fixed Asset Loans and any interest (including post-petition interest payable in any proceedings for bankruptcy under applicable law ("Post Petition Interest") to the extent such interest is a Secured Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured; and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued on the Fixed Asset Loans and unpaid, second, to the payment of all amounts of principal at the time outstanding; (c) to the payment of, or the application to, any Secured Obligation (other than as provided in clause (b) above); (d) to fulfill any of the other covenants contained herein, in the Credit Agreement pertaining to the Fixed Assets Loans, or in any other Loan Document pertaining to the Fixed Assets Loans, as the Beneficiary may determine in its sole discretion; (e) to the Trustor for application to the cost of restoring the Trust Premises and the replacement of Goods destroyed, damaged or taken; or -18- 22 (f) to the Trustor. Notwithstanding the foregoing provisions of this Section 2.3 to the contrary (but subject to the provisions of Section 2.4), and if each of the following conditions is satisfied, the Beneficiary, upon request of the Trustor, shall apply insurance proceeds or condemnation awards received by it to the restoration or replacement of the Trust Premises, to the extent necessary for the restoration or replacement thereof: (i) there shall then exist no uncured Event of Default; (ii) the Trustor shall furnish to the Beneficiary a certificate of an architect or engineer reasonably acceptable to the Beneficiary stating (x) that the Trust Premises is capable of being restored, prior to the maturity of the Credit Agreement, to substantially the same condition as existed prior to the casualty or Taking, (y) the aggregate estimated direct and indirect costs of such restoration and (z) as to any Taking, that the property taken in such Taking, or sold under threat thereof, is not necessary to the Trustor's customary use or occupancy of the Property or Trustor otherwise provides Mortgagee adequate assurance that the Trust Premises can be restored or is not necessary to Trustor's customary use or occupancy of the Property; and (iii) in the event that the estimated cost of restoration set forth in the certificate of such architect or engineer (and such revisions to such estimate as are from time to time made) exceeds the net insurance proceeds or condemnation awards actually received from time to time, the Trustor shall deposit the amount of such excess with the Beneficiary. In the event that such insurance proceeds or condemnation awards are to be utilized in the restoration of the Trust Premises, the Beneficiary shall disburse such Proceeds and the additional amounts deposited by the Trustor for such restoration after receipt of a written request for disbursement, on not fewer than five (5) nor more than twelve (12) Business Days notice and, to the extent applicable, in accordance with the Beneficiary's customary construction loan procedures and conditions. In the event that such insurance or condemnation awards are to be utilized to replace the Trust Premises so destroyed or taken, the Beneficiary shall disburse such Proceeds after receipt of a written request for disbursement, on not fewer than five (5) Business Days nor more than twelve (12) Business Days notice simultaneously with the acquisition of such replacement property by the Trustor. In the event that, after the restoration or replacement of the Trust Premises, any insurance or condemnation awards shall remain, such amount shall be paid to the Trustor. Insurance proceeds and condemnation awards shall be invested in the manner reasonably requested by the Trustor and approved by the Beneficiary, and all interest earned thereon shall be applied as provided in this Section 2.3. If, prior to the receipt by the -19- 23 Beneficiary of such insurance proceeds or condemnation awards, the Trust Premises shall have been sold on foreclosure, the Beneficiary shall have the right to receive said insurance proceeds or condemnation awards to the extent of any deficiency found to be due upon such sale, with legal interest thereon, whether or not a deficiency judgment shall have been sought or recovered or denied, and the reasonable attorneys' fees, costs and disbursements incurred by the Beneficiary in connection with the collection of such award or payment. SECTION 2.4. Total Taking and Total Destruction. In the event of a Total Destruction or a Total Taking, the Beneficiary shall apply all amounts recovered under any insurance policy referred to in Section 2.1.1 and all awards received by it on account of any such Taking as follows: (a) first, to the payment of the reasonable costs and expenses incurred by the Beneficiary in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) second, to the payment of the principal of the Fixed Assets Loans and any interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured; and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued on the Fixed Assets Loans and unpaid, and second, to the payment of all amounts of principal at the time outstanding; (c) third, to the payment of, or the application to, any Secured Obligation (other than as provided in clause (b) above); (d) fourth, to fulfill any of the other covenants contained herein as the Beneficiary may determine; and (e) fifth, the balance, if any, to the Trustor. ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration. If an "Event of Default" (pursuant to and as defined in the Credit Agreement) shall have occurred and be continuing, then and in any such event the Beneficiary may at any time thereafter (unless all Events of Default shall -20- 24 theretofore have been remedied and all costs and expenses, including, without limitation, attorneys' fees and expenses incurred by or on behalf of the Beneficiary, shall have been paid in full by the Trustor) declare, by written notice to the Trustor, the Fixed Assets Loans and all other Secured Obligations to be due and payable immediately or on a date specified in such notice (provided that, upon the occurrence of any Event of Default described in Section 8.1.9 of the Credit Agreement, the Fixed Assets Loans and all other Secured Obligations shall automatically become due and payable), and on such date the same shall be and become due and payable, together with interest accrued thereon, without presentment, demand, protest or notice, all of which the Trustor hereby waives. The Trustor will pay on demand all costs and expenses, including without limitation, attorneys' fees and expenses, incurred by or on behalf of the Beneficiary in enforcing this Deed of Trust, or any other Loan Document evidencing or securing the Fixed Assets Loans, or occasioned by any default hereunder or thereunder. SECTION 3.2. Legal Proceedings; Judicial Foreclosure. If an Event of Default shall have occurred and be continuing, the Trustee at any time may, at its election, proceed at law or in equity or otherwise to enforce the payment and performance of the Secured Obligations in accordance with the terms hereof and thereof and to foreclose the lien of this Deed of Trust as against all or any part of the Trust Premises and to have the same sold under the judgment or decree of a court of competent jurisdiction. The Beneficiary shall be entitled to recover in such proceedings all costs incident thereto, including the Trustee's fees and attorneys' fees and expenses in such amounts as may be fixed by the court. SECTION 3.3. Power of Sale. If an Event of Default shall have occurred and be continuing, the Beneficiary may sell or offer for sale the Trust Premises in such portions, order and parcels as the Beneficiary may determine, with or without having first taken possession of the same, to the highest bidder for cash at public auction. Such sale shall be made at the courthouse of the county wherein the Land (or any of that portion thereof to be sold) is situated (whether the parts or parcels thereof, if any, in different counties are contiguous or not, and without the necessity of having any personal property hereby mortgaged present at such sale) on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m. after posting a written or printed notice or notices of the place, the earliest time at which the sale will begin and terms of the sale of the Trust Premises for twenty-one (21) days prior to the date of the sale at the courthouse door of the county in which the sale is to be made and at the courthouse door of any other county in which a portion of the Trust Premises may be situated and filing a copy of such notice(s) in the office of the county clerk in each of such counties, and by serving written notice of the proposed sale at least twenty-one (21) days preceding the date of sale by certified mail on each debtor obligated to pay the Secured Obligations according to the records of the Beneficiary. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly stamped and addressed to such debtor at the most recent address as shown by the records of the Beneficiary, in a post office or official depository under the care and custody of the United States. It is agreed that the posting and transmittal of notices may be performed by the Trustee, Beneficiary, or by any person acting for them. In lieu of the foregoing, the sale may be accomplished by following the procedures permitted or required by Section 51.002 of the -21- 25 Texas Property Code, as same may be amended from time to time, relating to the sale of real estate and/or by the Texas Uniform Commercial Code-Secured Transactions (same being Chapter 9 of the Texas Business and Commerce Code) relating to the sale of personal property collateral after default by a debtor (as said Section and Chapter may now exist or may hereafter be amended or succeeded), or by any other present or subsequent articles or enactments relating to the same. Nothing contained in this Section shall be construed to limit in any way the Trustee's rights to sell the Trust Premises by private sale if, and to the extent, that such private sale is permitted under the laws of the State or by public or private sale after entry of judgment by any court of competent jurisdiction ordering the same. At any such sale (i) whether made under power herein contained, Section 51.002 of the Texas Property Code, the Texas Uniform Commercial Code-Secured Transactions, any other legal requirement or by virtue of any judicial procedure or any other legal right, remedy or recourse, it shall not be necessary for the Trustee to have physically present, or to have constructive possession of, the Trust Premises (Trustor hereby covenanting and agreeing to deliver to the Trustee any portion of the Trust Premises not actually or constructively possessed by the Trustee immediately upon demand by the Trustee), and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale, (ii) each instrument of conveyance executed by the Trustee shall contain a special warranty of title, binding upon Trustor, (iii) each and every recital contained in any instrument of conveyance made by the Trustee shall conclusively establish the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Secured Obligations, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor to the Trustee hereunder, (iv) any and all prerequisites to the validity thereof shall be conclusively presumed to have been performed, (v) the receipt of the Trustee or of such other party or officer making the sale shall be a sufficient discharge to the purchaser or purchasers for his or their purchase money and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof, (vi) to the fullest extent permitted by law, Trustor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar, both at law and in equity, against Trustor, and against any and all other persons claiming or to claim the property sold or any part thereof, by, through or under Trustor, and (vii) to the extent and under such circumstances as are permitted by law, Beneficiary may be a purchaser at any such sale. The Trust Premises may be sold in one or more parcels and in such manner and order as Trustee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales but other and successive sales may be made until all of the Trust Premises have been sold or until the Secured Obligations has been fully satisfied. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under this Deed of Trust and shall thereafter elect to discontinue or abandon the same for any reason, Beneficiary shall have the unqualified right so to do and, in such event, Trustor and Beneficiary shall be restored to their former positions with respect to the Secured Obligations, the Trust Premises and otherwise, and the rights, remedies, recourses and powers of Beneficiary shall continue as if same had never been invoked. -22- 26 SECTION 3.4. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Beneficiary may exercise from time to time and at any time any rights and remedies available to it under applicable law upon default in the payment of indebtedness, including, without limitation, any right or remedy available to it as a secured party under the Uniform Commercial Code of the State. The Trustor shall, promptly upon request by the Trustee or the Beneficiary, assemble the Trust Premises, or any portion thereof generally described in such request, and make it available to the Trustee or the Beneficiary, at such place or places designated by the Trustee or the Beneficiary, and reasonably convenient to the Trustee or the Beneficiary. If the Beneficiary elects to proceed under the Uniform Commercial Code of the State to dispose of portions of the Trust Premises, the Trustee or the Beneficiary, at their respective option, may give the Trustor notice of the time and place of any public sale of any such property, or of the date after which any private sale or other disposition thereof is to be made, by sending notice by registered or certified first class mail, postage prepaid, to the Trustor at least ten (10) days before the time of the sale or other disposition. If any notice of any proposed sale, assignment or transfer by the Beneficiary of any portion of the Trust Premises or any interest therein is required by law, the Trustor conclusively agrees that ten (10) days notice to the Trustor of the date, time and place (and, in the case of a private sale, the terms) thereof is reasonable. SECTION 3.5. Trustee and Beneficiary Authorized to Execute Deeds, etc. The Trustor irrevocably appoints the Trustee and the Beneficiary (which appointment is coupled with an interest) the true and lawful attorney of the Trustor, in its name and stead and on its behalf, for the purpose of effectuating any sale, assignment, transfer or delivery for the enforcement hereof, whether pursuant to power of sale, foreclosure or otherwise, to execute and deliver all such deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request. SECTION III.6. Purchase of Trust Premises by Beneficiary. The Beneficiary may be a purchaser of the Trust Premises or of any part thereof or of any interest therein at any sale thereof, whether pursuant to power of sale, foreclosure or otherwise, and the Beneficiary may apply upon the purchase price thereof the indebtedness secured hereby owing to the Beneficiary. Such purchaser shall, upon any such purchase, acquire good title to the properties so purchased, free of the security interest and lien of this Deed of Trust and free of all rights of redemption in the Trustor. SECTION 3.7. Receipt a Sufficient Discharge to Purchaser. Upon any sale of the Trust Premises or any part thereof or any interest therein, whether pursuant to power of sale, foreclosure or otherwise, the receipt of the Trustee or the officer making the sale under judicial proceedings shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obliged to see to the application thereof. SECTION 3.8. Waiver of Appraisement, Valuation, etc. The Trustor hereby -23- 27 waives, to the fullest extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Trust Premises or any part thereof or any interest therein. SECTION 3.9. Sale a Bar Against Trustor. Any sale of the Trust Premises or any part thereof or any interest therein under or by virtue of this Deed of Trust, whether pursuant to power of sale, foreclosure or otherwise, shall forever be a bar, against the Trustor. SECTION 3.10. Secured Obligations to Become Due on Sale. Except as otherwise provided in the Credit Agreement, upon any sale of the Trust Premises or any portion thereof or interest therein by virtue of the exercise of any remedy by the Trustee or the Beneficiary under or by virtue of this Deed of Trust, whether pursuant to power of sale, foreclosure or otherwise in accordance with this Deed of Trust or by virtue of any other remedy available at law or in equity or by statute or otherwise, at the option of the Trustee or the Beneficiary any sums or monies due and payable pursuant to the Credit Agreement pertaining to the Fixed Assets Loans, the Loan Documents pertaining to the Fixed Assets Loans and in connection with the Fixed Assets Loans and/or the Secured Obligations, shall, if not previously declared due and payable, immediately become due and payable, together with interest accrued thereon, and all other indebtedness which this Deed of Trust by its terms secures. SECTION 3.11. Application of Proceeds of Sale and Other Moneys. Except as otherwise provided in the Credit Agreement or in this Deed of Trust, the proceeds of any sale of the Trust Premises or any part thereof or any interest therein under or by virtue of this Deed of Trust, whether pursuant to power of sale, foreclosure or otherwise, and all other moneys at any time held by the Trustee or the Beneficiary as part of the Trust Premises, shall be applied in such order of priority as the Beneficiary shall determine in its sole and absolute discretion including, without limitation, as follows: (a) first, to the payment of the reasonable costs and expenses of such sale (including, without limitation, the cost of evidence of title and the costs and expenses, if any, of taking possession of, retaining custody over, repairing, managing, operating, maintaining and preserving the Trust Premises or any part thereof prior to such sale), all reasonable costs and expenses incurred by the Trustee, the Beneficiary, or any other Person in obtaining or collecting any insurance proceeds, condemnation awards or other amounts received by the Beneficiary, all reasonable costs and expenses of any receiver of the Trust Premises or any part thereof, and any Impositions or other charges or expenses prior to the security interest or lien of this Deed of Trust, which the Trustee or the Beneficiary may consider it necessary or desirable to pay; (b) second, to the payment of any Secured Obligation (other than those set forth in Section 3.11(c) below); (c) third, to the payment of all amounts of principal of and interest (including -24- 28 Post-Petition Interest to the extent such interest is a Secured Obligation) at the time due and payable under the Credit Agreement pertaining to the Fixed Assets Loans at the time outstanding (whether due by reason of maturity or by reason of any prepayment requirement or by declaration or acceleration or otherwise), including interest at the rate provided for in the Credit Agreement on any overdue principal and (to the extent permitted under applicable law) on any overdue interest; and, in case such moneys shall be insufficient to pay in full such principal and interest, then, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) at the time due and payable and, second, to the payment of all amounts of principal at the time due and payable under the Fixed Assets Loans; and (d) fourth, the balance, if any, held by the Trustee or the Beneficiary after payment in full of all amounts referred to in subdivisions Sections 3.11 (a), (b) and (c) above, shall, unless a court of competent jurisdiction may otherwise direct by final order not subject to appeal, be paid to or upon the direction of the Trustor. SECTION 3.12. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, the Beneficiary shall, as a matter of right, without notice, and without regard to the adequacy of any security for the indebtedness secured hereby or the solvency of the Trustor, be entitled to the appointment of a receiver for all or any part of the Trust Premises, whether such receivership be incidental to a proposed sale of the Trust Premises or otherwise, and the Trustor hereby consents to the appointment of such a receiver and will not oppose any such appointment. SECTION 3.13. Possession, Management and Income. If an Event of Default shall have occurred and be continuing, in addition to, and not in limitation of, the rights and remedies provided in Section 1.14, the Trustee or the Beneficiary upon five (5) days written notice to the Trustor, may enter upon and take possession of the Trust Premises or any part thereof by force, summary proceeding, ejectment or otherwise and may remove the Trustor and all other Persons and any and all property therefrom and may hold, operate, maintain, repair, preserve and manage the same and receive all earnings, income, Rents, issues and Proceeds accruing with respect thereto or any part thereof. The Trustee and the Beneficiary shall be under no liability for or by reason of any such taking of possession, entry, removal or holding, operation or management, except that any amounts so received by the Trustee or the Beneficiary shall be applied to pay all costs and expenses of so entering upon, taking possession of, holding, operating, maintaining, repairing, preserving and managing the Trust Premises or any part thereof, and any Impositions or other charges prior to the lien and security interest of this Deed of Trust which the Trustee or the Beneficiary may consider it necessary or desirable to pay, and any balance of such amounts shall be applied as provided in Section 3.11. SECTION 3.14. Right of Trustee and the Beneficiary to Perform Trustor's Covenants, etc. If the Trustor shall fail to make any payment or perform any act required to be made or performed hereunder or under the Credit Agreement pertaining to the Fixed Assets -25- 29 Loans or any other Loan Document pertaining to the Fixed Assets Loans, the Beneficiary, without notice to or demand upon the Trustor and without waiving or releasing any obligation or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Trustor, and may enter upon the Trust Premises for such purpose and take all such action thereon as, in either the Trustee's or the Beneficiary's opinion, may be necessary or appropriate therefor. No such entry and no such action shall be deemed an eviction of any lessee of the Property or any part thereof. All sums so paid by the Trustee or the Beneficiary, and all costs and expenses (including, without limitation, attorneys' fees and expenses) so incurred, together with interest thereon at the rate provided for in Section 3.2.2 of the Credit Agreement from the date of payment or incurring, shall constitute additional indebtedness under the Credit Agreement secured by this Deed of Trust and shall be paid by the Trustor to the Trustee or the Beneficiary, as the case may be, on demand. SECTION 3.15. Subrogation. To the extent that either of the Trustee or the Beneficiary, on or after the date hereof, pays any sum due under any provision of any Legal Requirement or any instrument creating any lien prior or superior to the lien of this Deed of Trust, or the Trustor or any other Person pays any such sum with the proceeds of the Fixed Assets Loans, the Trustee and/or the Beneficiary shall have and be entitled to a lien on the Trust Premises equal in priority to the lien discharged, and the Trustee and/or the Beneficiary shall be subrogated to, and receive and enjoy all rights and liens possessed, held or enjoyed by, the holder of such lien, which shall remain in existence and benefit the Beneficiary in securing the Secured Obligations. SECTION 3.16. Remedies, etc., Cumulative. Each right, power and remedy of the Trustee and/or the Beneficiary provided for in this Deed of Trust, the Credit Agreement pertaining to the Fixed Assets Loans, or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Deed of Trust, the Credit Agreement or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Trustee or the Beneficiary of any one or more of the rights, powers or remedies provided for in this Deed of Trust, the Credit Agreement, or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Trustee or the Beneficiary of any or all such other rights, powers or remedies. SECTION 3.17. Provisions Subject to Applicable Law. All rights, powers and remedies provided in this Deed of Trust may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Deed of Trust invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term -26- 30 of this Deed of Trust or any application thereof shall be invalid or unenforceable, the remainder of this Deed of Trust and any other application of such term shall not be affected thereby. SECTION 3.18. No Waiver, etc. No failure by the Trustee or the Beneficiary to insist upon the strict performance of any term hereof or of the Credit Agreement, or of any other Loan Document, or to exercise any right, power or remedy consequent upon a breach hereof or thereof, shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Deed of Trust, which shall continue in full force and effect with respect to any other then existing or subsequent breach. By accepting payment or performance of any amount or other Secured Obligations secured hereby before or after its due date, neither the Trustee nor the Beneficiary shall be deemed to have waived its right either to require prompt payment or performance when due of all other amounts and Secured Obligations payable hereunder or to declare a default for failure to effect such prompt payment. SECTION 3.19. Compromise of Actions, etc. Any action, suit or proceeding brought by the Trustee or the Beneficiary pursuant to any of the terms of this Deed of Trust, the Credit Agreement pertaining to the Fixed Assets Loans, any other Loan Document pertaining to the Fixed Assets Loans, or otherwise, and any claim made by the Trustee or the Beneficiary hereunder or thereunder, may be compromised, withdrawn or otherwise dealt with by the Trustee or the Beneficiary without any notice to or approval of the Trustor. ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Deed of Trust. When used herein the following terms have the following meanings: "Beneficiary" shall have the meaning set forth in the preamble. "Borrowers" shall have the meaning set forth in the second recital. "Contracts" shall have the meaning set forth in clause (h) of the granting clause. "Credit Agreement" shall have the meaning set forth in the second recital. "Credit Extensions" shall have the meaning set forth in the the second recital. "Deed of Trust" shall have the meaning set forth in the preamble. "Default" means any Event of Default or any condition or event which, after notice or lapse of time, or both, would constitute an Event of Default. -27- 31 "Goods" shall have the meaning set forth in clause (c) of the granting clause. "herein", "hereof", "hereto", and "hereunder" and similar terms refer to this Deed of Trust and not to any particular Section, paragraph or provision of this Deed of Trust. "Highest Lawful Rate" shall have the meaning set forth in Section 5.15. "Impositions" shall have the meaning set forth in Section 1.5. "Improvements" shall have the meaning set forth in clause (b) of the granting clause. "Indemnified Parties" shall have the meaning set forth in Section 1.16. "Insurance Requirements" shall have the meaning set forth in paragraph (a) of Section 1.6. "Land" shall have the meaning set forth in the first recital. "Leases" shall have the meaning set forth in clause (e) of the granting clause. "Legal Requirements" shall have the meaning set forth in paragraph (b) of Section 1.6. "Permits" shall have the meaning set forth in clause (g) of the granting clause. "Permitted Encumbrances" shall have the meaning set forth in Section 1.2. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency or officer. "Plans" shall have the meaning set forth in clause (f) of the granting clause. "Post-Petition Interest" shall have the meaning set forth in Section 2.3. "Proceeds" shall have the meaning set forth in clause (k) of the granting clause. "Property" shall have the meaning set forth in clause (b) of the granting clause. "Real Estate" shall have the meaning set forth in clause (a) of the granting clause. "Rents" shall have the meaning set forth in clause (j) of the granting clause. "Secured Obligations" means the Fixed Assets Obligations and all Obligations with respect to the Fixed Assets Loans now or hereafter existing under the Credit Agreement or any -28- 32 Loan Document pertaining to the Fixed Assets Loans, and all obligations (monetary or otherwise) arising under or in connection with the Fixed Assets Notes or the Fixed Assets Loans, whether for principal, interest, costs, fees, expenses or otherwise, and all other Fixed Assets Obligations. "State" means the State of Texas. "Total Destruction" means any damage to or destruction of the Improvements or any part thereof which, in the reasonable estimation of the Beneficiary shall require the expenditure of an amount in excess of Forty Million Dollars ($40,000,000) to restore the Improvements to substantially the same condition of the Improvements immediately prior to such damage or destruction. "Total Taking" means a Taking, whether permanent or for temporary use, which, in the reasonable judgment of the Beneficiary, shall substantially interfere with and adversely affect the normal operation of the Property by the Trustor to such an extent as would reasonably be anticipated to cause a Material Adverse Effect. "Trustee" shall have the meaning set forth in the preamble. "Trustor" shall have the meaning set forth in the preamble. "Trust Premises" shall have the meaning set forth in the granting clause. SECTION 4.2. Use of Defined Terms. Terms for which meanings are provided in this Deed of Trust shall, unless otherwise defined or the context otherwise requires, have such meanings when used in any certificate and any opinion, notice or other communication delivered from time to time in connection with this Deed of Trust or pursuant hereto. SECTION 4.3. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Deed of Trust, including its preamble and recitals, have the meanings provided in the Credit Agreement. ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements. SECTION 5.1.1. Further Assurances. The Trustor, at its expense, will execute, acknowledge and deliver all such instruments and take all such other action as the Trustee or the Beneficiary from time to time may reasonably request: -29- 33 (a) better to subject to the lien and security interest of this Deed of Trust all or any portion of the Trust Premises, (b) to perfect, publish notice or protect the validity of the lien and security interest of this Deed of Trust, (c) to preserve and defend the title to the Trust Premises and the rights of the Trustee or the Beneficiary therein against the claims of all Persons as long as this Deed of Trust shall remain undischarged, (d) to better subject to the lien and security interest of this Deed of Trust or to maintain or preserve the lien and security interest of this Deed of Trust with respect to any replacement or substitution for any Trust Premises or any other after-acquired property except as provided in the Credit Agreement, or (e) in order to further effectuate the purposes of this Deed of Trust and to carry out the terms hereof and to better assure and confirm to the Trustee and the Beneficiary their rights, powers and remedies hereunder. SECTION 5.1.2. Financing Statements. Notwithstanding any other provision of this Deed of Trust, the Trustor hereby agrees that, without notice to or the consent of the Trustor, the Beneficiary may file with the appropriate public officials such financing statements, continuation statements, amendments and similar documents as are or may become necessary to perfect, preserve or protect the security interest granted by this Deed of Trust. SECTION 5.2. Additional Security. Without notice to or consent of the Trustor, and without impairment of the security interest and lien and rights created by this Deed of Trust, the Trustee or the Beneficiary and the Lenders may accept from the Trustor or any other Person additional security for the Secured Obligations. Neither the giving of this Deed of Trust nor the acceptance of any such additional security shall prevent the Trustee or the Beneficiary from resorting first to such additional security, or, first, to the security created by this Deed of Trust, or concurrently to both, in any case without affecting the Trustee's or the Beneficiary's lien and rights under this Deed of Trust. SECTION 5.3. Defeasance, Partial Release, etc. SECTION 5.3.1. Defeasance. If the Fixed Assets Loans and all other amounts owing pursuant to the Credit Agreement pertaining to the Fixed Assets Loans and the other Loan Documents pertaining to the Fixed Assets Loans shall be repaid in full in accordance with the terms thereof, and if the Trustor shall pay, in full, the principal of and premium, if any, and interest on the Secured Obligations in accordance with the terms thereof and hereof and all other sums payable hereunder by the Trustor and shall comply with all the terms, conditions and requirements hereof and of the Secured Obligations, or otherwise as may be provided in the -30- 34 Credit Agreement, then on such date, the Beneficiary shall, upon the request of the Trustor and at the Trustor's sole cost and expense, execute and deliver such instruments, in form and substance reasonably satisfactory to the Beneficiary, as may be necessary to effectively reconvey, release and discharge this Deed of Trust SECTION 5.3.2. Partial Release, etc. The Trustee may, at the direction of the Beneficiary, at any time and from time to time, without liability therefor, and without prior notice to the Trustor, release or reconvey any part of the Trust Premises, consent to the making of any map or plat of the Property, join in granting any easement thereon or join in any extension agreement or agreement subordinating the lien of this Deed of Trust. SECTION 5.4. Notices, etc. All notices and other communications provided to any of the parties hereto shall be in writing and addressed, delivered or transmitted to such party as set forth in the Credit Agreement. SECTION 5.5. Waivers, Amendments, etc. The provisions of this Deed of Trust may be amended, discharged or terminated and the observance or performance of any provision of this Deed of Trust may be waived, either generally or in a particular instance and either retroactively or prospectively, only by an instrument in writing executed by the Trustor and the Beneficiary. SECTION 5.6. Cross-References. References in this Deed of Trust and in each instrument executed pursuant hereto to any Section or Article are, unless otherwise specified, to such Section or Article of this Deed of Trust or such instrument, as the case may be, and references in any Section, Article or definition to any clause are, unless otherwise specified, to such clause of such Section, Article or definition. SECTION 5.7. Headings. The various headings of this Deed of Trust and of each instrument executed pursuant hereto are inserted for convenience only and shall not affect the meaning or interpretation of this Deed of Trust or such instrument or any provisions hereof or thereof. SECTION 5.8. Currency. Unless otherwise expressly stated, all references to any currency or money, or any dollar amount, or amounts denominated in "Dollars" herein will be deemed to refer to the lawful currency of the United States. SECTION 5.9. Governing Law. THIS DEED OF TRUST SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE. SECTION 5.10. Successors and Assigns, etc. This Deed of Trust shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. -31- 35 SECTION 5.11. Concerning the Trustee. SECTION 5.11.1. Acceptance of Trusts; Certain Terms of the Trusts. The Trustee, for itself and its successors, hereby accepts the trusts of this Deed of Trust, but only upon the terms herein set forth, including the following: (a) The recitals in this Deed of Trust and in any supplement hereto which may hereafter be executed by the Trustor and the Trustee shall be taken as the statements of the Trustor and shall not be considered as made by, or imposing any obligation or liability upon, the Trustee. (b) The Trustee may execute any of the trusts or powers hereof and perform any duty hereunder either directly or through its agents or attorneys, and the Trustee shall not be responsible for the acts of any agent or attorney appointed by it in good faith and without negligence. (c) The Trustee may, at the expense of the Trustor, consult with legal counsel to be selected by it, and the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith in accordance with the advice of counsel. (d) The Trustor will pay to the Trustee from time to time, on demand, compensation for all services rendered hereunder (which shall not be limited to the compensation of trustees of any express trust as provided by law) and also all reasonable expenses, charges, counsel fees and other disbursements and those of its agents and attorneys, made or incurred in the administration of the trusts hereby created and any other duties hereby imposed. The Trustor agrees to indemnify and save harmless the Trustee against and from any liability or damages which it may incur or sustain, in good faith, in the exercise and performance of any of its powers and duties hereunder. (e) The Trustee shall not be liable, in case of taking possession of the Trust Premises, for debts contracted or liability or damages incurred in the management or operation of the Trust Premises, for the salaries of employees of the Trustor or for nonfulfillment of contracts by the Trustor. (f) The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, statement, obligation, appraisal or other document believed by it to be genuine and to have been signed by the proper party or parties or by a person or persons authorized to act on his or their behalf. (g) The Trustee shall not be responsible for the validity or genuineness of any securities, personal property, notes or deeds of trust at any time pledged and deposited hereunder. -32- 36 SECTION 5.11.2. Duties and Responsibility of Trustee; In Case of Default; Prior to Default; When Acting Under Direction of Beneficiary. If an Event of Default shall have occurred and shall be continuing to the actual knowledge of the Trustee, or if the Trustee shall have received notice thereof from the Beneficiary, the Trustee, only if so directed by the Beneficiary, shall exercise such of the rights and powers vested in it by this Deed of Trust, and in so doing shall 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. None of the provisions of this Deed of Trust shall be construed as relieving the Trustee from liability for its own negligent action, own negligent failure to act, or own willful misconduct, except that, (a) so long as no Event of Default shall have occurred and be continuing, (1) the Trustee shall not be liable except for the performance of such duties as are specifically set forth in this Deed of Trust, and no implied covenants or obligations shall be read into this Deed of Trust against the Trustee, whose duties and obligations shall be determined solely by the express provisions of this Deed of Trust, and (2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of opinions expressed therein, upon certificates or opinions conforming to the requirements of this Deed of Trust; (b) the Trustee shall not be liable for any error of judgment made in good faith by an officer or officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) 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 provisions of applicable law and the direction of the Beneficiary, relating to the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee under this Deed of Trust; (d) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Deed of Trust; (e) if an Event of Default shall have occurred and shall be continuing, the Trustee shall not exercise any of the powers granted to it hereunder unless and until specifically requested to do so by the Beneficiary; and -33- 37 (f) none of the provisions contained in this Deed of Trust shall require the Trustee to advance or use its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers. SECTION 5.11.3. Notice of Default. The Trustee shall, within ten days after it has actual knowledge thereof, give to the Beneficiary notice of any Default. SECTION 5.11.4. Resignation and Removal; Appointment of Successor Trustee. (a) The Trustee may resign and be discharged from the trusts hereby created by giving written notice thereof to the Trustor and to the Beneficiary. Such resignation shall become effective upon the appointment of its successor and such successor's acceptance of such appointment, provided that, if a successor Trustee has not been so appointed, or, if so appointed, has not accepted the appointment within thirty (30) days after the date of such written notice of resignation, the Trustee may apply to any court of competent jurisdiction for the appointment of a successor Trustee. (b) The Trustee may be removed at any time by an instrument or instruments signed by the Beneficiary and filed with the Trustor and the Trustee. (c) The Beneficiary may appoint a successor Trustee at any time by filing for record in the office of the Register of Deeds of the County in which the Property is located a substitution of Trustee. From the time the substitution is filed for record, the successor Trustee shall succeed to all of the powers, duties, authority and title of the Trustee without the necessity of any conveyance from the Trustee originally herein named or any successor. Each such substitution shall be executed and acknowledged, and notice thereof shall be given and proof thereof made in accordance with applicable law. The Trustor agrees to accept and confirm any such successor Trustee hereunder by executing and delivering a supplemental Deed of Trust and security agreement or any other appropriate agreement..... SECTION 5.12. Waiver of Jury Trial; Submission to Jurisdiction. (a) EACH OF THE TRUSTOR, THE TRUSTEE AND THE BENEFICIARY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED OF TRUST, THE CREDIT AGREEMENT, ANY LOAN DOCUMENT PERTAINING TO THE FIXED ASSETS LOANS OR ANY OTHER RELATED INSTRUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE TRUSTOR, THE TRUSTEE, OR THE BENEFICIARY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE TRUSTEE AND THE BENEFICIARY AND THE FIXED ASSETS LENDERS TO ENTER INTO THE TRANSACTIONS PROVIDED FOR IN THE CREDIT AGREEMENT AND TO MAKE THE FIXED ASSETS LOANS. -34- 38 (b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS DEED OF TRUST, THE CREDIT AGREEMENT AS PERTAINS TO THE FIXED ASSETS LOANS OR ANY OTHER LOAN DOCUMENT AS PERTAINS TO THE FIXED ASSETS LOANS, THE TRUSTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED. THE TRUSTOR AND THE BENEFICIARY EACH EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS DEED OF TRUST, THE CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT PERTAINING TO THE FIXED ASSETS LOANS IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE PERSON OF THE TRUSTOR. NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE EITHER OF THE TRUSTEE OR THE BENEFICIARY FROM BRINGING AN ACTION AGAINST THE TRUSTOR IN ANY OTHER JURISDICTION. SECTION 5.13. Severability; Conflicts. Any provision of this Deed of Trust, the Credit Agreement or any other Loan Document pertaining to the Fixed Assets Loans which is prohibited or unenforceable in any jurisdiction shall as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Deed of Trust, the Credit Agreement or such Loan Document pertaining to the Fixed Assets Loans or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of any conflict between the terms of this Deed of Trust and the terms of the Credit Agreement, the terms of the Credit Agreement shall control. SECTION 5.14. Loan Document. This Deed of Trust is a Loan Document executed pursuant to the Credit Agreement and, unless otherwise expressly indicated herein, shall be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 5.15. Usury Savings Clause. In no event shall any provision of this instrument, the Fixed Assets Notes, or any other instrument evidencing or securing the Secured Obligations ever obligate Trustor to pay or allow Beneficiary to collect interest on the Fixed -35- 39 Assets Notes or any other Secured Obligations secured hereby at a rate greater than the maximum non-usurious rate permitted by applicable law (herein referred to as the "Highest Lawful Rate"), or obligate Trustor to pay any amounts that would be held or deemed to constitute interest under applicable law which, when added to the interest payable on the Fixed Assets Notes, would be held to constitute the payment by Trustor of interest at a rate greater than the Highest Lawful Rate; and this provision shall control over any provision to the contrary. To the extent the Highest Lawful Rate is determined by reference to the laws of the State of Texas, same shall be determined by reference to the indicated rate ceiling (as defined and described in Chapter 303 of the Texas Finance Code, as amended) at the applicable time in effect. Without limiting the generality of the foregoing, in the event the maturity of all or any part of the principal amount of the Secured Obligations shall be accelerated for any reason, then such principal amount so accelerated shall be credited with any interest theretofore paid thereon in advance and remaining unearned at the time of such acceleration. If, pursuant to the terms of this Deed of Trust or the Fixed Assets Notes, any funds are applied to the payment of any part of the principal amount of the Secured Obligations prior to the maturity thereof, then (a) any interest which would otherwise thereafter accrue on the principal amount so paid by such application shall be canceled, and (b) the Secured Obligations remaining unpaid after such application shall be credited with the amount of all interest, if any, theretofore collected on the principal amount so paid by such application and remaining unearned at the date of said application; and if the funds so applied shall be sufficient to pay in full all the Secured Obligations, then Beneficiary shall refund to Trustor all interest theretofore paid thereon in advance and remaining unearned at the time of such acceleration. Regardless of any other provision in this instrument, or in any of the written evidences of the Secured Obligations, Trustor shall never be required to pay any unearned interest on the Secured Obligations or any portion thereof, and shall never be required to pay interest thereon at a rate in excess of the Highest Lawful Rate construed by courts having competent jurisdiction thereof. SECTION 5.16. Future Advances. This Deed of Trust is a "Future Advance Deed of Trust" under the laws of the State. Any and all future advances under this Deed of Trust and the Loan Documents pertaining to the Fixed Assets Loans shall have the same priority as if the future advance was made on the date that this Deed of Trust was recorded. This Deed of Trust shall secure the Secured Obligations, whenever incurred, such Secured Obligations to be due at the times provided in the Loan Documents pertaining to the Fixed Assets Loans. Notice is hereby given that the Secured Obligations may increase as a result of any defaults hereunder by Trustor due to, for example, and without limitation, unpaid interest or late charges, unpaid taxes or insurance premiums which the Beneficiary elects to advance, defaults under leases that the Beneficiary elects to cure, attorney fees or costs incurred in enforcing the Loan Documents pertaining to the Fixed Assets Loans or other expenses incurred by the Beneficiary in protecting the Trust Premises, the security of this Deed of Trust or the Beneficiary's rights and interests. SECTION 5.17. Entire Agreement. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT -36- 40 BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. -37- 41 IN WITNESS WHEREOF, the undersigned, by its duly elected officers and pursuant to proper authority of its board of directors has duly executed, acknowledged and delivered this instrument as of the day and year first above written. STERLING CHEMICALS, INC., a Delaware corporation By: /S/ FRANK P. DIASSI -------------------------------------------- Name: Frank P. Diassi ------------------------------------------ Title: Chairman ----------------------------------------- DRAFTED BY: Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Michael Sloyer, Esq. -38- 42 [CORPORATION NOTARY PAGE] MULTI-STATE CORPORATE ACKNOWLEDGMENT State of New York County of New York On this 22nd day of July, 1999, before me, the undersigned officer, personally appeared: (a) Frank P. Diassi, with a residence at 1200 Smith Street, Suite 1900 Houston, Texas 77002. (b) __________________________________, with a residence at ____________________________. personally known and acknowledged himself/herself/themselves to me (or proved to me on the basis of satisfactory evidence) to be the (a) Chairman (b) ________ Secretary respectively of Sterling Chemicals, Inc., (hereinafter, the "Corporation") and that as such officer(s), being duly authorized to do so pursuant to its bylaws or a resolution of its board of directors, executed, subscribed and acknowledged the foregoing instrument for the purposes therein contained, by signing the name of the Corporation by himself/herself/themselves in their authorized capacities as such officer(s) as his/her/their free and voluntary act and deed and the free and voluntary act and deed of said Corporation. In Witness Whereof, I hereunto set my hand and official seal. /s/ DAWN M. SCHOENIG ------------------------------------ Notary Public Notarial Seal My Commission Expires: 8/3/99 -39- 43 SCHEDULE 1 Legal Description of the Land [ ] 44 Plant Site/Mortgage SCHEDULE I PART I PROPERTY DESCRIPTION TRACT 1: Lots Nos. One (1) to Sixteen (16), inclusive, in Block Eighty (80), all in Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 2: Lots Thirteen (13) and Fourteen (14), in Block Eight (8), of Texas City First Division, a subdivision in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 3: Lots Three (3) and Four (4), in Block Eighty-one (81) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 4: Lots 3 and 4, in Block 79 of Texas City 1st Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 5: Lots Thirteen (13) and Fourteen (14), in Block Forty-one (41) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 6: Lots 15 and 16, in Block 41 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of 45 Galveston County, Texas. TRACT 7: Lots Six (6) and Seven (7), in Block 42 of Texas City First Division, a subdivision in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 8: Lot Eight (8), in Block Forty-two (42) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 9: Parcel 1: The South 62-1/2 feet of Lots 1 and 2, in Block 36 of Texas City First Division, in Galveston County, Texas, according to the map of said Texas City First Division recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. Parcel 2: The North 1/2 of Lots 1 and 2, in Block 36 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 10: Lots 3 and 4, in Block 36 of Texas City First Division, in Galveston County, Texas, according to the map of said Texas City First Division of record in Volume 113, Page 26, of the Deed Records in the office of the County Clerk of Galveston County, Texas. TRACT 11: Lot 5, in Block 36 of Texas City First Division, in Galveston County, Texas, according to the map of said Texas City First Division, recorded in Volume 113, Page 26, of the records in the office of the County Clerk of Galveston County, Texas. TRACT 12: 46 Lot 6, in Block 36 of Texas City First Division, in Galveston County, Texas, according to the map of said Texas City First Division recorded in Volume 113, Page 26, of the records in the office of the County Clerk of Galveston County, Texas. TRACT 13: Lots 7 and 8, in Block 36 of Texas City First Division, in Galveston County, Texas, according to the map of said Texas City First Division recorded in Volume 113, Page 26, of the records in the office of the County Clerk of Galveston County, Texas. TRACT 14: Lots 9, 10 and 11, in Block 36 of Texas City First Division according to the map of said Texas City First Division recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 15: An undivided 111/280 interest in Lot 12, Block 36 of Texas City First Division, in Galveston County, Texas, according to the map thereof recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas; being the same interest acquired in deed dated November 26, 1962, from Lillie Mae Rice Jameson et al., to Monsanto Chemical Company. TRACT 16: Lots 13 and 14, in Block 36, of Texas City First Division, in Galveston County, Texas, according to the map of said Texas City First Division recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 17: Lots 15 and 16, in Block 36 of Texas City First Division, in Galveston County, Texas, according to the map of said Texas City First Division of record in Volume 113, Page 26, of the records in the office of the County Clerk of Galveston County, Texas. TRACT 18: Lot 11, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map of said division of record in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 19: 47 Lots 13 and 14, in Block 35 of Texas City First Division, in Galveston County, Texas, according to the map thereof recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 20: Lots 11 and 12, in Block 35 of Texas City First Division, in Galveston County, Texas, according to the map thereof recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 21: Lots 8, 9 and 10, in Block 35 of Texas City First Division, in Galveston County, Texas, according to the map thereof recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 22: Lots 3 and 4, in Block 35 of Texas City First Division, in Galveston County, Texas, according to map of Texas City First Division, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 23: Lots 5, 6 and 7, in Block 35 of Texas City First Division, in Galveston County, Texas, according to the map thereof recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 24: Lots Nine (9) and Ten (10) in Block Thirty-four (34) and Lots Seven (7) and Eight (8), in Block Forty-one (41) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 25: Lots Three (3), Four (4) and Five (5), in Block Thirty-four (34) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 26: 48 Lots One (1) and Two (2), in Block Thirty-four (34) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 27: Lots Thirteen (13) and Fourteen (14), in Block Seventeen (17) of Texas City First Division, a subdivision in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 28: Lot 12, Block 10 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 29: Lot Eleven (11), in Block Seventeen (17), and Lots Thirteen (13), Fourteen (14), Fifteen (15) and Sixteen (16), in Block Thirty-two (32) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas, TRACT 30: Lots Fifteen (15) and Sixteen (16), in Block 16, of Texas City First Division, an addition in Galveston County, Texas, according to the map or plat thereof, recorded in, Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 31: Lot Fourteen (14), in Block Sixteen (16) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 32: Lot Eleven (11), in Block Sixteen (16) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 33: 49 Lots Six (6) and Seven (7), in Block 15, Texas City First Division, Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 34: Lots One (1), Two (2) and Three (3), in Block Fifteen (15) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 35: Lots 15 and 16, in Block 14, of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 36: Lots 13 and 14, in Block 14, of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 37: Lots 11 and 12, in Block 14 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 38: Lot 10, in Block 14 of Texas City First Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 39: Lots 7, 8 and 9, in Block 14 of Texas City First Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 40: Lots 5 and 6, in Block 14 of Texas City First Division, in Galveston County, Texas, according to 50 the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 41: The South 62 feet of Lots 1 and 2, in Block 14 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 42: Lots 15 and 16, in Block 13 of Texas City First Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 43: Lot 14, in Block 13 of Texas City First Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 44: Lot 13, Block 13 of Texas City First Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 45: Lot 12, in Block 13 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 46: Lot 11, in Block 13 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 47: Lots 8, 9 and 10, in Block 13 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the 51 County Clerk of Galveston County, Texas. TRACT 48: Lots 3, 4, 5, 6 and 7, in Block 13 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 49: Lots 1 and 2, in Block 13 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas TRACT 50: Lots 14, 15, and 16, in Block 12 of Texas City First Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas, being the same property heretofore conveyed by Augusta Annie Thompson to John Mitchell by deed dated February 27, 1940, and recorded in Volume 599, Page 569, of the Deed Records of Galveston County, Texas. TRACT 51: Lots 10 and 11, in Block 12 of Texas City First Division in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 52: Lots 6 and 7, in Block 12 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 53: Lots 8 and 9, in Block 12 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 54: Lots 3, 4 and 5, in BLOCK 12 of Texas City First Division, in Galveston County, Texas, according 52 to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 55: Lot 14, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 56: Lots 12 and 13, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 57: Lots 9 and 10 in Block 1l of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 58: Lots 7 and 8, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 59: Lots 5 and 6, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 60: Lot 4, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 61: Lot 3, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of 53 Galveston County, Texas. TRACT 62: Lots 1 and 2, in Block 11 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 63: Lots Nos. 13, 14, 15 and 16, in Block 10, and all of Lots 15 and 16, Block 11, of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 64: Lot 11, in Block 10 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 65: Lots 9 and 10 in Block 10 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 66: Lots 7 and 8, in Block 10 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 67: Lots 5 and 6, in Block 10 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 68: Lots 1 and 2, in Block 10 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. 54 TRACT 69: All that certain 2.388 acres of land out of the H.B. Wells Survey, A-205 and the Norman Hurd Survey, A-77, Galveston County, Texas, said tract subject to that certain easement dated November 30, 1932, from Texas City Terminal Railway Company to the City of Texas City, Texas, filed at Volume 485, Page 180, Galveston County Deed Records; BEGINNING at a set 5/8 inch iron rod located in the East right-of-way line of Bay Street (100' wide) at its intersection with the extended South right-of-way line of Third Avenue North (100' wide); THENCE S 89 deg. 33 min. 10 sec. W, 59.00 feet, along the extended South line of said Third Avenue North to a point for corner; THENCE S 00 deg. 26 min. 50 sec. E, 1,762.63 feet, along a line Easterly of, parallel with and 41 feet perpendicular distance from the West line of Bay Street according to the plat of Texas City First Addition according to the plat thereof filed at Volume 254A, Page 28, Galveston County Deed Records, to a point for corner; THENCE N 89 DEG. 36 min. 40 SEC. E, 59.00 feet along the South line of said Texas City First Addition, to a set 5/8 inch iron rod for corner; THENCE N 00 deg. 26 min. 50 sec. W, 1,762.69 feet, to the POINT OF BEGINNING and containing 2.388 acres of land more or less. TRACT 70: Lots 3 and 4, Block 10 of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26 in the office of the County Clerk of Galveston County, Texas. TRACT 71: Lots 1 and 2, Block 12 of Texas City First Division, in Galveston County, Texas according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 72: Lots 11, 12, 13, 14, 15 and 16, Block 34, all in Texas City First Division, Galveston County, Texas, according to the map or plat thereof recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. 55 TRACT 73: Lots 3, 4, 5, 11 and 12, Block 41, of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 74 (Easement): Coastal public lands and the Easement No. CE-82-051, being shown on the drawing labeled "Plan of Docks and Channels" attached to instrument dated January 17, 1983, filed for record in the office of the County Clerk of Galveston County, Texas, under County Clerk's File No. 8302396 and as assigned to Sterling Chemicals, Inc. pursuant to that certain Assignment of Lease and Easement from Monsanto Company dated August 1, 1986 and recorded under Clerk's File No. 8628664 in the Official Public Records of Real Property of Galveston County, Texas. TRACT 75 (Leasehold): Lease dated September 1, 1974, by and between Texas City Terminal Railway Company, as lessor, and Monsanto Company, a Corporation, as lessee, as assigned to Sterling Chemicals, Inc. pursuant to that certain Assignment of Lease and Easement from Monsanto Company dated August 1, 1986 and recorded under Clerk's File No. 8628664 in the Official Public Records of Real Property of Galveston County, Texas covering the land described as follows: All that certain 3.3175 acres for ground lease out of the John Grant Survey, A-72, Galveston County, Texas, and being more particularly described as follows: COMMENCING at a set 5/8 inch iron rod marking the Southeast corner of that certain 22.71 acres of land described in a deed dated August 19, 1969, from Texas City Terminal Railway Company to Monsanto Company filed at Volume 2051, Page 654, Galveston County Deed Records; THENCE S 89 deg. 05 min. 40 sec. W, 117.91 feet to the POINT OF BEGINNING of the herein-described lease site; THENCE along the South and West line of said 22.71 acre tract the following five (5) courses and distances: S 89 deg. 05 min. 40 sec. W, 507.11 feet to a set 5/8 inch iron rod for corner; N 00 deg. 45 min. 50 sec. W, 250.18 feet to a 5/8 inch iron rod for angle point; N 32 deg. 28 min. 30 sec. W, 25.00 feet to a set 5/8 inch iron rod for corner; 56 S 57 deg. 31 min. 30 sec. W, 125.64 feet to a set 5/8 inch iron rod being a point on a curve having a central angle of 13 deg. 53 min. 35 sec., a radius of 591.30 feet, the center of said curve being located on a radial line bearing N 32 deg. 28 min. 30 sec. w, from said point; Southwesterly from an arc distance of 143.38 feet to a point for corner; THENCE S 00 deg. 45 min. 50 sec. E, 276.11 feet to a point for corner; THENCE N 89 deg. 05 min. 40 sec. E, 610.00 feet to an angle point; THENCE N 63 deg. 09 min. 44 sec. E, 163.71 feet to a point for corner; THENCE N 00 deg. 48 min. 10 sec. W, 58.40 feet to the POINT OF BEGINNING and containing 3.3175 acres for ground lease, more or less, SAVE AND EXCEPT that certain tract containing 0.0871 acres described in Tract 87 herein. TRACT 76 (Easement): Parcel 1: The location of the easement herein is described by metes and bounds as follows: A tract of land situated in the Norman Hurd and Sylvester Bowen Surveys more particularly described as follows: BEGINNING in the West line 34 feet North of the Southwest corner of that certain tract of land of 27.99 acres lying within the Norman Hurd and Sylvester Bowen Surveys in Galveston County, Texas, and described in that certain deed from the Atlantic Pipeline Company to Republic Oil Refining Company dated January 1, 1950, recorded in Volume 833, Page 686, of the Deed Records of Galveston County, Texas, and that certain deed from Republic Oil Refining Company to Plymouth Oil Company, dated April 1, 1957, recorded in Volume 1201, Pages 638-643, inclusive of the Deed Records of Galveston County, Texas, to which deeds reference is made, the South line of which is 748.5 feet North of the South line of the Sylvester Bowen Survey and lying between the land now owned by the Gillock Chemicals Company, a wholly owned subsidiary of Amoco Chemicals Corporation on the South and the right-of-way for Fourth Avenue South in the City of Texas City on the north, said point being 50 feet east of the centerline of the railroad tracts of Texas City Terminal Railway Company parallel to Tenth Street South in the City of Texas City; THENCE N. 22 deg. 05 min. E, a distance of 37 feet; THENCE N 0 deg. 25 min. W, a distance of 482 feet; 57 THENCE N 89 deg. 35 min. E, a distance of 506 feet; THENCE N 57 deg. 00 min. E, a distance of 170 feet; THENCE N 89 deg. 35 min. E, a distance of 1199 feet to intersect the westerly line of the right-of-way of Sixth Street South of the City of Texas City which is also designated as State Highway Number 146. Parcel 2: A certain tract or parcel of land situated in the John Grant and Sylvester Bowen Surveys in the City of Texas City, Galveston County, Texas, described as follows: BEGINNING in the west line of 73.5 feet north of the southwest corner of that certain tract of land 100 feet in width (north and south) described by reference in Paragraph Numbered 10 of that certain deed from Mainland Company to Terminal Industrial Land Company dated September 22, 1926, recorded in Book 391, Pages 527 to 538, of the Deed Records of Galveston County to which deed reference is made, the north line of which is the projection westerly of the south line of Kohfeldt's First Addition to Texas City, Texas, in accordance with the recorded map of said addition and lying between the land now owned by American Oil Company on the south and E. M. Stone on the north respectively, said point being 17.5 feet south of the center line of existing railroad tract of Texas City Terminal Railway Company; THENCE from said beginning point N 89 deg. 55 min. E, a distance of 2 feet; THENCE S 71 deg. 28 min. E, a distance of 152 feet, said point being 67 feet south of the aforementioned tract; THENCE N 89 deg. 49 min. E, a distance of 569 feet to the west line of that certain 100 foot wide strip of land lying between land now owned by Terminal Industrial Land Company on the north and land owned by American Oil Company on the south side thereof, a length of 723 feet or 43.82 rods in the John Grant Survey; ALSO BEGINNING in the east line of a 60 foot road known as Tenth Street, with east line of Tenth Street being common with the west line of a tract of land owned by Terminal Industrial Land Company, at a point which is 114 feet north of the south line of said Terminal Industrial Land Company tract of land; THENCE N 89 deg. 37 min. E, a distance of 110 feet to intersect the west line of the 100.1 foot wide strip of land owned by Texas City Terminal Railway Company, being 110 feet or 6.67 rods in Sylvester Bowen Survey. TRACT 77 (Easement): 58 Parcel 1 A certain tract of land in the John Grant Survey and Sylvester Bowen Survey in Galveston County, Texas, respectively. The one 18 inch water line herein referred to is to be situated as shown on Monsanto Chemical Company Drawing No. D-139-30, dated July 11, 1951, consisting of 2 sheets, entering Republic's North Tank Farm at a point on the east line of Tenth Street approximately 155 feet south of the northwest corner of the portion of Republic Oil Refining Company's property which fronts on the east line of Tenth Street, and proceeding in an easterly direction approximately 110 feet to the west line of the Texas City Terminal Railway Company right-of-way, where said line leaves the property of Republic Oil Refining Company; THENCE reentering Republic Oil Refining Company property known as Atlantic Tract at approximately 50 feet north of the southwest corner of said property as shown on Monsanto Chemical Company Map No. D-193-30 dated July 11, 1951; THENCE proceeding north parallel to and 4 feet from the west property line for a distance of 500 feet; THENCE proceeding east 541 feet; THENCE North 67 deg. 30 min. East 100 feet; THENCE east 30 feet south of the east portion of the north line of said tract 1255 feet to the east line of said tract, leaving said tract at a point 30 feet south of the northeast corner of said Atlantic Pipe Line Company Tract; known as line No. 11. Parcel 2: A tract of land situated in the John Grant and Sylvester Bowen Surveys in Galveston County, Texas, said route being more particularly described as follows: BEGINNING at a point in that certain 100 foot wide tract of land lying between property of Terminal Industrial Land Company and Kohfeldt's First Addition to Texas City, Texas, on the north and Republic Oil Refining Company on the south, said point being approximately 18 feet west and 78 feet south of the southwest corner of Kohfeldt's First Addition to Texas City, Texas; THENCE east a distance of approximately 1572 feet to the west line of a 60 foot north and south country road; THENCE continuing east across said country road and property owned by Republic Oil Refining Company to the west right-of-way property of Texas City Terminal Railway Company; 59 THENCE east on said Texas City Terminal Railway Company right-of-way a distance of 80 feet; THENCE northerly on said right-of-way a distance of 722 feet; THENCE northeasterly with angle of 22 deg. 30 min. right a distance of 50 feet to intersection in the east right-of-way line of aforesaid right of way, all being in the John Grant and Sylvester Bowen Surveys in Galveston County, Texas and known as Line No. 11. TRACT 78 (Easement): That certain tract or parcel of land, lying and being situated in the John Grant Survey in Galveston County, Texas, as more specifically identified and described below: BEGINNING at a point in the West line of that certain 100-foot-wide tract of land owned by Texas City Terminal Railway Company being in the John Grant Survey and lying between the properties of Terminal Industrial Land Company and Stone on the North and Pan American Refining Corporation and Republic Oil Refining Company on the South, which point is approximately 56 feet South of the Northwest corner of said tract and 32 feet South of the centerline of the railway spur tract as now located upon and over said tract of land; THENCE Easterly, parallel to and 32 feet perpendicularly distance southerly from the centerline of said spur track a distance of 3117 feet; THENCE right on angle of 12 deg. 04 min., a distance of 119 feet; THENCE left on. angle of 12 deg. 04 min., a distance of 136 feet to junction with an 8-inch pipe line, for transportation of water only, bearing South to Sid Richardson Refining Company and a proposed 18-inch pipe line, for transportation of water only, bearing Easterly to Monsanto Chemical Company, all being in the John Grant Survey known as Line No. 19. TRACT 79 (Easement): A four inch (4") pipeline and a six inch (6") pipeline described in Exhibits A, B, C, D and E, attached to instrument dated January 28, 1982 to Monsanto Company filed for record in the office of the County Clerk of Galveston County, Texas, under County Clerk's File No. 8211566, known as Line Nos. 20 and 21. TRACT 80 (Easement): All that certain tract of land situated in the John Grant Survey, A-72, more particularly described as follows: BEGINNING at a point in the Southerly line of a 15.91 acre tract of land conveyed by Texas 60 City Terminal Railway Company to Monsanto Chemical Company by deed dated October 2, 1951, said point being North 60 deg. 53 min. 20 sec. East, a distance of 128.78 feet from an iron rod marking a point described in said deed as being located such that Monsanto Tank bears North 61 deg. 38 min. 10 sec. East, and Terminal Tank bears South 61 deg. 07 min. 50 sec. East; THENCE South 28 deg. 58 min. 40 sec. East, a distance of 120.5 feet to an angle point at pipeline Station 1 + 20.5; THENCE South 51 deg. 43 min. 40 sec. East, a distance of approximately 65 feet to a point for curve; THENCE with the arc of a curve to the right, the radius of which is approximately 75 feet, the central angle is 45 deg. 25 min., a distance of 58 feet to a point of tangency; THENCE South 06 deg. 18 min. 40 sec. East, a distance of 138 feet to an angle point at pipeline Station 3 + 81.3; THENCE South 34 deg. 16 min. 20 sec. West, a distance of 128.3 feet to an angle point at pipeline Station 5 + 09.6, said point being 15 feet Southerly of, measured perpendicular to, the centerline of Tract ICC#32 (Old Shop Lead), 31.2 feet North of the face of Terminal's General Office Building, and 35 feet West of the Northeast corner of said office building; THENCE Westerly generally parallel to Tract ICC No. 32, a distance of 458.6 feet to pipeline Station 9 + 68.2; THENCE Southerly a distance of 56.6 feet to pipeline Station 10 + 24.8; THENCE Easterly a distance of 14.9 feet to pipeline Station 10 + 39.7 and the end of this easement, known as Line Nos. 24 and 26. TRACT 82 (Easement): All that certain tract of land situated in the George Preacher Survey in Galveston County, Texas, described as follows: COMMENCING at the northwest corner of a 15.91 acre tract purchased by the Monsanto Company on the 2nd day of October, 1951; THENCE South 00 deg. 23 min. 20 sec. East, along the West line of said 15.91 acre tract a distance of 219 feet to a point of curvature of a curve to the left, said curve having a radius of 308 feet; THENCE along the arc of said curve a distance of 161.92 feet to a point in the Southwesterly 61 line of said 15.91 acre tract and being the POINT OF BEGINNING; THENCE South 19 deg. 3 5 min. 20 sec. West, a distance of 14 feet to a point for corner; THENCE South 48 deg. 14 min. 20 sec. West, a distance of 555 feet to a point for corner; THENCE South 43 deg. 49 min. 20 sec. West, a distance of 104 feet to a point for corner; THENCE South 00 deg. 00 min. 40 sec. East, a distance of 207 feet to a point for corner THENCE South 56 deg. 59 min. 20 sec. West, a distance of 250 feet to a point for corner; THENCE South 52 deg. 44 min. 20 sec. West, a distance of 90 feet to a point for corner; THENCE South 57 deg. 07 min. 20 sec. West, a distance of 286 feet to a point for corner; THENCE South 52 deg. 52 min. 20 sec. West, a distance of 44 feet to a point for corner; THENCE South 16 deg. 37 min. 40 sec. East, a distance of 98 feet to the point of terminus for this easement, said point of terminus being the intersection point with an existing 4-inch line, known as Line No. 28. TRACT 83 (Easement): A tract in the Norman Hurd Survey, A-77, and the Sylvester Bowen Survey A-24, Galveston County, Texas, a centerline course described as follows: BEGINNING at the West flange of a 6-inch valve located at Station 36 + 62.3 as shown on the drawing dated June 29, 1976, marked "The American Oil Company Drawing B - Sketch - 76-170", duplicate copies of which have been initiated, by the signatory officers of the parties hereof, hereinafter called "Sketch 76-170"; THENCE on a course N 89 deg. 36 min. 40 sec. E, for a distance of 1315.30 feet to a point; THENCE left 90 deg. for a distance of 548.4 feet to a point; THENCE right 90 deg. for a distance of 1161.95 feet to a point; THENCE left 90 deg. for a distance of 70.6 feet to a point; THENCE onto the public street known as Second Avenue on a course North 00 deg. 23 min. 20 sec. West, for a distance of 3 feet to a point; THENCE right 90 deg. along Second Avenue South for a distance of 178.75 feet to the centerline 62 of Bay Street and Monsanto Company property line; THENCE N 89 deg. 36 min. 40 sec. E, for a distance of 56 feet to a point; THENCE right 45 deg. for a distance of 41.01 feet to a point; THENCE left 45 deg. for a distance of 192.34 feet to a point; THENCE left 18 deg. for a distance of 40.13 feet to a point; THENCE right 18 deg. for a distance of 42.75 feet to a point; THENCE left 90 deg. for a distance of 13.43 feet to a point; THENCE left 90 deg. for a distance of 4.5 feet to a point where it connects with a pipeline owned by Magnolia Pipeline Company, known as Line No. 29. TRACT 85: Lots One (1) and Two (2), Block Eighty-one (81) of Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the office of the County Clerk of Galveston County, Texas. TRACT 86: Abandoned portion of certain streets and alleys in Texas City, the following portions of streets and alleys described as follows: (A) North-south alley bordered on the West by Block 12, on the South and East by Monsanto plant property lines, and on the North by the right-of-way of Second Avenue; (B) First Street bordered on the West by Block 13, on the South by Monsanto Plant property line, on the East by BLOCK 12, and on the North by the right-of-way of Second Avenue South; (C) Second Street bordered on the West by Block 36, on the South by Monsanto Plant property line, on the East by Block 13, on the North by the right-of-way of Second Avenue South; (D) East-west alley bordered on the South by Block 37, on the East by Monsanto plant property line, on the North by Block 36, and on the West by the right-of-way of Third Street; 63 (E) Bay Street bordered on the West by Block 12, on the South by the Easterly extension or prolongation of the South boundary line of Block 12, on the East by Monsanto Plant property line, and on the North by the South right-of-way of Second Avenue South. TRACT 86A: All that certain 237.0539 acres out of the Norman Hurd Survey, A-77, Sylvester Bowen Survey, A-24, John Grant Survey, A-72, and the James B. Wells Survey, A-205, Texas City, Galveston County, Texas; BEGINNING at a set 5/8 inch iron rod located in the East right-of-way line of Bay Street (100' wide), at its intersection with the extended South right-of-way line of Third Avenue North (100' wide); THENCE N 89 deg. 33 min. 10 sec. E, 1,967.90 feet, to a set 5/8 inch iron rod for corner; THENCE S 16 deg. 5 9 min. 23 sec. W, 2,541.25 feet along the U.S. Harbor line to an "X" set in riprap for existing Texas City Hurricane Flood Wall; THENCE S 00 deg. 13 min. 03 sec. E. 921.80 feet, continuing along said U.S. Harbor line to a point for corner; THENCE S 89 deg. 46 min. 57 sec. W, 859.00 feet to a point for corner; THENCE N 00 deg. 13 min. 03 sec. W, 49.00 feet to a point for corner; THENCE S 89 deg. 46 min. 57 sec. W, 609.87 feet along the Easterly South line of that certain 22.71 acres of land described in a deed dated August 19, 1969, from Texas City Terminal Railway Company to Monsanto Company filed at Volume 2051, Page 654, Galveston County Deed Records, to a set 5/8 inch iron rod for corner; THENCE S 00 deg. 50 min. 20 sec. W, 215.45 feet along the East line of said 22.71 acre tract being Easterly of, parallel with and 25 feet perpendicular distance from the centerline of said flood wall, to a set 5/8 inch iron rod for angle point; THENCE S 20 deg. 52 min. 05 sec. E, 82.13 feet along the East line of said 22.71 acre tract continuing along a line Easterly of, parallel with and 25 feet perpendicular distance from the centerline of said flood wall, to a set 5/8 inch iron rod for corner; THENCE S 89 deg. 46 min. 57 sec. W, 80.15 feet along an interior South line of said 22.71 acre tract, to a set 5/8 inch iron rod for corner; THENCE S 20 deg. 52 min. 05 sec. E, 209.65 feet, continuing along the East line of said 22.71 acre tract, to a set 5/8 inch iron rod for angle point; 64 THENCE S 00 deg. 51 min. 00 sec. E, 389.07 feet along the East line of said 22.71 acre tract being Westerly of, parallel with and 50 feet perpendicular distance from the centerline of said flood wall, to a set 5/8 inch iron rod set for the Southerly Southeast corner of said 22.71 acre tract; THENCE along the South and West lines of said 22.71 acre tract the following 7 courses and distances: S 89 deg. 05 min. 40 sec. W, 625.02 feet, to a set 5/8 inch iron rod for corner; N 00 deg. 45 min. 50 sec. W, 250.18 feet to a set 5/8 inch iron rod for angle point; N 32 deg. 28 min. 30 sec. W, 25.00 feet to a set 5/8 inch iron rod for corner; S 57 deg. 31 min. 30 sec. W, 125.64 feet to a set 5/8 inch iron rod being a point on a curve having a central angle 23 deg. 58 min. 00 sec., a radius of 591.30 feet the center of said curve being located on a radial line bearing N 32 deg. 28 min. 30 sec. W, from said point; Southwesterly for an arc distance of 247.34 feet to a set 5/8 inch iron rod for corner; S 81 deg. 29 min. 30 sec. W. 247.16 feet to a set 5/8 inch iron rod for corner, N 05 deg. 19 min. 30 sec. W, 432.98 feet to a set 5/8 inch iron rod for corner; THENCE S 60 deg. 53 min. 20 sec. W, 337.40 feet along the South line of that certain 15.91 acres of land described in a deed dated October 2, 1951, from Texas City Terminal Railroad Company to Monsanto Chemical Company filed at Volume 913, Page 467, Galveston County Deed Records, to a found 1 inch iron rod for angle point; THENCE S 81 deg. 22 min. 40 sec. W, 755.00 feet continuing along the South line of said 15.91 acre tract, to a found 1 inch iron rod being a point of a curve having a central angle of 98 deg. 10 min. 48 sec., a radius of 308.00 feet the center of said curve being located on a radial line bearing N 08 deg. 40 min. 49 sec. W, from said point; THENCE in a Northwesterly direction for an arc length of 527.78 feet to a found 3/4 inch iron pipe; THENCE N 00 deg. 23 min. 20 sec. W, 1,143.15 feet along the East right-of-way line of Sixth Street (100' wide) to a set 5/8 inch iron rod for corner; THENCE N 89 deg. 36 min. 40 sec. E, 472.66 feet along the South right-of-way line of Fourth Avenue South (70' wide) to a set 5/8 inch iron rod for corner; 65 THENCE N 00 deg. 23 min. 20 sec. W, passing at 70.00 feet the Southwest corner of Block 82, Texas City First Addition according to the plat thereof filed at Volume 254A, Page 28, Galveston County Deed Records, and continuing along the East right-of-way line of Fifth Street (75' wide) for a total distance of 195.00 feet to a 5/8 inch iron rod set for the Northwest corner of said Block 82; THENCE N 89 deg. 36 min. 40 sec. E, 290.00 feet along the North line of said Block 82, to a 5/8 inch iron rod set for the Northwest corner of Lot 12 of said Block 82; THENCE N 00 deg. 23 min. 20 sec. W, 145.00 feet to a 5/8 inch iron rod set for the Northwest corner of Lot 16, Block 81 of said Texas City First Addition; THENCE N 89 deg. 36 min. 40 sec. E, along the South right-of-way line of Third Avenue South (70' wide), passing at 110.00 feet the Northeast corner of said Block 81, and continuing for a total distance of 210.00 feet to a 5/8 inch iron rod set for the Northwest corner of Block 83 of said Texas City First Addition; THENCE N 00 deg. 23 min. 20 sec. W, passing at 70.00 feet the Southwest corner of Block 40, of said Texas City First Addition and continuing along the East right-of-way line of Fourth Street (100' wide) for a total distance of 195.00 feet to a 5/8 inch iron rod set for the Northwest corner of said Block 40. THENCE N 89 deg. 36 min. 40 sec. E, 400.00 feet along the North line of said Block 40 to a 5/8 inch iron rod set for the Northeast corner of said Block 40; THENCE N 00 deg. 23 min. 20 sec. W, 5.00 feet to a set 5/8 inch iron rod for corner; THENCE N 89 deg. 36 min. 40 sec. E, 70.00 feet along the North line of that portion of Third Street abandoned by Ordinance dated December 21, 1977; THENCE S 00 deg. 23 min. 20 sec. E, 5.00 feet to a set 5/8 inch iron rod; THENCE N 89 deg. 36 min. 40 sec. E, 50.80 feet to a point marking the Northeast corner of said Block 37; THENCE N 00 deg. 23 min. 20 sec. W, 78.40 feet along the Southerly East line of said Texas City First Addition, to a set 5/8 inch iron rod for corner, THENCE N 89 deg. 36 min. 40 sec. E, 1,405.01 feet along the South line of Blocks 36, 13 and 12, of said Texas City First Addition, to a set 5/8 inch iron rod for corner, THENCE N 00 deg. 26 min. 50 sec. W, 1,867.69 feet along the East right-of-way line of Bay 66 Street (100' wide) to the POINT OF BEGINNING and containing 237.0539 acres of land, more or less. TRACT 87: A survey of a 0.0871 acre tract of land out of the John Grant Survey A-72, Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: COMMENCING at a point on the centerline of Texas Avenue, in the City of Texas City, said point being 41.00 feet East of the West line of Bay Street; THENCE South 00 deg. 23 min. 20 sec. East, a distance of 2,851.30 feet to a point for corner; THENCE South 35 deg. 20 min. 20 sec. West, a distance of 315.35 feet to a point for corner, said corner being the Southeast corner of Sterling Chemicals (formerly Monsanto Company); THENCE South 89 deg. 05 min. 40 sec. West, along the South line of said Sterling Chemicals, same being a common line of a 0.0804 acre tract (for a Corp of Engineer's Easement) and a common line of a 3.3175 acre tract (Tract "A", Monsanto Company) a distance of 627.11 feet to a Brass Disc set for corner and the POINT OF BEGINNING for the herein described tract; THENCE South 54 deg. 14 min. 10 sec. West, at a distance of 25.60 feet pass a 5/8 inch iron rod set for reference, in all a distance of 75.60 feet to a P.K. nail set for corner; THENCE North 35 deg. 45 min. 50 sec. West, a distance of 50.00 feet to a P.K. nail set for Corner; THENCE North 54 deg. 14 min. 10 sec. East, a distance of 50.00 feet to a 5/8 inch iron rod set for corner; THENCE North 89 deg. 05 min. 40 sec. East, a distance of 49.65 feet to Brass Disc set for corner on the property line of said Sterling Chemicals, same being a common line with said 3.3175 acre tract; THENCE South 00 deg. 45 min. 50 sec. East, a distance of 26.40 feet to the PLACE OF BEGINNING. 67 Sterling Greenbelt Lots/Mortgage SCHEDULE 1 PART II PROPERTY DESCRIPTION TRACT 1 Lots One (1) and (2), both in Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 2 Lots Three (3) and Four (4), both in Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 3 Lots Five (5) and Six (6), both in Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 4 Lot Seven (7), Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 5 Lots Eight (8) and Nine (9), both in Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 68 TRACT 6 Lot Ten (10), Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 7 Lots Twelve (12), Thirteen (13) and Fourteen (14), all in Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 8 Lots Fifteen (15) and Sixteen (16), both in Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 9 Lots One (1) and Two (2), both in Block Six (6), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 10 Lots Three (3) and Four (4), both in Block Six (6), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 11 Lots Five (5) and Six (6), both in Block Six (6), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 12 Lots Ten (10) and Eleven (11), both in Block Six (6), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the 69 Office of the County Clerk of Galveston County, Texas. TRACT 13 Lots One (1), Two (2) and Three (3), all in Block Seven (7), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 14 Lots Five (5) and Six (6), both in Block Seven (7), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 15 Lots Seven (7) and Eight (8), both in Block Seven (7), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 16 Lots Nine (9) and Ten (10), both in Block Seven (7), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 17 Lot Eleven (11), Block Seven (7), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 18 Lots Twelve (12) and Thirteen (13), both in Block Seven (7), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 19 Lot Fourteen (14), Block Seven (7), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 70 TRACT 20 Lots Three (3) and Four (4), both in Block Eight (8), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 21 Lots Five (5) and Six (6), both in Block Eight (8), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 22 Lots Seven (7) and Eight (8), both in Block Eight (8), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 23 Lots Nine (9) and Ten (10), both in Block Eight (8), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 24 Lots Eleven (11) and Twelve (12), both in Block Eight (8), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 25 Lot Fifteen (15), Block Eight (8), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 26 Lot Sixteen (16), Block Eight (8), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 71 TRACT 27 Lots One (1) and Two (2), both in Block Nine (9), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 28 Lots Five (5) and Six (6), both in Block Nine (9), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 29 Lots Fifteen (15) and Sixteen (16), both in Block Nine (9), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 30 The North one-half (1/2) of Lots One (1) and Two (2), and all of Lots Three (3) and Four (4), all in Block Fourteen (14), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 31 Lots Four (4) and Five (5) in Block Fifteen (15), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 32 Lots Eight (8), Nine (9) and Ten (10), all in Block Fifteen (15), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 33 Lot Eleven (11), Block Fifteen (15), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, PAGE 26, in the Office of the County Clerk of Galveston County, Texas. 72 TRACT 34 Lot Twelve (12), Block Fifteen (15), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 35 Lots Thirteen (13) and Fourteen (14), both in Block Fifteen (15), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 36 Lots Fifteen (15) and Sixteen (16), both in Block Fifteen (15), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 37 Lots Four (4) and Five (5), both in Block Sixteen (16), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 38 Lot Seven (7), and the West one-half (1/2) of Lot Eight (8), both in Block Sixteen (16), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 39 The East one-half (1/2) of Lot Eight (8), and all of Lots Nine (9) and Ten (10), all in Block Sixteen (16), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 40 Lot Twelve (12), Block Sixteen (16), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 73 TRACT 41 Lot Thirteen (13), Block Sixteen (16), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 42 Lots One (1), Two (2), Three (3) and Four (4), all in Block Seventeen (17), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 43 Lots Five (5) and Six (6), both in Block Seventeen (17), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 44 Lots Seven (7), Eight (8), Nine (9) and Ten (10), all in Block Seventeen (17), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 45 Lot Twelve (12), Block Seventeen (17), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 46 Lots Five (5), Six (6), Seven (7), Eight (8), Nine (9) and Ten (10), all in Block Eighteen (18), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. [TRACTS 47-50 INTENTIONALLY DELETED] TRACT 51 The South one-third (1/3) of Lots Thirteen (13), Fourteen (14), Fifteen (15), and Sixteen (16), all in Block Thirty (30), Texas City First Division, in Galveston County, Texas, according to the 74 map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 52 Lots Five (5) and Six (6) both in Block Thirty-Two (32), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 53 Lots Seven (7) and Eight (8), both in Block Thirty-Two (32), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 54 Lots Nine (9) and Ten (10), both in Block Thirty-Two (32), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 55 Lots One (1), Two (2), Three (3) and Four (4), all in Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 56 Lots Seven (7) and Eight (8), both in Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 57 Lot Nine (9), Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 58 Lot Ten (10), Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the 75 map or plat thereof,recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 52 Lots Five (5) and Six (6), both in Block Thirty-Two (32), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 53 Lots Seven (7) and Eight (8), both in Block Thirty-Two (32), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 54 Lots Nine (9) and Ten (10), both in Block Thirty-Two (32), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 55 Lots One (1), Two (2), Three (3) and Four (4), all in Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 56 Lots Seven (7) and Eight (8), both in Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 57 Lot Nine (9), Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 58 Lot Ten (10), Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the 76 County Clerk of Galveston County, Texas. TRACT 59 Lot Eleven (11), Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 60 Lots Thirteen (13) and Fourteen (14), both in Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 61 Lots Fifteen (15) and Sixteen (16), both in Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 62 Lots Six (6) and Seven (7), both in Block Thirty-Four (34), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 63 Lot Eight, Block Thirty-Four (34), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 64 An undivided one-half (1/2) interest in lots One (1) and Two (2), both in Block Thirty-Five (35), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 65 Lots Fifteen (15) and Sixteen (16), both in Block Thirty-Five (35), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 77 TRACT 66 Lots One (1) and Two (2), both in Block Forty-One (41), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 67 Lot Six (6), Block Forty-One (41), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 68 Lots Nine (9) and Ten (10), both in Block Forty-One (41), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 69 Lots One (1), Two (2), Three (3) and Four (4), all in Block Forty-Two (42), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 70 Lot Five (5), Block Forty-Two (42), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 71 Lot Nine (9), Block Forty-Two (42), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 72 Lot Ten (10), Block Forty-Two (42), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 78 TRACT 73 Lots Eleven (11) and Twelve (12), both in Block Forty-Two (42), Texas City First Division. in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 74 Lots Fifteen (15) and Sixteen (16), both in Block Forty-Two (42), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 75 Lots One (1) and Two (2), both in Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 76 Lots Six (6), Seven (7) and Eight (8), all in Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 77 Lot Nine (9), Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 78 Lot Ten (10), Block Forty-Tbree (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 79 Lots Fourteen (14), Fifteen (15) and Sixteen (16), all in Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 79 TRACT 80 Lots One (1) and Two (2), both in Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 81 Lots Three (3) and Four (4), both in Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 82 Lot Five (5), Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 83 Lots Six (6), Fifteen (15) and Sixteen (16), all in Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 84 Lot Seven (7), Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 85 Lot Eight (8), Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 86 Lot Nine (9), Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 87 80 Lots Ten (10) and Eleven (11), both in Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 88 Lots Eleven (11), Twelve (12), Thirteen (13) and Fourteen (14), all in Block Forty-Four (44), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 89 Lots Thirteen (13), Fourteen (14), Fifteen (15) and Sixteen (16), all in Block Sixty-One (61), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 90 Lots One (1) and Two (2), both in Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 91 Lots Three (3) and Four (4), both in Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 92 Lot Five (5), Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 93 Lots Six (6) and Seven (7), both in Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 94 81 Lot Twelve (12), Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 95 Lots Thirteen (13) and the North fifteen feet (15') of Lot Fourteen (14), both in Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 96 The South ten feet (10') of Lot Fourteen (14), and all of Lots Fifteen (15) and Sixteen (16), all in Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 97 Lots One (1) and Two (2), both in Block Sixty-Four (64), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 98 Lots Five (5) and Six (6), both in Block Sixty-Four (64), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 99 An undivided one-half (1/2) interest in and to Lots Seven (7), Eight (8) and Nine (9), all in Block Sixty-Four (64), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 100 Lots Ten (10) and Eleven (11), both in Block Sixty-Four (64), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 101 82 Lot Twelve (12), Block Sixty-Four (64), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 102 Lots Thirteen (13) and Fourteen (14), both in Block Sixty-Four (64), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 103 Lots Fifteen (15) and Sixteen (16), both in Block Sixty-Four (64), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 104 Lots One (1), Two (2) and Three (3), all in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 105 Lot Four (4), Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 106 Lots Five (5) and Six (6), both in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or PLAT thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 107 Lots Seven (7) and Eight (8), both in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 108 83 Lots Nine (9) and Ten (10), both in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 109 Lots Thirteen (13) and Fourteen (14), both in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 110 Lots Fifteen (15) and Sixteen (16), both in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 111 Lots One (1), Two (2) and Three (3), all in Block Sixty-Six (66), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 112 Lots Six (6), Seven (7) and Eight (8), all in Block Sixty-Six (66), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 113 Lots Nine (9) and Ten (10), both in Block Sixty-Six (66), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 114 Lots Eleven (11) and Twelve (12), both in Block Sixty-Six (66), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 115 Lots Thirteen (13) and Fourteem (14), both in Block Sixty-Six (66), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 84 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 116 Lots Fifteen (15) and Sixteen (16), both in Block Sixty-Six (66), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 117 Lots One (1), Two (2) and Three (3), all in Block Sixty-Seven (67), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 118 Lots Six (6) and Seven (7), all in Block Sixty-Seven (67), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 119 Lots Eight (8) and Nine (9), both in Block Sixty-Seven (67), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 120 Lots Ten (10), Eleven (11) and Twelve (12), all in Block Sixty-Seven (67), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 121 Lots Thirteen (13) and Fourteen (14), both in Block Sixty-Seven (67), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 122 Lots Fifteen (15) and Sixteen (16), both in Block Sixty-Seven (67), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 85 TRACT 123 Lots One (1), Two (2), Three (3) and Four (4), all in Block Sixty-Eight (68), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 124 Lots Six (6) and Seven (7), both in Block Sixty-Eight (68), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 125 Lot Eight (8), Block Sixty-Eight (68), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 126 Lot Nine (9), Block Sixty-Eight (68), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 127 Lots Ten (10), Thirteen (13) and Fourteen (14), all in Block Sixty-Eight (68), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 128 Lots Eleven (11) and Twelve (12), both in Block Sixty-Eight (68), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 129 Lots Fifteen (15) and Sixteen (16), both in Block Sixty-Eight (68), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 86 TRACT 130 Lots Nine (9) and Ten (10), both in Block Sixty-Nine (69), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 131 Lots One (1) and Two (2), both in Block Seventy-Nine (79), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 132 Lots Five (5) and Six (6), both in Block Eighty-One (81), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 133 Lots Seven (7) and Eight (8), both in Block Eighty-One (81), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 134 Lots Nine (9), Ten (10) and Eleven (11), all in Block Eighty-One (81), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 135 Lots Nine (9), Ten (10) and Eleven (11), in Block Nine (9), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 136 Lots Three (3), Four (4) and Five (5), in Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. 87 SCHEDULE 2 Permitted Encumbrances [ ] 88 SCHEDULE 2 Permitted Encumbrances EXCEPTIONS FROM COVERAGE In addition to the Exclusions and Conditions and Stipulations, your Policy will not cover loss, costs, attorney's fees, and expenses resulting from: 1. The following restrictive covenants of record itemized below (We must either insert specific recording data or delete this exception): Any covenants, conditions or restrictions indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin are hereby deleted to the extent such covenants, conditions or restrictions violate 42 USC 3604(c). Those recorded in Volume 245, Page 556, Volume 355, Page 178, Volume 343, Page 596 and Volume 345, Page 494, in the Office of the County Clerk of Galveston County, Texas. (As to Tract 1) Any covenants, conditions or restrictions indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin are hereby deleted to the extent such covenants, conditions or restrictions violate 42 USC 3604(c). Those recorded in Volume 349, Page 514, of the Deed Records of Galveston County, Texas (As to Tract 20) Any covenants, conditions or restrictions indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin are hereby deleted to the extent such covenants, conditions or restrictions violate 42 USC 3604(c). Those recorded in Volume 339, Page 501, of the Deed Records of Galveston County, Texas (As to Tract 23, Lots 6 and 7 only) Any covenants, conditions or restrictions indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin are hereby deleted to the extent such covenants, conditions or restrictions violate 42 USC 3604(c). Restrictions to the extent same are still in effect, affecting Lots 6 and 7, herein above described, imposed thereon by instrumental recorded in Volume 647, Page 389, in the Office of the County Clerk of Galveston County, Texas (As to Tract 48) Any covenants, conditions or restrictions indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin are hereby deleted to the extent such covenants, conditions or restrictions violate 42 USC 3604(c). Those recorded in Volume 241, Page 299, of the Deed Records of Galveston County, Texas (As to Tract 50; Lots 15 and 16 only) Any covenants, conditions or restrictions indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin are hereby deleted to the extent such covenants, conditions or restrictions violate 42 USC 3604(c). Those recorded in Volume 355, Page 360, Volume 265, Page 559, Volume 385, Page 481, Volume 355, Page 441, Volume 761, Page 447, Volume 913, Page 467 and Volume 343, Page 596, of the County Clerk's Records of Galveston County, Texas (As to Tract 86A) Any covenants, conditions or restrictions indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin are hereby deleted to the extent such covenants, conditions or restrictions violate 42 USC 3604(c). Item No. 1, Schedule B, is hereby deleted. (As to Tracts 2 to 19; Tracts 21 and 22; Tract 23, Lot 5, Tracts 24 to 47; Tracts 48, Lots 3, 4 and 5; Tract 49; Tract 50, Lot 14; Tracts 51 to 80, 82, 83, 85 and 86 and 87) 2. Any discrepancies, conflicts, or shortages in area or boundary lines, or any encroachments or provisions, or any overlapping or improvements. (This exception is hereby amended to read "Shortages in Area", as to Tract 86A, only). 89 -continued 5. Standby fees, taxes and assessments by any taxing authority for the year 1999, and subsequent years, and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership. 6. The terms and conditions of the documents creating your interest in the land. 8. Liens and leases that affect the title to the land, but that are subordinate to the lien of the insured mortgage. (Applies to Mortgage Policy only.) 9. The following matters and all terms of the documents creating or offering evidence of the matters. We must insert matters or delete this exception): As to Tract One: b. Easement and lease 30 feet x 50 feet parcel of land in Lots 4 and 5. Block 80, granted to Houston Pipe Line Company as set forth in instrument recorded in Volume 1731, Page 738, in the Office of the County Clerk of Galveston County, Texas. As to Tract 15: c. The rights and claims of co-tenants in the land and minerals to the rights of anyone claiming under them, including but not limited to rights of partition, claims for improvements, claims for reimbursement, owelty of partition and agreements between co-tenants. 90 -continued As to Tract 26: d. Subject to the terms, conditions and stipulations as set out in instrument reserving a 1/2 interest in and to all oil, gas and other minerals, with the rights of ingress and egress, recorded in Volume 3283, Page 272, in the office of the County Clerk of Galveston County, Texas. As to Tract 50: e. Pipeline easement granted to Houston Pipe Line Company by instrument recorded in Volume 945, Page 485, of the Deed Records of Galveston County, Texas. As to Tract 69: f. Easement granted to the City of Texas City, as evidenced by instrument dated November 30, 1932 and recorded in Volume 485, Page 180, of the County Clerk's Records of Galveston County, Texas. g. An easement and right-of-way for the purposes of constructing and maintaining such seawall, breakwater, levee, dike, concrete wall, and boulevard over and upon that certain tract of land, granted to the County of Galveston, Texas, by instrument recorded in Volume 487, Page 3, of the Deed Records of Galveston County, Texas. h. An easement of right-of-way to construct and maintain a concrete pipe storm drain on and over subject property, granted to the City of Texas City, Texas, by instrument recorded in Volume 1347 Page 45, of the Deed Records of Galveston County, Texas. As to Tract 86A: i. Reservations of all minerals on undivided 1/6 interest, the royalties, bonuses and rentals, and all other rights in connection with said mineral rights, bonuses, and rentals as described in deed recorded in Volume 599, Page 140, in the office of the County Clerk of Galveston County, Texas; reference to which instrument is here made for all purposes, together with all rights express or implied in and to the property covered by this commitment arising out of or connected with said interest. Title to said interest not checked subsequent to date of aforesaid instrument. j. Easement for right-of-way purposes granted to the County of Galveston by instrument recorded in Volume 559, Page 160, of the Deed Records of Galveston County, Texas. k. Easement for right-of-way purposes granted to the City of Texas City by instrument recorded in Volume 769, Page 482, of the Deed Records of Galveston County, Texas, as amended by instrument recorded under County Clerk's File No. 8135051. l. Easements for right-of-way purposes reserved by Texas City Terminal Railway Company located by instrument recorded in Volume 761, Page 447, of the Deed Records of Galveston County, Texas; as amended by agreement to relocate railroad right-of-way dated July 30, 1986, recorded under Galveston County Clerk's File No.). 8628662. m. Easement granted to the County of Galveston, as evidenced by instrument dated November 30, 1932, and recorded in Volume 485, Page 184, of the County Clerk's Records of Galveston County, Texas. n. Easement granted to the City of Texas City as evidenced by instrument dated November 30, 1932, and recorded in Volume 485, Page 180, of the County Clerk's Records of Galveston County, Texas. o. Easement for pipeline purposes granted to Exxon Pipeline Company by instrument recorded in Volume 2837, Page 350, of the Deed Records of Galveston County, Texas. 91 SCHEDULE B -- continued p. Easements for pipeline purposes granted to Air Products and Chemicals, Inc., by instrument filed for record in the office of the County Clerk of Galveston County, Texas, under County Clerk's File No. 8103835 and Galveston County Clerk's File No(s). 8124070. q. Easement for pipeline granted to Union Carbide Corporation by instrument recorded in Volume 1227, Page 212, of the Deed Records of Galveston County, Texas. r. Easement granted by Texas City Terminal Railway Company and Terminal Industrial Land Company to Southwestern Bell Telephone Company dated August 12, 1947, and recorded in Volume 763, Page 71, of the Deed Records of Galveston County, Texas. s. Easement granted by Texas City Terminal Railway Company and Terminal Industrial Land Company to Community Public Service Company dated September 18, 1947, and recorded in Volume 750, Page 94, of Deed Records of Galveston County, Texas. t. An easement to lay, construct, maintain, operate, repair, and remove a 24-inch steel pipeline and 12-inch branch including metering devices, fenced enclosure and shelter for metering devices, and necessary valves, for the transportation of natural gas, on or under that subject property, granted to Houston Pipe Line Company, by instrument recorded in Volume 945, Page 485, of the Deed Records of Galveston County, Texas. u. Easements reserved by Texas City Terminal Railway Company over and across subject property, located and clarified by instrument dated October 2, 1951, and recorded in Volume 913, Page 467, of the Deed Records of Galveston County, Texas, except Tract IV released by instrument dated March 20, 1952, as amended by agreement by and between Texas City Terminal Railway Company and Monsanto Chemical Company dated October 2, 1951, as evidenced by instrument recorded in Volume 922, Page 237, of the Deed Records of Galveston County, Texas; as amended by agreement to relocate railroad right-of-way dated July 30, 1986, recorded under Galveston County Clerk's File No. 8628662. v. I. Easements for seaway purposes granted to the United States of America by instrument recorded in Volume 2169, Page 264, of the Deed Records of Galveston County, Texas. II. Easement granted by Monsanto Company to the County of Galveston for the construction and maintenance of seawall facilities by instrument recorded in Volume 2239, Page 211 of the Deed Records of Galveston County, Texas. w. Oil, gas and mineral lease dated April 5, 1961, by and between Texas City Terminal Railway Company, a Texas corporation, as lessor, and the British American Oil Producing Company, as lessee, recorded in Volume 1434, Page 221, of the Deed Records of Galveston County, Texas. x. An easement and right-of-way for the purposes of constructing and maintaining such seawall, break-water, levee, dike, concrete wall, and boulevard over and upon that certain tract of land, granted to the County of Galveston, Texas, by instrument recorded in Volume 487, Page 3 of the Deed Records of Galveston County, Texas. y. Pipeline easement granted to Magnolia Pipe Line Company, as set forth in instrument recorded in Volume 1187, Page 126, and in Volume 1245, Page 329, of the Deed Records of Galveston County, Texas. z. Right-of-way and agreement by and between Texas City Terminal Railway Company and Humble Oil & Refining Company, dated February 28, 1958, recorded in Book 1255, Page 420, of the Deed Records of Galveston County, Texas. aa. A perpetual easement for right-of-way to lay, construct, improve, renew, inspect, maintain, repair, and remove a railroad track or tracks, together with the necessary switches and appurtenances thereto and house, occupy, enjoy, maintain and operate a line of railroad over said strip of land, reserved to Texas City Terminal Railway Company by instrument recorded in Volume 1335, Page 38, of the Deed Records, of Galveston County, Texas. 92 -continued bb. Easement of right-of-way for a drainage ditch from Texas City Terminal Railway Company to the City of Texas City, Texas, dated the 21st day of August, 1959, recorded in Volume 1327, Page 543, of the Deed Records of Galveston County, Texas. cc. An easement of right-of-way to construct and maintain a concrete pipe Storm drain on and over subject property, granted to the City of Texas City, Texas, by instrument recorded in Volume 1347, Page 45, of the Deed Records of Galveston County, Texas. dd. Easement and agreement entered into by and between Monsanto Company and the County of Galveston County, Texas, by instrument dated December 12, 1966, recorded in Volume 1829, Page 318, of the Deed Records of Galveston County, Texas. ee. Terms, conditions and stipulations of that certain agreement by and between Monsanto Company and the County of Galveston, recorded in Volume 2982, Page 594, and in Volume 3033, Page 510, of the Deed Records of Galveston County, Texas. ff. Easement granted to Houston Pipe Line Company by instrument recorded under County Clerk's File No. 8621409, in Galveston County, Texas, and being amended by instrument recorded under Galveston County Clerk's File No(s). 9439348, and being more particularly described and located therein. As to Tracts 52, 53, 54, 57, 58, 59, 63, 64, 65, 66, and 86A; gg. Easement and agreement entered into by and between Monsanto Company and the County of Galveston County, Texas by instrument dated December 12, 1966, recorded in Volume 1829, Page 318, of the Deed Records of Galveston County, Texas. As to Tract 74: hh. Terms, conditions and stipulations of that certain easement on Coastal Public Land No. CE-82-051 dated January 12, 1983, from the State of Texas, to Monsanto Company filed for record in the office of the County Clerk of Galveston County, Texas, under County Clerk's File No. 8302396. As to Tract 75: ii. Terms, conditions and stipulations of that certain lease dated September 1, 1974, by and between Texas City Terminal Railway Company, as lessor, and Monsanto Company, a Corporation, as lessee of a 3.3175 acre parcel of land for a term of 30 years with four options to extend for an additional 5 years each; as described in instrument recorded under Galveston County Clerk's File No(s) 8628664. As to Tract 76: jj. Terms, conditions and stipulations of those certain easements granted to Union Carbide Chemicals Company dated August 9, 1957, recorded in Volume 1227, Page 207, and to Union Carbide Corporation dated August 26, 1957 recorded in Volume 1227, Page 322, of the Deed Records of Galveston County, Texas, known as Line 6, and as set forth in instruments recorded under Galveston County Clerk's File No(s). 8132304 and 8628665. As to Tract 77: kk. Terms, conditions and stipulations of that certain unrecorded easement dated August 13, 1951, and August 9, 1951, granted to Monsanto Chemical Company, known as Line No. 11, as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. 93 -continued As to Tract 78: ll. Terms, conditions and stipulations of that certain easement dated March 28, 1951, granted to Sid Richardson Refining Company and Monsanto Chemical Company, recorded in Volume 1144, Page 638, of the Deed Records of Galveston County, Texas, known as Line No. 19, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. As to Tract 79: mm. Terms, conditions and stipulations of that certain easement dated January 28, 1982, granted to Monsanto Company by instrument recorded under County Clerk's File No. 8211566, in Galveston County, Texas, known as Line Nos. 20 and 21, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. as to Tract 80: nn. Terms, conditions and stipulations of that certain unrecorded easement dated September 9, 1965, granted to Monsanto Company known as Line Nos. 24 and 26, as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. As to Tract 82: oo. Pipeline right-of-way dated July 25, 1975, granted to Monsanto Company, known as Line No. 28, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. As to Tract 83: pp. Terms and conditions contained in the instrument dated November 12, 1976, between Amoco Texas Refining Company and Monsanto Company as recorded in Volume 2793, Page 309, of the Deed Records of Galveston County, Texas, known as Line No. 29, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. As to Tract 86A: qq. Pipeline easement granted to Shell Pipe Line Corporation by instruments recorded under Galveston County Clerk's File No(s). 8818591 and being more particularly described and located therein. rr. Pipeline easement granted to Valero Transmission, L.P., by instrument recorded under Galveston County Clerk's File No(s). 9238636 and being more particularly described and located therein. ss. Pipeline easement granted to Valero Transmission, L.P., by instrument recorded under Galveston County Clerk's File No(s). 9238637 and being more particularly described and located therein. tt. Terms, conditions and stipulations contained in lease agreement dated February 8, 1991, by and between Sterling Chemicals, Inc., as lessor and S&L Cogeneration Company, as lessee, a memorandum of which is recorded under Galveston County Clerk's File No(s). 9106661, and terms, conditions and stipulations in first amendment of memorandum of ground lease recorded under Galveston County Clerk's File No(s). 9136151, describing amendments to said lease together with non-exclusive easements granted to lessee and being more particularly described and located therein. uu. Terms, conditions and stipulations contained in lease agreement dated February 8, 1991, by and between Sterling Chemicals, Inc. as lessor and Union Carbide Industrial Gases, Inc., as lessee, a memorandum of which is recorded under Galveston County Clerk's File No(s). 9106662. 94 -continued vv. Terms, conditions and stipulations contained in lease agreement dated May 15, 1995, by and between Sterling Chemicals, Inc., as lessor and Praxair Hydrogen Supply, Inc., as lessee, a memorandum of which is recorded under Galveston County Clerk's File No(s). 9525564. As to all Fee Tracts, except Tract 87: ww. The right to use the surface of subject property for mineral exploration waived as set out in instrument(s) recorded under Galveston County Clerk's File No(s). 8628663. As to Tract 86A: xx. The following unrecorded easements as set forth in Deed dated August 1, 1986, recorded under Galveston County Clerk's File No(s). 8628663 from Monsanto Company to Sterling Chemicals, Inc. i) A 6-inch ethylene pipeline easement in favor of Gulf Oil Corporation together with a 32-foot by 46-foot metering station. ii) An easement for a propylene pipeline metering station in favor of Amoco. iii) An easement for a nitrogen pipeline metering station in favor of Big Three Industries. iv) A 20-foot utility easement in favor of the City of Texas City together with a 2-inch gas line and 6-inch gas line. v) An easement for a 20-foot by 40-foot meter site for Air Products and Chemicals, Inc. vi) An easement for a 32' by 55' meter station in favor of Mobil Oil Corporation. vii) An easement for a metering station in favor of Houston Pipeline Company and appurtenant pipeline easements. yy. Easements granted to Texaco Chemical Company by instrument recorded under Galveston County Clerk's File No. 9232094 and being more particularly described therein. zz. Memorandum of Ground Lease dated 3/28/99 by and between Sterling Chemicals, Inc., a Delaware corporation, as Lessor and Praxair Hydrogen Supply, Inc., a Delaware corporation, as Lessee, filed for record on 4/19/99, under Galveston County Clerk's File No. 9918227, and all the terms, condition and stipulations contained therein. aaa. Non-exclusive easement dated 5/1/96, granted to Amoco Gas Company, for pipeline right-of-way purposes and metering station granted in instrument for record under Galveston County Clerk's File No. 9713205. bbb. Terms, conditions and stipulations contained in Industrial Solid Waste Certifications of Remediation filed for record under Galveston County Clerk's File No(s). 9904937 and 9920250. ccc. Storm Sewer Easements as set forth in instrument recorded in Volume 2927, Page 531, of the Deed Records of Galveston County, Texas. ddd. Four inch (4") benzene and eight inch (8") propylene easement described as lines 25 and 28, as set forth in instrument recorded under Galveston County Clerk's File No. 8628655. As to Tract 87: eee. Easement granted by Texas City Terminal Railway Company and Terminal Industrial Land Company to Southwestern Bell Telephone Company dated August 12, 1947, and recorded in Volume 763, Page 71, of the Deed Records of Galveston County, Texas. 95 -continued fff. The following easements reflected in deed dated March 28, 1994, recorded under Galveston County Clerk's File No(s). 9423534: 1. Any easement or easement rights for a pipe rack traversing subject property from the North property line to the Southeast property line as disclosed by survey prepared by S.A. Duitscher, R.P.L.S. No. 2143, dated February 3, 1993; 2. Any easement or easement rights for a fire wall traversing subject property from the North property line to the Southeast property line as disclosed by survey prepared by S.A. Duitscher, R.P.L.S. No. 2143, dated February 3, 1993. As to Tract 86A: ggg. UCC-I Financing Statement, filed for record on February 2, 1994, recorded under Galveston County Clerk's File No. 9405068, given by Sterling Chemicals, Inc. as owner/debtor, granting unto BP Chemicals, Inc., as creditor and secured party, a security interest in the subject property and as continued by instrument filed for record under Galveston County Clerk's File No. 9847776. 96 Misc. Parcels/Mortgage SCHEDULE 1 PART III PROPERTY DESCRIPTION TRACT 1 Lot Eleven (11), Block Five (5), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 2 Lots Seven (7), Eight (8) and Nine (9), all in Block Six (6), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 3 Lots Twelve (12) and Thirteen (13), and the South one-half (2) of Lot Fourteen (14), all in Block Six (6), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 4 Lots Three (3) and Four (4), both in Block Nine (9), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 5 Lot Seven (7), Block Nine (9), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. -1- 97 TRACT 6 Lot Six (6), Block Sixteen (16), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 7 Lots Fifteen (15) and Sixteen (16), both in Block Seventeen (17), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 8 Lot Four (4), in Block Twenty-Five (25), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 9 Lots Three (3) and Four (4), both in Block Thirty-Two (32), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 10 Lots Five (5) and Six (6), both in Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 11 Lot Twelve (12), Block Thirty-Three (33), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 12 Lot Eleven (11), Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. -2- 98 TRACT 13 Lot Twelve (12), Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 14 Lot Thirteen (13), Block Forty-Three (43), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 15 Lots Eight (8), Nine (9), Ten (10) and Eleven (11), all in Block Sixty-Three (63), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 16 Lot Eleven (11), in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 17 Lot Twelve (12), in Block Sixty-Five (65), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 18 Lots Four (4) and Five (5), both in Block Sixty-Six (66), Texas City First Division, in Galveston County, Texas, according to the map or plat thereof, recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. TRACT 19 Any and all claims, if any, which Grantor may have, of adverse possession and use to Lot 5 in Block 79 of Texas City First Division, a subdivision in Galveston County, Texas according to the map or plat thereof recorded in Volume 113, Page 26, in the Office of the County Clerk of Galveston County, Texas. -3- 99 TRACT 20 Miscellaneous: (i) Line No. 17. A six inch (6") pipeline for the delivery of sludge for treatment from Monsanto's "North 80" tract but insofar and only insofar as said pipeline lies within the boundaries of the plant site. (ii) Electric Power Line Right of Way dated April 20, 1971, to be effective from and after June 1, 1970, between Texas City Terminal Railway Company and Monsanto Company. (iii) All rights and interests referred to or described in that certain Assignment of Lease, Right of Way and Pipeline Easements and Bill of Sale from Monsanto Company to Sterling Chemicals, Inc. dated as of August 1, 1986 recorded under Clerk's File No. 8628666 in the Official Public Records of Real Property of Galveston County, Texas. -4- 100 All Property SCHEDULE 2 PERMITTED ENCUMBRANCES A. RESTRICTIVE COVENANTS 1. The following restrictive covenants of record itemized below: Those recorded in Volume 245, Page 556, Volume 355, Page 178, Volume 343, Page 596 and Volume 345, Page 494, in the office of the County Clerk of Galveston County, Texas (As to Tract 1). Those recorded in Volume 349, Page 514, of the Deed Records of Galveston County, Texas (As to Tract 20). Those recorded in Volume 339, Page 501, of the Deed Records of Galveston County, Texas (As to Tract 23, Lots 6 and 7 only). Restrictions to the extent same are still in effect, affecting Lots 6 and 7, hereinabove described, imposed thereon by instrument recorded in Volume 647, Page 389, in the Office of the County Clerk of Galveston County, Texas (As to Tract 48). Those recorded in Volume 241, Page 299, of the Deed Records of Galveston County, Texas (As to Tract 50; Lots 15 and 16 only). Those recorded in Volume 355, Page 360, Volume 265, Page 559, Volume 385, Page 481, Volume 355, Page 441, Volume 761, Page 447, Volume 913, Page 467 and Volume 343, Page 596, of the County Clerk's Records of Galveston County, Texas (As to Tract 86A). B. GENERAL MATTERS 2. Second Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July 23, 1999 from Sterling Chemicals, Inc., Trustor to , Trustee for the benefit of Harris Trust Company of New York (As to all Tracts). 101 3. Any discrepancies, conflicts, or shortages in area or boundary lines, or any encroachments or protrusions, or any overlapping of improvements. (As to all Tracts). 4. Homestead or community property or survivorship rights. (As to all Tracts). 5. Any titles or rights asserted by anyone, including but not limited to, persons, the public, corporations, governments or other entities, a. to tidelands, or lands comprising the shores or beds of navigable or perennial rivers and streams, lakes, bays, gulfs or oceans, or b. to lands beyond the line of the harbor or bulkhead lines as established or changed by any government, or c. to filled-in lands, or artificial islands, or d. to statutory water rights, including riparian rights, or e. to the area extending from the line of mean low tide to the line of vegetation, or the right of access to that area or easement along and across that area. (As to all Tracts). 6. Standby fees, taxes and assessments by any taxing authority for the year 1996 and subsequent years, and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership. (As to all Tracts). 7. Rights of parties in possession. (As to all Tracts). 8. Defects, errors, irregularities and the like in connection with abandonment and/or vacation procedures with respect to public roads and alleys. (As to all Tracts). 9. Crew's, materialmen's, mechanics', carriers', workmen's, repairmen's, warehousemen's, maritime, or other like liens arising in the ordinary course of business for sums not yet due or which are actually being contested in good faith. (As to all Tracts). 10. Rights in respect of surface operations for pipelines, drainage, ditches and reservoirs. (As to Tract 86A). C. SPECIFIC MATTERS PART I THE FOLLOWING MATTERS AFFECT THE PROPERTIES DESCRIBED IN SCHEDULE 1, PART I AS TO TRACT 1: 11. Easement and lease 30' x 50' parcel of land in Lots 4 and 5, Block 80, granted to Houston Pipe Line Company as set forth in instrument recorded in Volume 1731, Page 738, in the Office of the County Clerk of Galveston County, Texas. -2- 102 AS TO TRACT 15: 12. The rights and claims of co-tenants in the land and minerals to the rights of anyone claiming under them, including but not limited to rights of partition, claims for improvements, claims for reimbursement, owelty of partition and agreements between co-tenants. AS TO TRACT 26: 13. Subject to the terms, conditions and stipulations as set out in instrument reserving a 1/2 interest in and to all oil, gas and other minerals, with the rights of ingress and egress, recorded in Volume 3283, Page 272, in the Office of the County Clerk of Galveston County, Texas. AS TO TRACT 50: 14. Pipeline easement granted to Houston Pipe Line Company by instrument recorded in Volume 945, Page 485, of the Deed Records of Galveston County, Texas. AS TO TRACT 69: 15. Easement granted to the City of Texas City, as evidenced by instrument dated November 30, 1932 and recorded in Volume 485, Page 180, of the County Clerk's Records of Galveston County, Texas. 16. An easement and right-of-way for the purposes of constructing and maintaining such seawall, breakwater, levee, dike, concrete wall, and boulevard over and upon that certain tract of land, granted to the County of Galveston, Texas, by instrument recorded in Volume 487, Page 3, of the Deed Records of Galveston County, Texas. 17. An easement of right-of-way to construct and maintain a concrete pipe storm drain on and over subject property, granted to the City of Texas City, Texas, by instrument recorded in Volume 1347, Page 45, of the Deed Records of Galveston County, Texas. AS TO TRACT 86A: 18. Reservation of all minerals on undivided 1/6 interest, the royalties, bonuses and rentals, and all other rights in connection with said mineral rights, bonuses, and rentals as described in deed recorded in Volume 599, Page 140, in the office of the County Clerk of Galveston County, Texas. 19. Easement for right-of-way purposes granted to the County of Galveston by instrument recorded in Volume 559, Page 160, of the Deed Records of Galveston County, Texas. -3- 103 20. Easement for right-of-way purposes granted to the City of Texas City by instrument recorded in Volume 769, Page 482, of the Deed Records of Galveston County, Texas, as amended by instrument recorded under County Clerk's File No. 8135051. 21. Easements for right-of-way purposes reserved by Texas City Terminal Company located by instrument recorded in Volume 761, Page 447, of the Deed Records of Galveston County, Texas; as amended by agreement to relocate railroad right-of-way dated July 30, 1986, recorded under Galveston County Clerk's File No(s). 8628662. 22. Easement granted to the County of Galveston, as evidenced by instrument dated November 30, 1932, and recorded in Volume 485, Page 184, of the County Clerk's Records of Galveston County, Texas. 23. Easement granted to the City of Texas City as evidenced by instrument dated November 30, 1932, and recorded in Volume 485, Page 180, of the County Clerk's Records of Galveston County, Texas. 24. Easement for pipeline purposes granted to Exxon Pipeline Company by instrument recorded in Volume 2837, Page 350, of the Deed Records of Galveston County, Texas. 25. Easement for pipeline purposes granted to Air Products and Chemicals, Inc., by instrument filed for record in the office of the County Clerk of Galveston County, Texas, under County Clerk's File No. 8103835. Filed for record under Galveston County Clerk's File No (s). 8124070. 26. Easement for pipeline granted to Union Carbide Corporation by instrument recorded in Volume 1227, Page 212, of the Deed Records of Galveston County, Texas. 27. Easement granted by Texas City Terminal Railway Company and Terminal Industrial Land Company to Southwestern Bell Telephone Company dated August 12, 1947, and recorded in Volume 763, Page 71, of the Deed Records of Galveston County, Texas. 28. Easement granted by Texas City Terminal Railway Company and Terminal Industrial Land Company to Community Public Service Company dated September 18, 1947, and recorded in Volume 750, Page 94, of the Deed Records of Galveston County, Texas. 29. An easement to lay, construct, maintain, operate, repair, and remove a 24-inch steel pipeline and 12-inch branch including metering devices, fenced enclosure and shelter for metering devices, and necessary valves, for the transportation of natural gas, on or under that subject property, granted to Houston Pipe Line Company, by instrument recorded in Volume 945, Page 485, of the Deed Records of Galveston County, Texas. -4- 104 30. Easements reserved by Texas City Terminal Railway Company over and across subject property, located and clarified by instrument dated October 2, 1951, and recorded in Volume 913, Page 467, of the Deed Records of Galveston County, Texas, except Tract IV released by instrument dated March 20, 1952, as amended by agreement by and between Texas City Terminal Railway Company and Monsanto Chemical Company dated October 2, 1951, as evidenced by instrument recorded in Volume 922, Page 237, of the Deed Records of Galveston County, Texas; as amended by agreement to relocate railroad right-of-way dated July 30, 1986, recorded under Galveston County Clerk's File No(s). 8628662. 31. (i) Easement for seaway purposes granted to the United States of America by instrument recorded in Volume 2169, Page 464, of the Deed Records of Galveston County, Texas. (ii) Easement granted by Monsanto Company to the County of Galveston for the construction and maintenance of seawall facilities by instrument recorded in Volume 2239, Page 211, of the Deed Records of Galveston County, Texas. 32. Oil, gas and mineral lease dated April 5, 1961, by and between Texas City Terminal Railway Company, a Texas corporation, as lessor, and the British American Oil Producing Company, as lessee, recorded in Volume 1434, Page 221, of the Deed Records of Galveston County, Texas. 33. An easement and right-of-way for the purposes of constructing and maintaining such seawall, breakwater, levee, dike, concrete wall, and boulevard over and upon that certain tract of land, granted to the County of Galveston, Texas, by instrument recorded in Volume 487, Page 3, of the Deed Records of Galveston County, Texas. 34. Pipeline easement granted to Magnolia Pipe Line Company, as set forth in instrument recorded in Volume 1187, Page 126, and in Volume 1245, Page 329, of the Deed Records of Galveston County, Texas. 35. Right-of-way and agreement by and between Texas City Terminal Railway Company and Humble Oil & Refining Company, dated February 28, 1958, recorded in Book 1255, Page 420, of the Deed Records of Galveston County, Texas. 36. A perpetual easement for right-of-way to lay, construct, improve, renew, inspect, maintain, repair, and remove a railroad track or tracks, together with the necessary switches and appurtenances thereto and house, occupy, enjoy, maintain and operate a line of railroad over said strip of land, reserved to Texas City Terminal Railway Company by instrument recorded in Volume 1335, Page 38, of the Deed Records, in Galveston County, Texas. 37. Easement of right-of-way for a drainage ditch from Texas City Terminal Railway Company to the City of Texas City, Texas, dated the 21st day of August, 1959, recorded in Volume 1327, Page 543, of the Deed Records of Galveston County, Texas. -5- 105 38. An easement of right-of-way to construct and maintain a concrete pipe storm drain on and over subject property, granted to the City of Texas City, Texas, by instrument recorded in Volume 1347, Page 45, of the Deed Records of Galveston County, Texas. 39. Easement and agreement entered into by and between Monsanto Company and the County of Galveston County, Texas, by instrument dated December 12, 1966, recorded in Volume 1829, Page 318, of the Deed Records of Galveston County, Texas. 40. Terms, conditions and stipulations of that certain agreement by and between Monsanto Company and the County of Galveston, recorded in Volume 2982, Page 594, and in Volume 3033, Page 510, of the Deed Records of Galveston County, Texas. 41. Easement granted to Houston Pipe Line Company by instrument recorded under County Clerk's File No. 8621409, in Galveston County, Texas, and being amended by instrument recorded under Galveston County Clerk's File No(s). 9439348, and being more particularly described and located therein. AS TO TRACTS 52, 53, 54, 57, 58, 59, 63, 64, 65, 66, AND 86A: 42. Easement and agreement entered into by and between Monsanto Company and the County of Galveston County, Texas, by instrument dated December 12, 1966, recorded in Volume 1829, Page 318, of the Deed Records of Galveston County, Texas. AS TO TRACT 74: 43. Terms, conditions and stipulations of that certain easement on Coastal Public Land No. CE-82-051 dated January 12, 1983, from the State of Texas, to Monsanto Company filed for record in the office of the County Clerk of Galveston County, Texas, under County Clerk's File No. 8302396. AS TO TRACT 75: 44. Terms, conditions and stipulations of that certain lease dated September 1, 1974, by and between Texas City Terminal Railway Company, as lessor, and Monsanto Company, a Corporation, as lessee of a 3.3175 acre parcel of land for a term of 30 years with four options to extend for an additional 5 years each; as described in instrument recorded under Galveston County Clerk's File No(s). 8628664. AS TO TRACT 76: 45. Terms, conditions and stipulations of those certain easements granted to Union Carbide Chemicals Company dated August 9, 1957 recorded in Volume 1227, Page 207 and to Union Carbide Corporation dated August 26, 1957, recorded in Volume 1227, Page 322, of the -6- 106 Deed Records of Galveston County, Texas, known as Line 6, and as set forth in instruments recorded under Galveston County Clerk's File No(s). 8132304 and 8628665. AS TO TRACT 77: 46. Terms, conditions and stipulations of that certain unrecorded easement dated August 13, 1951, and August 9, 1951, granted to Monsanto Chemical Company, known as Line No. 11, as set forth in instrument recorded under Galveston County Clerk's File No(s). 8228665. AS TO TRACT 78: 47. Terms, conditions and stipulations of that certain easement dated March 28, 1951, granted to Sid Richardson Refining Company and Monsanto Chemical Company, recorded in Volume 1144, Page 638, of the Deed Records of Galveston County, Texas, known as Line No. 19, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. AS TO TRACT 79: 48. Terms, conditions and stipulations of that certain easement dated January 28, 1982, granted to Monsanto Company by instrument recorded under County Clerk's File No. 8211566, in Galveston County, Texas, known as Line Nos. 20 and 21, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. AS TO TRACT 80: 49. Terms, conditions and stipulations of that certain unrecorded easement dated September 9, 1965, granted to Monsanto Company known as Line Nos. 24 and 26, as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. AS TO TRACT 82: 50. Pipeline right-of-way dated July 25, 1975, granted to Monsanto Company, known as Line No. 28, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. AS TO TRACT 83: 51. Terms and conditions contained in the instrument dated November 12, 1976, between Amoco Texas Refining Company and Monsanto Company as recorded in Volume 2793, Page 309, of the Deed Records of Galveston County, Texas, known as Line No. 29, and as set forth in instrument recorded under Galveston County Clerk's File No(s). 8628665. -7- 107 AS TO TRACT 86A: 52. Pipeline easement granted to Shell Pipe Line Corporation by instrument recorded under Galveston County Clerk's File No(s). 8818591 and being more particularly described and located therein. 53. Pipeline easement granted to Valero Transmission, L.P., by instrument recorded under Galveston County Clerk's File No(s). 9238636 and being more particularly described and located therein. 54. Pipeline easement granted to Valero Transmission, L.P., by instrument recorded under Galveston County Clerk's File No(s). 9238637 and being more particularly described and located therein. 55. Terms, conditions and stipulations contained in lease agreement dated February 8, 1991, by and between Sterling Chemicals, Inc., as lessor and S&L Cogeneration Company, as lessee, a memorandum of which is recorded under Galveston County Clerk's File No(s). 9106661, and terms, conditions and stipulations in first amendment of memorandum of ground lease recorded under Galveston County Clerk's File No(s). 9136151, describing amendments to said lease together with non-exclusive easements granted to lessee and being more particularly described and located therein. 56. Terms, conditions and stipulations contained in lease agreement dated February 8, 1991, by and between Sterling Chemicals, Inc., as lessor and Union Carbide Industrial Gases, Inc., as lessee, a memorandum of which is recorded under Galveston County Clerk's File No(s). 9106662. 57. Terms, conditions and stipulations contained in lease agreement dated May 15, 1995, by and between Sterling Chemicals, Inc., as lessor and Praxair Hydrogen Supply, Inc., as lessee, a memorandum of which is recorded under Galveston County Clerk's File No(s). 9525564. AS TO ALL TRACTS, EXCEPT TRACT 87: 58. The right to use the surface of subject property for mineral exploration waived as set out in instrument(s) recorded under Galveston County Clerk's File No(s). 8628663. AS TO TRACT 86A: 59. The following unrecorded easements as set forth in Deed dated August 1, 1986, recorded under Galveston County Clerk's File No(s). 8628663 from Monsanto Company to Sterling Chemicals, Inc.: i) A 6-inch ethylene pipeline easement in favor of Gulf Oil Corporation together with a 32-foot by 46-foot metering station. -8- 108 ii) An easement for a propylene pipeline metering station in favor of Amoco. iii) An easement for a nitrogen pipeline metering station in favor of Big Three Industries. iv) A 20-foot utility easement in favor of the City of Texas City together with a 2-inch gas line and 6-inch gas line. v) An easement for a 20-foot by 40-foot meter site for Air Products and Chemicals, Inc. vi) An easement for a 32' by 55' meter station in favor of Mobil Oil Corporation. vii) An easement for a metering station in favor of Houston Pipeline Company and appurtenant pipeline easements. 60. Easements granted to Texaco Chemical Company by instrument recorded under Galveston County Clerk's File No. 9232094 and being more particularly described and located therein. 61. Memorandum of Ground Lease dated 3/23/99 by and between Sterling Chemicals, Inc. a Delaware corporation, as Lessor and Praxair Hydrogen Supply, Inc., a Delaware corporation, as Lessee, filed for record on 4/19/99, under Galveston County Clerk's File No. 9918227, and all the terms, conditions and stipulations contained therein. 62. Non-exclusive easement dated 5/1/96, granted to Amoco Gas Company for pipeline right-of-way purposes and metering station granted in instrument for record under Galveston County Clerk's File No. 9713205. 63. Terms, conditions and stipulations contained in Industrial Solid Waste Certifications of Remediation filed for record under Galveston County Clerk's File No(s). 9904937 and 9920250. 64. Storm Sewer Easements as set forth in instrument recorded in Volume 2927, Page 531, of the Deed Records of Galveston County, Texas. 65. Four inch (4") benzene and eight inch (8") propylene easement described as lines 25 and 28, as set forth in instrument recorded under Galveston County Clerk's File No. 8628655. -9- 109 AS TO TRACT 87: 66. Easement granted by Texas City Terminal Railway Company and Terminal Industrial Land Company to Southwestern Bell Telephone Company dated August 12, 1947, and recorded in Volume 763, Page 71, of the Deed Records of Galveston County, Texas. 67. The following easements reflected in deed dated March 28, 1994, recorded under Galveston County Clerk's File No(s). 9423534: (i) Any easement or easement rights for a pipe rack traversing subject property from the North property line to the Southeast property line as disclosed by survey prepared by S.A. Duitscher, R.P.L.S. No. 2143, dated February 3, 1993; (ii) Any easement or easement rights for a fire wall traversing subject property from the North property line to the Southeast property line as disclosed by survey prepared by S.A. Duitscher, R.P.L.S. No. 2143, dated February 3, 1993. AS TO TRACT 86A: 68. UCC-1 Financing Statement, filed for record on February 2, 1994, recorded under Galveston County Clerk's File No(s). 9405068, given by Sterling Chemicals, Inc. as owner/debtor, granting unto BP Chemicals, Inc., as creditor and secured party, a security interest in the subject property and as continued by instrument filed for record under Galveston County Clerk's File No. 9847776. PART II THE FOLLOWING MATTERS AFFECT THE PROPERTIES DESCRIBED IN SCHEDULE 1, PART II 69. Any and all restrictive covenants of record in Galveston County, Texas, including, without limitation, those contained on the plat of Texas City First Division recorded in Volume 113, Page 26 in the Office of the County Clerk of Galveston County, Texas. AS TO TRACT 3: 70. Any and all right, title and interest in and to Lot 5 held by L. Birchfield, predecessor in title. 71. The rights and claims of co-tenants. AS TO TRACT 17 72. Any and all rights, title or interest held by Margaret Ramos and/or Tommie Ramos, predecessors in title. -10- 110 AS TO TRACT 20 73. Vendors' lien created in instrument dated December 19, 1983, filed for record in the Official Public Records of Real Property of Galveston County, Texas at Film No. Code ###-##-####. 74. Deed of Trust dated December 19, 1983, securing payment of a promissory note in the original principal amount of $23,000.00 to G. P. Reddell, Jr., Trustee, recorded under Film Code No. 002-73-1128 in the Official Public Records of Galveston County, Texas. 1. AS TO TRACT 32 75. Any interest that may be held by Mary Alexander. 76. Abstract of Judgment recovered by the State of Texas against Mary E. Alexander, a/k/a Mary A. Thornton of record on Film Code No. ###-##-#### in the Official Public Records of Real Property in Galveston County, Texas, filed June 17, 1987, said Judgment in the amount of $1,254.61 plus interest and court costs. AS TO TRACT 45 77. Any and all right, title, or interest held by Ruby Reeves Forbes, Individually and as Independent Executrix of the Estates of Ira Lee Forbes. AS TO TRACT 62 78. Any and all right, title or interest held by Robert Lee Loredo. AS TO TRACT 64 79. Any rights, title, and interests of Marie L. Jamerson and Mary Girard their heirs and assigns. 80. Rights and claims of co-tenants. AS TO TRACT 69 81. Any and all right, title or interest of B. F. Patterson, Zack Patterson, George W. Patterson and Amanda Patterson Sterling, their heirs and assigns. 82. Rights and claims of co-tenants. -11- 111 AS TO TRACT 70 83. Any and all right, title or interest that may be held by Walter Maberry and wife, Mary Jane Maberry and Carl E. Porter, their heirs and assigns. AS TO TRACT 86 84. Vendor's Lien in favor of Cora May Michaelis, Individually and as Independent Executrix of the Estate of Edward R. Michaelis, deceased, in deed dated October 30, 1981 from Cora May Michaelis to Alma R. Causey filed under Film Code No. 001-46-0610 in the Official Public Records of Real Property in Galveston County, Texas. 85. Note and Deed of Trust to Patrick Reilly, Trustee, filed under Film Code No. ###-##-#### in the Official Public Records of Real Property in Galveston County, Texas. AS TO TRACT 90 86. Abstract of Judgment recovered by United States National Bank of Galveston vs. Coin Distributing Inc., and Alan D. Buck, et al. of record on Film Code No. 005-10-1603 in the Official Public Records of Real Property in Galveston County, Texas, filed February 23, 1987, said Judgment in the amount of $46,670.86, plus interest and court costs. AS TO TRACT 111 87. Any interest that may be held by James M. Allen as Independent Administrator of the Estate of Mary Adams Long, Deceased. AS TO TRACT 124 88. Abstract of Judgment recovered by United States National Bank of Galveston vs. Coin Distributing Inc., and Alan D. Buck, et al. of record on Film Code No. 005-10-1603 in the Official Public Records of Real Property in Galveston County, Texas, filed February 23, 1987, said Judgment in the amount of $46,670.86, plus interest and court costs. AS TO TRACTS 135 AND 136 89. Any and all restrictions, easements, rights of way, covenants and conditions of record in Galveston County, Texas. PART III THE FOLLOWING MATTERS AFFECT THE PROPERTIES DESCRIBED IN SCHEDULE 1, PART III: AS TO TRACTS 1 THROUGH 20 90. Any and all restrictions, easements, rights of way, covenants and conditions or any other matters of record in Galveston County, Texas. -12- EX-4.3 4 MORTGAGE, AGMT. OF LEASES & RENTS, SECURITY AGMT. 1 EXHIBIT 4.3 ================================================================================ STERLING FIBERS, INC., Mortgagor, to THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative and Collateral Agent, Mortgagee --------------------------------------------------- MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING --------------------------------------------------- Dated as of July 23, 1999 This instrument affects certain real and personal property located in Santa Rosa County, State of Florida. ================================================================================ Record and return to: Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Michael Sloyer, Esq. This instrument was prepared by the above-named attorney. Notice: This instrument contains inter alia obligations which may provide for: (a) a variable rate of interest and/or (b) future and/or revolving credit advances or readvances, which when made, shall have the same priority as advances or readvances made on the date hereof whether or not (i) any advances or readvances were made on the date hereof and (ii) any indebtedness is outstanding at the time any advance or re-advance is made. Notwithstanding anything to the contrary contained herein, the maximum principal indebtedness secured under any contingency by this instrument shall in no event exceed $70,000,000 2 TABLE OF CONTENTS
Page ARTICLE I COVENANTS AND AGREEMENTS OF THE MORTGAGOR SECTION 1.1. Payment of Secured Obligations.......................................................4 SECTION 1.2. Title to Collateral, etc.............................................................4 SECTION 1.3. Title Insurance......................................................................5 SECTION 1.3.1. Title Insurance Policy...............................................................5 SECTION 1.3.2. Title Insurance Proceeds.............................................................5 SECTION 1.4. Recordation..........................................................................5 SECTION 1.5. Payment of Impositions, etc..........................................................5 SECTION 1.6. Insurance and Legal Requirements.....................................................6 SECTION 1.7. Security Interests, etc..............................................................6 SECTION 1.8. Permitted Contests...................................................................6 SECTION 1.9. Leases...............................................................................7 SECTION 1.10. Compliance with Instruments..........................................................7 SECTION 1.11. Maintenance and Repair, etc..........................................................7 SECTION 1.12. Alterations, Additions, etc..........................................................7 SECTION 1.13. Acquired Property Subject to Lien....................................................8 SECTION 1.14. Assignment of Rents, Proceeds, etc...................................................8 SECTION 1.15. No Claims Against the Mortgagee......................................................9 SECTION 1.16. Indemnification......................................................................9 SECTION 1.17. No Credit for Payment of Taxes......................................................10 SECTION 1.18. Intentionally Omitted...............................................................10 SECTION 1.19. No Transfer of the Property.........................................................10 SECTION 1.20. Security Agreement..................................................................10 SECTION 1.21. Representations and Warranties......................................................11 SECTION 1.22. Mortgagor's Covenants...............................................................11 ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. SECTION 2.1. Insurance...........................................................................11 SECTION 2.1.1. Risks to be Insured.................................................................11 SECTION 2.1.2. Policy Provisions...................................................................12 SECTION 2.1.3. Delivery of Policies, etc...........................................................12 SECTION 2.1.4. Separate Insurance..................................................................13 SECTION 2.2. Damage, Destruction or Taking; Mortgagor to Give Notice; Assignment of Awards............................................................13 SECTION 2.3. Application of Proceeds and Awards..................................................13 SECTION 2.4. Total Taking and Total Destruction..................................................15
3 ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration.....................................................16 SECTION 3.2. Legal Proceedings; Foreclosure......................................................16 SECTION 3.3. Power of Sale.......................................................................16 SECTION 3.4. Uniform Commercial Code Remedies....................................................17 SECTION 3.5. Mortgagee Authorized to Execute Deeds, etc..........................................17 SECTION 3.6. Purchase of Collateral by Mortgagee.................................................17 SECTION 3.7. Receipt a Sufficient Discharge to Purchaser.........................................17 SECTION 3.8. Waiver of Appraisement, Valuation, etc..............................................17 SECTION 3.9. Sale a Bar Against Mortgagor........................................................17 SECTION 3.10. Secured Obligations to Become Due on Sale...........................................17 SECTION 3.11. Application of Proceeds of Sale and Other Moneys....................................18 SECTION 3.12. Appointment of Receiver.............................................................18 SECTION 3.13. Possession, Management and Income...................................................19 SECTION 3.14. Right of Mortgagee to Perform Mortgagor's Covenants, etc............................19 SECTION 3.15. Subrogation.........................................................................19 SECTION 3.16. Remedies, etc., Cumulative..........................................................19 SECTION 3.17. Provisions Subject to Applicable Law................................................20 SECTION 3.18. No Waiver, etc......................................................................20 SECTION 3.19. Compromise of Actions, etc..........................................................20 ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Mortgage......................................................20 SECTION 4.2. Use of Defined Terms................................................................22 SECTION 4.3. Credit Agreement Definitions........................................................22 ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements............................................22 SECTION 5.1.1. Further Assurances..................................................................22 SECTION 5.1.2. Financing Statements................................................................22 SECTION 5.2. Additional Security.................................................................23 SECTION 5.3. Defeasance; Partial Release, etc....................................................23 SECTION 5.3.1. Defeasance..........................................................................23 SECTION 5.3.2. Partial Release, etc................................................................23 SECTION 5.4. Notices, etc........................................................................23 SECTION 5.5. Waivers, Amendments, etc............................................................23 SECTION 5.6. Cross-References....................................................................23 SECTION 5.7. Headings............................................................................23 SECTION 5.8. Currency............................................................................24 SECTION 5.9. Governing Law.......................................................................24
4 SECTION 5.10. Successors and Assigns, etc.........................................................24 SECTION 5.11. Waiver of Jury Trial; Submission to Jurisdiction....................................24 SECTION 5.12. Severability; Conflicts.............................................................24 SECTION 5.13. Loan Document.......................................................................25 SECTION 5.14. Usury Savings Clause................................................................25
5 Schedule 1-A Legal Description of the Land Schedule 1-B Legal Description of the Land Schedule 2 Permitted Encumbrances
6 MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING, dated as of July 23, 1999 (this "Mortgage"), made by STERLING FIBERS, INC., a Delaware corporation (the "Mortgagor"), having an address at 1200 Smith, Suite 1900, Houston, Texas 77002-4312 to THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, having an address at Wall Street Plaza, 19th Floor, 88 Pine Street, New York, New York, 10005 as the Administrative Agent and Collateral Agent under the Credit Agreement referred to below (together with its successors and assigns from time to time acting as Administrative Agent and Collateral under such Credit Agreement, the "Mortgagee"). W I T N E S S E T H T H A T: WHEREAS, the Mortgagor is on the date of delivery hereof the owner of fee title (or easement or leasehold title if otherwise indicated on Schedule 1 hereto) to the parcel of land described in Schedule 1 hereto (the "Land") and of the Improvements (such term and other capitalized terms used in this Mortgage having the respective meanings specified or referred to in Article IV); WHEREAS, pursuant to the terms, conditions and provisions of the Revolving Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals U.S., Inc., Sterling Pulp Chemicals, Inc., Mortgagor, Sterling Chemicals Energy, Inc. and Sterling Chemicals International, Inc., as Borrowers (collectively, the "Borrowers"), various financial institutions, as the Lenders, DLJ Capital Funding, Inc., as the Syndication Agent, The CIT Group/Business Credit, Inc. as the Administrative Agent and Collateral Agent, and Credit Suisse First Boston, as the Documentation Agent, the Lenders and the Issuer have agreed to make Loans to, and to issue Letters of Credit for the account of, the Borrowers in the maximum original principal amount of One Hundred Fifty Five Million Dollars ($155,000,000) (such Loans and Letters of Credit are hereinafter referred to collectively as the "Credit Extensions"). WHEREAS, the Credit Extensions consist of, inter alia, Fixed Assets Loans in a maximum principal amount not to exceed Seventy Million Dollars ($70,000,000) having a Stated Maturity Date of July 23, 2004; and WHEREAS, the Mortgagor has duly authorized the execution, delivery and performance of this Mortgage. G R A N T: NOW, THEREFORE, for and in consideration of the premises, and of the mutual covenants herein contained, and in order to induce the Fixed Assets Lenders to make the Fixed Assets Loans pursuant to the Credit Agreement, and in order to secure the full, timely and proper payment and performance of and compliance with each and every one of the Secured Obligations (as hereinafter defined), the Mortgagor hereby irrevocably grants, bargains, sells, mortgages, warrants, aliens, demises, releases, hypothecates, pledges, assigns, transfers and conveys to the Mortgagee and its successors and assigns, forever, all of the following (the "Collateral"): 7 (a) Real Estate. All of Mortgagor's right, title and interest in and to all of the Land and all additional lands and estates therein now owned or hereafter acquired by the Mortgagor for use or development with the Land or any portion thereof, together with all and singular the tenements, rights, easements, hereditaments, rights of way, privileges, liberties, appendages and appurtenances now or hereafter belonging or in any way pertaining to the Land and such additional lands and estates therein (including, without limitation, all rights relating to storm and sanitary sewer, water, gas, electric, railway and telephone services); all development rights, air rights, riparian rights, water, water rights, water stock, all rights in, to and with respect to any and all oil, gas, coal, minerals and other substances of any kind or character underlying or relating to the Land and such additional lands and estates therein and any interest therein; all estate, claim, demand, right, title or interest of the Mortgagor in and to any street, road, highway or alley, vacated or other, adjoining the Land or any part thereof and such additional lands and estates therein; all strips and gores belonging, adjacent or pertaining to the Land or such additional lands and estates; and any after-acquired property (herein collectively referred to as the "Real Estate"); (b) Improvements. All of Mortgagor's right, title and interest in and to all buildings, structures and other improvements and any additions and alterations thereto or replacements thereof, now or hereafter built, constructed or located upon the Real Estate; and, to the extent that any of the following items of property constitutes fixtures under applicable laws, all furnishings, fixtures, fittings, appliances, apparatus, equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever and all replacements thereof, now or hereafter affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Real Estate or such buildings, structures and other improvements, including, but not limited to, partitions, furnaces, boilers, oil burners, radiators and piping, plumbing and bathroom fixtures, refrigeration, heating, ventilating, air conditioning and sprinkler systems, other fire prevention and extinguishing apparatus and materials, vacuum cleaning systems, gas and electric fixtures, incinerators, compactors, elevators, engines, motors, generators and all other articles of property which are considered fixtures under applicable law (such buildings, structures and other improvements and such other property are herein collectively referred to as the "Improvements"; the Real Estate and the Improvements are herein collectively referred to as the "Property"); (c) Goods. All of Mortgagor's right, title and interest in and to all building materials, construction materials, appliances (including, without limitation, stoves, ranges, ovens, disposals, refrigerators, water fountains and coolers, fans, heaters, dishwashers, clothes washers and dryers, water heaters, hood and fan combinations, kitchen equipment, laundry equipment, kitchen cabinets and other similar equipment), stocks, supplies, blinds, window shades, drapes, carpets, floor coverings, manufacturing equipment and machinery, office equipment, growing plants and shrubberies, control devices, equipment (including window cleaning, building cleaning, swimming pool, recreational, monitoring, garbage, pest control and other equipment), motor vehicles, tools, furnishings, furniture, lighting, non-structural additions to the Real Estate and Improvements and all other tangible property of any kind or character, together with all replacements thereof, now or hereafter located on or in or used or useful in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Property, regardless of whether or not located on or in the Property or located elsewhere for purposes of storage, fabrication or otherwise (herein collectively referred to as the "Goods"); -2- 8 (d) Intangibles. All goodwill, trademarks, trade names, option rights, purchase contracts, real and personal property tax refunds, books and records and general intangibles of the Mortgagor relating to the Property and all accounts, contract rights, instruments, chattel paper and other rights of the Mortgagor for the payment of money for property sold or lent, for services rendered, for money lent, or for advances or deposits made, and any other intangible property of the Mortgagor relating to the Property (herein collectively referred to as the "Intangibles"); (e) Leases. All rights of the Mortgagor in, to and under all leases, licenses, occupancy agreements, concessions and other arrangements, oral or written, now existing or hereafter entered into, whereby any Person agrees to pay money or any other consideration for the use, possession or occupancy of, or any estate in, the Property or any portion thereof or interest therein (herein collectively referred to as the "Leases"), and the right, subject to applicable law, upon the occurrence of any Event of Default hereunder, to receive and collect the Rents (as hereinafter defined) paid or payable thereunder; (f) Plans. All rights of the Mortgagor in and to all plans and specifications, designs, drawings and other information, materials and matters heretofore or hereafter prepared relating to the Improvements or any construction on the Real Estate (herein collectively referred to as the "Plans"); (g) Permits. All rights of the Mortgagor, to the extent assignable, in, to and under all permits, franchises, licenses, approvals and other authorizations respecting the use, occupation and operation of the Property and every part thereof and respecting any business or other activity conducted on or from the Property, and any product or proceed thereof or therefrom, including, without limitation, all building permits, certificates of occupancy and other licenses, permits and approvals issued by governmental authorities having jurisdiction (herein collectively referred to as the "Permits"); (h) Contracts. All right, title and interest of the Mortgagor, to the extent assignable, in and to all agreements, contracts, certificates, instruments, warranties, appraisals, engineering, environmental, soils, insurance and other reports and studies, books, records, correspondence, files and advertising materials, and other documents, now or hereafter obtained or entered into, as the case may be, pertaining to the construction, use, occupancy, possession, operation, management, leasing, maintenance and/or ownership of the Property and all right, title and interest of the Mortgagor therein (herein collectively referred to as the "Contracts"); (i) Leases of Furniture, Furnishings and Equipment. All right, title and interest of the Mortgagor as lessee in, to and under any leases of furniture, furnishings, equipment and any other Goods now or hereafter installed in or at any time used in connection with the Property; (j) Rents. All rents, issues, profits, royalties, avails, income and other benefits derived or owned, directly or indirectly, by the Mortgagor from the Property, including, without limitation, all rents and other consideration payable by tenants, claims against guarantors, and any cash or other securities deposited to secure performance by tenants, under the Leases (herein collectively referred to as "Rents"); (k) Proceeds. All proceeds of the conversion, voluntary or involuntary of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards (herein collectively referred to as "Proceeds"); and -3- 9 (l) Other Property. All other property and rights of the Mortgagor of every kind and character relating to the Property, and all proceeds and products of any of the foregoing, provided however, the Collateral shall not include any general intangibles or other rights arising under any contracts, instruments, licenses, or other documents as to which the grant of a lien and/or security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained; AND, without limiting any of the other provisions of this Mortgage, the Mortgagor expressly grants to the Mortgagee, as secured party, a security interest in all of those portions of the Collateral which are or may be subject to the State Uniform Commercial Code provisions applicable to secured transactions, subject, however, to the Permitted Encumbrances; TO HAVE AND TO HOLD the Collateral unto the Mortgagee, its successors and assigns, forever, subject, however, to the Permitted Encumbrances. FURTHER to secure the full, timely and proper payment and performance of the Secured Obligations, the Mortgagor hereby covenants and agrees with and warrants to the Mortgagee as follows: ARTICLE I COVENANTS AND AGREEMENTS OF THE MORTGAGOR SECTION I.1. Payment of Secured Obligations. (i) The Mortgagor agrees that: (a) it will duly and punctually pay and perform or cause to be paid and performed each of the Secured Obligations at the time and in accordance with the terms of the Loan Documents pertaining to the Fixed Assets Loans, and (b) when and as due and payable from time to time in accordance with the terms hereof or of any other Loan Documents pertaining to the Fixed Assets Loans, pay and perform, or cause to be paid and performed, all other Secured Obligations. SECTION I.2. Title to Collateral, etc. The Mortgagor represents and warrants to and covenants with the Mortgagee that: (a) except as otherwise permitted by the terms of the Credit Agreement, as of the date hereof and at all times hereafter while this Mortgage is outstanding, the Mortgagor (1) is and shall be the absolute owner of the legal and beneficial title to the applicable interest in the Property and to all other property included in the Collateral, and (2) has and shall have good and marketable title in fee simple absolute, or good and sufficient easement or leasehold title, as currently represented in the granting clause as of the date hereof, to the Property, subject in each case only to this Mortgage, the liens expressly permitted pursuant to the terms of the Credit Agreement and the encumbrances set forth in Schedule 2 hereto (collectively, the "Permitted Encumbrances"); (b) the Mortgagor has good and lawful right, power and authority to execute this Mortgage and to convey, transfer, assign, mortgage and grant a security interest in the Collateral, all as provided herein; -4- 10 (c) this Mortgage has been duly executed, acknowledged and delivered on behalf of the Mortgagor, all consents and other actions required to be taken by the officers, directors, shareholders and partners, as the case may be, of the Mortgagor have been duly and fully given and performed and this Mortgage constitutes the legal, valid and binding obligation of the Mortgagor, enforceable against the Mortgagor in accordance with its terms; and (d) the Mortgagor, at its expense, will warrant and defend to the Mortgagee and any purchaser under the power of sale herein or at any foreclosure sale such title to the Collateral and the first mortgage lien and first priority perfected security interest of this Mortgage thereon and therein against all claims and demands and will maintain, preserve and protect such lien and security interest and will keep this Mortgage a valid, direct first mortgage lien of record on the Property and a first priority perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. SECTION I.3. Title Insurance. SECTION I.3.1. Title Insurance Policy. Concurrently with the execution and delivery of this Mortgage, the Mortgagor, at its expense, has obtained and delivered to the Mortgagee a loan policy or policies of title insurance in an amount, and in form and substance, reasonably satisfactory to the Mortgagee naming the Mortgagee as the insured, insuring the title to and the first mortgage lien of this Mortgage on the Property, with endorsements reasonably requested by the Mortgagee. The Mortgagor has duly paid in full all premiums and other charges due in connection with the issuance of such policy or policies of title insurance. SECTION I.3.2. Title Insurance Proceeds. All proceeds received by and payable to the Mortgagee for any loss under the loan policy or policies of title insurance delivered to the Mortgagee pursuant to Section 1.3.1, or under any policy or policies of title insurance delivered to the Mortgagee in substitution therefor or replacement thereof, shall be the property of the Mortgagee and shall be applied by the Mortgagee in accordance with the provisions of Section 2.3. SECTION I.4. Recordation. The Mortgagor, at its expense, will at all times cause this Mortgage and any instruments amendatory hereof or supplemental hereto and any instruments of assignment hereof or thereof (and any appropriate financing statements or other instruments and continuations thereof), and each other instrument delivered in connection with the Fixed Assets Loans or any other Loan Document pertaining to the Fixed Assets Loans and intended thereunder to be recorded, registered and filed, to be kept recorded, registered and filed, in such manner and in such places, and will pay all such recording, registration, filing fees, taxes and other charges, and will comply with all such statutes and regulations as may be required by law in order to establish, preserve, perfect and protect the lien and security interest of this Mortgage as a valid, direct first mortgage lien on the Property and first priority perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. The Mortgagor will pay or cause to be paid, and will indemnify the Mortgagee in respect of, all taxes (including interest and penalties) at any time payable in connection with the filing and recording of this Mortgage and any and all supplements and amendments hereto. SECTION I.5. Payment of Impositions, etc. Subject to Section 1.8 (relating to permitted contests), the Mortgagor will pay or cause to be paid before the same would become delinquent and before any fine, penalty, interest or cost may be added for non-payment, all taxes, assessments, water and sewer rates, charges, license fees, inspection fees and other governmental levies or payments, of every kind and nature whatsoever, general and special, ordinary and extraordinary, unforeseen as well -5- 11 as foreseen, which at any time may be assessed, levied, confirmed, imposed or which may become a lien upon the Collateral, or any portion thereof, or which are payable with respect thereto, or upon the rents, issues, income or profits thereof, or on the occupancy, operation, use, possession or activities thereof, whether any or all of the same be levied directly or indirectly or as excise taxes or as income taxes, and all taxes, assessments or charges which may be levied on the Secured Obligations, or the interest thereon (collectively, the "Impositions"). The Mortgagor will deliver to the Mortgagee, upon request, copies of official receipts or other satisfactory proof evidencing such payments. SECTION I.6. Insurance and Legal Requirements. Subject to Section 1.8 (relating to permitted contests), the Mortgagor, at its expense, will comply in all material respects, or cause compliance in all material respects with (a) all provisions of any insurance policy covering or applicable to the Collateral or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Collateral or any part thereof or any use or condition of the Collateral or any part thereof (collectively, the "Insurance Requirements"); and (b) all laws, including Environmental Laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Collateral or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Collateral or any part thereof (collectively, the "Legal Requirements"); noncompliance of which could reasonably be expected to cause a Material Adverse Effect whether or not compliance therewith shall require structural changes in or interference with the use and enjoyment of the Collateral or any part thereof. SECTION I.7. Security Interests, etc. The Mortgagor will not directly or indirectly create or permit or suffer to be created or to remain, and will promptly discharge or cause to be discharged, any deed of trust, mortgage, encumbrance or charge on, pledge of, security interest in or conditional sale or other title retention agreement with respect to or any other lien on or in the Collateral or any part thereof or the interest of the Mortgagor or the Mortgagee therein, or any Proceeds thereof or Rents or other sums arising therefrom, other than (a) Permitted Encumbrances, and (b) liens of mechanics, materialmen, suppliers or vendors or rights thereto incurred in the ordinary course of the business of the Mortgagor for sums not yet due or any such liens or rights thereto which are at the time being contested as permitted by Section 1.8. The Mortgagor will not postpone the payment of any sums for which liens of mechanics, materialmen, suppliers or vendors or rights thereto have been incurred (unless such liens or rights thereto are at the time being contested as permitted by Section 1.8), for more than 60 days after the completion of the action giving rise to such liens or rights thereto. SECTION I.8. Permitted Contests. The Mortgagor at its expense may contest, or cause to be contested, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition, Legal Requirement or Insurance Requirement or lien of a mechanic, materialman, supplier or vendor, provided that, (a) in the case of an unpaid Imposition, lien, encumbrance or charge, such proceedings shall suspend the collection thereof from the Mortgagor, the Mortgagee, and the Collateral (including any rent or other income -6- 12 therefrom) and shall not materially interfere with the payment of any such rent or income, (b) neither the Collateral nor any rent or other income therefrom nor any part thereof or interest therein would be in any material danger of being sold, forfeited, lost, impaired or interfered with, (c) in the case of a Legal Requirement, neither the Mortgagor nor the Mortgagee would be in material danger of any civil or criminal liability for failure to comply therewith, (d) the Mortgagor shall have furnished such security, if any, as may be required in the proceedings or as may be reasonably requested by the Mortgagee, (e) the non-payment of the whole or any part of any Imposition will not result in the delivery of a tax deed to the Collateral or any part thereof because of such non-payment, (f) the payment of any sums required to be paid with respect to any of the Fixed Asset Notes or under this Mortgage (other than any unpaid Imposition, lien, encumbrance or charge at the time being contested in accordance with this Section 1.8) shall not be interfered with or otherwise affected, (g) in the case of any Insurance Requirement, the failure of the Mortgagor to comply therewith shall not affect the validity of any insurance required to be maintained by the Mortgagor under Section 2.1, and (h) that adequate reserves, determined in accordance with GAAP, shall have been set aside on the Mortgagor's books. SECTION I.9. Leases. The Mortgagor represents and warrants to the Mortgagee that, as of the date hereof, there are no written or oral leases or other agreements of any kind or nature relating to the occupancy of any portion of the Property by any Person other than the Mortgagor other than the Permitted Encumbrances. Except as is permitted by the Credit Agreement, the Mortgagor will not enter into any such written or oral lease or other agreement with respect to any portion of the Property without first obtaining the written consent of the Mortgagee. SECTION I.10. Compliance with Instruments. The Mortgagor at its expense will promptly comply in all material respects with all rights of way or use, privileges, franchises, servitudes, licenses, easements, tenements, hereditaments and appurtenances forming a part of the Property and all instruments creating or evidencing the same, in each case, to the extent compliance therewith is required of the Mortgagor under the terms thereof. Except as is permitted by the Credit Agreement, the Mortgagor will not take any action which may result in a forfeiture or termination of the rights afforded to the Mortgagor under any such instruments and will not, without the prior written consent of the Mortgagee, amend any of such instruments in any manner adverse to the Fixed Assets Lenders in any material respect. SECTION I.11. Maintenance and Repair, etc. Subject to the provisions of Section 1.12, the Mortgagor will keep or cause to be kept all presently and subsequently erected or acquired Improvements and the sidewalks, curbs, vaults and vault space, if any, located on or adjoining the same, and the streets and the ways adjoining the same, in good and substantial order and repair and in such a fashion that neither the value nor utility of the Collateral will be diminished, and, at its sole cost and expense, will promptly make or cause to be made all necessary and appropriate repairs, replacements and renewals thereof, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen, so that its business carried on in connection therewith may be properly conducted at all times. The Mortgagor at its expense will do or cause to be done all shoring of foundations and walls of any building or other Improvements on the Property and (to the extent permitted by law) of the ground adjacent thereto, and every other act necessary or appropriate for the preservation and safety of the Property by reason of or in connection with any excavation or other building operation upon the Property and upon any adjoining property, whether or not the Mortgagor shall, by any Legal Requirement, be required to take such action or be liable for failure to do so. SECTION I.12. Alterations, Additions, etc. So long as no Event of Default shall have occurred and be continuing, the Mortgagor shall have the right at any time and from time to time to -7- 13 make or cause to be made reasonable alterations of and additions to the Property or any part thereof, provided that any alteration or addition: (a) shall not change the general character or the use of the Property or reduce the fair market value thereof below its value immediately before such alteration or addition, or impair the usefulness of the Property; (b) is effected with due diligence, in a good and workmanlike manner and in compliance in all material respects with all Legal Requirements and Insurance Requirements; (c) subject to Section 1.8 is promptly and fully paid for, or caused to be paid for, by the Mortgagor; and (d) is made, in case the estimated cost of such alteration or addition exceeds U.S. $1,000,000, under the supervision of a qualified architect or engineer or another professional. SECTION I.13. Acquired Property Subject to Lien. Subject to the Permitted Encumbrances, all property at any time acquired by the Mortgagor and provided or required by this Mortgage to be or become subject to the lien and security interest hereof, whether such property is acquired by exchange, purchase, construction or otherwise, shall forthwith become subject to the lien and security interest of this Mortgage without further action on the part of the Mortgagor or the Mortgagee. The Mortgagor, at its expense, will execute and deliver to the Mortgagee (and will record and file as provided in Section 1.4) an instrument supplemental to this Mortgage reasonably satisfactory in substance and form to the Mortgagee, whenever such an instrument is necessary under applicable law to subject to the lien and security interest of this Mortgage all right, title and interest of the Mortgagor in and to all property provided or required by this Mortgage to be subject to the lien and security interest hereof. SECTION I.14. Assignment of Rents, Proceeds, etc. The assignment, grant and conveyance of the Leases, Rents, Proceeds and other rents, income, proceeds and benefits of the Collateral contained in the Granting Clause of this Mortgage shall constitute an absolute, present and irrevocable assignment, grant and conveyance, provided, however, that permission is hereby given to the Mortgagor, so long as no Event of Default has occurred and be continuing hereunder, to collect, receive and apply such Rents, Proceeds and other rents, income, proceeds and benefits as they become due and payable, but not further in advance thereof than is customary, and in accordance with all of the other terms, conditions and provisions hereof, of the Loan Documents, and of the Leases, contracts, agreements and other instruments with respect to which such payments are made or such other benefits are conferred. Upon the occurrence and continuance of an Event of Default, such permission shall terminate immediately and automatically, without notice to the Mortgagor or any other Person except as required by law, and shall not be reinstated upon a cure of such Event of Default without the express written consent of the Mortgagee. Such assignment shall be fully effective without any further action on the part of the Mortgagor or the Mortgagee and the Mortgagee shall be entitled, at its option, upon the occurrence and continuance of an Event of Default hereunder, to collect, receive and apply all Rents, Proceeds and all other rents, income, proceeds and benefits from the Collateral, including all right, title and interest of the Mortgagor in any escrowed sums or deposits or any portion thereof or interest therein, whether or not the Mortgagee takes possession of the Collateral or any part thereof. The Mortgagor further grants to the Mortgagee the right, at the Mortgagee's option, upon the occurrence and continuance of an Event of Default hereunder, to: (a) enter upon and take possession of the Property for the purpose of collecting Rents, Proceeds and said rents, income, proceeds and other benefits; (b) dispossess by the customary summary proceedings any tenant, purchaser or other Person defaulting in the payment of any amount when and as due and payable, or in the performance of any other obligation, under any Lease, contract or other instrument to which said Rents, Proceeds or other rents, income, proceeds or benefits relate; (c) let or convey the Collateral or any portion thereof or any interest therein; and -8- 14 (d) apply Rents, Proceeds and such rents, income, proceeds and other benefits, after the payment of all necessary fees, charges and expenses, on account of the Secured Obligations in accordance with Section 3.11. SECTION I.15. No Claims Against the Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or the furnishing of any materials or other property in respect of the Property or any part thereof, or be construed to permit the making of any claim against the Mortgagee in respect of labor or services or the furnishing of any materials or other property or any claim that any lien based on the performance of such labor or the furnishing of any such materials or other property is prior to the lien and security interest of this Mortgage. ALL CONTRACTORS, SUBCONTRACTORS, VENDORS AND OTHER PERSONS DEALING WITH THE PROPERTY, OR WITH ANY PERSONS INTERESTED THEREIN, ARE HEREBY REQUIRED TO TAKE NOTICE OF THE PROVISIONS OF THIS SECTION. SECTION I.16. Indemnification. The Mortgagor will protect, indemnify, save harmless and defend the Mortgagee, the Fixed Assets Lenders, and each of their respective officers, directors, shareholders, employees, representatives and agents (collectively, the "Indemnified Parties" and individually, an "Indemnified Party"), from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against any Indemnified Party by reason of (a) ownership of an interest in this Mortgage, any other Loan Document or the Property, (b) any accident, injury to or death of persons or loss of or damage to or loss of the use of property occurring on or about the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (c) any use, non-use or condition of the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (d) any failure on the part of the Mortgagor to perform or comply with any of the terms of this Mortgage or any Loan Document, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Collateral or any part thereof made or suffered to be made by or on behalf of the Mortgagor, (f) any negligence or tortious act on the part of the Mortgagor or any of its agents, contractors, lessees, licensees or invitees, (g) any work in connection with any alterations, changes, new construction or demolition of or additions to the Property, or (h) (i) any Hazardous Material on, in, under or affecting all or any portion of the Property, the groundwater, or any surrounding areas, (ii) any misrepresentation, inaccuracy or breach of any warranty, covenant or agreement contained or referred to in Sections 1.21 and 1.22, (iii) any violation or claim of violation by the Mortgagor of any Environmental Laws, or (iv) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of any Hazardous Material, except to the extent that any of the matters described in subsections (a)-(h) arise out of the gross negligence or willful misconduct of any Indemnified Party. If any action or proceeding be commenced, to which action or proceeding any Indemnified Party is made a party by reason of the execution of this Mortgage or any other Loan Document, or in which it becomes necessary to defend or uphold the lien of this Mortgage, all sums paid by the Indemnified Parties, for the expense of any litigation to prosecute or defend the rights and lien created hereby or otherwise, shall be paid by the Mortgagor to such Indemnified Parties, as the case may be, as hereinafter provided. The Mortgagor will pay and save the Indemnified Parties harmless against any and all liability with respect to any intangible personal property tax or similar imposition of the State or any subdivision or authority thereof now or hereafter in effect, to the extent that the same may be payable by the Indemnified Parties in respect of this Mortgage, any Loan Document or any Secured Obligation. All amounts payable to the Indemnified Parties under this Section 1.16 shall be deemed indebtedness secured by this Mortgage and any such amounts which are not paid within ten (10) days after written demand therefor -9- 15 by any Indemnified Party shall bear interest at the rate provided for in Section 3.2.2 of the Credit Agreement from the date of such demand. In case any action, suit or proceeding is brought against any Indemnified Party by reason of any such occurrence, the Mortgagor, upon request of such Indemnified Party, will, at the Mortgagor's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel designated by the Mortgagor and approved by such Indemnified Party. The obligations of the Mortgagor under this Section 1.16 shall survive any discharge or reconveyance of this Mortgage and payment in full of the Secured Obligations. SECTION I.17. No Credit for Payment of Taxes. The Mortgagor shall not be entitled to any credit against the Secured Obligations by reason of the payment of any tax on the Property or any part thereof or by reason of the payment of any other Imposition, and shall not apply for or claim any deduction from the taxable value of the Property or any part thereof by reason of this Mortgage. SECTION I.18. Intentionally Omitted SECTION I.19. No Transfer of the Property. Except as is provided in the Credit Agreement, and except for the Permitted Encumbrances, the Mortgagor shall not, without the prior written consent of the Mortgagee, which consent may be granted or withheld in the sole and absolute discretion of the Mortgagee (i) sell, convey, assign or otherwise transfer the Property or any portion of the Mortgagor's interest therein or (ii) further encumber the Property or permit the Property to become encumbered by any lien, claim, security interest or other indebtedness of any kind or nature other than the Permitted Encumbrances. SECTION I.20 Security Agreement. With respect to the items of personal property and fixtures referred to and described in the Granting Clause of this Mortgage and included as part of the Collateral, this Mortgage is hereby made and declared to be a security agreement encumbering each and every item of personal property and fixtures now or hereafter owned by Mortgagor and included herein as a part of the Collateral, in compliance with the provisions of the Uniform Commercial Code as enacted in the State. In this respect, Mortgagor, as "Debtor", expressly grants to Mortgagee, as "Secured Party", a security interest in and to all of the property now or hereafter owned by Mortgagor which constitutes the personal property and fixtures hereinabove referred to and described in this Mortgage, including all extensions, accessions, additions, improvements, betterments, renewals, replacements and substitutions thereof or thereto, and all proceeds from the sale or other disposition thereof. Mortgagor agrees that Mortgagee may file this Mortgage, or a reproduction thereof, in the real estate records or other appropriate index, as, and this Mortgage shall be deemed to be, a financing statement filed as a fixture filing in accordance with the laws of the State. Any reproduction of this Mortgage or of any other security agreement or financing statement executed by Mortgagor shall be sufficient as a financing statement. In addition, Mortgagor agrees to execute and deliver to Mortgagee, upon Mortgagee's request, any other security agreement and financing statements, as well as extensions, renewals, and amendments thereof, and reproductions of this Mortgage, in such form as Mortgagee may reasonably require to perfect a security interest with respect to said items. Mortgagor shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements Mortgagee may reasonably require. Except as is provided in the Credit Agreement, and except for the Permitted Encumbrances, without the prior written consent of Mortgagee, Mortgagor shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the above-described personal property and fixtures, including any replacements and additions thereto. Upon the occurrence and continuance of an Event of Default under this Mortgage, the Mortgagee shall have and shall be entitled to exercise any and all of the rights and remedies (i) as prescribed in this Mortgage, or (ii) as prescribed by general law, or (iii) as prescribed by the specific -10- 16 statutory provisions now or hereafter enacted and specified in said Uniform Commercial Code, all at Mortgagee's sole election. Mortgagor and Mortgagee agree that the filing of any financing statements in the records normally having to do with personal property shall not in any way affect the agreement of Mortgagor and Mortgagee that everything located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of, the Collateral, which is described or reflected as a fixture in this Mortgage, is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be, regarded as part of the Real Estate conveyed hereby. Mortgagor warrants that Mortgagor's name, identity and address are as set forth herein. The mailing address of the Mortgagee from which information may be obtained concerning the security interest created herein is also set forth herein. This information hereof is provided in order that this Mortgage shall comply with the requirements of the Uniform Commercial Code as enacted in the State for instruments to be filed as financing statements. In accordance with the laws of the State, this Mortgage shall remain effective as a fixture filing until this Mortgage is released or satisfied of record or its effectiveness otherwise terminates as to the Collateral. SECTION I.21. Representations and Warranties. In order to induce the Mortgagee to enter into this Mortgage, the Credit Agreement and the other Loan Documents, the Mortgagor agrees that all of the representations and warranties set forth in the Credit Agreement are incorporated into this Mortgage by reference as if fully set forth herein. SECTION I.22. Mortgagor's Covenants. In order to induce the Mortgagee to enter into this Mortgage, the Credit Agreement and the other Loan Documents, the Mortgagor agrees that all of the covenants of Mortgagor set forth in the Credit Agreement are incorporated into this Mortgage by reference as if fully set forth herein. SECTION I.23. Attornment. Mortgagee hereby acknowledges and agrees that the liens granted herein are subject to the rights of certain lessees under the Leases as disclosed in the Credit Agreement and will be subject to the rights of lessees under any Leases entered into by Mortgagor after the date hereof which are permitted as Permitted Real Estate Liens pursuant to the Credit Agreement, subject to the express rights contained in the applicable Lease. The rights of the tenants under the Leases to the leased premises shall not be adversely affected by the exercise by Mortgagee of any of its rights hereunder, nor shall any such tenant be in any way deprived of its rights under the applicable Lease except in accordance with the terms of such Lease. In the event that Mortgagee succeeds to the interest of Mortgagor under a Lease, such Lease shall not be terminated or affected thereby except as set forth therein, and any sale of the applicable leased premises by Mortgagee or pursuant to the judgment of any court in an action to enforce the remedies provided for in this Mortgage shall be made subject to such Lease and the rights of such tenant expressly set forth thereunder. If Mortgagee succeeds to the interests of Mortgagor in and to the applicable leased premises or under such Lease or enters into possession of such leased premises, the Mortgagee, and such tenants, shall be bound to each other under all of the express terms, covenants and conditions of such Lease, as if the Mortgagee was originally the Mortgagor as lessor thereunder. ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. SECTION II.1. Insurance. SECTION II.1.1. Risks to be Insured. The Mortgagor will, at its expense, maintain or cause to be maintained with insurance carriers approved by the Mortgagee (a) insurance with respect to the -11- 17 Improvements against loss or damage by fire, lightning and such other risks as are included in standard "all-risk" policies, in amounts sufficient to prevent the Mortgagor and the Mortgagee from becoming a co-insurer of any partial loss under the applicable policies, but in any event in amounts not less than the then full insurable value (actual replacement value) of the Improvements, as determined by the Mortgagor in accordance with generally accepted insurance practice and approved by the Mortgagee or, at the request of the Mortgagee, as determined at the Mortgagor's expense by the insurer or insurers or by an expert approved by the Mortgagee, (b) comprehensive public liability, including bodily injury and product liability and property damage, insurance, with personal injury endorsements, applicable to the Property in such amounts as are customarily carried by Persons operating similar properties in the same general locality, but in any event with a combined single limit of not less than Twenty Million Dollars ($20,000,000) per occurrence, (c) explosion insurance in respect of any steam and pressure boilers and similar apparatus located in the Property in such amounts as are usually carried by persons operating similar properties in the same general locality, but in any event in an amount not less than Twenty Million Dollars ($20,000,000), (d) business interruption insurance (including added expense coverage) against all insurable perils for a period of not fewer than twelve (12) months (subject to a reasonable aggregate deductible not exceeding ten (10) days per any occurrence), (e) worker's compensation insurance to the full extent required by applicable law for all employees of the Mortgagor engaged in any work on or about the Property and employer's liability insurance with a limit of not less than Ten Million Dollars ($10,000,000) for each occurrence, (f) all-risk, builders' risk insurance with respect to the Property during any period during which there is any construction work being performed, against loss or damage by fire or other risks, including vandalism, malicious mischief and sprinkler leakage, as are included in so-called "extended coverage" clauses at the time available and (g) such other insurance with respect to the Property in such amounts and against such insurable hazards as the Mortgagee from time to time may reasonably require by written notice to the Mortgagor. SECTION II.1.2. Policy Provisions. All insurance maintained by the Mortgagor pursuant to Section 2.1.1 shall (a) (except for worker's compensation insurance) list the Mortgagor and the Mortgagee, as additional insureds as their respective interests may appear, (b) (except for worker's compensation and public liability insurance) provide that the proceeds for any losses shall be adjusted by the Mortgagor subject to the approval of the Mortgagee in the event the proceeds shall exceed $1,000,000, and shall be payable to the Mortgagee, to be held and applied as provided in Section 2.3, (c) include effective waivers by the insurer of all rights of subrogation against any named insured, the indebtedness secured by this Mortgage and the Property and all claims for insurance premiums against the Mortgagee, (d) provide that any losses shall be payable notwithstanding (i) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms thereof, (iii) any foreclosure or other action or proceeding taken by the Mortgagee pursuant to any provision of this Mortgage, or (iv) any change in title or ownership of the Property, (e) provide that no cancellation, reduction in amount or material change in coverage thereof or any portion thereof shall be effective until at least thirty (30) days after receipt by the Mortgagee of written notice thereof, (f) provide that any notice under such policies shall be simultaneously delivered to the Mortgagee, and (g) be satisfactory in all other reasonable respects to the Mortgagee. Any insurance maintained pursuant to this Section 2.1 may be evidenced by blanket insurance policies covering the Property and other properties or assets of the Mortgagor, provided that any such policy shall specify the portion, if less than all, of the total coverage of such policy that is allocated to the Property and shall in all other respects comply with the requirements of this Section 2.1. SECTION II.1.3. Delivery of Policies, etc. The Mortgagor will deliver to the Mortgagee, promptly upon request, (a) certificates of all policies evidencing all insurance required to be maintained -12- 18 under Section 2.1.1 (or, in the case of blanket policies, certificates thereof by the insurers together with a counterpart of each blanket policy), and (b) evidence as to the payment of all premiums due thereon (with respect to public liability insurance policies, all installments for the current year due thereon to such date), provided that the Mortgagee shall not be deemed by reason of its custody of such certificates to have knowledge of the contents thereof or of the applicable policies. The Mortgagor will also deliver to the Mortgagee prior to the expiration of any policy a binder or certificate of the insurer evidencing the replacement thereof and when the new policy is issued a certificate of such new policy (or, in the case of a replacement blanket policy, a certificate thereof of the insurer together with a counterpart of the blanket policy). In the event the Mortgagor shall fail to effect or maintain any insurance required to be effected or maintained pursuant to the provisions of this Section 2.1, the Mortgagor will indemnify the Mortgagee against damage, loss or liability resulting from all risks for which such insurance should have been effected or maintained. SECTION II.1.4. Separate Insurance. The Mortgagor will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Section 2.1. SECTION II.2. Damage, Destruction or Taking; Mortgagor to Give Notice; Assignment of Awards. In case of (a) any material damage to or destruction of the Collateral or any material part thereof, or (b) any taking, whether for permanent or temporary use, of all or any material part of the Collateral or any material interest therein or material right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain, or a change of grade affecting the Collateral or any portion thereof (a "Taking"), or the commencement of any proceedings or negotiations which may result in a Taking, the Mortgagor will promptly give written notice thereof to the Mortgagee, generally describing the nature and extent of such damage or destruction and the Mortgagor's best estimate of the cost of restoring the Collateral, or the nature of such proceedings or negotiations and the nature and extent of the Taking which might result therefrom, as the case may be. The Mortgagee shall be entitled to all insurance proceeds payable on account of such damage or destruction and to all awards or payments allocable to the Collateral on account of such Taking up to the amount of the Secured Obligations, and the Mortgagor hereby irrevocably assigns, transfers and sets over to the Mortgagee all rights of the Mortgagor to any such proceeds, awards or payments and irrevocably authorizes and empowers the Mortgagee, at its option, in the name of the Mortgagor or otherwise, to file and prosecute what would otherwise be the Mortgagor's claim for any such proceeds, award or payment and to collect, receipt for and retain the same for disposition in accordance with Section 2.3. The Mortgagor will pay all reasonable costs and expenses incurred by the Mortgagee in connection with any such damage, destruction or Taking and seeking and obtaining any insurance proceeds, awards or payments in respect thereof. SECTION II.3. Application of Proceeds and Awards. The Mortgagee may, at its option, apply all amounts recovered under any insurance policy required to be maintained by the Mortgagor hereunder and all awards received by it on account of any Taking in any one or more of the following ways: (a) to the payment of the reasonable costs and expenses incurred by the Mortgagee in obtaining any such insurance proceeds or awards, including the fees and expenses of -13- 19 attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) to the payment of the principal of the Fixed Asset Loans and any interest (including post-petition interest payable in any proceedings for bankruptcy under applicable law ("Post-Petition Interest") to the extent such interest is a Secured Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued on the Fixed Asset Loans and unpaid, second, to the payment of all amounts of principal at the time outstanding; (c) to the payment of, or the application to, any Secured Obligation (other than as provided in clause (b) above); (d) to fulfill any of the other covenants contained herein, in the Credit Agreement pertaining to the Fixed Assets Loans, or in any other Loan Document pertaining to the Fixed Assets Loans, as the Mortgagee may determine in its sole discretion; (e) to the Mortgagor for application to the cost of restoring the Collateral and the replacement of Goods destroyed, damaged or taken; or (f) to the Mortgagor. Notwithstanding the foregoing provisions of this Section 2.3 to the contrary (but subject to the provisions of Section 2.4), and if each of the following conditions is satisfied, the Mortgagee, upon request of the Mortgagor, shall apply insurance proceeds or condemnation awards received by it to the restoration or replacement of the Collateral, to the extent necessary for the restoration or replacement thereof: (i) there shall then exist no uncured Event of Default; (ii) the Mortgagor shall furnish to the Mortgagee a certificate of an architect or engineer reasonably acceptable to the Mortgagee stating (x) that the Collateral is capable of being restored, prior to the maturity of the Credit Agreement, to substantially the same condition as existed prior to the casualty or Taking, (y) the aggregate estimated direct and indirect costs of such restoration and (z) as to any Taking, that the property taken in such Taking, or sold under threat thereof, is not necessary to the Mortgagor's customary use or occupancy of the Property or Mortgagor otherwise provides Mortgagee adequate assurance that the Collateral can be restored; and (iii) in the event that the estimated cost of restoration set forth in the certificate of such architect or engineer (and such revisions to such estimate as are from time to time made) exceeds the net insurance proceeds or condemnation awards actually received from time to time, the Mortgagor shall deposit the amount of such excess with the Mortgagee. -14- 20 In the event that such insurance proceeds or condemnation awards are to be utilized in the restoration of the Collateral, the Mortgagee shall disburse such Proceeds and the additional amounts deposited by the Mortgagor for such restoration after receipt of a written request for disbursement, on not fewer than five (5) nor more than twelve (12) Business Days notice and, to the extent applicable, in accordance with the Mortgagee's customary construction loan procedures and conditions. In the event that such insurance or condemnation awards are to be utilized to replace the Collateral so destroyed or taken, the Mortgagee shall disburse such Proceeds after receipt of a written request for disbursement, on not fewer than five (5) Business Days nor more than twelve (12) Business Days notice simultaneously with the acquisition of such replacement property by the Mortgagor. In the event that, after the restoration or replacement of the Collateral, any insurance or condemnation awards shall remain, such amount shall be paid to the Mortgagor. Insurance proceeds and condemnation awards shall be invested in the manner reasonably requested by the Mortgagor and approved by the Mortgagee, and all interest earned thereon shall be applied as provided in this Section 2.3. If, prior to the receipt by the Mortgagee of such insurance proceeds or condemnation awards, the Collateral shall have been sold on foreclosure, the Mortgagee shall have the right to receive said insurance proceeds or condemnation awards to the extent of any deficiency found to be due upon such sale, with legal interest thereon, whether or not a deficiency judgment shall have been sought or recovered or denied, and the reasonable attorneys' fees, costs and disbursements incurred by the Mortgagee in connection with the collection of such award or payment. SECTION II.4. Total Taking and Total Destruction. In the event of a Total Destruction or a Total Taking, the Mortgagee shall apply all amounts recovered under any insurance policy referred to in Section 2.1.1 and all awards received by it on account of any such Taking as follows: (a) first, to the payment of the reasonable costs and expenses incurred by the Mortgagee in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) second, to the payment of the principal of the Fixed Assets Loans and any interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued on the Fixed Assets Loans and unpaid, and second, to the payment of all amounts of principal at the time outstanding; (c) third, to the payment of, or the application to, any Secured Obligation (other than as provided in clause (b) above); (d) fourth, to fulfill any of the other covenants contained herein as the Mortgagee may determine; and (e) fifth, the balance, if any, to the Mortgagor. -15- 21 ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION III.1. Events of Default; Acceleration. If an "Event of Default" (pursuant to and as defined in the Credit Agreement) shall have occurred and be continuing, then and in any such event the Mortgagee may at any time thereafter (unless all Events of Default shall theretofore have been remedied and all costs and expenses, including, without limitation, attorneys' fees and expenses incurred by or on behalf of the Mortgagee, shall have been paid in full by the Mortgagor) declare, by written notice to the Mortgagor, the Fixed Assets Loans and all other Secured Obligations to be due and payable immediately or on a date specified in such notice (provided that, upon the occurrence of any Event of Default described in Section 8.1.9 of the Credit Agreement, the Fixed Assets Loans and all other Secured Obligations shall automatically become due and payable), and on such date the same shall be and become due and payable, together with interest accrued thereon, without presentment, demand, protest or notice, all of which the Mortgagor hereby waives. The Mortgagor will pay on demand all costs and expenses, including, without limitation, attorneys' fees and expenses, incurred by or on behalf of the Mortgagee in enforcing this Mortgage, or any other Loan Document evidencing or securing the Fixed Assets Loans, or occasioned by any default hereunder or thereunder. SECTION III.2. Legal Proceedings; Judicial Foreclosure. If an Event of Default shall have occurred and be continuing, the Mortgagee at any time may, at its election, proceed at law or in equity or otherwise to enforce the payment and performance of the Secured Obligations in accordance with the terms hereof and thereof and to foreclose the lien of this Mortgage as against all or any part of the Collateral and to have the same sold under the judgment or decree of a court of competent jurisdiction. The Mortgagee shall be entitled to recover in such proceedings all costs incident thereto, including attorneys' fees and expenses in such amounts as may be fixed by the court. SECTION III.3. Power of Sale. If an Event of Default shall have occurred and be continuing, the Mortgagee may grant, bargain, sell, assign, transfer, convey and deliver the whole or, from time to time, any part of the Collateral, or any interest in any part thereof, at any private sale or at public auction, with or without demand, advertisement or notice, for cash, on credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Mortgagee in its sole discretion may determine, or as may be required by law, and upon such sale the Mortgagee may execute and deliver to the purchaser(s) instruments of conveyance pursuant to the terms hereof and to applicable laws. Without limiting the authority granted in this Section 3.3, the Mortgagee shall, without demand on the Mortgagor, after the lapse of such time as may then be required by law, and notice of default and notice of sale having been given as then required by law, sell the Collateral on the date and at the time and place designated in the notice of sale, either as a whole or in separate parcels and in such order as the Mortgagee may determine, but subject to any statutory right of the Mortgagor to direct the order in which such property, if consisting of several known lots, parcels or interests, shall be sold, at public auction to the highest bidder, the purchase price payable in lawful money of the United States at the time of sale. The Person conducting the sale may, for any cause deemed expedient, postpone the sale from time to time until it shall be completed and, in every such case, notice of postponement shall be given by public declaration thereof by such Person at the time and place last appointed for the sale; provided that, if the sale is postponed for longer than one (1) day beyond the day designated in the notice of sale, notice of sale and notice of the time, date and place of sale shall be given in the same manner as the original notice of sale. The Mortgagee shall execute and deliver to the purchaser at any such sale a mortgagee's deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such mortgagee's deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including the Mortgagee, may bid at the sale. -16- 22 SECTION III.4. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Mortgagee may exercise from time to time and at any time any rights and remedies available to it under applicable law upon default in the payment of indebtedness, including, without limitation, any right or remedy available to it as a secured party under the Uniform Commercial Code of the State. The Mortgagor shall, promptly upon request by the Mortgagee, assemble the Collateral, or any portion thereof generally described in such request, and make it available to the Mortgagee at such place or places designated by the Mortgagee and reasonably convenient to the Mortgagee or the Mortgagor. If the Mortgagee elects to proceed under the Uniform Commercial Code of the State to dispose of portions of the Collateral, the Mortgagee, at its option, may give the Mortgagor notice of the time and place of any public sale of any such property, or of the date after which any private sale or other disposition thereof is to be made, by sending notice by registered or certified first class mail, postage prepaid, to the Mortgagor at least ten (10) days before the time of the sale or other disposition. If any notice of any proposed sale, assignment or transfer by the Mortgagee of any portion of the Collateral or any interest therein is required by law, the Mortgagor conclusively agrees that ten (10) days notice to the Mortgagor of the date, time and place (and, in the case of a private sale, the terms) thereof is reasonable. SECTION III.5. Mortgagee Authorized to Execute Deeds, etc. The Mortgagor irrevocably appoints the Mortgagee (which appointment is coupled with an interest) the true and lawful attorney of the Mortgagor, in its name and stead and on its behalf, for the purpose of effectuating any sale, assignment, transfer or delivery for the enforcement hereof, whether pursuant to power of sale, foreclosure or otherwise, to execute and deliver all such deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request. SECTION III.6. Purchase of Collateral by Mortgagee. The Mortgagee may be a purchaser of the Collateral or of any part thereof or of any interest therein at any sale thereof, whether pursuant to power of sale, foreclosure or otherwise, and the Mortgagee may apply upon the purchase price thereof the indebtedness secured hereby owing to the Mortgagee. Such purchaser shall, upon any such purchase, acquire good title to the properties so purchased, free of the security interest and lien of this Mortgage and free of all rights of redemption in the Mortgagor. SECTION III.7. Receipt a Sufficient Discharge to Purchaser. Upon any sale of the Collateral or any part thereof or any interest therein, whether pursuant to power of sale, foreclosure or otherwise, the receipt of the Mortgagee or the officer making the sale under judicial proceedings shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obliged to see to the application thereof. SECTION III.8. Waiver of Appraisement, Valuation, etc. The Mortgagor hereby waives, to the fullest extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Collateral or any part thereof or any interest therein. SECTION III.9. Sale a Bar Against Mortgagor. Any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Mortgage, whether pursuant to power of sale, foreclosure or otherwise, shall forever be a bar against the Mortgagor. SECTION III.10. Secured Obligations to Become Due on Sale. Except as otherwise provided in the Credit Agreement, upon any sale of the Collateral or any portion thereof or interest therein by virtue of the exercise of any remedy by the Mortgagee under or by virtue of this Mortgage, whether pursuant to power of sale, foreclosure or otherwise in accordance with this Mortgage or by virtue of -17- 23 any other remedy available at law or in equity or by statute or otherwise, at the option of the Mortgagee, any sums or monies due and payable pursuant to the Credit Agreement pertaining to the Fixed Assets Loans, the Loan Documents pertaining to the Fixed Assets Loans and in connection with the Fixed Assets Loans and/or the Secured Obligations shall, if not previously declared due and payable, immediately become due and payable, together with interest accrued thereon, and all other indebtedness which this Mortgage by its terms secures. SECTION III.11. Application of Proceeds of Sale and Other Moneys. Except as otherwise provided in the Credit Agreement, the proceeds of any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Mortgage, whether pursuant to power of sale, foreclosure or otherwise, and all other moneys at any time held by the Mortgagee as part of the Collateral, shall be applied in such order of priority as the Mortgagee shall determine in its sole and absolute discretion including, without limitation, as follows: (a) first, to the payment of the reasonable costs and expenses of such sale (including, without limitation, the cost of evidence of title and the costs and expenses, if any, of taking possession of, retaining custody over, repairing, managing, operating, maintaining and preserving the Collateral or any part thereof prior to such sale), all reasonable costs and expenses incurred by the Mortgagee or any other Person in obtaining or collecting any insurance proceeds, condemnation awards or other amounts received by the Mortgagee, all reasonable costs and expenses of any receiver of the Collateral or any part thereof, and any Impositions or other charges or expenses prior to the security interest or lien of this Mortgage, which the Mortgagee may consider it necessary or desirable to pay; (b) second, to the payment of any Secured Obligation (other than those set forth in Section 3.11(c) below); (c) third, to the payment of all amounts of principal of and interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) at the time due and payable under the Credit Agreement pertaining to the Fixed Assets Loans at the time outstanding (whether due by reason of maturity or by reason of any prepayment requirement or by declaration or acceleration or otherwise), including interest at the rate provided for in the Credit Agreement on any overdue principal and (to the extent permitted under applicable law) on any overdue interest; and, in case such moneys shall be insufficient to pay in full such principal and interest, then, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) at the time due and payable and, second, to the payment of all amounts of principal at the time due and payable under the Fixed Assets Loans; and (d) fourth, the balance, if any, held by the Mortgagee after payment in full of all amounts referred to in subdivisions Sections 3.11(a), (b) and (c) above, shall, unless a court of competent jurisdiction may otherwise direct by final order not subject to appeal, be paid to or upon the direction of the Mortgagor. SECTION III.12. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, the Mortgagee shall, as a matter of right, without notice, and without regard to the adequacy of any security for the indebtedness secured hereby or the solvency of the Mortgagor, be entitled to the appointment of a receiver for all or any part of the Collateral, whether such receivership be incidental to a proposed sale of the Collateral or otherwise, and the Mortgagor hereby consents to the appointment of such a receiver and will not oppose any such appointment. -18- 24 SECTION III.13. Possession, Management and Income. If an Event of Default shall have occurred and be continuing, in addition to, and not in limitation of, the rights and remedies provided in Section 1.14, the Mortgagee, upon five (5) days written notice to the Mortgagor, may enter upon and take possession of the Collateral or any part thereof by force, summary proceeding, ejectment or otherwise and may remove the Mortgagor and all other Persons and any and all property therefrom and may hold, operate, maintain, repair, preserve and manage the same and receive all earnings, income, Rents, issues and Proceeds accruing with respect thereto or any part thereof. The Mortgagee shall be under no liability for or by reason of any such taking of possession, entry, removal or holding, operation or management, except that any amounts so received by the Mortgagee shall be applied to pay all costs and expenses of so entering upon, taking possession of, holding, operating, maintaining, repairing, preserving and managing the Collateral or any part thereof, and any Impositions or other charges prior to the lien and security interest of this Mortgage which the Mortgagee may consider it necessary or desirable to pay, and any balance of such amounts shall be applied as provided in Section 3.11. SECTION III.14. Right of Mortgagee to Perform Mortgagor's Covenants, etc. If the Mortgagor shall fail to make any payment or perform any act required to be made or performed hereunder or under the Credit Agreement pertaining to the Fixed Assets Loans or any other Loan Document pertaining to the Fixed Assets Loans, the Mortgagee, without notice to or demand upon the Mortgagor and without waiving or releasing any obligation or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Mortgagor, and may enter upon the Collateral for such purpose and take all such action thereon as, in the Mortgagee's opinion, may be necessary or appropriate therefor. No such entry and no such action shall be deemed an eviction of any lessee of the Property or any part thereof. All sums so paid by the Mortgagee and all costs and expenses (including, without limitation, attorneys' fees and expenses) so incurred, together with interest thereon at the rate provided for in Section 3.2.2 of the Credit Agreement from the date of payment or incurring, shall constitute additional indebtedness under the Credit Agreement secured by this Mortgage and shall be paid by the Mortgagor to the Mortgagee on demand. SECTION III.15. Subrogation. To the extent that the Mortgagee, on or after the date hereof, pays any sum due under any provision of any Legal Requirement or any instrument creating any lien prior or superior to the lien of this Mortgage, or the Mortgagor or any other Person pays any such sum with the proceeds of the Fixed Assets Loans, the Mortgagee shall have and be entitled to a lien on the Collateral equal in priority to the lien discharged, and the Mortgagee shall be subrogated to, and receive and enjoy all rights and liens possessed, held or enjoyed by, the holder of such lien, which shall remain in existence and benefit the Mortgagee in securing the Secured Obligations. SECTION III.16. Remedies, etc., Cumulative. Each right, power and remedy of the Mortgagee provided for in this Mortgage, the Credit Agreement pertaining to the Fixed Assets Loans or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Mortgage, the Credit Agreement or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Mortgagee of any one or more of the rights, powers or remedies provided for in this Mortgage, the Credit Agreement, or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Mortgagee of any or all such other rights, powers or remedies. -19- 25 SECTION III.17. Provisions Subject to Applicable Law. All rights, powers and remedies provided in this Mortgage may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Mortgage invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Mortgage or any application thereof shall be invalid or unenforceable, the remainder of this Mortgage and any other application of such term shall not be affected thereby. SECTION III.18. No Waiver, etc. No failure by the Mortgagee to insist upon the strict performance of any term hereof or of the Credit Agreement, or of any other Loan Document, or to exercise any right, power or remedy consequent upon a breach hereof or thereof, shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Mortgage, which shall continue in full force and effect with respect to any other then existing or subsequent breach. By accepting payment or performance of any amount or other Secured Obligations secured hereby before or after its due date, the Mortgagee shall not be deemed to have waived its right either to require prompt payment or performance when due of all other amounts and Secured Obligations payable hereunder or to declare a default for failure to effect such prompt payment. SECTION III.19. Compromise of Actions, etc. Any action, suit or proceeding brought by the Mortgagee pursuant to any of the terms of this Mortgage, the Credit Agreement pertaining to the Fixed Assets Loans, any other Loan Document pertaining to the Fixed Assets Loans, or otherwise, and any claim made by the Mortgagee hereunder or thereunder, may be compromised, withdrawn or otherwise dealt with by the Mortgagee without any notice to or approval of the Mortgagor. ARTICLE IV DEFINITIONS SECTION IV.1. Terms Defined in this Mortgage. When used herein the following terms have the following meanings: "Borrowers" shall have the meaning set forth in the second recital. "Collateral" shall have the meaning set forth in the granting clause. "Contracts" shall have the meaning set forth in clause (h) of the granting clause. "Credit Agreement" shall have the meaning set forth in the second recital. "Credit Extensions" shall have the meaning set forth in the the second recital. "Default" means any Event of Default or any condition or event which, after notice or lapse of time, or both, would constitute an Event of Default. "Goods" shall have the meaning set forth in clause (c) of the granting clause. "herein", "hereof", "hereto", and "hereunder" and similar terms refer to this Mortgage and not to any particular Section, paragraph or provision of this Mortgage. -20- 26 "Impositions" shall have the meaning set forth in Section 1.5. "Improvements" shall have the meaning set forth in clause (b) of the granting clause. "Indemnified Parties" shall have the meaning set forth in Section 1.16. "Insurance Requirements" shall have the meaning set forth in paragraph (a) of Section 1.6. "Intangibles" shall have the meaning set forth in clause (d) of the granting clause. "Land" shall have the meaning set forth in the first recital. "Leases" shall have the meaning set forth in clause (e) of the granting clause. "Legal Requirements" shall have the meaning set forth in paragraph (b) of Section 1.6. "Mortgage" shall have the meaning set forth in the preamble. "Mortgagee" shall have the meaning set forth in the preamble. "Mortgagor" shall have the meaning set forth in the preamble. "Permits" shall have the meaning set forth in clause (g) of the granting clause. "Permitted Encumbrances" shall have the meaning set forth in Section 1.2. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency or officer. "Plans" shall have the meaning set forth in clause (f) of the granting clause. "Post-Petition Interest" shall have the meaning set forth in Section 2.3. "Proceeds" shall have the meaning set forth in clause (k) of the granting clause. "Property" shall have the meaning set forth in clause (b) of the granting clause. "Real Estate" shall have the meaning set forth in clause (a) of the granting clause. "Rents" shall have the meaning set forth in clause (j) of the granting clause. "Secured Obligations" means the Fixed Assets Obligations and all Obligations with respect to the Fixed Assets Loans now or hereafter existing under the Credit Agreement or any Loan Document pertaining to the Fixed Assets Loans, and all obligations (monetary or otherwise) arising under or in connection with the Fixed Assets Notes or the Fixed Assets Loans, whether for principal, interest, costs, fees, expenses or otherwise and all other Fixed Assets Obligations. "State" means the State of Florida. -21- 27 "Total Destruction" means any damage to or destruction of the Improvements or any part thereof which, in the reasonable estimation of the Mortgagee shall require the expenditure of an amount in excess of Ten Million Dollars ($10,000,000) to restore the Improvements to substantially the same condition of the Improvements immediately prior to such damage or destruction. "Total Taking" means a Taking, whether permanent or for temporary use, which, in the reasonable judgment of the Mortgagee, shall substantially interfere with and adversely affect the normal operation of the Property by the Mortgagor to such an extent as would reasonably be anticipated to cause a Material Adverse Effect. SECTION IV.2. Use of Defined Terms. Terms for which meanings are provided in this Mortgage shall, unless otherwise defined or the context otherwise requires, have such meanings when used in any certificate and any opinion, notice or other communication delivered from time to time in connection with this Mortgage or pursuant hereto. SECTION IV.3. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Mortgage, including its preamble and recitals, have the meanings provided in the Credit Agreement. ARTICLE V MISCELLANEOUS SECTION V.1. Further Assurances; Financing Statements. SECTION V.1.1. Further Assurances. The Mortgagor, at its expense, will execute, acknowledge and deliver all such instruments and take all such other action as the Mortgagee from time to time may reasonably request: (a) to better subject to the lien and security interest of this Mortgage all or any portion of the Collateral, (b) to perfect, publish notice or protect the validity of the lien and security interest of this Mortgage, (c) to preserve and defend the title to the Collateral and the rights of the Mortgagee therein against the claims of all Persons as long as this Mortgage shall remain undischarged, (d) to better subject to the lien and security interest of this Mortgage or to maintain or preserve the lien and security interest of this Mortgage with respect to any replacement or substitution for any Collateral or any other after-acquired property except as provided in the Credit Agreement, or (e) in order to further effectuate the purposes of this Mortgage and to carry out the terms hereof and to better assure and confirm to the Mortgagee its rights, powers and remedies hereunder. SECTION V.1.2. Financing Statements. Notwithstanding any other provision of this Mortgage, the Mortgagor hereby agrees that, without notice to or the consent of the Mortgagor, the -22- 28 Mortgagee may file with the appropriate public officials such financing statements, continuation statements, amendments and similar documents as are or may become necessary to perfect, preserve or protect the security interest granted by this Mortgage. SECTION V.2. Additional Security. Without notice to or consent of the Mortgagor, and without impairment of the security interest and lien and rights created by this Mortgage, the Mortgagee and the Lenders may accept from the Mortgagor or any other Person additional security for the Secured Obligations. Neither the giving of this Mortgage nor the acceptance of any such additional security shall prevent the Mortgagee from resorting, first, to such additional security, or, first, to the security created by this Mortgage, or concurrently to both, in any case without affecting the Mortgagee's lien and rights under this Mortgage. SECTION V.3. Defeasance; Partial Release, etc. SECTION V.3.1. Defeasance. If the Fixed Assets Loans and all other amounts owing pursuant to the Credit Agreement pertaining to the Fixed Assets Loans and the other Loan Documents pertaining to the Fixed Assets Loans shall be repaid in full in accordance with the terms thereof, and if the Mortgagor shall pay, in full, the principal of and premium, if any, and interest on the Secured Obligations in accordance with the terms thereof and hereof and all other sums payable hereunder by the Mortgagor and shall comply with all the terms, conditions and requirements hereof and of the Secured Obligations, or otherwise as may be provided in the Credit Agreement, then on such date, the Mortgagee shall, upon the request of the Mortgagor and at the Mortgagor's sole cost and expense, execute and deliver such instruments, in form and substance reasonably satisfactory to the Mortgagee, as may be necessary to effectively reconvey, release and discharge this Mortgage. SECTION V.3.2. Partial Release, etc. The Mortgagee may, at any time and from time to time, without liability therefor, and without prior notice to the Mortgagor, release or reconvey any part of the Collateral, consent to the making of any map or plat of the Property, join in granting any easement thereon or join in any extension agreement or agreement subordinating the lien of this Mortgage. SECTION V.4. Notices, etc. All notices and other communications provided to any of the parties hereto shall be in writing and addressed, delivered or transmitted to such party as set forth in the Credit Agreement. SECTION V.5. Waivers, Amendments, etc. The provisions of this Mortgage may be amended, discharged or terminated and the observance or performance of any provision of this Mortgage may be waived, either generally or in a particular instance and either retroactively or prospectively, only by an instrument in writing executed by the Mortgagor and the Mortgagee. SECTION V.6. Cross-References. References in this Mortgage and in each instrument executed pursuant hereto to any Section or Article are, unless otherwise specified, to such Section or Article of this Mortgage or such instrument, as the case may be, and references in any Section, Article or definition to any clause are, unless otherwise specified, to such clause of such Section, Article or definition. SECTION V.7. Headings. The various headings of this Mortgage and of each instrument executed pursuant hereto are inserted for convenience only and shall not affect the meaning or interpretation of this Mortgage or such instrument or any provisions hereof or thereof. -23- 29 SECTION V.8. Currency. Unless otherwise expressly stated, all references to any currency or money, or any dollar amount, or amounts denominated in "Dollars" herein will be deemed to refer to the lawful currency of the United States. SECTION V.9. Governing Law. THIS MORTGAGE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE. SECTION V.10. Successors and Assigns, etc. This Mortgage shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. SECTION V.11. Waiver of Jury Trial; Submission to Jurisdiction. (a) EACH OF THE MORTGAGOR AND THE MORTGAGEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS MORTGAGE, THE CREDIT AGREEMENT, ANY LOAN DOCUMENT PERTAINING TO THE FIXED ASSETS LOANS OR ANY OTHER RELATED INSTRUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE MORTGAGOR OR THE MORTGAGEE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE MORTGAGEE AND THE FIXED ASSETS LENDERS TO ENTER INTO THE TRANSACTIONS PROVIDED FOR IN THE CREDIT AGREEMENT AND TO MAKE THE FIXED ASSETS LOANS. (b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS MORTGAGE, THE CREDIT AGREEMENT AS PERTAINS TO THE FIXED ASSETS LOANS OR ANY OTHER LOAN DOCUMENT AS PERTAINS TO THE FIXED ASSETS LOANS, THE MORTGAGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED. THE MORTGAGOR AND MORTGAGEE EACH EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS MORTGAGE, THE CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT PERTAINING TO THE FIXED LOANS IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE PERSON OF THE MORTGAGOR. NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE MORTGAGEE FROM BRINGING AN ACTION AGAINST THE MORTGAGOR IN ANY OTHER JURISDICTION. SECTION V.12. Severability; Conflicts. Any provision of this Mortgage, the Credit Agreement or any other Loan Document pertaining to the Fixed Assets Loans which is prohibited or unenforceable in any jurisdiction shall as to such provision and such jurisdiction, be ineffective to the -24- 30 extent of such prohibition or unenforceability without invalidating the remaining provisions of this Mortgage, the Credit Agreement or such Loan Document pertaining to the Fixed Assets Loans or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of any conflict between the terms of this Mortgage and the terms of the Credit Agreement, the terms of the Credit Agreement shall control. SECTION V.13. Loan Document. This Mortgage is a Loan Document executed pursuant to the Credit Agreement and, unless otherwise expressly indicated herein, shall be construed, administered and applied in accordance with the terms and provisions thereof. SECTION V.14. Usury Savings Clause. It is the intention of the Mortgagor and the Mortgagee to conform strictly to the usury laws governing the Loan Documents pertaining to the Fixed Assets Loans, and any interest payable under the Loan Documents pertaining to the Fixed Assets Loans shall be subject to reduction to the amount not in excess of the maximum non-usurious amount allowed under such laws, as construed by the courts having jurisdiction over such matters. In the event the maturity of the Secured Obligations is accelerated by reason of any provision of the Loan Documents pertaining to the Fixed Assets Loans, or by reason of an election by the Mortgagee resulting from an Event of Default, then earned interest may never include more than the maximum amount permitted by law, computed from the dates of each advance of loan proceeds under the Credit Agreement until payment, and any interest in excess of the maximum amount permitted by law shall be canceled automatically or, if theretofore paid, at the option of the Mortgagee, shall be rebated to the Mortgagor, or shall be credited on the principal amount of the Secured Obligations or, if all principal has been repaid, then the excess shall be rebated to the Mortgagor. If any interest is canceled, credited against principal or rebated to the Mortgagor in accordance with the foregoing sentence and, if thereafter the interest payable hereunder is less than the maximum amount permitted by applicable law, the rate hereunder shall automatically be increased to the maximum extent possible to permit repayment to the Mortgagee and the Lenders as soon as possible of any interest in excess of the maximum amount permitted by law which was earlier canceled, credited against principal or rebated to the Mortgagor pursuant to the provisions of the foregoing sentence. SECTION 5.15. Future Advances. This Mortgage is a "Future Advance Mortgage" under the laws of the State. Any and all future advances under this Mortgage and the Loan Documents pertaining to the Fixed Assets Loans shall have the same priority as if the future advance was made on the date that this Mortgage was recorded. This Mortgage shall secure the Secured Obligations, whenever incurred, such Secured Obligations to be due at the times provided in the Loan Documents pertaining to the Fixed Assets Loans. Notice is hereby given that the Secured Obligations may increase as a result of any defaults hereunder by Mortgagor due to, for example, and without limitation, unpaid interest or late charges, unpaid taxes or insurance premiums which the Mortgagee elects to advance, defaults under leases that the Mortgagee elects to cure, attorney fees or costs incurred in enforcing the Loan Documents pertaining to the Fixed Assets Loans or other expenses incurred by the Mortgagee in protecting the Collateral, the security of this Mortgage or the Mortgagee's rights and interests. -25- 31 IN WITNESS WHEREOF, the undersigned, by its duly elected officers and pursuant to proper authority of its board of directors has duly executed, sealed, acknowledged and delivered this instrument as of the day and year first above written. STERLING FIBERS, INC., a Delaware corporation By: ------------------------------------------ Name: ---------------------------------- Title: --------------------------------- DRAFTED BY: Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Michael Sloyer, Esq. -26- 32 [CORPORATION NOTARY PAGE] MULTI-STATE CORPORATE ACKNOWLEDGMENT State of New York County of New York On this ________________ day of July, 1999, before me, the undersigned officer, personally appeared: (a) ________________________________, with a residence at ____________________________. (b) __________________________________, with a residence at ____________________________. personally known and acknowledged himself/herself/themselves to me (or proved to me on the basis of satisfactory evidence) to be the (a) ________ President, and (b) ________ Secretary respectively of _______________________, (hereinafter, the "Corporation") and that as such officer(s), being duly authorized to do so pursuant to its bylaws or a resolution of its board of directors, executed, subscribed and acknowledged the foregoing instrument for the purposes therein contained, by signing the name of the Corporation by himself/herself/themselves in their authorized capacities as such officer(s) as his/her/their free and voluntary act and deed and the free and voluntary act and deed of said Corporation. In Witness Whereof, I hereunto set my hand and official seal. ------------------------------------ Notary Public Notarial Seal My Commission Expires: -27- 33 SCHEDULE 1 Legal Description of the Land [ ] 34 SCHEDULE 2 Permitted Encumbrances [ ] EX-4.4 5 LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT 1 EXHIBIT 4.4 Record and return to: Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Michael Sloyer, Esq. STERLING PULP CHEMICALS, INC., Grantor, to THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT") as the Administrative Agent under the Credit Agreement referred to below (together with its successors and assigns from time to time acting as Administrative Agent under such Credit Agreement, the "Administrative Agent") and U.S. BANK TRUST NATIONAL ASSOCIATION as Georgia co-agent (together with its successors and assigns from time to time acting as Georgia co-agent, the "Georgia Agent," with the Administrative Agent and the Georgia Agent herein collectively referred to as "Grantee") --------------------------------------------------- LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT AND SECURITY AGREEMENT --------------------------------------------------- Dated as of July 23, 1999 This instrument affects certain real and personal property located in Lowndes County, State of Georgia. This instrument was prepared by the above named attorney. Notice: This instrument contains inter alia obligations which may provide for: (a) a variable rate of interest and/or (b) future and/or revolving credit advances or readvances, which when made, shall have the same priority as advances or readvances made on the date hereof whether or not (i) any advances or readvances were made on the date hereof and (ii) any indebtedness is outstanding at the time any advance or re-advance is made. 2 TABLE OF CONTENTS Page ARTICLE I COVENANTS AND AGREEMENTS OF THE Grantor SECTION 1.1. Payment of Secured Obligations...........................4 SECTION 1.2. Title to Collateral, etc. ...............................5 SECTION 1.3. Title Insurance..........................................5 SECTION 1.3.1. Title Insurance Policy...................................5 SECTION 1.3.2. Title Insurance Proceeds.................................5 SECTION 1.4. Recordation..............................................5 SECTION 1.5. Payment of Impositions, etc. ............................6 SECTION 1.6. Insurance and Legal Requirements.........................6 SECTION 1.7. Security Interests, etc. ................................6 SECTION 1.8. Permitted Contests.......................................7 SECTION 1.9. Leases...................................................7 SECTION 1.10. Compliance with Instruments..............................7 SECTION 1.11. Maintenance and Repair, etc. ............................8 SECTION 1.12. Alterations, Additions, etc. ............................8 SECTION 1.13. Acquired Property Subject to Security Title/Security Interest...............................................8 SECTION 1.14. Assignment of Rents, Proceeds, etc. .....................8 SECTION 1.15. No Claims Against the Grantee............................9 SECTION 1.16. Indemnification..........................................9 SECTION 1.17. No Credit for Payment of Taxes..........................10 SECTION 1.18. Intentionally Omitted...................................10 SECTION 1.19. No Transfer of the Property.............................10 SECTION 1.20. Security Agreement......................................10 SECTION 1.21. Representations and Warranties..........................11 SECTION 1.22. Grantor's Covenants.....................................11 ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. SECTION 2.1. Insurance...............................................11 SECTION 2.1.1. Risks to be Insured.....................................11 SECTION 2.1.2. Policy Provisions.......................................12 SECTION 2.1.3. Delivery of Policies, etc. .............................12 SECTION 2.1.4. Separate Insurance......................................13 SECTION 2.2. Damage, Destruction or Taking; Grantor to Give Notice; Assignment of Awards..................................13 3 SECTION 2.3. Application of Proceeds and Awards......................13 SECTION 2.4. Total Taking and Total Destruction......................15 ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration.........................15 SECTION 3.2. Legal Proceedings; Foreclosure..........................16 SECTION 3.3. Power of Sale...........................................16 SECTION 3.4. Uniform Commercial Code Remedies........................17 SECTION 3.5. Grantee Authorized to Execute Deeds, etc. ..............17 SECTION 3.6. Purchase of Collateral by Grantee.......................17 SECTION 3.7. Receipt a Sufficient Discharge to Purchaser.............17 SECTION 3.8. Waiver of Appraisement, Valuation, etc. ................17 SECTION 3.9. Sale a Bar Against Grantor..............................18 SECTION 3.10. Secured Obligations to Become Due on Sale...............18 SECTION 3.11. Application of Proceeds of Sale and Other Moneys........18 SECTION 3.12. Appointment of Receiver.................................19 SECTION 3.13. Possession, Management and Income.......................19 SECTION 3.14. Right of Grantee to Perform Grantor's Covenants, etc....19 SECTION 3.15. Subrogation.............................................19 SECTION 3.16. Remedies, etc., Cumulative..............................19 SECTION 3.17. Provisions Subject to Applicable Law....................20 SECTION 3.18. No Waiver, etc. ........................................20 SECTION 3.19. Compromise of Actions, etc. ............................20 ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Deed..............................21 SECTION 4.2. Use of Defined Terms....................................22 SECTION 4.3. Credit Agreement Definitions............................22 4 ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements................22 SECTION 5.1.1. Further Assurances......................................23 SECTION 5.1.2. Financing Statements....................................23 SECTION 5.2. Additional Security.....................................23 SECTION 5.3. Satisfaction; Partial Release, etc. ....................23 SECTION 5.3.1. Satisfaction............................................23 SECTION 5.3.2. Partial Release, etc. ..................................24 SECTION 5.4. Notices, etc............................................24 SECTION 5.5. Waivers, Amendments, etc................................24 SECTION 5.6. Cross-References........................................24 SECTION 5.7. Headings................................................24 SECTION 5.8. Currency................................................24 SECTION 5.9. Governing Law...........................................24 SECTION 5.10. Successors and Assigns, etc.............................24 SECTION 5.11. Waiver of Jury Trial; Submission to Jurisdiction........24 SECTION 5.12. Severability; Conflicts.................................25 SECTION 5.13. Loan Document...........................................25 SECTION 5.14. Usury Savings Clause....................................25 SECTION 5.15. Future Advances.........................................26 SECTION 5.16. Georgia Co-Agent........................................26 Schedule 1-A Legal Description of the Land Schedule 1-B Legal Description of the Land Schedule 2 Permitted Encumbrances 5 LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT AND SECURITY AGREEMENT THIS LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT AND SECURITY AGREEMENT, dated as of July 23, 1999 (this "Deed"), made by STERLING PULP CHEMICALS, INC., a Georgia corporation (the "Grantor"), having an address at 1200 Smith Street, Suite 1900, Houston, Texas 77002-4312, to THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT"), a corporation, having an address at 1211 Avenue of the Americas, 22nd Floor, New York, New York 10036, as the Administrative Agent under the Credit Agreement referred to below (together with its successors and assigns from time to time acting as Administrative Agent under such Credit Agreement, the "Administrative Agent"), and U.S. BANK TRUST NATIONAL ASSOCIATION, a banking association, having an address at GAAT 3384, 3384 Peachtree Road NE, Atlanta, Georgia 30326, as Georgia co-agent (together with its successors and assigns from time to time acting as Georgia co-agent, the "Georgia Agent," with the Administrative Agent and the Georgia Agent herein collectively referred to as "Grantee"). W I T N E S S E T H T H A T: WHEREAS, the Grantor is on the date of delivery hereof the owner of an easement or leasehold estate as indicated herein or on Schedule 1 hereto to the parcel of land (and any easements or other rights or interests) described in Schedule 1 hereto (the "Land") and of the Improvements (such term and other capitalized terms used in this Deed having the respective meanings specified or referred to in Article IV); WHEREAS, pursuant to the terms, conditions and provisions of the Revolving Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals U.S., Inc., Grantor, Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International, Inc., as Borrowers (collectively, the "Borrowers"), various financial institutions, as the Lenders, DLJ Capital Funding, Inc., as the Syndication Agent, The CIT Group/Business Credit, Inc. as the Administrative Agent, and Credit Suisse First Boston, as the Documentation Agent, the Lenders and the Issuer have agreed to make Loans to, and to issue Letters of Credit for the account of, the Borrowers in the maximum original principal amount of One Hundred Fifty Five Million Dollars ($155,000,000) (such Loans and Letters of Credit are hereinafter referred to collectively as the "Credit Extensions"). WHEREAS, the Credit Extensions consist of, inter alia, Fixed Assets Loans in a maximum principal amount not to exceed Seventy Million Dollars ($70,000,000) having a Stated Maturity Date of July 23, 2004; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Deed. G R A N T: NOW, THEREFORE, for and in consideration of the premises, and of the mutual covenants herein contained, and in order to induce the Fixed Assets Lenders to make the Fixed Assets Loans pursuant to the Credit Agreement, and in order to secure the full, timely and proper payment and performance of and compliance with each and every one of the Secured Obligations (as hereinafter defined), the Grantor hereby irrevocably grants, bargains, sells, sets over, warrants, aliens, demises, releases, hypothecates, pledges, assigns, transfers and conveys to the Grantee and its successors, successors-in-title and assigns, forever, all of the following (the "Collateral"): 6 (a) Real Estate. All of Grantor's estate, interest, rights, privileges and benefits (including, without limitation, any option to purchase fee simple title) existing under or created by that certain Indenture of Lease by and between Valdosta-Lowndes County Industrial Authority (as Lessor) and Sterling Pulp Chemicals US, Inc. (as Lessee) dated October 1, 1995, and recorded in Deed Book 1331, Page 27, Lowndes County, Georgia Records, with a Memorandum of Lease Agreement dated as of October 1, 1995, being recorded in Deed Book 1240, page 1, aforesaid records, as assigned by Sterling Pulp Chemicals US, Inc. to Grantor by instrument dated August 6, 1996, and recorded in Deed Book 1333, Page 123, and rerecorded in Deed Book 1349, Page 83, aforesaid records (collectively, the "Authority Lease") covering and affecting the Land, and all of Grantor's interest in and to all of the Land and all additional lands and estates therein now owned or hereafter-acquired by the Grantor for use or development with the Land or any portion thereof, together with all and singular the tenements, rights, easements, hereditaments, rights of way, privileges, liberties, appendages and appurtenances now or hereafter belonging or in any way pertaining to the Land and such additional lands and estates therein (including, without limitation, all rights relating to storm and sanitary sewer, water, gas, electric, railway and telephone services); all development rights, air rights, riparian rights, water, water rights, water stock, all rights in, to and with respect to any and all oil, gas, coal, minerals and other substances of any kind or character underlying or relating to the Land and such additional lands and estates therein and any interest therein; all estate, claim, demand, right, title or interest of the Grantor in and to any street, road, highway or alley, vacated or other, adjoining the Land or any part thereof and such additional lands and estates therein; all strips and gores belonging, adjacent or pertaining to the Land or such additional lands and estates; and any after-acquired property (herein collectively referred to as the "Real Estate"); (b) Improvements. All of Grantor's right, title and interest in and to all buildings, structures and other improvements and any additions and alterations thereto or replacements thereof, now or hereafter built, constructed or located upon the Real Estate; and, to the extent that any of the following items of property constitutes fixtures under applicable laws, all furnishings, fixtures, fittings, appliances, apparatus, equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever and all replacements thereof, now or hereafter affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Real Estate or such buildings, structures and other improvements, including, but not limited to, partitions, furnaces, boilers, oil burners, radiators and piping, plumbing and bathroom fixtures, refrigeration, heating, ventilating, air conditioning and sprinkler systems, other fire prevention and extinguishing apparatus and materials, vacuum cleaning systems, gas and electric fixtures, incinerators, compactors, elevators, engines, motors, generators and all other articles of property which are considered fixtures under applicable law (such buildings, structures and other improvements and such other property are herein collectively referred to as the "Improvements"; the Real Estate and the Improvements are herein collectively referred to as the "Property"); (c) Goods. All of Grantor's right, title and interest in and to all building materials, construction materials, appliances (including, without limitation, stoves, ranges, ovens, disposals, refrigerators, water fountains and coolers, fans, heaters, dishwashers, clothes washers and dryers, water heaters, hood and fan combinations, kitchen equipment, laundry equipment, kitchen cabinets and other similar equipment), stocks, supplies, blinds, window shades, drapes, carpets, floor coverings, manufacturing equipment and machinery, office equipment, growing plants and shrubberies, control devices, equipment (including window cleaning, building cleaning, swimming pool, recreational, monitoring, garbage, pest control and other equipment), motor vehicles, tools, furnishings, furniture, lighting, non-structural additions to the Real Estate and -2- 7 Improvements and all other tangible property of any kind or character, together with all replacements thereof, now or hereafter located on or in or used or useful in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Property, regardless of whether or not located on or in the Property or located elsewhere for purposes of storage, fabrication or otherwise (herein collectively referred to as the "Goods"); (d) [intentionally omitted]; (e) Leases. All rights of the Grantor in, to and under all leases (other than the Authority Lease), licenses, occupancy agreements, concessions and other arrangements, oral or written, now existing or hereafter entered into, whereby any Person agrees to pay money or any other consideration for the use, possession or occupancy of, or any estate in, the Property or any portion thereof or interest therein (herein collectively referred to as the "Leases"), and the right, subject to applicable law, upon the occurrence of any Event of Default hereunder, to receive and collect the Rents (as hereinafter defined) paid or payable thereunder; (f) Plans. All rights of the Grantor in and to all plans and specifications, designs, drawings and other information, materials and matters heretofore or hereafter prepared relating to the Improvements or any construction on the Real Estate (herein collectively referred to as the "Plans"); (g) Permits. All rights of the Grantor, to the extent assignable, in, to and under all permits, franchises, licenses, approvals and other authorizations respecting the use, occupation and operation of the Property and every part thereof and respecting any business or other activity conducted on or from the Property, and any product or proceed thereof or therefrom, including, without limitation, all building permits, certificates of occupancy and other licenses, permits and approvals issued by governmental authorities having jurisdiction (herein collectively referred to as the "Permits"); (h) Contracts. All right, title and interest of the Grantor, to the extent assignable, in and to all certificates, warranties, appraisals, engineering, environmental, soils, insurance and other reports and studies, books, records, correspondence, files and advertising materials, and other documents, now or hereafter obtained or entered into, as the case may be, pertaining to the construction, use, occupancy, possession, operation, management, leasing, maintenance and/or ownership of the Property and all right, title and interest of the Grantor therein (herein collectively referred to as the "Contracts"); (i) Leases of Furniture, Furnishings and Equipment. All right, title and interest of the Grantor as lessee in, to and under any leases of furniture, furnishings, equipment and any other Goods now or hereafter installed in or at any time used in connection with the Property; (j) Rents. All rents, issues, profits, royalties, avails, income and other benefits derived or owned, directly or indirectly, by the Grantor from the Property, including, without limitation, all rents and other consideration payable by tenants, claims against guarantors, and any cash or other securities deposited to secure performance by tenants, under the Leases (herein collectively referred to as "Rents"); (k) Proceeds. All proceeds of the conversion, voluntary or involuntary of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards (herein collectively referred to as "Proceeds"); and -3- 8 (l) Other Property. All other property and rights of the Grantor of every kind and character relating to the Property, and all proceeds and products of any of the foregoing, provided however, the Collateral shall not include any general intangibles or other rights arising under any contracts, instruments, licenses, or other documents as to which the grant of a lien and/or security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained; AND, without limiting any of the other provisions of this Deed, the Grantor expressly grants to the Grantee, as secured party, a security interest in all of those portions of the Collateral which are or may be subject to the State Uniform Commercial Code provisions applicable to secured transactions, subject, however, to the Permitted Encumbrances; TO HAVE AND TO HOLD the Collateral to the use, benefit and behoof of the Grantee, its successors, successors-in-title and assigns, forever, subject, however, to the Permitted Encumbrances. This Deed is intended to operate and is to be construed as a deed passing the title to the Collateral to Grantee and is made under those provisions of the existing laws of the State relating to deeds to secure debt and not as a mortgage, and is given to secure the payment of the Secured Obligations. FURTHER to secure the full, timely and proper payment and performance of the Secured Obligations, the Grantor hereby covenants and agrees with and warrants to the Grantee as follows: ARTICLE I COVENANTS AND AGREEMENTS OF THE GRANTOR SECTION 1.1. Payment of Secured Obligations. (i) The Grantor agrees that: (a) Grantor will duly and punctually pay and perform or cause to be paid and performed the Fixed Assets Loans (some or all of which Fixed Assets Loans are evidenced by Fixed Assets Notes ) at the time and in accordance with the Loan Documents pertaining to the Fixed Assets Loans, which Fixed Assets Loans shall not exceed the maximum principal amount of Seventy Million and 00/100 Dollars ($70,000,000) and all of which Fixed Assets Loans have a Stated Maturity Date of July 23, 2004, and (b) when and as due and payable from time to time in accordance with the terms of this Deed or of any other Loan Documents pertaining to the Fixed Assets Loans, pay and perform, or cause to be paid and performed, all other Secured Obligations. SECTION 1.2. Title to Collateral, etc. The Grantor represents and warrants to and covenants with the Grantee that: (a) except as otherwise permitted by the terms of the Credit Agreement, as of the date hereof and at all times hereafter while this Deed is outstanding, the Grantor (1) is and shall be the absolute owner of the legal and beneficial title to the applicable interest in the Property and to all other property included in the Collateral, and (2) has and shall have good and sufficient easement or leasehold estate, as currently represented in the granting clause as of the date hereof, to the Property, subject in each case only to this Deed, the liens expressly permitted pursuant to the terms of the Credit Agreement and the encumbrances set forth in Schedule 2 hereto (collectively, the "Permitted Encumbrances"); -4- 9 (b) the Grantor has good and lawful right, power and authority to execute this Deed and to convey, transfer, assign, set over and grant the security title to and a security interest in the Collateral, all as provided herein; (c) this Deed has been duly executed, acknowledged and delivered on behalf of the Grantor, all consents and other actions required to be taken by the officers, directors, shareholders and partners, as the case may be, of the Grantor have been duly and fully given and performed and this Deed constitutes the legal, valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms; and (d) the Grantor, at its expense, will warrant and defend to the Grantee and any purchaser under the power of sale herein or at any foreclosure sale such title to the Collateral and the first security title and first priority perfected security interest of this Deed thereon and therein against all claims and demands and will maintain, preserve and protect such security title and security interest and will keep this Deed a valid, direct first security title of record on the Property and a first priority perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. SECTION 1.3. Title Insurance. SECTION 1.3.1. Title Insurance Policy. Concurrently with the execution and delivery of this Deed, the Grantor, at its expense, has obtained and delivered to the Grantee a loan policy or policies of title insurance in an amount, and in form and substance, reasonably satisfactory to the Grantee naming the Grantee as the insured, insuring the title to and the first security title of this Deed on the Property, with endorsements reasonably requested by the Grantee. The Grantor has duly paid in full all premiums and other charges due in connection with the issuance of such policy or policies of title insurance. SECTION 1.3.2. Title Insurance Proceeds. All proceeds received by and payable to the Grantee for any loss under the loan policy or policies of title insurance delivered to the Grantee pursuant to Section 1.3.1, or under any policy or policies of title insurance delivered to the Grantee in substitution therefor or replacement thereof, shall be the property of the Grantee and shall be applied by the Grantee in accordance with the provisions of Section 2.3. SECTION 1.4. Recordation. The Grantor, at its expense, will at all times cause this Deed and any instruments amendatory hereof or supplemental hereto and any instruments of assignment hereof or thereof (and any appropriate financing statements or other instruments and continuations thereof), and each other instrument delivered in connection with the Fixed Assets Loans, the Credit Agreement or any other Loan Document pertaining to the Fixed Assets Loans and intended thereunder to be recorded, registered and filed, to be kept recorded, registered and filed, in such manner and in such places, and will pay all such recording, registration, filing fees, taxes and other charges, and will comply with all such statutes and regulations as may be required by law in order to establish, preserve, perfect and protect the security title and security interest of this Deed as a valid, direct first security title on the Property and first priority perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. The Grantor will pay or cause to be paid, and will indemnify the Grantee in respect of, all taxes (including interest and penalties) at any time payable in connection with the filing and recording of this Deed and any and all supplements and amendments hereto. SECTION 1.5. Payment of Impositions, etc. Subject to Section 1.8 (relating to permitted contests), the Grantor will pay or cause to be paid before the same would become delinquent and before any fine, penalty, interest or cost may be added for non-payment, all taxes, assessments, water and sewer rates, charges, license fees, inspection fees and other governmental levies or payments, of every kind and -5- 10 nature whatsoever, general and special, ordinary and extraordinary, unforeseen as well as foreseen, which at any time may be assessed, levied, confirmed, imposed or which may become a lien upon the Collateral, or any portion thereof, or which are payable with respect thereto, or upon the rents, issues, income or profits thereof, or on the occupancy, operation, use, possession or activities thereof, whether any or all of the same be levied directly or indirectly or as excise taxes or as income taxes, and all taxes, assessments or charges which may be levied on the Secured Obligations, or the interest thereon (collectively, the "Impositions"). The Grantor will deliver to the Grantee, upon request, copies of official receipts or other satisfactory proof evidencing such payments. SECTION 1.6. Insurance and Legal Requirements. Subject to Section 1.8 (relating to permitted contests), the Grantor, at its expense, will comply in all material respects, or cause compliance in all material respects with (a) all provisions of any insurance policy covering or applicable to the Collateral or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Collateral or any part thereof or any use or condition of the Collateral or any part thereof (collectively, the "Insurance Requirements"); and (b) all laws, including Environmental Laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Collateral or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Collateral or any part thereof (collectively, the "Legal Requirements"); noncompliance of which could reasonably be expected to cause a Material Adverse Effect whether or not compliance therewith shall require structural changes in or interference with the use and enjoyment of the Collateral or any part thereof. SECTION 1.7. Security Interests, etc. The Grantor will not directly or indirectly create or permit or suffer to be created or to remain, and will promptly discharge or cause to be discharged, any deed to secure debt, deed of trust, mortgage, encumbrance or charge on, pledge of, security interest in or conditional sale or other title retention agreement with respect to or any other lien or security interest or security title on or in the Collateral or any part thereof or the interest of the Grantor or the Grantee therein, or any Proceeds thereof or Rents or other sums arising therefrom, other than (a) Permitted Encumbrances, and (b) liens of mechanics, materialmen, suppliers or vendors or rights thereto incurred in the ordinary course of the business of the Grantor for sums not yet due or any such liens or rights thereto which are at the time being contested as permitted by Section 1.8. The Grantor will not postpone the payment of any sums for which liens of mechanics, materialmen, suppliers or vendors or rights thereto have been incurred (unless such liens or rights thereto are at the time being contested as permitted by Section 1.8), for more than 60 days after the completion of the action giving rise to such liens or rights thereto. SECTION 1.8. Permitted Contests. The Grantor at its expense may contest, or cause to be contested, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition, Legal Requirement or Insurance Requirement or lien of a mechanic, materialman, supplier or vendor, provided that, (a) in the case of an unpaid Imposition, lien, encumbrance or charge, such proceedings shall suspend the collection thereof -6- 11 from the Grantor, the Grantee, and the Collateral (including any rent or other income therefrom) and shall not materially interfere with the payment of any such rent or income, (b) neither the Collateral nor any rent or other income therefrom nor any part thereof or interest therein would be in any material danger of being sold, forfeited, lost, impaired or interfered with, (c) in the case of a Legal Requirement, neither the Grantor nor the Grantee would be in material danger of any civil or criminal liability for failure to comply therewith, (d) the Grantor shall have furnished such security, if any, as may be required in the proceedings or as may be reasonably requested by the Grantee, (e) the non-payment of the whole or any part of any Imposition will not result in the delivery of a tax deed to the Collateral or any part thereof because of such non-payment, (f) the payment of any sums required to be paid with respect to any of the Fixed Asset Notes or under this Deed (other than any unpaid Imposition, lien, encumbrance or charge at the time being contested in accordance with this Section 1.8) shall not be interfered with or otherwise affected, (g) in the case of any Insurance Requirement, the failure of the Grantor to comply therewith shall not affect the validity of any insurance required to be maintained by the Grantor under Section 2.1, and (h) that adequate reserves, determined in accordance with GAAP, shall have been set aside on the Grantor's books. SECTION 1.9. Leases. The Grantor represents and warrants to the Grantee that, as of the date hereof, there are no written or oral leases or other agreements of any kind or nature relating to the occupancy of any portion of the Property by any Person other than the Grantor other than the Permitted Encumbrances. Except as is permitted by the Credit Agreement, the Grantor will not enter into any such written or oral lease or other agreement with respect to any portion of the Property without first obtaining the written consent of the Grantee. SECTION 1.10. Compliance with Instruments. The Grantor at its expense will promptly comply in all material respects with all rights of way or use, privileges, franchises, servitudes, licenses, easements, tenements, hereditaments and appurtenances forming a part of the Property and all instruments creating or evidencing the same, in each case, to the extent compliance therewith is required of the Grantor under the terms thereof. Except as is permitted by the Credit Agreement, the Grantor will not take any action which may result in a forfeiture or termination of the rights afforded to the Grantor under any such instruments and will not, without the prior written consent of the Grantee, amend any of such instruments in any manner adverse to the Fixed Assets Lenders in any material respect. SECTION 1.11. Maintenance and Repair, etc. Subject to the provisions of Section 1.12, the Grantor will keep or cause to be kept all presently and subsequently erected or acquired Improvements and the sidewalks, curbs, vaults and vault space, if any, located on or adjoining the same, and the streets and the ways adjoining the same, in good and substantial order and repair and in such a fashion that neither the value nor utility of the Collateral will be diminished, and, at its sole cost and expense, will promptly make or cause to be made all necessary and appropriate repairs, replacements and renewals thereof, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen, so that its business carried on in connection therewith may be properly conducted at all times. The Grantor at its expense will do or cause to be done all shoring of foundations and walls of any building or other Improvements on the Property and (to the extent permitted by law) of the ground adjacent thereto, and every other act necessary or appropriate for the preservation and safety of the Property by reason of or in connection with any excavation or other building operation upon the Property and upon any adjoining property, whether or not the Grantor shall, by any Legal Requirement, be required to take such action or be liable for failure to do so. SECTION 1.12. Alterations, Additions, etc. So long as no Event of Default shall have occurred and be continuing, the Grantor shall have the right at any time and from time to time to make or cause to be made reasonable alterations of and additions to the Property or any part thereof, provided that any alteration or addition: (a) shall not change the general character or the use of the Property or reduce the -7- 12 fair market value thereof below its value immediately before such alteration or addition, or impair the usefulness of the Property; (b) is effected with due diligence, in a good and workmanlike manner and in compliance in all material respects with all Legal Requirements and Insurance Requirements; (c) subject to Section 1.8 is promptly and fully paid for, or caused to be paid for, by the Grantor; and (d) is made, in case the estimated cost of such alteration or addition exceeds U.S. $1,000,000, under the supervision of a qualified architect or engineer or another professional. SECTION 1.13. Acquired Property Subject to Security Title/Security Interest. Subject to the Permitted Encumbrances and except as otherwise permitted by the Credit Agreement, all property at any time acquired by the Grantor and provided or required by this Deed to be or become subject to the security title and security interest hereof, whether such property is acquired by exchange, purchase, construction or otherwise, shall forthwith become subject to the security title and security interest of this Deed without further action on the part of the Grantor or the Grantee. The Grantor, at its expense, will execute and deliver to the Grantee (and will record and file as provided in Section 1.4) an instrument supplemental to this Deed reasonably satisfactory in substance and form to the Grantee, whenever such an instrument is necessary under applicable law to subject to the security title and security interest of this Deed all right, title and interest of the Grantor in and to all property provided or required by this Deed to be subject to the security title and security interest hereof. SECTION 1.14. Assignment of Rents, Proceeds, etc. The assignment, grant and conveyance of the Leases, Rents, Proceeds and other rents, income, proceeds and benefits of the Collateral contained in the granting clause of this Deed constitutes an absolute, present and irrevocable assignment, grant and conveyance, provided, however, that a revocable license is hereby given to the Grantor, so long as no Event of Default has occurred and be continuing hereunder, to collect, receive and apply such Rents, Proceeds and other rents, income, proceeds and benefits as they become due and payable, but not further in advance thereof than is customary, and in accordance with all of the other terms, conditions and provisions hereof, of the Loan Documents, and of the Leases, contracts, agreements and other instruments with respect to which such payments are made or such other benefits are conferred. Upon the occurrence and continuance of an Event of Default, such license shall terminate immediately and automatically, without notice to the Grantor or any other Person except as required by law, and shall not be reinstated upon a cure of such Event of Default without the express written consent of the Grantee. Such assignment shall be fully effective without any further action on the part of the Grantor or the Grantee and the Grantee shall be entitled, at its option, upon the occurrence and continuance of an Event of Default hereunder, to collect, receive and apply all Rents, Proceeds and all other rents, income, proceeds and benefits from the Collateral, including all right, title and interest of the Grantor in any escrowed sums or deposits or any portion thereof or interest therein, whether or not the Grantee takes possession of the Collateral or any part thereof. The Grantor further grants to the Grantee the right, at the Grantee's option, upon the occurrence and continuance of an Event of Default hereunder, to: (a) enter upon and take possession of the Property for the purpose of collecting Rents, Proceeds and said rents, income, proceeds and other benefits; (b) dispossess by the customary summary proceedings any tenant, purchaser or other Person defaulting in the payment of any amount when and as due and payable, or in the performance of any other obligation, under any Lease, contract or other instrument to which said Rents, Proceeds or other rents, income, proceeds or benefits relate; (c) let or convey the Collateral or any portion thereof or any interest therein; and -8- 13 (d) apply Rents, Proceeds and such rents, income, proceeds and other benefits, after the payment of all necessary fees, charges and expenses, on account of the Secured Obligations in accordance with Section 3.11. SECTION 1.15. No Claims Against the Grantee. Nothing contained in this Deed shall constitute any consent or request by the Grantee, express or implied, for the performance of any labor or the furnishing of any materials or other property in respect of the Property or any part thereof, or be construed to permit the making of any claim against the Grantee in respect of labor or services or the furnishing of any materials or other property or any claim that any lien based on the performance of such labor or the furnishing of any such materials or other property is prior to the security title and security interest of this Deed. ALL CONTRACTORS, SUBCONTRACTORS, VENDORS AND OTHER PERSONS DEALING WITH THE PROPERTY, OR WITH ANY PERSONS INTERESTED THEREIN, ARE HEREBY REQUIRED TO TAKE NOTICE OF THE PROVISIONS OF THIS SECTION. SECTION 1.16. Indemnification. The Grantor will protect, indemnify, save harmless and defend the Grantee, the Fixed Assets Lenders, and each of their respective officers, directors, shareholders, employees, representatives and agents (collectively, the "Indemnified Parties" and individually, an "Indemnified Party"), from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against any Indemnified Party by reason of (a) ownership of an interest in this Deed, any other Loan Document pertaining to the Fixed Assets Loans or the Property, (b) any accident, injury to or death of persons or loss of or damage to or loss of the use of property occurring on or about the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (c) any use, non-use or condition of the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (d) any failure on the part of the Grantor to perform or comply with any of the terms of this Deed or any Loan Document pertaining to the Fixed Assets Loans, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Collateral or any part thereof made or suffered to be made by or on behalf of the Grantor, (f) any negligence or tortious act on the part of the Grantor or any of its agents, contractors, lessees, licensees or invitees, (g) any work in connection with any alterations, changes, new construction or demolition of or additions to the Property, or (h) (i) any Hazardous Material on, in, under or affecting all or any portion of the Property, the groundwater, or any surrounding areas, (ii) any misrepresentation, inaccuracy or breach of any warranty, covenant or agreement contained or referred to in Sections 1.21 and 1.22, (iii) any violation or claim of violation by the Grantor of any Environmental Laws, or (iv) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of any Hazardous Material, except to the extent that any of the matters described in subsections (a)-(h) arise out of the gross negligence or willful misconduct of any Indemnified Party. If any action or proceeding be commenced, to which action or proceeding any Indemnified Party is made a party by reason of the execution of this Deed or any other Loan Document pertaining to the Fixed Assets Loans, or in which it becomes necessary to defend or uphold the lien of this Deed, all sums paid by the Indemnified Parties, for the expense of any litigation to prosecute or defend the rights and lien created hereby or otherwise, shall be paid by the Grantor to such Indemnified Parties, as the case may be, as hereinafter provided. The Grantor will pay and save the Indemnified Parties harmless against any and all liability with respect to any intangible personal property tax or similar imposition of the State or any subdivision or authority thereof now or hereafter in effect, to the extent that the same may be payable by the Indemnified Parties in respect of this Deed, any Loan Document pertaining to the Fixed Assets Loans or any Secured Obligation. All amounts payable to the Indemnified Parties under this Section 1.16 shall be deemed indebtedness secured by this Deed and any such amounts which are not paid within ten (10) days after written demand therefor by any Indemnified Party shall bear interest at the rate provided for in Section 3.2.2 of the Credit Agreement from the date of such demand. In case any action, suit or proceeding is brought against any Indemnified Party by reason -9- 14 of any such occurrence, the Grantor, upon request of such Indemnified Party, will, at the Grantor's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel designated by the Grantor and approved by such Indemnified Party. The obligations of the Grantor under this Section 1.16 shall survive any cancellation and surrender of this Deed. SECTION 1.17. No Credit for Payment of Taxes. The Grantor shall not be entitled to any credit against the Secured Obligations by reason of the payment of any tax on the Property or any part thereof or by reason of the payment of any other Imposition, and shall not apply for or claim any deduction from the taxable value of the Property or any part thereof by reason of this Deed. SECTION 1.18. Intentionally Omitted SECTION 1.19. No Transfer of the Property. Except as is provided in the Credit Agreement, and except for the Permitted Encumbrances, the Grantor shall not, without the prior written consent of the Grantee, which consent may be granted or withheld in the sole and absolute discretion of the Grantee (i) sell, convey, assign or otherwise transfer the Property or any portion of the Grantor's interest therein or (ii) further encumber the Property or permit the Property to become encumbered by any lien, claim, security title, security interest or other indebtedness of any kind or nature other than the Permitted Encumbrances. SECTION 1.20 Security Agreement. With respect to the items of personal property and fixtures referred to and described in the granting clause of this Deed and included as part of the Collateral, this Deed is hereby made and declared to be a security agreement encumbering each and every item of personal property and fixtures now or hereafter owned by Grantor and included herein as a part of the Collateral, in compliance with the provisions of the Uniform Commercial Code as enacted in the State. In this respect, Grantor, as "Debtor", expressly grants to Grantee, as "Secured Party", a security interest in and to all of the property now or hereafter owned by Grantor which constitutes the personal property and fixtures hereinabove referred to and described in this Deed, including all extensions, accessions, additions, improvements, betterments, renewals, replacements and substitutions thereof or thereto, and all proceeds from the sale or other disposition thereof. Grantor agrees to execute and deliver to Grantee, upon Grantee's request, any other security agreement and financing statements, as well as extensions, renewals, and amendments thereof, in such form as Grantee may reasonably require to perfect a security interest with respect to said items. Grantor shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements Grantee may reasonably require. Except as is provided in the Credit Agreement, and except for the Permitted Encumbrances, without the prior written consent of Grantee, Grantor shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the above-described personal property and fixtures, including any replacements and additions thereto. Upon the occurrence and continuance of an Event of Default under this Deed, the Grantee shall have and shall be entitled to exercise any and all of the rights and remedies (i) as prescribed in this Deed, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory provisions now or hereafter enacted and specified in said Uniform Commercial Code, all at Grantee's sole election. Grantor and Grantee agree that the filing of any financing statements in the records normally having to do with personal property shall not in any way affect the agreement of Grantor and Grantee that everything located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of, the Collateral, which is described or reflected as a fixture in this Deed, is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be, regarded as part of the Real Estate conveyed hereby. Grantor warrants that Grantor's name, identity and address are as set forth herein. The mailing address of the Grantee from which information may be obtained concerning the security interest created herein is also set forth herein. -10- 15 SECTION 1.21. Representations and Warranties. In order to induce the Grantee to enter into this Deed, the Credit Agreement and the other Loan Documents pertaining to the Fixed Assets Loans, the Grantor agrees that all of the representations and warranties of Grantor set forth in the Credit Agreement are incorporated into this Deed by reference as if fully set forth herein. SECTION 1.22. Grantor's Covenants. In order to induce the Grantee to enter into this Deed, the Credit Agreement and the other Loan Documents, the Grantor agrees that all of the covenants of Grantor set forth in the Credit Agreement are incorporated into this Deed by reference as if fully set forth herein. SECTION 1.23. Attornment. Grantee hereby acknowledges and agrees that the security title and security interest granted herein are subject to the rights of certain lessees under the Leases as disclosed in the Credit Agreement and will be subject to the rights of lessees under any Leases entered into by Grantor after the date hereof which are permitted as Permitted Real Estate Liens pursuant to the Credit Agreement, subject to the express rights contained in the applicable Lease. The rights of the tenants under the Leases to the leased premises shall not be adversely affected by the exercise by Grantee of any of its rights hereunder, nor shall any such tenant be in any way deprived of its rights under the applicable Lease except in accordance with the terms of such Lease. In the event that Grantee succeeds to the interest of Grantor under a Lease, such Lease shall not be terminated or affected thereby except as set forth therein, and any sale of the applicable leased premises by Grantee or pursuant to the judgment of any court in an action to enforce the remedies provided for in this Deed shall be made subject to such Lease and the rights of such tenant expressly set forth thereunder. If Grantee succeeds to the interests of Grantor in and to the applicable leased premises or under such Lease or enters into possession of such leased premises, the Grantee, and such tenants, shall be bound to each other under all of the express terms, covenants and conditions of such Lease, as if the Grantee was originally the Grantor as lessor thereunder. ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. SECTION 2.1. Insurance. SECTION 2.1.1. Risks to be Insured. The Grantor will, at its expense, maintain or cause to be maintained with insurance carriers approved by the Grantee (a) insurance with respect to the Improvements against loss or damage by fire, lightning and such other risks as are included in standard "all-risk" policies, in amounts sufficient to prevent the Grantor and the Grantee from becoming a co-insurer of any partial loss under the applicable policies, but in any event in amounts not less than the then full insurable value (actual replacement value) of the Improvements, as determined by the Grantor in accordance with generally accepted insurance practice and approved by the Grantee or, at the request of the Grantee, as determined at the Grantor's expense by the insurer or insurers or by an expert approved by the Grantee, (b) comprehensive public liability, including bodily injury and product liability and property damage, insurance, with personal injury endorsements, applicable to the Property in such amounts as are customarily carried by Persons operating similar properties in the same general locality, but in any event with a combined single limit of not less than Twenty Million Dollars ($20,000,000) per occurrence, (c) explosion insurance in respect of any steam and pressure boilers and similar apparatus located in the Property in such amounts as are usually carried by persons operating similar properties in the same general locality, but in any event in an amount not less than Twenty Million Dollars ($20,000,000), (d) business interruption insurance (including added expense coverage) against all insurable perils for a period of not fewer than twelve (12) months (subject to a reasonable aggregate deductible not exceeding ten (10) days per any occurrence), (e) worker's compensation insurance to the full extent required by applicable law for all employees of the Grantor engaged in any work on or about the Property and -11- 16 employer's liability insurance with a limit of not less than Ten Million Dollars ($10,000,000) for each occurrence, (f) all-risk, builders' risk insurance with respect to the Property during any period during which there is any construction work being performed, against loss or damage by fire or other risks, including vandalism, malicious mischief and sprinkler leakage, as are included in so-called "extended coverage" clauses at the time available and (g) such other insurance with respect to the Property in such amounts and against such insurable hazards as the Grantee from time to time may reasonably require by written notice to the Grantor. SECTION 2.1.2. Policy Provisions. All insurance maintained by the Grantor pursuant to Section 2.1.1 shall (a) (except for worker's compensation insurance) list the Grantee as an additional insured as its interests may appear, (b) (except for worker's compensation and public liability insurance) provide that the proceeds for any losses shall be adjusted by the Grantor subject to the approval of the Grantee in the event the proceeds shall exceed $1,000,000, and shall be payable to the Grantee, to be held and applied as provided in Section 2.3, (c) include effective waivers by the insurer of all rights of subrogation against any named insured, the indebtedness secured by this Deed and the Property and all claims for insurance premiums against the Grantee, (d) (except for worker's compensation and public liability insurance) provide that any losses shall be payable notwithstanding (i) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms thereof, (iii) any foreclosure or other action or proceeding taken by the Grantee pursuant to any provision of this Deed, or (iv) any change in title or ownership of the Property, (e) provide that no cancellation, reduction in amount or material change in coverage thereof or any portion thereof shall be effective until at least thirty (30) days after receipt by the Grantee of written notice thereof, (f) provide that any notice under such policies shall be simultaneously delivered to the Grantee, and (g) be satisfactory in all other reasonable respects to the Grantee. Any insurance maintained pursuant to this Section 2.1 may be evidenced by blanket insurance policies covering the Property and other properties or assets of the Grantor, provided that any such policy shall specify the portion, if less than all, of the total coverage of such policy that is allocated to the Property and shall in all other respects comply with the requirements of this Section 2.1. SECTION 2.1.3. Delivery of Policies, etc. The Grantor will deliver to the Grantee, promptly upon request, (a) certificates of all policies evidencing all insurance required to be maintained under Section 2.1.1 (or, in the case of blanket policies, certificates thereof by the insurers together with a counterpart of each blanket policy), and (b) evidence as to the payment of all premiums due thereon (with respect to public liability insurance policies, all installments for the current year due thereon to such date), provided that the Grantee shall not be deemed by reason of its custody of such policies to have knowledge of the contents thereof. The Grantor will also deliver to the Grantee prior to the expiration of any policy a binder or certificate of the insurer evidencing the replacement thereof and when the new policy is issued a certificate of the new policy (or, in the case of a replacement blanket policy, a certificate thereof of the insurer together with a counterpart of the blanket policy). In the event the Grantor shall fail to effect or maintain any insurance required to be effected or maintained pursuant to the provisions of this Section 2.1, the Grantor will indemnify the Grantee against damage, loss or liability resulting from all risks for which such insurance should have been effected or maintained. SECTION 2.1.4. Separate Insurance. The Grantor will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Section 2.1. -12- 17 SECTION 2.2. Damage, Destruction or Taking; Grantor to Give Notice; Assignment of Awards. In case of (a) any material damage to or destruction of the Collateral or any material part thereof, or (b) any taking, whether for permanent or temporary use, of all or any material part of the Collateral or any material interest therein or material right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain, or a change of grade affecting the Collateral or any portion thereof (a "Taking"), or the commencement of any proceedings or negotiations which may result in a Taking, the Grantor will promptly give written notice thereof to the Grantee, generally describing the nature and extent of such damage or destruction and the Grantor's best estimate of the cost of restoring the Collateral, or the nature of such proceedings or negotiations and the nature and extent of the Taking which might result therefrom, as the case may be. The Grantee shall be entitled to all insurance proceeds payable on account of such damage or destruction and to all awards or payments allocable to the Collateral on account of such Taking up to the amount of the Secured Obligations, and the Grantor hereby irrevocably assigns, transfers and sets over to the Grantee all rights of the Grantor to any such proceeds, awards or payments and irrevocably authorizes and empowers the Grantee, at its option, in the name of the Grantor or otherwise, to file and prosecute what would otherwise be the Grantor's claim for any such proceeds, award or payment and to collect, receipt for and retain the same for disposition in accordance with Section 2.3. The Grantor will pay all reasonable costs and expenses incurred by the Grantee in connection with any such damage, destruction or Taking and seeking and obtaining any insurance proceeds, awards or payments in respect thereof. SECTION 2.3. Application of Proceeds and Awards. The Grantee may, at its option, apply all amounts recovered under any insurance policy required to be maintained by the Grantor hereunder and all awards received by it on account of any Taking in any one or more of the following ways: (a) to the payment of the reasonable costs and expenses incurred by the Grantee in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) to the payment of the principal of the Fixed Asset Loans and any interest (including post-petition interest payable in any proceedings for bankruptcy under applicable law ("Post-Petition Interest") to the extent such interest is a Secured Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured; and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued on the Fixed Asset Loans and unpaid, second, to the payment of all amounts of principal at the time outstanding; (c) to the payment of, or the application to, any Secured Obligation (other than as provided in clause (b) above); (d) to fulfill any of the other covenants contained herein, in the Credit Agreement pertaining to the Fixed Assets Loans, or in any other Loan Document pertaining to the Fixed Assets Loans, as the Grantee may determine in its sole discretion; -13- 18 (e) to the Grantor for application to the cost of restoring the Collateral and the replacement of Goods destroyed, damaged or taken; or (f) to the Grantor. Notwithstanding the foregoing provisions of this Section 2.3 to the contrary (but subject to the provisions of Section 2.4), and if each of the following conditions is satisfied, the Grantee, upon request of the Grantor, shall apply insurance proceeds or condemnation awards received by it to the restoration or replacement of the Collateral, to the extent necessary for the restoration or replacement thereof: (i) there shall then exist no uncured Event of Default; (ii) the Grantor shall furnish to the Grantee a certificate of an architect or engineer reasonably acceptable to the Grantee stating (x) that the Collateral is capable of being restored, prior to the maturity of the Credit Agreement, to substantially the same condition as existed prior to the casualty or Taking, (y) the aggregate estimated direct and indirect costs of such restoration and (z) as to any Taking, that the property taken in such Taking, or sold under threat thereof, is not necessary to the Grantor's customary use or occupancy of the Property or Grantor otherwise provides Grantee adequate assurance that the Collateral can be restored or is not necessary to Grantor's customary use or occupancy of the Property; and (iii) in the event that the estimated cost of restoration set forth in the certificate of such architect or engineer (and such revisions to such estimate as are from time to time made) exceeds the net insurance proceeds or condemnation awards actually received from time to time, the Grantor shall deposit the amount of such excess with the Grantee. In the event that such insurance proceeds or condemnation awards are to be utilized in the restoration of the Collateral, the Grantee shall disburse such Proceeds and the additional amounts deposited by the Grantor for such restoration after receipt of a written request for disbursement, on not fewer than five (5) nor more than twelve (12) Business Days notice and, to the extent applicable, in accordance with the Grantee's customary construction loan procedures and conditions. In the event that such insurance or condemnation awards are to be utilized to replace the Collateral so destroyed or taken, the Grantee shall disburse such Proceeds after receipt of a written request for disbursement, on not fewer than five (5) Business Days nor more than twelve (12) Business Days notice simultaneously with the acquisition of such replacement property by the Grantor. In the event that, after the restoration or replacement of the Collateral, any insurance or condemnation awards shall remain, such amount shall be paid to the Grantor. Insurance proceeds and condemnation awards shall be invested in the manner reasonably requested by the Grantor and approved by the Grantee, and all interest earned thereon shall be applied as provided in this Section 2.3. If, prior to the receipt by the Grantee of such insurance proceeds or condemnation awards, the Collateral shall have been sold on foreclosure, the Grantee shall have the right to receive said insurance proceeds or condemnation awards to the extent of any deficiency found to be due upon such sale, with legal interest thereon, whether or not a deficiency judgment shall have been sought or recovered or denied, and the reasonable attorneys' fees, costs and disbursements incurred by the Grantee in connection with the collection of such award or payment. SECTION 2.4. Total Taking and Total Destruction. In the event of a Total Destruction or a Total Taking, the Grantee shall apply all amounts recovered under any insurance policy referred to in Section 2.1.1 and all awards received by it on account of any such Taking as follows: -14- 19 (a) first, to the payment of the reasonable costs and expenses incurred by the Grantee in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) second, to the payment of the principal of the Fixed Assets Loans and any interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured; and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) accrued on the Fixed Assets Loans and unpaid, and second, to the payment of all amounts of principal at the time outstanding; (c) third, to the payment of, or the application to, any Secured Obligation (other than as provided in clause (b) above); (d) fourth, to fulfill any of the other covenants contained herein as the Grantee may determine; and (e) fifth, the balance, if any, to the Grantor. ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration. If an "Event of Default" (pursuant to and as defined in the Credit Agreement) shall have occurred and be continuing, then and in any such event the Grantee may at any time thereafter (unless all Events of Default shall theretofore have been remedied and all costs and expenses, including, without limitation, attorneys' fees and expenses incurred by or on behalf of the Grantee, shall have been paid in full by the Grantor) declare, by written notice to the Grantor, the Fixed Assets Loans and all other Secured Obligations to be due and payable immediately or on a date specified in such notice (provided that, upon the occurrence of any Event of Default described in Section 8.1.9 of the Credit Agreement, the Fixed Assets Loans and all other Secured Obligations shall automatically become due and payable), and on such date the same shall be and become due and payable, together with interest accrued thereon, without presentment, demand, protest or notice, all of which the Grantor hereby waives. The Grantor will pay on demand all costs and expenses, including, without limitation, attorneys' fees and expenses, incurred by or on behalf of the Grantee in enforcing this Deed, or any other Loan Document evidencing or securing the Fixed Assets Loans, or occasioned by any default hereunder or thereunder. SECTION 3.2. Legal Proceedings; Judicial Foreclosure. If an Event of Default shall have occurred and be continuing, the Grantee at any time may, at its election, proceed at law or in equity or otherwise to enforce the payment and performance of the Secured Obligations in accordance with the terms hereof and thereof and to foreclose the security title of this Deed as against all or any part of the Collateral and to have the same sold under the judgment or decree of a court of competent jurisdiction. The Grantee shall be entitled to recover in such proceedings all costs incident thereto, including attorneys' fees and expenses in such amounts as may be fixed by the court. -15- 20 SECTION 3.3. Power of Sale. If an Event of Default shall have occurred and be continuing, Grantee, at its option, may sell the Collateral or any part of the Collateral at one or more public sale or sales before the door of the courthouse of the county in which the Land or any part of the Land is situated, to the highest bidder for cash, in order to pay the Secured Obligations, and all expenses of sale and of all proceedings in connection therewith, including attorney's fees, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff's sales are advertised in said county. At any such public sale, Grantee may execute and deliver to the purchaser a conveyance of the Collateral or any part of the Collateral, and to this end, Grantor hereby constitutes and appoints Grantee the agent and attorney-in-fact of Grantor to make such sale and conveyance, and thereby to divest Grantor of all right, title and equity that Grantor may have in and to the Collateral and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Grantor. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the Secured Obligations and shall not be exhausted by one exercise thereof but may be exercised until full payment of all of the Secured Obligations. In the event of any sale under this Deed by virtue of the exercise of the powers herein granted, or pursuant to any order in any judicial proceeding or otherwise, the Collateral may be sold as an entirety or in separate parcels and in such manner or order as Grantee in its sole discretion may elect. One or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Collateral is sold or the Secured Obligations paid in full. If the Secured Obligations are now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Grantee may at its option exhaust the remedies granted under any of said security instruments either concurrently or independently, and in such order as Grantee may determine. Upon any public foreclosure sale or sales of all or any portion of the Collateral under the power herein granted, Grantee may bid for and purchase the Collateral and shall be entitled to apply all or any part of the Secured Obligations as a credit to the purchase price. In the event of any such public foreclosure sale or sales under the power herein granted, Grantor shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. SECTION 3.4. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Grantee may exercise from time to time and at any time any rights and remedies available to it under applicable law upon default in the payment of indebtedness, including, without limitation, any right or remedy available to it as a secured party under the Uniform Commercial Code of the State. The Grantor shall, promptly upon request by the Grantee, assemble the Collateral, or any portion thereof generally described in such request, and make it available to the Grantee at such place or places designated by the Grantee and reasonably convenient to the Grantee or the Grantor. If the Grantee elects to proceed under the Uniform Commercial Code of the State to dispose of portions of the Collateral, the Grantee, at its option, may give the Grantor notice of the time and place of any public sale of any such property, or of the date after which any private sale or other disposition thereof is to be made, by sending notice by registered or certified first class mail, postage prepaid, to the Grantor at least ten (10) days before the time of the sale or other disposition. If any notice of any proposed sale, assignment or transfer by the Grantee of any portion of the Collateral or any interest therein is required by law, the Grantor conclusively agrees that ten (10) days notice to the Grantor of the date, time and place (and, in the case of a private sale, the terms) thereof is reasonable. SECTION 3.5. Grantee Authorized to Execute Deeds, etc. The Grantor irrevocably appoints the Grantee (which appointment is coupled with an interest and is irrevocable by death or otherwise) the true and lawful attorney-in-fact of the Grantor, in its name and stead and on its behalf, for the purpose of -16- 21 effectuating any sale, assignment, transfer or delivery for the enforcement hereof, whether pursuant to power of sale, foreclosure or otherwise, to execute and deliver all such deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request. SECTION 3.6. Purchase of Collateral by Grantee. The Grantee may be a purchaser of the Collateral or of any part thereof or of any interest therein at any public sale thereof, whether pursuant to power of sale, foreclosure or otherwise, and the Grantee may apply upon the purchase price thereof the indebtedness secured hereby owing to the Grantee. Such purchaser shall, upon any such purchase, acquire good title to the properties so purchased, free of the security interest and security title of this Deed and free of all rights of redemption in the Grantor. SECTION 3.7. Receipt a Sufficient Discharge to Purchaser. Upon any sale of the Collateral or any part thereof or any interest therein, whether pursuant to power of sale, foreclosure or otherwise, the receipt of the Grantee or the officer making the sale under judicial proceedings shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obliged to see to the application thereof. SECTION 3.8. Waiver of Appraisement, Valuation, etc. The Grantor hereby waives, to the fullest extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Collateral or any part thereof or any interest therein. SECTION 3.9. Sale a Bar Against Grantor. Any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Deed, whether pursuant to power of sale, foreclosure or otherwise, shall forever be a bar against the Grantor. SECTION 3.10. Secured Obligations to Become Due on Sale. Except as otherwise provided in the Credit Agreement, upon any sale of the Collateral or any portion thereof or interest therein by virtue of the exercise of any remedy by the Grantee under or by virtue of this Deed, whether pursuant to power of sale, foreclosure or otherwise in accordance with this Deed or by virtue of any other remedy available at law or in equity or by statute or otherwise, at the option of the Grantee, any sums or monies due and payable pursuant to the Credit Agreement pertaining to the Fixed Assets Loans, the Loan Documents pertaining to the Fixed Assets Loans and in connection with the Fixed Assets Loans and/or the Secured Obligations shall, if not previously declared due and payable, immediately become due and payable, together with interest accrued thereon, and all other indebtedness which this Deed by its terms secures. SECTION 3.11. Application of Proceeds of Sale and Other Moneys. Except as otherwise provided in the Credit Agreement or herein, the proceeds of any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Deed, whether pursuant to power of sale, foreclosure or otherwise, and all other moneys at any time held by the Grantee as part of the Collateral, shall be applied in such order of priority as the Grantee shall determine in its sole and absolute discretion including, without limitation, as follows: (a) first, to the payment of the reasonable costs and expenses of such sale (including, without limitation, the cost of evidence of title and the costs and expenses, if any, of taking possession of, retaining custody over, repairing, managing, operating, maintaining and preserving the Collateral or any part thereof prior to such sale), all reasonable costs and expenses incurred by the Grantee or any other Person in obtaining or collecting any insurance proceeds, condemnation awards or other amounts received by the Grantee, all reasonable costs and expenses of any receiver of the Collateral or any part thereof, and any Impositions or other charges or expenses -17- 22 prior to the security interest or security title of this Deed, which the Grantee may consider it necessary or desirable to pay; (b) second, to the payment of any Secured Obligation (other than those set forth in Section 3.11(c) below); (c) third, to the payment of all amounts of principal of and interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) at the time due and payable under the Credit Agreement pertaining to the Fixed Assets Loans at the time outstanding (whether due by reason of maturity or by reason of any prepayment requirement or by declaration or acceleration or otherwise), including interest at the rate provided for in the Credit Agreement on any overdue principal and (to the extent permitted under applicable law) on any overdue interest; and, in case such moneys shall be insufficient to pay in full such principal and interest, then, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is a Secured Obligation) at the time due and payable and, second, to the payment of all amounts of principal at the time due and payable under the Fixed Assets Loans; and (d) fourth, the balance, if any, held by the Grantee after payment in full of all amounts referred to in subdivisions Sections 3.11(a), (b) and (c) above, shall, unless a court of competent jurisdiction may otherwise direct by final order not subject to appeal, be paid to or upon the direction of the Grantor. SECTION 3.12. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, the Grantee shall, as a matter of right, without notice, and without regard to the adequacy of any security for the indebtedness secured hereby or the solvency of the Grantor, be entitled to the appointment of a receiver for all or any part of the Collateral, whether such receivership be incidental to a proposed sale of the Collateral or otherwise, and the Grantor hereby consents to the appointment of such a receiver and will not oppose any such appointment. SECTION 3.13. Possession, Management and Income. If an Event of Default shall have occurred and be continuing, in addition to, and not in limitation of, the rights and remedies provided in Section 1.14, the Grantee, upon five (5) days written notice to the Grantor, may enter upon and take possession of the Collateral or any part thereof by force, summary proceeding, ejectment or otherwise and may remove the Grantor and all other Persons and any and all property therefrom and may hold, operate, maintain, repair, preserve and manage the same and receive all earnings, income, Rents, issues and Proceeds accruing with respect thereto or any part thereof. The Grantee shall be under no liability for or by reason of any such taking of possession, entry, removal or holding, operation or management, except that any amounts so received by the Grantee shall be applied to pay all costs and expenses of so entering upon, taking possession of, holding, operating, maintaining, repairing, preserving and managing the Collateral or any part thereof, and any Impositions or other charges prior to the security title and security interest of this Deed which the Grantee may consider it necessary or desirable to pay, and any balance of such amounts shall be applied as provided in Section 3.11. SECTION 3.14. Right of Grantee to Perform Grantor's Covenants, etc. If the Grantor shall fail to make any payment or perform any act required to be made or performed hereunder or under the Credit Agreement pertaining to the Fixed Assets Loans or any other Loan Document pertaining to the Fixed Assets Loans, the Grantee, without notice to or demand upon the Grantor and without waiving or releasing any obligation or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Grantor, and may enter upon the Collateral for such purpose and take all such action thereon as, in the Grantee's opinion, may be necessary or appropriate therefor. No such entry and no such action shall be deemed an -18- 23 eviction of any lessee of the Property or any part thereof. All sums so paid by the Grantee and all costs and expenses (including, without limitation, attorneys' fees and expenses) so incurred, together with interest thereon at the rate provided for in Section 3.2.2 of the Credit Agreement from the date of payment or incurring, shall constitute additional indebtedness under the Credit Agreement secured by this Deed and shall be paid by the Grantor to the Grantee on demand. SECTION 3.15. Subrogation. To the extent that the Grantee, on or after the date hereof, pays any sum due under any provision of any Legal Requirement or any instrument creating any lien or security title prior or superior to the lien or security title of this Deed, or the Grantor or any other Person pays any such sum with the proceeds of the Fixed Assets Loans, the Grantee shall have and be entitled to a lien or security title on the Collateral equal in priority to the lien or security title discharged, and the Grantee shall be subrogated to, and receive and enjoy all rights and liens or security titles possessed, held or enjoyed by, the holder of such lien or security title, which shall remain in existence and benefit the Grantee in securing the Secured Obligations. SECTION 3.16. Remedies, etc., Cumulative. Each right, power and remedy of the Grantee provided for in this Deed, the Credit Agreement or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Deed, the Credit Agreement or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Grantee of any one or more of the rights, powers or remedies provided for in this Deed, the Credit Agreement, or any other Loan Document pertaining to the Fixed Assets Loans, or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Grantee of any or all such other rights, powers or remedies. SECTION 3.17. Provisions Subject to Applicable Law. All rights, powers and remedies provided in this Deed may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Deed invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Deed or any application thereof shall be invalid or unenforceable, the remainder of this Deed and any other application of such term shall not be affected thereby. SECTION 3.18. No Waiver, etc. No failure by the Grantee to insist upon the strict performance of any term hereof or of the Credit Agreement, or of any other Loan Document, or to exercise any right, power or remedy consequent upon a breach hereof or thereof, shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Deed, which shall continue in full force and effect with respect to any other then existing or subsequent breach. By accepting payment or performance of any amount or other Secured Obligations secured hereby before or after its due date, the Grantee shall not be deemed to have waived its right either to require prompt payment or performance when due of all other amounts and Secured Obligations payable hereunder or to declare a default for failure to effect such prompt payment. SECTION 3.19. Compromise of Actions, etc. Any action, suit or proceeding brought by the Grantee pursuant to any of the terms of this Deed, the Credit Agreement pertaining to the Fixed Assets Loans, any other Loan Document pertaining to the Fixed Assets Loans, or otherwise, and any claim made by the Grantee hereunder or thereunder, may be compromised, withdrawn or otherwise dealt with by the Grantee without any notice to or approval of the Grantor. -19- 24 SECTION 3.20 Foreclosure - Authority Lease. If action is brought to foreclose this Deed, the rents, income and profits issuing from the Land and the Improvements shall be collected either through a receiver appointed by the court after notice of application for such appointment has been given to the Lessor under the Authority Lease or by Grantee. Notwithstanding anything to the contrary contained in this Deed, all such money collected shall be first applied for the payment of the rent due and owing under the Authority Lease or to become due and owing to the Lessor under the Authority Lease, then for any ad valorem taxes, insurance premiums or other charges due and payable under the Authority Lease and for all other maintenance and operating charges and disbursements incurred in connection with the operation and maintenance of the Land and the Improvements. The balance of such monies shall be applied pursuant to the terms of this Deed. ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Deed. When used herein the following terms have the following meanings: "Borrowers" shall have the meaning set forth in the second recital. "Collateral" shall have the meaning set forth in the granting clause. "Contracts" shall have the meaning set forth in clause (h) of the granting clause. "Credit Agreement" shall have the meaning set forth in the second recital. "Credit Extensions" shall have the meaning set forth in the the second recital. "Default" means any Event of Default or any condition or event which, after notice or lapse of time, or both, would constitute an Event of Default. "Goods" shall have the meaning set forth in clause (c) of the granting clause. "herein", "hereof", "hereto", and "hereunder" and similar terms refer to this Deed and not to any particular Section, paragraph or provision of this Deed. "Impositions" shall have the meaning set forth in Section 1.5. "Improvements" shall have the meaning set forth in clause (b) of the granting clause. "Indemnified Parties" shall have the meaning set forth in Section 1.16. "Insurance Requirements" shall have the meaning set forth in paragraph (a) of Section 1.6. "Land" shall have the meaning set forth in the first recital. "Leases" shall have the meaning set forth in clause (e) of the granting clause. "Legal Requirements" shall have the meaning set forth in paragraph (b) of Section 1.6. -20- 25 "Deed" shall have the meaning set forth in the preamble. "Grantee" shall have the meaning set forth in the preamble. "Grantor" shall have the meaning set forth in the preamble. "Permits" shall have the meaning set forth in clause (g) of the granting clause. "Permitted Encumbrances" shall have the meaning set forth in Section 1.2. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency or officer. "Plans" shall have the meaning set forth in clause (f) of the granting clause. "Post-Petition Interest" shall have the meaning set forth in Section 2.3. "Proceeds" shall have the meaning set forth in clause (k) of the granting clause. "Property" shall have the meaning set forth in clause (b) of the granting clause. "Real Estate" shall have the meaning set forth in clause (a) of the granting clause. "Rents" shall have the meaning set forth in clause (j) of the granting clause. "Secured Obligations" means the Fixed Assets Obligations and all Obligations with respect to the Fixed Assets Loans now or hereafter existing under the Credit Agreement or any Loan Document pertaining to the Fixed Assets Loans, and all obligations (monetary or otherwise) arising under or in connection with the Fixed Assets Notes or the Fixed Assets Loans, whether for principal, interest, costs, fees, expenses or otherwise and all other Fixed Assets Obligations, all advances, if any, made by Grantee pursuant to the terms of this Deed, and all duties and obligations of Grantor under this Deed. "State" means the State of Georgia. "Total Destruction" means any damage to or destruction of the Improvements or any part thereof which, in the reasonable estimation of the Grantee shall require the expenditure of an amount in excess of Ten Million Dollars ($10,000,000) to restore the Improvements to substantially the same condition of the Improvements immediately prior to such damage or destruction. "Total Taking" means a Taking, whether permanent or for temporary use, which, in the reasonable judgment of the Grantee, shall substantially interfere with and adversely affect the normal operation of the Property by the Grantor to such an extent as would reasonably be anticipated to cause a Material Adverse Effect. SECTION 4.2. Use of Defined Terms. Terms for which meanings are provided in this Deed shall, unless otherwise defined or the context otherwise requires, have such meanings when used in any certificate and any opinion, notice or other communication delivered from time to time in connection with this Deed or pursuant hereto. -21- 26 SECTION 4.3. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Deed, including its preamble and recitals, have the meanings provided in the Credit Agreement. ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements. SECTION 5.1.1. Further Assurances. The Grantor, at its expense, will execute, acknowledge and deliver all such instruments and take all such other action as the Grantee from time to time may reasonably request: (a) to better subject to the security title and security interest of this Deed all or any portion of the Collateral, (b) to perfect, publish notice or protect the validity of the security title and security interest of this Deed, (c) to preserve and defend the title to the Collateral and the rights of the Grantee therein against the claims of all Persons as long as this Deed shall remain undischarged, (d) to better subject to the security title and security interest of this Deed or to maintain or preserve the security title and security interest of this Deed with respect to any replacement or substitution for any Collateral or any other after-acquired property except as provided in the Credit Agreement, or (e) in order to further effectuate the purposes of this Deed and to carry out the terms hereof and to better assure and confirm to the Grantee its rights, powers and remedies hereunder. SECTION 5.1.2. Financing Statements. Notwithstanding any other provision of this Deed, the Grantor hereby agrees that, without notice to or the consent of the Grantor, the Grantee may file with the appropriate public officials such financing statements, continuation statements, amendments and similar documents as are or may become necessary to perfect, preserve or protect the security interest granted by this Deed. SECTION 5.2. Additional Security. Without notice to or consent of the Grantor, and without impairment of the security interest and security title and rights created by this Deed, the Grantee and the Lenders may accept from the Grantor or any other Person additional security for the Secured Obligations. Neither the giving of this Deed nor the acceptance of any such additional security shall prevent the Grantee from resorting, first, to such additional security, or, first, to the security created by this Deed, or concurrently to both, in any case without affecting the Grantee's security title and rights under this Deed. SECTION 5.3. Satisfaction; Partial Release, etc. SECTION 5.3.1. Satisfaction. If the Fixed Assets Loans and all other amounts owing pursuant to the Credit Agreement pertaining to the Fixed Assets Loans and the other Loan Documents pertaining to the Fixed Assets Loans shall be repaid in full in accordance with the terms thereof, and if the Grantor shall pay, in full, the principal of and premium, if any, and interest on the Secured Obligations in -22- 27 accordance with the terms thereof and hereof and all other sums payable hereunder by the Grantor and shall comply with all the terms, conditions and requirements hereof and of the Secured Obligations, or otherwise as may be provided in the Credit Agreement, then on such date, the Grantee shall, upon the request of the Grantor and at the Grantor's sole cost and expense, execute and deliver such instruments, in form and substance reasonably satisfactory to the Grantee, as may be necessary to effectively cancel and surrender this Deed; provided, however, this Deed secures a revolving credit facility pursuant to the Credit Agreement and there may be repayment and disbursements of principal from time to time as provided in the Credit Agreement. It is expressly agreed that the outstanding principal balance of the Secured Obligations may, from time to time, be reduced to a zero balance without such repayment operating to extinguish and release the security title and security interest created by this Deed. This Deed shall remain in full force and effect as to any subsequent future advances made after the zero balance without loss of priority until the Secured Obligations have been paid in full and satisfied and all agreements between Grantee and Grantor for further advances pursuant to the Credit Agreement have been terminated and this Deed is cancelled of record. To the extent it can legally do so, Grantor hereby waives the operation of any applicable statute, law or regulation having a contrary effect. SECTION 5.3.2. Partial Release, etc. The Grantee may, at any time and from time to time, without liability therefor, and without prior notice to the Grantor, release or reconvey any part of the Collateral, consent to the making of any map or plat of the Property, join in granting any easement thereon or join in any extension agreement or agreement subordinating the security title and security interest of this Deed. SECTION 5.4. Notices, etc. All notices and other communications provided to any of the parties hereto shall be in writing and addressed, delivered or transmitted to such party as set forth in the Credit Agreement. SECTION 5.5. Waivers, Amendments, etc. The provisions of this Deed may be amended, discharged or terminated and the observance or performance of any provision of this Deed may be waived, either generally or in a particular instance and either retroactively or prospectively, only by an instrument in writing executed by the Grantor and the Grantee. SECTION 5.6. Cross-References. References in this Deed and in each instrument executed pursuant hereto to any Section or Article are, unless otherwise specified, to such Section or Article of this Deed or such instrument, as the case may be, and references in any Section, Article or definition to any clause are, unless otherwise specified, to such clause of such Section, Article or definition. SECTION 5.7. Headings. The various headings of this Deed and of each instrument executed pursuant hereto are inserted for convenience only and shall not affect the meaning or interpretation of this Deed or such instrument or any provisions hereof or thereof. SECTION 5.8. Currency. Unless otherwise expressly stated, all references to any currency or money, or any dollar amount, or amounts denominated in "Dollars" herein will be deemed to refer to the lawful currency of the United States. SECTION 5.9. Governing Law. THIS DEED SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE. SECTION 5.10. Successors and Assigns, etc. This Deed shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, successors-in-title and assigns. -23- 28 SECTION 5.11. Waiver of Jury Trial; Submission to Jurisdiction. (a) EACH OF THE GRANTOR AND THE GRANTEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED, THE CREDIT AGREEMENT, ANY LOAN DOCUMENT OR ANY OTHER RELATED INSTRUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE GRANTOR OR THE GRANTEE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE GRANTEE AND THE FIXED ASSETS LENDERS TO ENTER INTO THE TRANSACTIONS PROVIDED FOR IN THE CREDIT AGREEMENT AND TO MAKE THE FIXED ASSETS LOANS. (b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS DEED, THE CREDIT AGREEMENT AS PERTAINS TO THE FIXED ASSETS LOANS OR ANY OTHER LOAN DOCUMENT AS PERTAINS TO THE FIXED ASSETS LOANS, THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED. THE GRANTOR AND GRANTEE EACH EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS DEED, THE CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE PERSON OF THE GRANTOR. NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE GRANTEE FROM BRINGING AN ACTION AGAINST THE GRANTOR IN ANY OTHER JURISDICTION. SECTION 5.12. Severability; Conflicts. Any provision of this Deed, the Credit Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Deed, the Credit Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of any conflict between the terms of this Deed and the terms of the Credit Agreement, the terms of the Credit Agreement shall control. SECTION 5.13. Loan Document. This Deed is a Loan Document executed pursuant to the Credit Agreement and, unless otherwise expressly indicated herein, shall be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 5.14. Usury Savings Clause. It is the intention of the Grantor and the Grantee to conform strictly to the usury laws governing the Loan Documents, and any interest payable under the Loan Documents shall be subject to reduction to the amount not in excess of the maximum non-usurious amount allowed under such laws, as construed by the courts having jurisdiction over such matters. In the -24- 29 event the maturity of the Secured Obligations is accelerated by reason of any provision of the Loan Documents, or by reason of an election by the Grantee resulting from an Event of Default, then earned interest may never include more than the maximum amount permitted by law, computed from the dates of each advance of loan proceeds under the Credit Agreement until payment, and any interest in excess of the maximum amount permitted by law shall be canceled automatically or, if theretofore paid, at the option of the Grantee, shall be rebated to the Grantor, or shall be credited on the principal amount of the Secured Obligations or, if all principal has been repaid, then the excess shall be rebated to the Grantor. If any interest is canceled, credited against principal or rebated to the Grantor in accordance with the foregoing sentence and, if thereafter the interest payable hereunder is less than the maximum amount permitted by applicable law, the rate hereunder shall automatically be increased to the maximum extent possible to permit repayment to the Grantee and the Lenders as soon as possible of any interest in excess of the maximum amount permitted by law which was earlier canceled, credited against principal or rebated to the Grantor pursuant to the provisions of the foregoing sentence. SECTION 5.15. Future Advances. This Deed is a "Future Advance Deed" under the laws of the State. Any and all future advances under this Deed and the Loan Documents pertaining to the Fixed Assets Loans shall have the same priority as if the future advance was made on the date that this Deed was recorded. This Deed shall secure the Secured Obligations, whenever incurred, such Secured Obligations to be due at the times provided in the Loan Documents pertaining to the Fixed Assets Loans. Notice is hereby given that the Secured Obligations may increase as a result of any defaults hereunder by Grantor due to, for example, and without limitation, unpaid interest or late charges, unpaid taxes or insurance premiums which the Grantee elects to advance, defaults under leases that the Grantee elects to cure, attorney fees or costs incurred in enforcing the Loan Documents pertaining to the Fixed Assets Loans or other expenses incurred by the Grantee in protecting the Collateral, the security of this Deed or the Grantee's rights and interests. SECTION 5.16. Georgia Agent. The rights, powers, duties and obligations conferred or imposed upon CIT under the Credit Agreement pursuant to this Deed with respect to the Collateral (including, without limitation, holding the security title hereunder) are hereby conferred and imposed upon the Georgia Agent to the extent, but only to the extent, that pursuant to the laws of the State in effect from time to time CIT shall be incompetent or unqualified to exercise or perform such rights, power, duties and obligations. -25- 30 IN WITNESS WHEREOF, the undersigned, by its duly elected officers and pursuant to proper authority of its board of directors has duly executed, sealed, acknowledged and delivered this instrument as of the day and year first above written. STERLING PULP CHEMICALS, INC., a Georgia corporation By: /s/ [SIGNATURE ILLEGIBLE] Name: [NAME ILLEGIBLE] Title: Treasurer [CORPORATE SEAL] Signed, sealed and delivered in the presence of: /s/ [SIGNATURE ILLEGIBLE] Unofficial Witness /s/ DAWN M. SCHOENIG Notary Public My commission expires: 8/3/99 [AFFIX NOTARIAL SEAL] DAWN M. SCHOENIG Notary Public, State of New York No. 52-4900811 Qualified in Suffolk County Commission Expires August 3, 1999 DRAFTED BY: Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Michael Sloyer, Esq. -26- 31 SCHEDULE 1 Legal Description of the Land [ ] 32 SCHEDULE 1 All that tract or parcel of land situate, lying and being in Land Lot 170 of the 11th Land District of Lowndes County, Georgia, and being more particularly described as all of that certain 28 acres depicted as TRACT I upon that certain plat of map of survey made by Robin Nelson Harris, Georgia Registered Land Surveyor No. 2101, dated August 14, 1995, entitled "Survey for Valdosta-Lowndes County Industrial Authority", a copy of which is of record in Plat Record Book 38, page 200, public records of Lowndes County, Georgia. TOGETHER WITH, a perpetual non-exclusive easement for ingress and egress over and through that certain 6.80 acres depicted as TRACT IV upon that certain plat or map of survey made by Robin Nelson Harris, Georgia Registered Land Surveyor No. 2101, dated August 14, 1995, entitled "Survey for Valdosta-Lowndes County Industrial Authority", a copy of which is of record in Plat Record Book 38, page 200, public records of Lowndes County, Georgia. NOTE: THE VALDOSTA-LOWNDES COUNTY INDUSTRIAL AUTHORITY HAS CONVEYED HUNT ROAD (100 DEGREES R/W) TO LOWNDES COUNTY, GEORGIA AS EVIDENCED BY RIGHT OF WAY DEED DATED FEBRUARY 29, 1996, AND RECORDED IN DEED BOOK 1275, PAGE 263; AND RIGHT OF WAY DEED DATED APRIL 3, 1996, AND RECORDED IN DEED BOOK 1289, PAGE 92 AFORESAID RECORDS; SAID ROAD RUNS THROUGH THE MAJORITY OF TRACT IV. 33 SCHEDULE 2 Permitted Encumbrances [ ] 34 SCHEDULE 2 5. Any adverse claim to any portion of said land which has been created by artificial means or has accreted to any such portion so created and riparian rights, if any. 1. Defects, liens, encumbrances, adverse claims, or other matters, if any, created, first appearing in the public records or attaching subsequent to the effective date hereof but prior to the date the proposed Insured acquires for value of record the estate or interest or mortgage thereon covered by this Commitment. 2. Ad valorem taxes for the year 1999 and subsequent years, not yet due nor payable. 3. No insurance is afforded as to the exact amount of acreage contained in the property described herein. 4. Rights of others in and to the ingress/egress easement area insured hereunder. 5. Said ingress/egress easement area insured hereunder has a Georgia Power Company Easement (Deed Book 3, page 346 and Deed Book 104, page 257) running through said property. A Governmental Encroachment Agreement has been entered into by and between The Georgia Power Company and Valdosta-Lowndes County Industrial Authority, dated March 19, 1996, and recorded in Deed Book 1690, page 78, public records of Lowndes County, Georgia (affects a portion of Tract IV-insured easement tract). 35 6. Any loss or damage resulting from failure to comply with the terms and provisions of lease by and between Valdosta-Lowndes County Industrial Authority, Lessor and Sterling Pulp Chemicals US, Inc., a Delaware Corporation, Lessee, dated October 1, 1995, and recorded in Deed Book 1331, page 27, public records of Lowndes County, Georgia; ASSIGNED by Sterling Pulp Chemicals US, Inc., a Delaware corporation to Sterling Pulp Chemicals, Inc., a Georgia corporation by instrument dated August 6, 1996, and recorded in Deed Book 1333, page 123, rerecorded in Deed Book 1349, page 83, aforesaid records. 7. Security deed and security agreement from Valdosta-Lowndes County Industrial Authority to Synovus Trust Company, dated October 1, 1995, and recorded in Deed Book 1239, page 283, public records of Lowndes County, Georgia, and evidenced by memorandum of indenture trust dated October 1, 1995, and recorded in Deed Book 1240, page 4, aforesaid records; assigned to Texas Commerce Bank National Association, by instrument dated October 1, 1995, and recorded in Deed Book 1240, page 12, reassigned to Synovus Trust Company by instrument dated August 20, 1996, and recorded in Deed Book 1333, page 199-rerecorded in Deed Book 1349, page 85, aforesaid records. 8. UCC-2 indicating Valdosta-Lowndes County Industrial Authority, Debtor; Synovus Trust Company, Trustee, Secured Party; recorded in Deed Book 1240, page 7, public records Lowndes County, Georgia. 9. Communications systems right of way and easement by and between Camelia Investment Company, and American Telephone and Telegraph Company, dated April 25, 1991, and recorded in Deed Book 818, page 176, public records of Lowndes County, Georgia; said easement area is a 10 foot wide strip of land lying withing and parallel to the east right of way line of existing Georgia Power Company Transmission Easement. EX-4.5 6 FIXED ASSETS SECURITY AMGT. - JULY 23, 1999 1 EXHIBIT 4.5 FIXED ASSETS SECURITY AGREEMENT THIS FIXED ASSETS SECURITY AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Agreement"), dated as of July 23, 1999, is among STERLING CHEMICALS, INC., a Delaware corporation, STERLING CANADA, INC., a Delaware corporation, STERLING PULP CHEMICALS US, INC., a Delaware corporation, STERLING PULP CHEMICALS, INC., a Georgia corporation, STERLING FIBERS, INC., a Delaware corporation, STERLING CHEMICALS ENERGY, INC., a Delaware corporation, and STERLING CHEMICALS INTERNATIONAL, INC., a Delaware corporation (each individually a "Borrower" and collectively the "Borrowers"), and each other Person (such capitalized term and all other capitalized terms not otherwise defined herein shall have the meanings provided for or incorporated by reference in Article I below) that may, from time to time become, pursuant to the terms of the Credit Agreement, a party to this Agreement (individually referred to as a "Grantor", and collectively referred to as the "Grantors"), and THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT"), as the Administrative Agent for each of the Fixed Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July 23, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among the Borrowers, the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and CIT, as the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, as a condition precedent to the making of each Credit Extension (including the initial Credit Extension) under the Credit Agreement, each Grantor is required to execute and deliver this Agreement; WHEREAS, each Grantor has duly authorized the execution, delivery and performance of this Agreement; and WHEREAS, it is in the best interests of each Grantor to execute this Agreement inasmuch as such Grantor will derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Borrowers by the Lenders and the Issuer pursuant to 2 the Credit Agreement and the execution and delivery of Rate Protection Agreements between the Borrowers and certain Fixed Assets Secured Parties; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Fixed Assets Lenders to make each Fixed Asset Loan (including the initial Fixed Assets Loans) to the Borrowers pursuant to the Credit Agreement and (ii) the Fixed Assets Secured Parties to enter into Rate Protection Agreement(s), each Grantor jointly and severally agrees, for the benefit of each Fixed Assets Secured Party, as follows: ARTICLE I DEFINITIONS SECTION I.1. Certain Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Agreement" is defined in the preamble. "Borrower" and "Borrowers" are defined in the preamble. "CIT" is defined in the preamble. "Collateral" is defined in Section 2.1. "Collateral Account" is defined in clause (c) of Section 4.3. "Computer Hardware and Software Collateral" means: (a) all computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (b) all software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by any Grantor, designed for use on the computers and electronic data processing hardware described in clause (a) above; -2- 3 (c) all firmware associated therewith; (d) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such hardware, software and firmware described in the preceding clauses (a) through (c); and (e) all rights with respect to all of the foregoing, including any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. "Copyright Collateral" means all copyrights of each Grantor, whether statutory or common law, registered or unregistered, now or hereafter in force in the United States including all of such Grantor's right, title and interest in and to all copyrights registered in the United States Copyright Office and also including the copyrights referred to in Item A of Schedule IV attached hereto, and all applications for registration thereof, whether pending or in preparation, all copyright licenses in the United States, including each copyright license referred to in Item B of Schedule IV attached hereto, the right to sue for past, present and future infringements of any thereof, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. "Credit Agreement" is defined in the first recital. "Equipment" is defined in clause (a) of Section 2.1. "Fixed Assets Termination Date" means the date on which all Fixed Assets Obligations have been paid in full in cash, all Rate Protection Agreements where the counterparty is a Fixed Assets Lender (or its Affiliate) have been terminated and the Fixed Assets Loan Commitment shall have terminated. "Grantor" and "Grantors" are defined in the preamble. "Intellectual Property Collateral" means, collectively, the Computer Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral. "Intercompany Note" means, with respect to any Grantor, as the payee thereunder, a promissory note substantially in the form of Exhibit D hereto (with such modifications as the Administrative Agent may consent to, such consent not to be unreasonably withheld), which promissory note shall evidence all intercompany loans which may be made from time to time by the such Grantor to any of its Foreign Restricted Subsidiaries as the maker of such promissory -3- 4 note, as amended, modified or supplemented from time to time, in accordance with Section 4.7, together with any promissory note of such Grantor taken in extension or renewal thereof or substitution therefor. "Inventory" is defined in clause (b) of Section 2.1 "Lenders" is defined in the first recital. "Material Contracts" is defined in clause (c) of Section 2.1 "Patent Collateral" means: (a) all letters patent and applications for letters patent in the United States, including all patent applications in preparation for filing in the United States and including each patent and patent application referred to in Item A of Schedule II attached hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a); (c) all patent licenses in the United States, including each patent license referred to in Item B of Schedule II attached hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, referred to in clauses (a) or (b) above, and for breach or enforcement of any patent license referred to in clause (c) above. "Receivables" is defined in clause (c) of Section 2.1. "Related Contracts" is defined in clause (c) of Section 2.1. "Trademark Collateral" means: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of a like nature (all of the foregoing items in this clause (a) being collectively called a "Trademark"), now existing anywhere in the United States or hereafter adopted or acquired in the United States, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United -4- 5 States Patent and Trademark Office or in any office or agency of the United States of America or any State, including those referred to in Item A of Schedule III attached hereto; (b) all Trademark licenses in the United States, including each Trademark license referred to in Item B of Schedule III attached hereto; (c) all reissues, extensions or renewals of any of the items described in clause (a) and (b); (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clauses (a) and (b); and (e) all proceeds of, and rights associated with, the foregoing, including any claim by any Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, including any Trademark, Trademark registration or Trademark license referred to in clauses (a) through (c) above, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any such Trademark license. "Trade Secrets Collateral" means all common law and statutory trade secrets and all other confidential or proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of any Grantor (all of the foregoing being collectively called a "Trade Secret"), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, including each Trade Secret license referred to in Schedule V attached hereto, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license. SECTION I.2. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION I.3. U.C.C. Definitions. Unless otherwise defined herein or in the Credit Agreement or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Agreement, including its preamble and recitals, with such meanings. -5- 6 ARTICLE II SECURITY INTEREST SECTION II.1. Grant of Security. Each Grantor hereby assigns, pledges, hypothecates, charges, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each of the Fixed Assets Secured Parties, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each of the Fixed Assets Secured Parties, a continuing security interest in all of the following, whether now or hereafter existing or acquired by such Grantor (the "Collateral"): (a) all equipment in all of its forms of such Grantor, wherever located, including all parts thereof and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor and all accessories related thereto (any and all of the foregoing being the "Equipment"); (b) all inventory in all of its forms of such Grantor, wherever located, including (i) all raw materials and work in process therefor, finished goods thereof and materials used or consumed in the manufacture or production thereof, (ii) all goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including goods in which such Grantor has an interest or right as consignee), and (iii) all goods which are returned to or repossessed by such Grantor, and all accessions thereto, products thereof and documents therefor (any and all such inventory, materials, goods, accessions, products and documents being the "Inventory"); (c) all accounts, contracts (including, but not limited to, all service contracts, supply contracts and marketing agreements (all such service contracts, supply contracts and marketing agreements, collectively, the "Material Contracts")), contract rights, chattel paper, documents, instruments, general intangibles, including Tax refunds of such Grantor, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of such Grantor now or hereafter existing in and to all security agreements, guaranties, leases and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles (any and all such accounts, contracts, contract rights, chattel paper, documents, instruments, warehouse receipts, bills of lading, Material Contracts, and general intangibles being the "Receivables", and any and all such security agreements, guaranties, leases and other contracts being the "Related Contracts"); (d) in furtherance of, and not in limitation of, clause (c), all Material Contracts, together with (i) all rights of such Grantor to receive monies due and to become due under or pursuant to each Material Contract, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty, guaranty or collateral security with respect to each Material Contract, (iii) all claims of such Grantor for damages arising out -6- 7 of or for breach or default under each Material Contract, (iv) all rights of such Grantor to terminate a Material Contract, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder and (v) to the extent not included in the foregoing, all proceeds of any and all of the foregoing; (e) all Intellectual Property Collateral of such Grantor; (f) the Collateral Account and each Lockbox (including all deposits and investments therein and all earnings thereon); (g) all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section 2.1; (h) all Intercompany Notes in which such Grantor has an interest (including each Intercompany Note described in Schedule V hereto); (i) all interest and other payments and rights with respect to each Intercompany Note in which such Grantor has an interest; (j) all of such Grantor's other property and rights of every kind and description and interests therein; and (k) all products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in clauses (a) through (j), and, to the extent not otherwise included, all payments under insurance (whether or not the Administrative Agent is the loss payee thereof) or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). Notwithstanding the foregoing, "Collateral" shall not include any general intangibles or other rights arising under any contracts, instruments, licenses or other documents as to which the grant of a security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained. Each Grantor agrees to use its best efforts to obtain any such required consent with respect to any material item of such Collateral. SECTION II.2. Security for Fixed Assets Obligations. This Agreement secures the payment in cash in full of all Fixed Assets Obligations. SECTION II.3. Delivery of Intercompany Notes. All Collateral comprised of Intercompany Notes shall be delivered to and held by or on behalf of (and endorsed to the order of) the Administrative Agent pursuant hereto, in suitable form for transfer by delivery. -7- 8 SECTION II.4. Payments on Intercompany Notes. In the event that any payment of principal or interest is to be made on any Intercompany Note at a time when no Default of the nature referred to in Section 8.1.9 of the Credit Agreement or Event of Default has occurred and is continuing or would result therefrom, such payment may be paid directly to the applicable Grantor. If any such Default or Event of Default has occurred and is continuing, then any such payment shall be paid directly to the Administrative Agent. SECTION II.5. Continuing Security Interest; Transfer of Notes. This Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until the Fixed Assets Termination Date; (b) be binding upon each Grantor, its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Administrative Agent and each other Secured Party. Without limiting the generality of the foregoing clause (c), any Fixed Assets Secured Party may assign or otherwise transfer (in whole or in part) any Fixed Assets Loan Commitment or Fixed Assets Loan held by it to any other Person, and such other Person shall thereupon become vested with all the rights and benefits in respect thereof granted to such Fixed Assets Security Party under any Loan Document (including this Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 10.11 of the Credit Agreement. Upon (i) the sale, transfer or other disposition of Collateral in accordance with the Credit Agreement or (ii) the Fixed Assets Termination Date, the security interests granted herein shall automatically terminate and all rights to the applicable Collateral shall revert to the applicable Grantor with respect to (A) such Collateral (in the case of clause (i)) or (B) all Collateral (in the case of clause (ii)). Upon any such sale, transfer, disposition or termination, the Administrative Agent will, at such Grantor's sole expense, execute and deliver to such Grantor, without any representations, warranties or recourse, such documents (including applicable Intercompany Notes) as such Grantor shall reasonably request to evidence such termination or release. SECTION II.6. Grantor Remains Liable. Anything herein to the contrary notwithstanding: (a) each Grantor will remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of its duties and obligations under such contracts and agreements to the same extent as if this Agreement had not been executed; -8- 9 (b) the exercise by the Administrative Agent of any of its rights hereunder will not release any Grantor from any of its duties or obligations under any such contracts or agreements included in the Collateral; and (c) neither the Administrative Agent nor any other Fixed Assets Secured Party will have any obligation or liability under any such contracts or agreements included in the Collateral by reason of this Agreement, nor will the Administrative Agent or any other Fixed Assets Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION II.7. Security Interest Absolute. All rights of the Administrative Agent and the security interests granted to the Administrative Agent hereunder, and all obligations of each Grantor hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of any Loan Document; (b) the failure of any Fixed Assets Secured Party (i) to assert any claim or demand or to enforce any right or remedy against the Borrowers, any other Obligor or any other Person under the provisions of any Loan Document or otherwise or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Fixed Assets Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Fixed Assets Obligations or any other extension, compromise or renewal of any Fixed Assets Obligations; (d) any reduction, limitation, impairment or termination of any Fixed Assets Obligations for any reason (other than the repayment in full and in cash of all Fixed Assets Obligations), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Grantor hereby waives any right to or claim of) any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise or unenforceability of, or any other event or occurrence affecting, any Fixed Assets Obligations or otherwise; (e) any amendment to, rescission, waiver or other modification of, or any consent to departure from, any of the terms of any Loan Document; -9- 10 (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Fixed Assets Obligations; or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Borrower, any other Obligor, any surety or any guarantor. SECTION II.8. Postponement of Subrogation, etc. Each Grantor hereby agrees that it will not exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the Fixed Assets Termination Date. Any amount paid to any Grantor on account of any payment made hereunder prior to the Fixed Assets Termination Date shall be held in trust for the benefit of the Fixed Assets Secured Parties and shall immediately be paid to the Administrative Agent for the ratable benefit of the Fixed Assets Secured Parties and credited and applied against the Fixed Assets Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if: (a) such Grantor has made payment to the Administrative Agent for the ratable benefit of the Fixed Assets Secured Parties of all or any part of the Fixed Assets Obligations; and (b) the Fixed Assets Termination Date has occurred, each Fixed Assets Secured Party agrees that, at the requesting Grantor's request, the Administrative Agent, on behalf of the Fixed Assets Secured Parties, will execute and deliver to such Grantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Grantor of an interest in the Fixed Assets Obligations resulting from such payment by such Grantor. In furtherance of the foregoing, prior to the Fixed Assets Termination Date, each Grantor shall refrain from taking any action or commencing any proceeding against any Borrower or any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Agreement to the Administrative Agent or any other Fixed Assets Secured Party. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION III.1. Representations and Warranties. Each Grantor represents and warrants to each Fixed Assets Secured Party as set forth in this Article III. SECTION III.2. Location of Collateral, etc. All of the Equipment, Inventory and Lockboxes of such Grantor are respectively located at the places specified in Item 3 of the -10- 11 Perfection Certificate. None of the Equipment and Inventory has, within the four months preceding the date of this Agreement if then owned by such Grantor, been located at any place other than the places specified in Item 3 of the Perfection Certificate. The place of business and chief executive office of such Grantor and the office where such Grantor keeps its records concerning the Receivables, and all originals of all chattel paper which evidence Receivables are located at the address set forth in Item 3 of the Perfection Certificate. Such Grantor has no trade names other than those specified in Item 1 of the Perfection Certificate. During the four months preceding the date hereof, such Grantor has not been known by any legal name nor has it had a federal taxpayer identification number different from the one set forth on Item 2 of the Perfection Certificate, nor has such Grantor been the subject of any merger or other corporate reorganization, except as set forth in Item 1 of the Perfection Certificate. If the Collateral includes any Inventory located in the State of California, such Grantor is not a "retail merchant" within the meaning of Section 9102 of the California U.C.C. All Receivables evidenced by a promissory note or other instrument, negotiable document or chattel paper have been duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Administrative Agent and delivered and pledged to the Administrative Agent pursuant to Section 4.6. Such Grantor is not a party to any Federal, State or local government contract except as set forth in Item 13 of the Perfection Certificate. SECTION III.3. Ownership, No Liens, etc. Such Grantor owns its Collateral free and clear of any Lien, except for the security interest created by this Agreement, the Lien in favor of the Current Assets Secured Parties and Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Administrative Agent relating to this Agreement or as have been filed in connection with Permitted Liens. SECTION III.4. Possession and Control. Such Grantor has exclusive possession and control of its Equipment and Inventory except where the absence of possession and control results from actions of such Grantor in the ordinary course of business. SECTION III.5. Negotiable Documents, Instruments and Chattel Paper. Such Grantor has, contemporaneously herewith, delivered to the Administrative Agent possession of all originals of all negotiable documents, instruments and chattel paper currently owned or held by such Grantor (duly endorsed in blank, if requested by the Administrative Agent). SECTION III.6. Intellectual Property Collateral. With respect to any Intellectual Property Collateral owned by such Grantor the loss, impairment or infringement of which might have a Material Adverse Effect: (a) such Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or in part; (b) such Intellectual Property Collateral is valid and enforceable; -11- 12 (c) such Grantor has made all necessary filings and recordations to protect its interest in such Intellectual Property Collateral, including (if permissible) recordations of all of its interests in the Patent Collateral and Trademark Collateral in the United States Patent and Trademark Office and its claims to the Copyright Collateral in the United States Copyright Office; (d) such Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral and no claim has been made that the use of such Intellectual Property Collateral does or may violate the asserted rights of any third party which could reasonably be expected to have a Material Adverse Effect (except for (i) Liens created under the Loan Documents, and (ii) Permitted Liens and except for rights of licensees under licenses of such Intellectual Property Collateral in the ordinary course of business); and (e) with respect to any Intellectual Property Collateral that has been registered, such Grantor has performed and will continue to perform all acts and has paid and will continue to pay all required fees and Taxes to maintain each and every such item of Intellectual Property Collateral in full force and effect in the United States. Such Grantor owns directly or is entitled to use by license or otherwise, all patents, Trademarks, Trade Secrets, copyrights, licenses, technology, know-how, processes and rights with respect to any of the foregoing necessary for or of importance to the conduct of such Grantor's business as currently conducted. SECTION III.7. Validity, etc. This Agreement creates a valid first priority security interest in the Collateral securing the payment of the Fixed Assets Obligations, and (a) in the case of Collateral comprised of negotiable documents, instruments and chattel paper, upon the delivery of such Collateral to the Administrative Agent, such security interest will be a valid first-priority, perfected security interest; and (b) in the case of all other Collateral, upon the filing of the U.C.C. financing statements (Form U.C.C.-1) delivered by such Grantor to the Administrative Agent with respect to such Collateral, such security interest will be a valid first-priority, perfected security interest. Each Grantor has filed all U.C.C. financing statements (Form U.C.C.-1) referred to above in the appropriate offices therefor (or has provided the Administrative Agent with copies thereof suitable for filing in such offices) and has taken all of the other actions referred to above necessary to create perfected and first-priority security interests in the applicable Collateral. -12- 13 SECTION III.8. Authorization, Approval, etc. Except as have been obtained or made and are in full force and effect, no material authorization, material approval or other action by, and no material notice to or material filing with, any Governmental Authority or regulatory body is required either (a) for the grant by such Grantor of the security interest granted hereby, the pledge by such Grantor of any Collateral pursuant hereto or for the execution, delivery and performance of this Agreement by such Grantor or (b) for the perfection of or the exercise by the Administrative Agent of its rights and remedies hereunder. SECTION III.9. Compliance with Laws. Such Grantor is in compliance with the requirements of all applicable laws (including the provisions of the Fair Labor Standards Act), rules, regulations and orders of every Governmental Authority, the non-compliance with which could reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to materially adversely affect the value of the Collateral. SECTION III.10. As to Intercompany Notes. In the case of each Intercompany Note, all of such Intercompany Notes have been duly authorized, executed, endorsed, issued and delivered, and are the legal, valid and binding obligation of the issuers thereof, and are not in default. ARTICLE IV COVENANTS SECTION IV.1. Certain Covenants. Each Grantor covenants and agrees that, at all times prior to the Fixed Assets Termination Date, such Grantor will, unless the Fixed Assets Required Lenders shall otherwise consent in writing, perform, comply with and be bound by the obligations set forth in this Article IV. SECTION IV.2. As to Equipment and Inventory. Such Grantor hereby agrees that it will: (a) keep all the Equipment and Inventory (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 3.2 or, upon 30 days' prior written notice to the Administrative Agent, at such other places in a jurisdiction where all representations and warranties set forth in Article III shall be true and correct in all material respects, and all action required pursuant to the first sentence of Section 4.6 shall have been taken with respect to the Equipment and Inventory; (b) cause the Equipment to be maintained and preserved in its existing condition, ordinary wear and tear excepted, or in the case of any loss or damage to any of the Equipment, as soon as practicable after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable to such end; and promptly furnish to the Administrative Agent a -13- 14 statement respecting any loss or damage to any of the Equipment which is material in amount; and (c) pay promptly when due all property and other Taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory, except to the extent the validity thereof is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside. SECTION IV.3. As to Receivables. (a) Such Grantor will keep its chief executive office and the office(s) where it keeps its records concerning the Receivables, and all originals of all chattel paper which evidences Receivables, located at the address(es) set forth in Section 3.2 and shall keep its other places of business at the addresses set forth in Item 1 of the Perfection Certificate, or, upon 30 days' prior written notice to the Administrative Agent, at such other locations in a jurisdiction where all actions required by the first sentence of Section 4.6 shall have been taken with respect to the Receivables and such other Collateral; not change its name or federal taxpayer identification number except upon 30 days' prior written notice to the Administrative Agent; hold and preserve such records; and permit representatives of the Administrative Agent at any time during normal business hours to inspect and make abstracts from such records. (b) Such Grantor shall have the right to collect, demand, receive, receipt for, sue for, compound and give acquittances for any and all amounts due or to become due on Receivables and settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances with respect to Receivables in the ordinary course of business so long as no Default of the nature set forth in Section 8.1.9 of the Credit Agreement nor any Event of Default shall have occurred and be continuing. (c) All proceeds of Collateral received by such Grantor shall be deposited into a deposit account of such Grantor, unless, upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, such Grantor is otherwise notified in writing by the Administrative Agent. Following any such notice by the Administrative Agent to such Grantor pursuant to this Section, all proceeds of Collateral received by such Grantor shall be delivered in kind for deposit to an account or accounts specified by the Administrative Agent (collectively, the "Collateral Account"). Such proceeds of Collateral received by such Grantor shall, prior to deposit in the Collateral Account, be held separate and apart from, and not commingled with, any other property and in express trust for the benefit of the Administrative Agent until delivery thereof is made to the Collateral Account. (d) During any time that an Event of Default shall have occurred and be continuing, the Administrative Agent shall have the right to apply any amount in the Collateral Account to the payment of any Fixed Assets Obligations which are due and payable, including any Fixed Assets -14- 15 Obligations that have been declared due and payable pursuant to Section 8.3 of the Credit Agreement. (e) With respect to the Collateral Account, it is hereby confirmed and agreed that (i) deposits in each Collateral Account are subject to a security interest as contemplated hereby, (ii) each such Collateral Account shall be under the sole dominion and control of the Administrative Agent and (iii) the Administrative Agent shall have the sole right of withdrawal over such Collateral. SECTION IV.4. As to Collateral. (a) Until the occurrence and continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, and such time as the Administrative Agent shall notify such Grantor of the revocation of such power and authority, such Grantor (i) may in the ordinary course of its business (except to the extent prohibited under any Loan Document) at its own expense, refine, process, store, transport, sell, lease or furnish under the contracts of service any of the Inventory normally held by such Grantor for such purpose, and use and consume, in the ordinary course of its business (except to the extent prohibited under the Credit Agreement or any other Loan Document), any raw materials, including work in process or materials normally held by such Grantor for such purpose, (ii) will, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any Collateral, including the taking of such action with respect to such collection as the Administrative Agent may reasonably request upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default or, in the absence of such request, as such Grantor may deem advisable, and (iii) may grant, in the ordinary course of business (except to the extent prohibited under any Loan Document), to any party obligated on any of the Collateral, any rebate, refund or allowance to which such party may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to such Collateral. The Administrative Agent, however, may, at any time upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder and enforce collection of any of the Collateral by suit or otherwise and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. Upon request of the Administrative Agent, upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, such Grantor will, at its own expense, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder. (b) Upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, the Administrative Agent is authorized to endorse, in the name of such Grantor, any item, howsoever received by the Administrative Agent, representing any payment on or other proceeds of any of the Collateral. -15- 16 SECTION IV.5. As to Intellectual Property Collateral. Each Grantor covenants and agrees to comply with the following provisions as such provisions relate to any Intellectual Property Collateral of such Grantor: (a) such Grantor will not (i) do any act, or omit to do any act, whereby any of the Patent Collateral may lapse or become abandoned or dedicated to the public or unenforceable, (ii) permit any of its licensees to, (A) fail to continue to use any of the Trademark Collateral in order to maintain all of the Trademark Collateral in full force free from any claim of abandonment for non-use, (B) fail to maintain as in the past the quality of products and services offered under all of the Trademark Collateral, (C) fail to employ all of the Trademark Collateral registered with any Federal or State authority with an appropriate notice of such registration, (D) adopt or use any other Trademark which is confusingly similar or a colorable imitation of any of the Trademark Collateral, (E) use any of the Trademark Collateral registered with any Federal or State authority except for the uses for which registration or application for registration of all of the Trademark Collateral has been made, or (F) do or permit any act or knowingly omit to do any act whereby any of the Trademark Collateral may lapse or become invalid or unenforceable or (iii) do or permit any act or knowingly omit to do any act whereby any of the Copyright Collateral or any of the Trade Secrets Collateral may lapse or become invalid or unenforceable or placed in the public domain except upon expiration of the end of an unrenewable term of a registration thereof, unless such Grantor shall either (x) reasonably and in good faith determine (and notice of such determination shall have been delivered to the Administrative Agent) that any of the Intellectual Property Collateral is not of material economic value to such Grantor, or (y) in the exercise of its reasonable business judgment determines to do otherwise; (b) such Grantor shall notify the Administrative Agent promptly if it knows, or has reason to know, that any application or registration relating to any material item of the Intellectual Property Collateral may become abandoned or dedicated to the public or placed in the public domain or invalid or unenforceable, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any U.S. court) regarding such Grantor's ownership of any material item of the Intellectual Property Collateral, its right to register the same or to keep and maintain and enforce the same; (c) in no event will such Grantor or any of its agents, employees, designees or licensees file an application for the registration of any Intellectual Property Collateral with the United States Patent and Trademark Office or the United States Copyright Office, unless it promptly informs the Administrative Agent, and upon request of the Administrative Agent, executes and delivers any and all agreements, instruments, -16- 17 documents and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent's security interest in such Intellectual Property Collateral and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (d) unless such Grantor shall otherwise determine in the exercise of its reasonable business judgment, such Grantor will take all necessary steps, including in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office, to maintain and pursue any application (and to obtain the relevant registration) filed with respect to, and to maintain any registration of any material item of the Intellectual Property Collateral, including the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and the payment of fees and Taxes (except to the extent that dedication, abandonment or invalidation is permitted under the foregoing clauses (a), (b) and (c)); and (e) such Grantor will, contemporaneously herewith, execute and deliver to the Administrative Agent a Patent Security Agreement, Trademark Security Agreement and Copyright Security Agreement in the forms of Exhibit A, Exhibit B and Exhibit C hereto, and shall execute and deliver to the Administrative Agent any other document required to acknowledge or register or perfect the Administrative Agent's interest in any material item of the Intellectual Property Collateral. SECTION IV.6. Further Assurances, etc. Such Grantor agrees that, from time to time at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Administrative Agent may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, such Grantor will: (a) if any Receivable shall be evidenced by a promissory note or other instrument, negotiable document or chattel paper, deliver and pledge to the Administrative Agent hereunder such promissory note, instrument, negotiable document or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Administrative Agent; (b) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices (including any assignment of claim form under or pursuant to the federal assignment of claims statute, 31 U.S.C. Section 3726, any successor or amended version thereof or any regulation promulgated under or pursuant to any version thereof), as may be necessary or desirable, or as the Administrative Agent -17- 18 may request, in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Administrative Agent hereby; and (c) furnish to the Administrative Agent, from time to time at the Administrative Agent's request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. With respect to the foregoing and the grant of the security interest hereunder, such Grantor hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Grantor where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION IV.7. As to Intercompany Notes. Each Grantor will, at all times, keep pledged to the Administrative Agent pursuant hereto on a first priority, perfected basis all Intercompany Notes and all interest, principal and other proceeds received by the Administrative Agent with respect to the Intercompany Notes. Each Grantor agrees after any Default of the nature referred to in Section 8.1.9 of the Credit Agreement or any Event of Default shall have occurred and be continuing, promptly upon receipt of notice thereof by such Grantor and without any request therefor by the Administrative Agent, to deliver (properly endorsed where required hereby or requested by the Administrative Agent) to the Administrative Agent all interest, all principal, all other cash payments and all proceeds of the Intercompany Notes. Each Grantor will not amend, supplement or otherwise modify, or permit, consent or suffer to occur any amendment, supplement or modification of any terms or provisions contained in, or applicable to, any Intercompany Notes included in the Collateral if the effect thereof is to impair, or is in any manner adverse to, the rights or interests of the Administrative Agent or any other Fixed Assets Secured Party hereunder or under any Loan Document, without the prior written consent of the Administrative Agent. ARTICLE V THE ADMINISTRATIVE AGENT SECTION V.1. Administrative Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints the Administrative Agent as such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Administrative Agent's discretion, upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, to take any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including: -18- 19 (a) to ask, demand, collect, sue for, recover, compromise and receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral; and (d) to perform the affirmative obligations of such Grantor hereunder (including all obligations of such Grantor pursuant to Section 4.6). Such Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION V.2. Administrative Agent May Perform. If any Grantor fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by such Grantor pursuant to Section 6.3. SECTION V.3. Administrative Agent Has No Duty. The powers conferred on the Administrative Agent hereunder are solely to protect its interest (on behalf of the Fixed Assets Secured Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or responsibility for: (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any investment property, whether or not the Administrative Agent has or is deemed to have knowledge of such matters; or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION V.4. Reasonable Care. The Administrative Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, that the Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as any Grantor reasonably requests in writing from time to time, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a -19- 20 failure to exercise reasonable care. If an Event of Default has occurred and is continuing, the Administrative Agent shall not be required to comply with any request of the Grantor with respect to the matters described in this Section. ARTICLE VI REMEDIES SECTION VI.1. Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may (i) require each Grantor to, and such Grantor hereby agrees that it will, at its expense and upon request of the Administrative Agent forthwith, assemble all or part of the Collateral as directed by the Administrative Agent and make it available to the Administrative Agent at a place to be designated by the Administrative Agent which is reasonably convenient to both parties, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days prior notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of such Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Administrative Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral shall be applied by the Administrative Agent against all or any part of the Fixed Assets Obligations as follows: (i) first, to the payment of any amounts payable to the Administrative Agent pursuant to Section 10.3 of the Credit Agreement and Section 6.3; -20- 21 (ii) second, to the equal and ratable payment of Fixed Assets Obligations, in accordance with each Fixed Assets Secured Party's Fixed Assets Obligations owing to it under or pursuant to the Credit Agreement or any other Loan Document, or under or pursuant to any Rate Protection Agreement included in the Fixed Assets Obligations, as to each Fixed Assets Secured Party, applied (A) first to fees and expense reimbursements then due to such Fixed Assets Secured Party, (B) then to interest due to such Fixed Assets Secured Party, (C) then to pay or prepay principal of the Fixed Assets Loans owing to, or to reduce the "credit exposure" of, such Fixed Assets Secured Party under any Rate Protection Agreement, as the case may be, and (D) then to pay the remaining outstanding Fixed Assets Obligations; (iii) third, without duplication of any amounts paid pursuant to clause (b)(ii) above, to the Indemnified Parties to the extent of any amounts owing pursuant to Section 10.4 of the Credit Agreement; and (iv) fourth, to be held as additional collateral security until the Fixed Assets Termination Date, after which such remaining cash proceeds shall be paid over to the applicable Grantor or to whomsoever may be lawfully entitled to receive such surplus. For purposes of this Agreement, the "credit exposure" at any time of any Fixed Assets Secured Party with respect to a Rate Protection Agreement to which such Fixed Assets Secured Party is a party shall be determined at such time in accordance with the customary methods of calculating credit exposure under similar arrangements by the counterparty to such arrangements, taking into account potential interest rate movements and the respective termination provisions and notional principal amount and term of such Rate Protection Agreement. (c) The Administrative Agent may (i) transfer all or any part of the Collateral into the name of the Administrative Agent or its nominee, with or without disclosing that such Collateral is subject to the lien and security interest hereunder, -21- 22 (ii) notify the parties obligated on any of the Collateral to make payment to the Administrative Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts or other writings in such Grantor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral and (vi) execute (in the name, place and stead of such Grantor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION VI.2. Compliance with Restrictions. Each Grantor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Administrative Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications and restrict such prospective bidders and purchasers to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority or official, and such Grantor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Administrative Agent be liable nor accountable to such Grantor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION VI.3. Indemnity and Expenses. Each Grantor hereby jointly and severally indemnifies and holds harmless the Administrative Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses or liabilities resulting from the Administrative Agent's gross negligence or wilful misconduct and each Grantor will upon demand pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Administrative Agent may incur, in each case, in connection with: (a) the administration of this Agreement; -22- 23 (b) the custody, preservation, use or operation of or the sale of, collection from or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Administrative Agent hereunder; or (d) the failure by any Grantor to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION VII.1. Loan Document. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION VII.2. Amendments; etc. No amendment to or waiver of any provision of this Agreement nor consent to any departure by any Grantor herefrom shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be) and each Grantor and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION VII.3. Protection of Collateral. The Administrative Agent may from time to time, at its option, perform any act which each Grantor agrees hereunder to perform and which such Grantor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Administrative Agent may from time to time take any other action which the Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION VII.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed, delivered or transmitted, if to any Grantor, at the address or facsimile number of the Company provided for in the Credit Agreement, and if to the Administrative Agent, at the address or facsimile number provided for in the Credit Agreement, or as to any such party, at such other address or facsimile number as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice, (a) if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received, or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). -23- 24 SECTION VII.5. Headings. The various headings of this Agreement are inserted for convenience only, and shall not affect the meaning or interpretation of this Agreement or any provisions thereof. SECTION VII.6. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION VII.7. Counterparts; Effectiveness. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective as of the date first above written and be binding upon a Grantor when a counterpart hereof executed on behalf of such Grantor shall have been received by the Administrative Agent. SECTION VII.8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION VII.9. Additional Grantors. Upon the execution and delivery by any other Person of an instrument in the form of Annex I hereto, together with each Schedule thereto, such Person shall become a "Grantor" hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any such instrument shall not require the consent of any other Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. SECTION VII.10. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -24- 25 IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. STERLING CHEMICALS, INC. By --------------------------------------- Title: STERLING CANADA, INC. By --------------------------------------- Title: STERLING PULP CHEMICALS US, INC. By --------------------------------------- Title: STERLING PULP CHEMICALS, INC. By --------------------------------------- Title: STERLING FIBERS, INC. By --------------------------------------- Title: STERLING CHEMICALS ENERGY, INC. By --------------------------------------- Title: 26 STERLING CHEMICALS INTERNATIONAL, INC. By --------------------------------------- Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Fixed Assets Secured Parties By --------------------------------------- Title: 27 SCHEDULE I to Security Agreement ([NAME OF GRANTOR]) Perfection Certificate See Exhibit M to the Credit Agreement 28 SCHEDULE II to Security Agreement ([NAME OF GRANTOR]) Item A. Patents Issued Patents -------------- Patent No. Issue Date Inventor(s) Title - ---------- ---------- ----------- ----- Pending Patent Applications --------------------------- Serial No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Patent Applications in Preparation ---------------------------------- Expected Docket No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- 29 SCHEDULE III to Security Agreement ([NAME OF GRANTOR]) Item A. Trademarks Registered Trademarks --------------------- Trademark Registration No. Registration Date --------- ---------------- ----------------- Pending Trademark Applications ------------------------------ Trademark Serial No. Filing Date --------- ---------- ----------- Trademark Applications in Preparation ------------------------------------- Expected Products/ Trademark Docket No. Filing Date Services --------- ---------- ----------- --------- Item B. Trademark Licenses Effective Expiration Trademark Licensor Licensee Date Date --------- -------- -------- --------- ---------- 30 SCHEDULE IV to Security Agreement ([NAME OF GRANTOR]) Item A. Copyrights Registered Copyrights --------------------- Registration No. Registration Date Author(s) Title ---------------- ----------------- --------- ----- Copyright Pending Registration Applications ------------------------------------------- Serial No. Filing Date Author(s) Title ---------- ----------- --------- ----- Copyright Registration Applications in Preparation -------------------------------------------------- Expected Docket No. Filing Date Author(s) Title ---------- ----------- --------- ----- Item B. Copyright Licenses Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- 31 SCHEDULE V to Security Agreement ([NAME OF GRANTOR]) Trade Secret or Know-How Licenses --------------------------------- Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- 32 SCHEDULE VI to Security Agreement [NAME OF GRANTOR] Intercompany Notes Maximum Amount of Intercompany Loans Maker Evidenced Thereby Date - ----- ------------------ ---- 33 EXHIBIT A PATENT SECURITY AGREEMENT This PATENT SECURITY AGREEMENT (this "Agreement"), dated as of ____________, ____, is made between ___________________, a ____________________ (the "Grantor"), and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for each of the Fixed Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Fixed Assets Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"); WHEREAS, as a condition precedent to the making of the Credit Extensions (including the initial Credit Extension) under the Credit Agreement and pursuant to clause (e) of Section 4.5 of the Security Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the Administrative Agent a continuing security interest in all of the Patent Collateral (as defined below) to secure all Fixed Assets Obligations; WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Agreement; and NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Fixed Assets Lenders to make 34 Fixed Assets Loans (including the initial Fixed Assets Loans) to the Borrowers pursuant to the Credit Agreement and (ii) the Fixed Assets Secured Parties to enter into Rate Protection Agreements, the Grantor agrees, for the benefit of each Fixed Assets Secured Party, as follows: SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement. SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Fixed Assets Obligations, the Grantor does hereby pledge and hypothecate to the Administrative Agent, and grant to the Administrative Agent a security interest in, for its benefit and the benefit of each Fixed Assets Secured Party, all of the following property (the "Patent Collateral"), whether now owned or hereafter acquired or existing by it: (a) all letters patent and applications for letters patent in the United States, including all patent applications in preparation for filing in the United States and including each patent and patent application referred to in Item A of Schedule I attached hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a); (c) all patent licenses in the United States, including each patent license referred to in Item B of Schedule I attached hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, referred to in clauses (a) or (b) above, and for breach or enforcement of any patent license referred to in clause (c) above. SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Patent Collateral with the United States Patent and Trademark Office. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the benefit of each Fixed Assets Secured Party under the Security Agreement. The Security Agreement (and all rights and remedies of the Administrative Agent and each Fixed Assets Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. Release of Security Interest. Upon (i) the sale, transfer or other disposition of any Patent Collateral in accordance with the Credit Agreement or (ii) the Fixed Assets Exhibit A -2- 35 Termination Date, the Administrative Agent shall, at the Grantor's expense, execute and deliver to the Grantor all instruments and other documents as may be necessary or proper to release the lien on and security interest in the Patent Collateral which has been granted hereunder. SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Patent Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement. SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. SECTION 8. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. Exhibit A -3- 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. [NAME OF GRANTOR] By ------------------------------------ Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Fixed Assets Secured Parties By ------------------------------------ Title: Exhibit A -4- 37 SCHEDULE I to Patent Security Agreement Item A. Patents Issued Patents -------------- Patent No. Issue Date Inventor(s) Title ---------- ---------- ----------- ----- Pending Patent Applications --------------------------- Serial No. Filing Date Inventor(s) Title ---------- ----------- ----------- ----- Patent Applications in Preparation ---------------------------------- Expected Docket No. Filing Date Inventor(s) Title ---------- ----------- ----------- ----- Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- 38 EXHIBIT B to Security Agreement TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of ____________, ____, is made between ___________________, a ____________________ (the "Grantor"), and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for each of the Fixed Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Fixed Assets Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"); WHEREAS, as a condition precedent to the making of the Credit Extensions (including the initial Credit Extension) under the Credit Agreement and pursuant to clause (e) of Section 4.5 of the Security Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the Administrative Agent a continuing security interest in all of the Trademark Collateral (as defined below) to secure all Fixed Assets Obligations; WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Agreement; and 39 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Fixed Assets Lenders to make Fixed Assets Loans (including the initial Fixed Assets Loans) to the Borrowers pursuant to the Credit Agreement, and (ii) the Fixed Assets Secured Parties to enter into Rate Protection Agreements, the Grantor agrees, for the benefit of each Fixed Assets Secured Party, as follows: SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement. SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Fixed Assets Obligations, the Grantor does hereby, pledge and hypothecate to the Administrative Agent, and grant to the Administrative Agent a security interest in, for its benefit and the benefit of each Fixed Assets Secured Party, all of the following property (the "Trademark Collateral"), whether now owned or hereafter acquired or existing by it: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of a like nature (all of the foregoing items in this clause (a) being collectively called a "Trademark"), now existing anywhere in the United States or hereafter adopted or acquired in the United States, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State, including those referred to in Item A of Schedule I attached hereto; (b) all Trademark licenses in the United States, including each Trademark license referred to in Item B of Schedule I attached hereto; (c) all reissues, extensions or renewals of any of the items described in clause (a) and (b); (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clauses (a) and (b); and (e) all proceeds of, and rights associated with, the foregoing, including any claim by the Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license referred to in clauses (a) Exhibit B -2- 40 through (c) above, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any such Trademark license. SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Trademark Collateral with the United States Patent and Trademark Office. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the benefit of each Fixed Assets Secured Party under the Security Agreement. The Security Agreement (and all rights and remedies of the Administrative Agent and each Fixed Assets Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. Release of Security Interest. Upon (i) the sale, transfer or other disposition of any Trademark Collateral in accordance with the Credit Agreement or (ii) the Fixed Assets Termination Date, the Administrative Agent shall, at the Grantor's expense, execute and deliver to the Grantor all instruments and other documents as may be necessary or proper to release the lien on and security interest in the Trademark Collateral which has been granted hereunder. SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Trademark Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement. SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. SECTION 8. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. Exhibit B -3- 41 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. [NAME OF GRANTOR] By ----------------------------------- Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Fixed Assets Secured Parties By ----------------------------------- Title: EXHIBIT B -4- 42 SCHEDULE I to Trademark Security Agreement Item A. Trademarks Registered Trademarks --------------------- Trademark Registration No. Registration Date --------- ---------------- ----------------- Pending Trademark Applications ------------------------------ Trademark Serial No. Filing Date --------- ---------- ----------- Trademark Applications in Preparation ------------------------------------- Expected Products/ Trademark Docket No. Filing Date Services --------- ---------- ----------- --------- Item B. Trademark Licenses Effective Expiration Trademark Licensor Licensee Date Date --------- -------- -------- --------- ---------- 43 EXHIBIT C to Security Agreement COPYRIGHT SECURITY AGREEMENT This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of ____________, ____, is made between ___________________, a ____________________ (the "Grantor"), and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for each of the Fixed Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"); WHEREAS, as a condition precedent to the making of the Credit Extensions (including the initial Credit Extension) under the Credit Agreement and pursuant to clause (e) of Section 4.5 of the Security Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the Administrative Agent a continuing security interest in all of the Copyright Collateral (as defined below) to secure all Fixed Assets Obligations; WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Agreement; and NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Fixed Assets Lenders to make 44 Fixed Assets Loans (including the initial Fixed Assets Loans) to the Borrowers pursuant to the Credit Agreement, and (ii) the Fixed Assets Secured Parties to enter into Rate Protection Agreements, the Grantor agrees, for the benefit of each Fixed Assets Secured Party, as follows: SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement. SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Fixed Assets Obligations, the Grantor does hereby pledge and hypothecate to the Administrative Agent, and grant to the Administrative Agent a security interest in, for its benefit and the benefit of each Fixed Assets Secured Party, all of the following property (the "Copyright Collateral"), whether now owned or hereafter acquired or existing by it, being all copyrights of the Grantor, whether statutory or common law, registered or unregistered, now or hereafter in force in the United States including all of the Grantor's right, title and interest in and to all copyrights registered in the United States Copyright Office and also including the copyrights referred to in Item A of Schedule I attached hereto, and all applications for registration thereof, whether pending or in preparation, all copyright licenses in the United States, including each copyright license referred to in Item B of Schedule I attached hereto, the right to sue for past, present and future infringements of any thereof, all rights corresponding thereto in the United States, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Copyright Collateral with the United States Copyright Office. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the benefit of each Fixed Assets Secured Party under the Security Agreement. The Security Agreement (and all rights and remedies of the Administrative Agent and each Fixed Assets Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. Release of Security Interest. Upon (i) the sale, transfer or other disposition of any Copyright Collateral in accordance with the Credit Agreement or (ii) the Fixed Assets Termination Date, the Administrative Agent shall, at the Grantor's expense, execute and deliver to the Grantor all instruments and other documents as may be necessary or proper to release the lien on and security interest in the Copyright Collateral which has been granted hereunder. SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Copyright Collateral granted hereby are more fully set forth in the Security Exhibit C -2- 45 Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement. SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. SECTION 8. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. Exhibit C -3- 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. [NAME OF GRANTOR] By ------------------------------------ Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Fixed Assets Secured Parties By ------------------------------------ Title: Exhibit C -4- 47 SCHEDULE I to Copyright Security Agreement Item A. Copyrights Registered Copyrights --------------------- Registration No. Registration Date Author(s) Title ---------------- ----------------- --------- ----- Copyright Pending Registration Applications ------------------------------------------- Serial No. Filing Date Author(s) Title ---------- ----------- --------- ----- Copyright Registration Applications in Preparation -------------------------------------------------- Expected Docket No. Filing Date Author(s) Title ---------- ----------- --------- ----- Item B. Copyright Licenses Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- 48 PROMISSORY NOTE $2,000,000 July __, 1999 FOR VALUE RECEIVED, the undersigned, [FOREIGN RESTRICTED SUBSIDIARY], a _______________ corporation (the "Maker"), promises to pay to the order of ______________, a _______________ corporation (the "Payee"), on demand, TWO MILLION DOLLARS ($2,000,000) or, if less, the aggregate unpaid principal amount of all intercompany loans made by the Payee to the Maker. Terms not otherwise defined herein are defined in the Revolving Credit Agreement, dated as of July __, 1999 (together with all amendments, supplements and other modifications, if any, from time to time hereafter made thereto, the "Credit Agreement"), among the Payee, each other Borrower party thereto, the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and The CIT Group/Business Credit, Inc., as the Administrative Agent. The unpaid principal amount of this promissory note (this "Note") from time to time outstanding shall bear interest at a rate of interest equal to such rate per annum as shall be agreed upon from time to time by the Payee and the Maker payable at such times as shall be agreed upon by the Payee and the Maker, and all payments of principal of and interest on this Note shall be payable in lawful currency of the United States of America. All such payments and may be recorded on the books and records of the Maker and the Payee and may be recorded on the grid attached hereto by the holder hereof (including recordations made by the Administrative Agent as pledgee). Upon notice from the Administrative Agent that a Default of the nature referred to in Section 8.1.9 of the Credit Agreement or an Event of Default has occurred and is continuing under the Credit Agreement, the Maker shall make such payments, in same day funds, to such other account as the Administrative Agent shall direct in such notice. This Note is one of the Pledged Notes referred to in the Security Agreement, and evidences Indebtedness permitted under the Credit Agreement. Upon the occurrence and during the continuance of an Event of Default under the Credit Agreement, and notice thereof having been delivered by the Administrative Agent to the Maker, the Administrative Agent shall have all rights of the Payee to collect and make demand, and enforce all rights with respect to, the Indebtedness evidenced by this Note. Payee agrees that this Note is subordinate in right of payment to all Obligations of Maker and all obligations of Maker in respect of Indebtedness outstanding under the Senior Secured Note Documents. 49 Reference is made to the Credit Agreement for a description of the Security Agreements pursuant to which this Note has been pledged to the Administrative Agent as security for the Obligations outstanding from time to time under the Credit Agreement and each other Loan Document. In addition to, but not in limitation of, the foregoing, the Maker further agrees to pay all expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder (including the Administrative Agent as pledgee) of this Note endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS NOTE. THE MAKER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE TO ACCEPT THIS NOTE. [NAME OF MAKER] By: ------------------------------ Title: ---------------------- Pay to the order of: ----------------------------- [NAME OF PAYEE] By: ------------------------------- Title: ------------------------- 50 GRID Intercompany Loans made by ____________ to ____________ and payments of principal of such Loans.
==================================================================================================================== Amount of Amount of Intercompany Principal Outstanding Principal Notation Made By Date Loan Payment Balance - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ - --------------------- ------------------------- ------------------------- ----------------------- ------------------ ====================================================================================================================
51 ANNEX I to Security Agreement SUPPLEMENT TO SECURITY AGREEMENT THIS SUPPLEMENT NO. ___, dated as of ________ __, ____ (this "Supplement"), to the Fixed Assets Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"), among the initial signatories thereto and each other Person which from time to time thereafter became a party thereto pursuant to Section 7.9 thereof (each, individually, a "Grantor", and, collectively, the "Grantors"), and THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent for each of the Fixed Assets Secured Parties (such capitalized term and all other capitalized terms being used herein with the meanings provided, or incorporated by reference, in the Security Agreement), is made by the undersigned. W I T N E S S E T H: WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, as a condition precedent to the making and maintenance of the Credit Extensions under the Credit Agreement, the undersigned is required to execute and deliver this Supplement; WHEREAS, the undersigned has duly authorized the execution, delivery and performance of this Supplement and the Security Agreement; WHEREAS, the Security Agreement provides that additional parties may become Grantors under the Security Agreement by execution and delivery of an instrument in the form of this Supplement; 52 WHEREAS, pursuant to the provisions of Section 7.9 of the Security Agreement, the undersigned is becoming a Grantor under the Security Agreement; and WHEREAS, the undersigned desires to become a Grantor under the Security Agreement in order to induce the Fixed Assets Secured Parties to continue to make and maintain Fixed Assets Loans under the Credit Agreement as consideration therefor; NOW, THEREFORE, the undersigned agrees, for the benefit of each Fixed Assets Secured Party, as follows: SECTION 1. In accordance with the Security Agreement, the undersigned by its signature below becomes a Grantor under the Security Agreement with the same force and effect as if it were an original signatory thereto as a Grantor. In furtherance of the foregoing, each reference to a "Grantor" in the Security Agreement shall be deemed to include the undersigned and the Schedules hereto shall be deemed to be Schedules thereto. SECTION 2. The undersigned hereby represents and warrants that this Supplement has been duly authorized, executed and delivered by the undersigned and constitutes a legal, valid and binding obligation of the undersigned, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general equitable principles. SECTION 3. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect in accordance with its terms. SECTION 4. Any provision of this Supplement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Supplement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5. Without limiting the provisions of the Credit Agreement (or any other Loan Document, including the Security Agreement), the undersigned agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including reasonable attorneys' fees and expenses of the Administrative Agent. SECTION 6. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT INCLUDING FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THIS SUPPLEMENT, THE SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. Annex I -2- 53 SECTION 7. This Supplement hereby incorporates by reference the provisions of the Security Agreement, which provisions are deemed to be a part hereof, and this Supplement shall be deemed to be a part of the Security Agreement. SECTION 8. This Supplement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Supplement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. IN WITNESS WHEREOF, the undersigned has caused this Supplement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [NAME OF ADDITIONAL GRANTOR] By ----------------------------------- Title: ACKNOWLEDGED AND ACCEPTED BY: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Fixed Assets Secured Parties By ------------------------------ Title: Annex I -3- 54 SCHEDULE I to Supplement No. __ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Perfection Certificate See Exhibit M to the Credit Agreement 55 SCHEDULE II to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Item A. Patents Issued Patents -------------- Patent No. Issue Date Inventor(s) Title - ---------- ---------- ----------- ----- Pending Patent Applications --------------------------- Serial No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Patent Applications in Preparation ---------------------------------- Expected Docket No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- 56 SCHEDULE III to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Item A. Trademarks Registered Trademarks --------------------- Trademark Registration No. Registration Date --------- ---------------- ----------------- Pending Trademark Applications ------------------------------ Trademark Serial No. Filing Date --------- ---------- ----------- Trademark Applications in Preparation ------------------------------------- Expected Products/ Trademark Docket No. Filing Date Services --------- ---------- ----------- --------- Item B. Trademark Licenses Effective Expiration Trademark Licensor Licensee Date Date --------- -------- -------- --------- ---------- 57 SCHEDULE IV to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Item A. Copyrights Registered Copyrights --------------------- Registration No. Registration Date Author(s) Title ---------------- ----------------- --------- ----- Copyright Pending Registration Applications ------------------------------------------- Serial No. Filing Date Author(s) Title ---------- ----------- --------- ----- Copyright Registration Applications in Preparation -------------------------------------------------- Expected Docket No. Filing Date Author(s) Title ---------- ----------- --------- ----- Item B. Copyright Licenses Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- 58 SCHEDULE V to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Trade Secret or Know-How Licenses --------------------------------- Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- EX-4.6 7 CURRENT ASSETS SECURITY AGMT. - JULY 23, 1999 1 EXHIBIT 4.6 CURRENT ASSETS SECURITY AGREEMENT THIS CURRENT ASSETS SECURITY AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Agreement"), dated as of July 23, 1999, is among STERLING CHEMICALS, INC., a Delaware corporation, STERLING CANADA, INC., a Delaware corporation, STERLING PULP CHEMICALS US, INC., a Delaware corporation, STERLING PULP CHEMICALS, INC., a Georgia corporation, STERLING FIBERS, INC., a Delaware corporation, STERLING CHEMICALS ENERGY, INC., a Delaware corporation, and STERLING CHEMICALS INTERNATIONAL, INC., a Delaware corporation (each individually a "Borrower" and collectively the "Borrowers"), and each other Person (such capitalized term and all other capitalized terms not otherwise defined herein shall have the meanings provided for or incorporated by reference in Article I below) that may, from time to time become, pursuant to the terms of the Credit Agreement, a party to this Agreement (individually referred to as a "Grantor", and collectively referred to as the "Grantors"), and THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT"), as the Administrative Agent for each of the Current Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July 23, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among the Borrowers, the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and CIT, as the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, as a condition precedent to the making of each Credit Extension (including the initial Credit Extension) under the Credit Agreement, each Grantor is required to execute and deliver this Agreement; WHEREAS, each Grantor has duly authorized the execution, delivery and performance of this Agreement; and WHEREAS, it is in the best interests of each Grantor to execute this Agreement inasmuch as such Grantor will derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Borrowers by the Lenders and the Issuer pursuant to 2 the Credit Agreement and the execution and delivery of Rate Protection Agreements between the Borrowers and certain Current Assets Secured Parties; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Current Assets Lenders, the Swing Line Lender and the Issuer to make Current Assets Loans and Swing Line Loans and issue Letters of Credit to the Borrowers pursuant to the Credit Agreement and (ii) the Current Assets Secured Parties to enter into Rate Protection Agreement(s), each Grantor jointly and severally agrees, for the benefit of each Current Assets Secured Party, as follows: ARTICLE I DEFINITIONS SECTION I.1. Certain Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Agreement" is defined in the preamble. "Borrower" and "Borrowers" are defined in the preamble. "CIT" is defined in the preamble. "Collateral" is defined in Section 2.1. "Collateral Account" is defined in clause (c) of Section 4.3. "Computer Hardware and Software Collateral" means: (a) all computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (b) all software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by any Grantor, designed for use on the computers and electronic data processing hardware described in clause (a) above; -2- 3 (c) all firmware associated therewith; (d) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such hardware, software and firmware described in the preceding clauses (a) through (c); and (e) all rights with respect to all of the foregoing, including any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. "Copyright Collateral" means all copyrights of each Grantor, whether statutory or common law, registered or unregistered, now or hereafter in force in the United States including all of such Grantor's right, title and interest in and to all copyrights registered in the United States Copyright Office and also including the copyrights referred to in Item A of Schedule IV attached hereto, and all applications for registration thereof, whether pending or in preparation, all copyright licenses in the United States, including each copyright license referred to in Item B of Schedule IV attached hereto, the right to sue for past, present and future infringements of any thereof, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. "Credit Agreement" is defined in the first recital. "Current Assets Termination Date" means the date on which all Current Assets Obligations have been paid in full in cash, all Letters of Credit have been terminated, expired or Cash Collateralized, all Rate Protection Agreements have been terminated and all Current Assets Commitments have been permanently terminated. "Grantor" and "Grantors" are defined in the preamble. "Intellectual Property Collateral" means, collectively, the Computer Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral. "Intercompany Note" means, with respect to any Grantor, as the payee thereunder, a promissory note substantially in the form of Exhibit D hereto (with such modifications as the Administrative Agent may consent to, such consent not to be unreasonably withheld), which promissory note shall evidence all intercompany loans which may be made from time to time by the such Grantor to any of its Foreign Restricted Subsidiaries as the maker of such promissory note, as amended, modified or supplemented from time to time, in accordance with Section 4.7, -3- 4 together with any promissory note of such Grantor taken in extension or renewal thereof or substitution therefor. "Inventory" is defined in clause (a) of Section 2.1 "Lenders" is defined in the first recital. "Material Contracts" is defined in clause (c) of Section 2.1 "Patent Collateral" means: (a) all letters patent and applications for letters patent in the United States, including all patent applications in preparation for filing in the United States and including each patent and patent application referred to in Item A of Schedule II attached hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a); (c) all patent licenses in the United States, including each patent license referred to in Item B of Schedule II attached hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, referred to in clauses (a) or (b) above, and for breach or enforcement of any patent license referred to in clause (c) above. "Receivables" is defined in clause (b) of Section 2.1. "Related Contracts" is defined in clause (b) of Section 2.1. "Trademark Collateral" means: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of a like nature (all of the foregoing items in this clause (a) being collectively called a "Trademark"), now existing anywhere in the United States or hereafter adopted or acquired in the United States, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of -4- 5 America or any State, including those referred to in Item A of Schedule III attached hereto; (b) all Trademark licenses in the United States, including each Trademark license referred to in Item B of Schedule III attached hereto; (c) all reissues, extensions or renewals of any of the items described in clause (a) and (b); (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clauses (a) and (b); and (e) all proceeds of, and rights associated with, the foregoing, including any claim by any Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, including any Trademark, Trademark registration or Trademark license referred to in clauses (a) through (c) above, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of such Trademark license. "Trade Secrets Collateral" means all common law and statutory trade secrets and all other confidential or proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of any Grantor (all of the foregoing being collectively called a "Trade Secret"), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, including each Trade Secret license referred to in Schedule V attached hereto, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license. SECTION I.2. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION I.3. U.C.C. Definitions. Unless otherwise defined herein or in the Credit Agreement or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Agreement, including its preamble and recitals, with such meanings. ARTICLE II SECURITY INTEREST SECTION II.1. Grant of Security. Each Grantor hereby assigns, pledges, hypothecates, charges, delivers and transfers to the Administrative Agent, for its benefit and the ratable benefit of each of the Current Assets Secured Parties, and hereby grants to the Administrative Agent, for -5- 6 its benefit and the ratable benefit of each of the Current Assets Secured Parties, a continuing security interest in all of the following, whether now or hereafter existing or acquired by such Grantor (the "Collateral"): (a) all inventory in all of its forms of such Grantor, wherever located, including (i) all raw materials and work in process therefor, finished goods thereof and materials used or consumed in the manufacture or production thereof, (ii) all goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including goods in which such Grantor has an interest or right as consignee), and (iii) all goods which are returned to or repossessed by such Grantor, and all accessions thereto, products thereof and documents therefor (any and all such inventory, materials, goods, accessions, products and documents being the "Inventory"); (b) all accounts, contracts (including, but not limited to, all service contracts, supply contracts and marketing agreements (all such service contracts, supply contracts and marketing agreements, collectively, the "Material Contracts")), contract rights, chattel paper, documents, instruments, general intangibles, including Tax refunds, of such Grantor, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of such Grantor now or hereafter existing in and to all security agreements, guaranties, leases and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments and general intangibles (any and all such accounts, contracts, contract rights, chattel paper, documents, instruments, warehouse receipts, bills of lading, Material Contracts and general intangibles being the "Receivables", and any and all such security agreements, guaranties, leases and other contracts being the "Related Contracts"); (c) in furtherance of, and not in limitation of, clause (b), all Material Contracts, together with (i) all rights of such Grantor to receive monies due and to become due under or pursuant to each Material Contract, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty, guaranty or collateral security with respect to each Material Contract, (iii) all claims of such Grantor for damages arising out of or for breach or default under each Material Contract, (iv) all rights of such Grantor to terminate a Material Contract, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder and (v) to the extent not included in the foregoing, all proceeds of any and all of the foregoing; (d) all Intellectual Property Collateral of such Grantor; -6- 7 (e) the Collateral Account and each Lockbox (including all deposits and investments therein and all earnings thereon); (f) all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section 2.1; (g) all Intercompany Notes in which such Grantor has an interest (including each Intercompany Note described in Schedule V hereto); (h) all interest and other payments and rights with respect to each Intercompany Note in which such Grantor has an interest; (i) all of such Grantor's other property and rights of every kind and description and interests therein; and (j) all products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in clauses (a) through (i), and, to the extent not otherwise included, all payments under insurance (whether or not the Administrative Agent is the loss payee thereof) or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). Notwithstanding the foregoing, "Collateral" shall not include (a) any equipment, machinery, furnishings, furniture, real property, fixtures or any other Fixed Assets in all of their forms of such Grantor, wherever located, including all parts thereof and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor and all accessories and general intangibles related thereto, or (b) any general intangibles or other rights arising under any contracts, instruments, licenses or other documents as to which the grant of a security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained. Each Grantor agrees to use its best efforts to obtain any such required consent with respect to any material item of such Collateral. SECTION II.2. Security for Current Assets Obligations. This Agreement secures the payment in cash in full of all Current Assets Obligations. SECTION II.3. Delivery of Intercompany Notes. All Collateral comprised of Intercompany Notes shall be delivered to and held by or on behalf of (and endorsed to the order of) the Administrative Agent pursuant hereto, in suitable form for transfer by delivery. SECTION II.4. Payments on Intercompany Notes. In the event that any payment of principal or interest is to be made on any Intercompany Note at a time when no Default of the nature referred to in Section 8.1.9 of the Credit Agreement or Event of Default has occurred and -7- 8 is continuing or would result therefrom, such payment may be paid directly to the applicable Grantor. If any such Default or Event of Default has occurred and is continuing, then any such payment shall be paid directly to the Administrative Agent. SECTION II.5. Continuing Security Interest; Transfer of Notes. This Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until the Current Assets Termination Date; (b) be binding upon each Grantor, its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Administrative Agent and each other Current Assets Secured Party. Without limiting the generality of the foregoing clause (c), any Current Assets Secured Party may assign or otherwise transfer (in whole or in part) any Current Assets Loan Commitment or Swing Line Loan Commitment or Current Assets Loan held by it to any other Person, and such other Person shall thereupon become vested with all the rights and benefits in respect thereof granted to such Current Assets Secured Party under any Loan Document (including this Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 10.11 of the Credit Agreement. Upon (i) the sale, transfer or other disposition of Collateral in accordance with the Credit Agreement or (ii) the Current Assets Termination Date, the security interests granted herein shall automatically terminate and all rights to the applicable Collateral shall revert to the applicable Grantor with respect to (A) such Collateral (in the case of clause (i)) or (B) all Collateral (in the case of clause (ii)). Upon any such sale, transfer, disposition or termination, the Administrative Agent will, at such Grantor's sole expense, execute and deliver to such Grantor, without any representations, warranties or recourse, such documents (including applicable Intercompany Notes) as such Grantor shall reasonably request to evidence such termination or release. SECTION II.6. Grantor Remains Liable. Anything herein to the contrary notwithstanding: (a) each Grantor will remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of its duties and obligations under such contracts and agreements to the same extent as if this Agreement had not been executed; (b) the exercise by the Administrative Agent of any of its rights hereunder will not release any Grantor from any of its duties or obligations under any such contracts or agreements included in the Collateral; and -8- 9 (c) neither the Administrative Agent nor any other Current Assets Secured Party will have any obligation or liability under any such contracts or agreements included in the Collateral by reason of this Agreement, nor will the Administrative Agent or any other Current Assets Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION II.7. Security Interest Absolute. All rights of the Administrative Agent and the security interests granted to the Administrative Agent hereunder, and all obligations of each Grantor hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of any Loan Document; (b) the failure of any Current Assets Secured Party (i) to assert any claim or demand or to enforce any right or remedy against the Borrowers, any other Obligor or any other Person under the provisions of any Loan Document or otherwise or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Current Assets Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Current Assets Obligations or any other extension, compromise or renewal of any Current Assets Obligations; (d) any reduction, limitation, impairment or termination of any Current Assets Obligations for any reason (other than the repayment in full and in cash of all Current Assets Obligations), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Grantor hereby waives any right to or claim of) any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise or unenforceability of, or any other event or occurrence affecting, any Current Assets Obligations or otherwise; (e) any amendment to, rescission, waiver or other modification of, or any consent to departure from, any of the terms of any Loan Document; (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral) or any amendment to or waiver or release of or addition to or consent to departure from any guaranty for any of the Current Assets Obligations; or -9- 10 (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Borrower, any other Obligor, any surety or any guarantor. SECTION II.8. Postponement of Subrogation, etc. Each Grantor hereby agrees that it will not exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the Current Assets Termination Date. Any amount paid to any Grantor on account of any payment made hereunder prior to the Current Assets Termination Date shall be held in trust for the benefit of the Current Assets Secured Parties and shall immediately be paid to the Administrative Agent for the ratable benefit of the Current Assets Secured Parties and credited and applied against the Current Assets Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if: (a) such Grantor has made payment to the Administrative Agent for the ratable benefit of the Current Assets Secured Parties of all or any part of the Current Assets Obligations; and (b) the Current Assets Termination Date has occurred, each Current Assets Secured Party agrees that, at the requesting Grantor's request, the Administrative Agent, on behalf of the Current Assets Secured Parties, will execute and deliver to such Grantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Grantor of an interest in the Current Assets Obligations resulting from such payment by such Grantor. In furtherance of the foregoing, prior to the Current Assets Termination Date, each Grantor shall refrain from taking any action or commencing any proceeding against any Borrower or any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Agreement to the Administrative Agent or any other Current Assets Secured Party. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION III.1. Representations and Warranties. Each Grantor represents and warrants to each Current Assets Secured Party as set forth in this Article III. SECTION III.2. Location of Collateral, etc. All of the Inventory and Lockboxes of such Grantor are respectively located at the places specified in Item 3 of the Perfection Certificate. None of the Inventory has, within the four months preceding the date of this Agreement if then owned by such Grantor, been located at any place other than the places specified in Item 3 of the Perfection Certificate. The place of business and chief executive office of such Grantor and the -10- 11 office where such Grantor keeps its records concerning the Receivables, and all originals of all chattel paper which evidence Receivables, are located at the address set forth in Item 3 of the Perfection Certificate. Such Grantor has no trade names other than those specified in Item 1 of the Perfection Certificate. During the four months preceding the date hereof, such Grantor has not been known by any legal name nor has it had a federal taxpayer identification number different from the one set forth on Item 2 of the Perfection Certificate, nor has such Grantor been the subject of any merger or other corporate reorganization, except as set forth in Item 1 of the Perfection Certificate. If the Collateral includes any Inventory located in the State of California, such Grantor is not a "retail merchant" within the meaning of Section 9102 of the California U.C.C. All Receivables evidenced by a promissory note or other instrument, negotiable document or chattel paper have been duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Administrative Agent and delivered and pledged to the Administrative Agent pursuant to Section 4.6. Such Grantor is not a party to any Federal, State or local government contract except as set forth in Item 13 of the Perfection Certificate. SECTION III.3. Ownership, No Liens, etc. Such Grantor owns its Collateral free and clear of any Lien, except for the security interest created by this Agreement, the Lien in favor of the Fixed Assets Secured Parties and Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Administrative Agent relating to this Agreement or as have been filed in connection with Permitted Liens. SECTION III.4. Possession and Control. Each Grantor has exclusive possession and control of its Inventory except where the absence of possession and control results from actions of such Grantor in the ordinary course of business. SECTION III.5. Negotiable Documents, Instruments and Chattel Paper. Such Grantor has, contemporaneously herewith, delivered to the Administrative Agent possession of all originals of all negotiable documents, instruments and chattel paper currently owned or held by such Grantor (duly endorsed in blank, if requested by the Administrative Agent). SECTION III.6. Intellectual Property Collateral. With respect to any Intellectual Property Collateral owned by such Grantor the loss, impairment or infringement of which might have a Material Adverse Effect: (a) such Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or in part; (b) such Intellectual Property Collateral is valid and enforceable; (c) such Grantor has made all necessary filings and recordations to protect its interest in such Intellectual Property Collateral, including (if permissible) recordations of -11- 12 all of its interests in the Patent Collateral and Trademark Collateral in the United States Patent and Trademark Office and its claims to the Copyright Collateral in the United States Copyright Office; (d) such Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral and no claim has been made that the use of such Intellectual Property Collateral does or may violate the asserted rights of any third party which could reasonably be expected to have a Material Adverse Effect (except for (i) Liens created under the Loan Documents, and (ii) Permitted Liens and except for rights of licensees under licenses of such Intellectual Property Collateral in the ordinary course of business); and (e) with respect to any Intellectual Property Collateral that has been registered, such Grantor has performed and will continue to perform all acts and has paid and will continue to pay all required fees and Taxes to maintain each and every such item of Intellectual Property Collateral in full force and effect in the United States. Such Grantor owns directly or is entitled to use by license or otherwise, all patents, Trademarks, Trade Secrets, copyrights, licenses, technology, know-how, processes and rights with respect to any of the foregoing necessary for or of importance to the conduct of such Grantor's business as currently conducted. SECTION III.7. Validity, etc. This Agreement creates a valid first-priority security interest in the Collateral securing the payment of the Current Assets Obligations, and (a) in the case of Collateral comprised of negotiable documents, instruments and chattel paper, upon the delivery of such Collateral to the Administrative Agent, such security interest will be a valid first-priority, perfected security interest; and (b) in the case of all other Collateral, upon the filing of the U.C.C. financing statements (Form U.C.C.-1) delivered by such Grantor to the Administrative Agent with respect to such Collateral, such security interest will be a valid first-priority, perfected security interest. Each Grantor has filed all U.C.C. financing statements (Form U.C.C.-1) referred to above in the appropriate offices therefor (or has provided the Administrative Agent with copies thereof suitable for filing in such offices) and has taken all of the other actions referred to above necessary to create perfected and first-priority security interests in the applicable Collateral. SECTION III.8. Authorization, Approval, etc. Except as have been obtained or made and are in full force and effect, no material authorization, material approval or other action by, and no material notice to or material filing with, any Governmental Authority or regulatory body is required either (a) for the grant by such Grantor of the security interest granted hereby, the pledge by such Grantor of any Collateral pursuant hereto or for the execution, delivery and -12- 13 performance of this Agreement by such Grantor or (b) for the perfection of or the exercise by the Administrative Agent of its rights and remedies hereunder. SECTION III.9. Compliance with Laws. Such Grantor is in compliance with the requirements of all applicable laws (including the provisions of the Fair Labor Standards Act), rules, regulations and orders of every Governmental Authority, the non-compliance with which could reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to materially adversely affect the value of the Collateral. SECTION III.10. As to Intercompany Notes. In the case of each Intercompany Note, all of such Intercompany Notes have been duly authorized, executed, endorsed, issued and delivered, and are the legal, valid and binding obligation of the issuers thereof, and are not in default. ARTICLE IV COVENANTS SECTION IV.1. Certain Covenants. Each Grantor covenants and agrees that, at all times prior to the Current Assets Termination Date, such Grantor will, unless the Required Lenders shall otherwise consent in writing, perform, comply with and be bound by the obligations set forth in this Article IV. SECTION IV.2. As to Inventory. Such Grantor hereby agrees that it will: (a) keep all the Inventory (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 3.2 or, upon 30 days' prior written notice to the Administrative Agent, at such other places in a jurisdiction where all representations and warranties set forth in Article III shall be true and correct in all material respects, and all action required pursuant to the first sentence of Section 4.6 shall have been taken with respect to the Inventory; and (b) pay promptly when due all property and other Taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Inventory, except to the extent the validity thereof is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside. SECTION IV.3. As to Receivables. (a) Such Grantor will keep its chief executive office and the office(s) where it keeps its records concerning the Receivables, and all originals of all chattel paper which evidences Receivables, located at the address(es) set forth in Section 3.2 and shall keep its other places of business at the addresses set forth in Item 1 of the Perfection -13- 14 Certificate, or, upon 30 days' prior written notice to the Administrative Agent, at such other locations in a jurisdiction where all actions required by the first sentence of Section 4.6 shall have been taken with respect to the Receivables and such other Collateral; not change its name or federal taxpayer identification number except upon 30 days' prior written notice to the Administrative Agent; hold and preserve such records; and permit representatives of the Administrative Agent at any time during normal business hours to inspect and make abstracts from such records. (b) Such Grantor shall have the right to collect, demand, receive, receipt for, sue for, compound and give acquittances for any and all amounts due or to become due on Receivables and settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances with respect to Receivables in the ordinary course of business so long as no Default of the nature set forth in Section 8.1.9 of the Credit Agreement nor any Event of Default shall have occurred and be continuing. (c) All proceeds of Collateral received by such Grantor shall be deposited into a deposit account of such Grantor, unless, during the occurrence and continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, such Grantor is otherwise notified in writing by the Administrative Agent. Following any such notice by the Administrative Agent to such Grantor pursuant to this Section, all proceeds of Collateral received by such Grantor shall be delivered in kind for deposit to an account or accounts specified by the Administrative Agent (collectively, the "Collateral Account"). Such proceeds of Collateral received by such Grantor shall, prior to deposit in the Collateral Account, be held separate and apart from, and not commingled with, any other property and in express trust for the benefit of the Administrative Agent until delivery thereof is made to the Collateral Account. (d) During any time that an Event of Default shall have occurred and be continuing, the Administrative Agent shall have the right to apply any amount in the Collateral Account to the payment of any Current Assets Obligations which are due and payable, including any Current Assets Obligations that have been declared due and payable pursuant to Section 8.3 of the Credit Agreement. (e) With respect to the Collateral Account, it is hereby confirmed and agreed that (i) deposits in each Collateral Account are subject to a security interest as contemplated hereby, (ii) each such Collateral Account shall be under the sole dominion and control of the Administrative Agent and (iii) the Administrative Agent shall have the sole right of withdrawal over such Collateral. SECTION IV.4. As to Collateral. (a) Until the occurrence and continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, and such time as the Administrative Agent shall notify such Grantor of the revocation of such power and authority, such Grantor (i) may in the ordinary course of its business (except to the extent prohibited under any Loan Document) at its own expense, refine, process, store, transport, sell, -14- 15 lease or furnish under the contracts of service any of the Inventory normally held by such Grantor for such purpose, and use and consume, in the ordinary course of its business (except to the extent prohibited under the Credit Agreement or any other Loan Document), any raw materials, including work in process or materials normally held by such Grantor for such purpose, (ii) will, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any Collateral, including the taking of such action with respect to such collection as the Administrative Agent may reasonably request upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default or, in the absence of such request, as such Grantor may deem advisable, and (iii) may grant, in the ordinary course of business (except to the extent prohibited under any Loan Document), to any party obligated on any of the Collateral, any rebate, refund or allowance to which such party may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to such Collateral. The Administrative Agent, however, may, at any time upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder and enforce collection of any of the Collateral by suit or otherwise and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. Upon request of the Administrative Agent, upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, such Grantor will, at its own expense, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder. (b) Upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, the Administrative Agent is authorized to endorse, in the name of such Grantor, any item, howsoever received by the Administrative Agent, representing any payment on or other proceeds of any of the Collateral. SECTION IV.5. As to Intellectual Property Collateral. Each Grantor covenants and agrees to comply with the following provisions as such provisions relate to any Intellectual Property Collateral of such Grantor: (a) such Grantor will not (i) do any act, or omit to do any act, whereby any of the Patent Collateral may lapse or become abandoned or dedicated to the public or unenforceable, (ii) permit any of its licensees to, (A) fail to continue to use any of the Trademark Collateral in order to maintain all of the Trademark Collateral in full force free from any claim of abandonment for non-use, (B) fail to maintain as in the past the quality of products and services offered under all of the Trademark Collateral, (C) fail to employ all of the Trademark Collateral registered with any Federal or State authority with an appropriate notice of such registration, (D) adopt or use any other Trademark which is confusingly similar or a colorable imitation of any of the Trademark Collateral, (E) use -15- 16 any of the Trademark Collateral registered with any Federal or State authority except for the uses for which registration or application for registration of all of the Trademark Collateral has been made, or (F) do or permit any act or knowingly omit to do any act whereby any of the Trademark Collateral may lapse or become invalid or unenforceable or (iii) do or permit any act or knowingly omit to do any act whereby any of the Copyright Collateral or any of the Trade Secrets Collateral may lapse or become invalid or unenforceable or placed in the public domain except upon expiration of the end of an unrenewable term of a registration thereof, unless such Grantor shall either (x) reasonably and in good faith determine (and notice of such determination shall have been delivered to the Administrative Agent) that any of the Intellectual Property Collateral is not of material economic value to such Grantor, or (y) in the exercise of its reasonable business judgment determines to do otherwise; (b) such Grantor shall notify the Administrative Agent promptly if it knows, or has reason to know, that any application or registration relating to any material item of the Intellectual Property Collateral may become abandoned or dedicated to the public or placed in the public domain or invalid or unenforceable, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any U.S. court) regarding such Grantor's ownership of any material item of the Intellectual Property Collateral, its right to register the same or to keep and maintain and enforce the same; (c) in no event will such Grantor or any of its agents, employees, designees or licensees file an application for the registration of any Intellectual Property Collateral with the United States Patent and Trademark Office or the United States Copyright Office, unless it promptly informs the Administrative Agent, and upon request of the Administrative Agent, executes and delivers any and all agreements, instruments, documents and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent's security interest in such Intellectual Property Collateral and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (d) unless such Grantor shall otherwise determine in the exercise of its reasonable business judgment, such Grantor will take all necessary steps, including in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office, to maintain and pursue any application (and to obtain the relevant registration) filed with respect to, and to maintain any registration of, any material item of the Intellectual Property Collateral, including the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and the payment of fees and Taxes (except to the extent that -16- 17 dedication, abandonment or invalidation is permitted under the foregoing clauses (a), (b) and (c)); and (e) such Grantor will, contemporaneously herewith, execute and deliver to the Administrative Agent a Patent Security Agreement, Trademark Security Agreement and Copyright Security Agreement in the forms of Exhibit A, Exhibit B and Exhibit C hereto, and shall execute and deliver to the Administrative Agent any other document required to acknowledge or register or perfect the Administrative Agent's interest in any material item of the Intellectual Property Collateral. SECTION IV.6. Further Assurances, etc. Such Grantor agrees that, from time to time at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Administrative Agent may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, such Grantor will: (a) if any Receivable shall be evidenced by a promissory note or other instrument, negotiable document or chattel paper, deliver and pledge to the Administrative Agent hereunder such promissory note, instrument, negotiable document or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Administrative Agent; (b) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices (including any assignment of claim form under or pursuant to the federal assignment of claims statute, 31 U.S.C. Section 3726, any successor or amended version thereof or any regulation promulgated under or pursuant to any version thereof), as may be necessary or desirable, or as the Administrative Agent may request, in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Administrative Agent hereby; and (c) furnish to the Administrative Agent, from time to time at the Administrative Agent's request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. With respect to the foregoing and the grant of the security interest hereunder, such Grantor hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Grantor where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. -17- 18 SECTION IV.7. As to Intercompany Notes. Each Grantor will, at all times, keep pledged to the Administrative Agent pursuant hereto on a first-priority, perfected basis all Intercompany Notes and all interest, principal and other proceeds received by the Administrative Agent with respect to the Intercompany Notes. Each Grantor agrees after any Default of the nature referred to in Section 8.1.9 of the Credit Agreement or any Event of Default shall have occurred and be continuing, promptly upon receipt of notice thereof by such Grantor and without any request therefor by the Administrative Agent, to deliver (properly endorsed where required hereby or requested by the Administrative Agent) to the Administrative Agent all interest, all principal, all other cash payments and all proceeds of the Intercompany Notes. Each Grantor will not amend, supplement or otherwise modify, or permit, consent or suffer to occur any amendment, supplement or modification of any terms or provisions contained in, or applicable to, any Intercompany Notes included in the Collateral if the effect thereof is to impair, or is in any manner adverse to, the rights or interests of the Administrative Agent or any other Current Assets Secured Party hereunder or under any Loan Document, without the prior written consent of the Administrative Agent. ARTICLE V THE ADMINISTRATIVE AGENT SECTION V.1. Administrative Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints the Administrative Agent as such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Administrative Agent's discretion, upon the occurrence and during the continuance of a Default of the nature set forth in Section 8.1.9 of the Credit Agreement or an Event of Default, to take any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to ask, demand, collect, sue for, recover, compromise and receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral; and (d) to perform the affirmative obligations of such Grantor hereunder (including all obligations of such Grantor pursuant to Section 4.6). -18- 19 Such Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION V.2. Administrative Agent May Perform. If any Grantor fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by such Grantor pursuant to Section 6.3. SECTION V.3. Administrative Agent Has No Duty. The powers conferred on the Administrative Agent hereunder are solely to protect its interest (on behalf of the Current Assets Secured Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or responsibility for: (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any investment property, whether or not the Administrative Agent has or is deemed to have knowledge of such matters; or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION V.4. Reasonable Care. The Administrative Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, that the Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as any Grantor reasonably requests in writing from time to time, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. If an Event of Default has occurred and is continuing, the Administrative Agent shall not be required to comply with any request of the Grantor with respect to the matters described in this Section. ARTICLE VI REMEDIES SECTION VI.1. Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may -19- 20 (i) require each Grantor to, and such Grantor hereby agrees that it will, at its expense and upon request of the Administrative Agent forthwith, assemble all or part of the Collateral as directed by the Administrative Agent and make it available to the Administrative Agent at a place to be designated by the Administrative Agent which is reasonably convenient to both parties, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days prior notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of such Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Administrative Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral shall be applied by the Administrative Agent against all or any part of the Current Assets Obligations as follows: (i) first, to the payment of any amounts payable to the Administrative Agent pursuant to Section 10.3 of the Credit Agreement and Section 6.3; (ii) second, to the equal and ratable payment of Current Assets Obligations, in accordance with each Current Assets Secured Party's Current Assets Obligations owing to it under or pursuant to the Credit Agreement or any other Loan Document, or under or pursuant to any Rate Protection Agreement included in the Current Assets Obligations, as to each Current Assets Secured Party, applied (A) first to fees and expense reimbursements then due to such Current Assets Secured Party, (B) then to interest due to such Current Assets Secured Party, (C) then to pay or prepay principal of the Current Assets Loans and Swing Line Loans owing to, or to reduce the "credit exposure" of, -20- 21 such Current Assets Secured Party under any Rate Protection Agreement, as the case may be, and (D) then to pay the remaining outstanding Current Assets Obligations and Cash Collateralize all Letter of Credit Outstandings; (iii) third, without duplication of any amounts paid pursuant to clause (b)(ii) above, to the Indemnified Parties to the extent of any amounts owing pursuant to Section 10.4 of the Credit Agreement; and (iv) fourth, to be held as additional collateral security until the Current Assets Termination Date, after which such remaining cash proceeds shall be paid over to the applicable Grantor (or the Fixed Assets Secured Parties, if applicable) or to whomsoever may be lawfully entitled to receive such surplus. For purposes of this Agreement, the "credit exposure" at any time of any Current Assets Secured Party with respect to a Rate Protection Agreement to which such Current Assets Secured Party is a party shall be determined at such time in accordance with the customary methods of calculating credit exposure under similar arrangements by the counterparty to such arrangements, taking into account potential interest rate movements and the respective termination provisions and notional principal amount and term of such Rate Protection Agreement. (c) The Administrative Agent may (i) transfer all or any part of the Collateral into the name of the Administrative Agent or its nominee, with or without disclosing that such Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Administrative Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts or other writings in such Grantor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral and -21- 22 (vi) execute (in the name, place and stead of such Grantor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION VI.2. Compliance with Restrictions. Each Grantor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Administrative Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications and restrict such prospective bidders and purchasers to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral) or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority or official, and such Grantor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Administrative Agent be liable nor accountable to such Grantor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION VI.3. Indemnity and Expenses. Each Grantor hereby jointly and severally indemnifies and holds harmless the Administrative Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses, or liabilities resulting from the Administrative Agent's gross negligence or wilful misconduct and, each Grantor will, upon demand pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Administrative Agent may incur, in each case, in connection with: (a) the administration of this Agreement; (b) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Administrative Agent hereunder; or (d) the failure by any Grantor to perform or observe any of the provisions hereof. -22- 23 ARTICLE VII MISCELLANEOUS PROVISIONS SECTION VII.1. Loan Document. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION VII.2. Amendments; etc. No amendment to or waiver of any provision of this Agreement nor consent to any departure by any Grantor herefrom shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be) and each Grantor and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION VII.3. Protection of Collateral. The Administrative Agent may from time to time, at its option, perform any act which each Grantor agrees hereunder to perform and which such Grantor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Administrative Agent may from time to time take any other action which the Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION VII.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed, delivered or transmitted, if to any Grantor, at the address or facsimile number of the Company provided for in the Credit Agreement, and, if to the Administrative Agent, at the address or facsimile number provided for in the Credit Agreement, or as to any such party at such other address or facsimile number as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice, (a) if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received, or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). SECTION VII.5. Headings. The various headings of this Agreement are inserted for convenience only, and shall not affect the meaning or interpretation of this Agreement or any provisions thereof. SECTION VII.6. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION VII.7. Counterparts; Effectiveness. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall -23- 24 constitute together but one and the same agreement. This Agreement shall become effective as of the date first above written and be binding upon a Grantor when a counterpart hereof executed on behalf of such Grantor shall have been received by the Administrative Agent. SECTION VII.8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION VII.9. Additional Grantors. Upon the execution and delivery by any other Person of an instrument in the form of Annex I hereto, together with each Schedule thereto, such Person shall become a "Grantor" hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any such instrument shall not require the consent of any other Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. SECTION VII.10. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -24- 25 IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. STERLING CHEMICALS, INC. By -------------------------------------- Title: STERLING CANADA, INC. By -------------------------------------- Title: STERLING PULP CHEMICALS US, INC. By -------------------------------------- Title: STERLING PULP CHEMICALS, INC. By -------------------------------------- Title: STERLING FIBERS, INC. By -------------------------------------- Title: 26 STERLING CHEMICALS ENERGY, INC. By -------------------------------------- Title: STERLING CHEMICALS INTERNATIONAL, INC. By ------------------------------- Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Current Assets Secured Parties By -------------------------------------- Title: 27 SCHEDULE I to Security Agreement ([NAME OF GRANTOR]) Perfection Certificate See Exhibit M to the Credit Agreement 28 SCHEDULE II to Security Agreement ([NAME OF GRANTOR]) Item A. Patents Issued Patents -------------- Patent No. Issue Date Inventor(s) Title - ---------- ---------- ----------- ------ Pending Patent Applications --------------------------- Serial No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Patent Applications in Preparation ---------------------------------- Expected Docket No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ------ Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter - -------- -------- --------- ---------- ------- 29 SCHEDULE III to Security Agreement ([NAME OF GRANTOR]) Item A. Trademarks Registered Trademarks --------------------- Trademark Registration No. Registration Date - --------- ---------------- ----------------- Pending Trademark Applications ------------------------------ Trademark Serial No. Filing Date - --------- ---------- ----------- Trademark Applications in Preparation ------------------------------------- Expected Products/ Trademark Docket No. Filing Date Services - --------- ---------- ----------- -------- Item B. Trademark Licenses Effective Expiration Trademark Licensor Licensee Date Date - --------- -------- -------- --------- ---------- 30 SCHEDULE IV to Security Agreement ([NAME OF GRANTOR]) Item A. Copyrights Registered Copyrights --------------------- Registration No. Registration Date Author(s) Title - ---------------- ----------------- --------- ----- Copyright Pending Registration Applications ------------------------------------------- Serial No. Filing Date Author(s) Title - ---------- ----------- --------- ----- Copyright Registration Applications in Preparation --------------------------------------------------- Expected Docket No. Filing Date Author(s) Title - ---------- ----------- --------- ----- Item B. Copyright Licenses Effective Expiration Subject Licensor Licensee Date Date Matter - -------- -------- --------- ---------- ------- 31 SCHEDULE V to Security Agreement ([NAME OF GRANTOR]) Trade Secret or Know-How Licenses --------------------------------- Effective Expiration Subject Licensor Licensee Date Date Matter - -------- -------- --------- ---------- ------- 32 SCHEDULE VI to Pledge and Security Agreement ([NAME OF GRANTOR]) Intercompany Notes - ------------------ Maximum Amount of Intercompany Loans Maker Evidenced Thereby Date - ----- ----------------- ---- 33 EXHIBIT A to Security Agreement PATENT SECURITY AGREEMENT This PATENT SECURITY AGREEMENT (this "Agreement"), dated as of __________ __, ____, is made between ___________________, a ____________________ (the "Grantor"), and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for each of the Current Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Current Assets Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"); WHEREAS, as a condition precedent to the making of the Credit Extensions (including the initial Credit Extension) under the Credit Agreement and pursuant to clause (e) of Section 4.5 of the Security Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the Administrative Agent a continuing security interest in all of the Patent Collateral (as defined below) to secure all Current Assets Obligations; WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Agreement; and 34 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Current Assets Lenders, the Swing Line Lender and the Issuer to make Current Assets Loans and Swing Line Loans and issue Letters of Credit to the Borrowers pursuant to the Credit Agreement and (ii) the Current Assets Secured Parties to enter into Rate Protection Agreements, the Grantor agrees, for the benefit of each Current Assets Secured Party, as follows: SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement. SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Current Assets Obligations, the Grantor does hereby pledge and hypothecate to the Administrative Agent, and grant to the Administrative Agent a security interest in, for its benefit and the benefit of each Current Assets Secured Party, all of the following property (the "Patent Collateral"), whether now owned or hereafter acquired or existing by it: (a) all letters patent and applications for letters patent in the United States, including all patent applications in preparation for filing in the United States and including each patent and patent application referred to in Item A of Schedule I attached hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a); (c) all patent licenses in the United States, including each patent license referred to in Item B of Schedule I attached hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, referred to in clauses (a) or (b) above, and for breach or enforcement of any patent license referred to in clause (c) above. SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Patent Collateral with the United States Patent and Trademark Office. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the benefit of each Current Assets Secured Party under the Security Agreement. The Security Agreement (and all rights and remedies of the Administrative Agent and each Current Assets Secured Party thereunder) shall remain in full force and effect in accordance with its terms. Exhibit A -2- 35 SECTION 4. Release of Security Interest. Upon (i) the sale, transfer or other disposition of any Patent Collateral in accordance with the Credit Agreement or (ii) the Current Assets Termination Date, the Administrative Agent shall, at the Grantor's expense, execute and deliver to the Grantor all instruments and other documents as may be necessary or proper to release the lien on and security interest in the Patent Collateral which has been granted hereunder. SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Patent Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement. SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. SECTION 8. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. Exhibit A -3- 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. [NAME OF GRANTOR] By ---------------------------------- Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Current Assets Secured Parties By ---------------------------------- Title: Exhibit A -4- 37 SCHEDULE I to Patent Security Agreement Item A. Patents Issued Patents Patent No. Issue Date Inventor(s) Title - ---------- ---------- ---------- ----- Pending Patent Applications --------------------------- Serial No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Patent Applications in Preparation ---------------------------------- Expected Docket No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ------ Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter - -------- -------- --------- ---------- ------- 38 EXHIBIT B to Security Agreement TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of __________ __, ____, is made between ___________________, a ____________________ (the "Grantor"), and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for each of the Current Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Current Assets Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"); WHEREAS, as a condition precedent to the making of the Credit Extensions (including the initial Credit Extension) under the Credit Agreement and pursuant to clause (e) of Section 4.5 of the Security Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the Administrative Agent a continuing security interest in all of the Trademark Collateral (as defined below) to secure all Current Assets Obligations; WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Agreement; and 39 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Current Assets Lenders, the Swing Line Lender and the Issuer to make Current Assets Loans and Swing Line Loans and issue Letters of Credit to the Borrowers pursuant to the Credit Agreement, and (ii) the Current Assets Secured Parties to enter into Rate Protection Agreements, the Grantor agrees, for the benefit of each Current Assets Secured Party, as follows: SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement. SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Current Assets Obligations, the Grantor does hereby pledge and hypothecate to the Administrative Agent, and grant to the Administrative Agent a security interest in, for its benefit and the benefit of each Current Assets Secured Party, all of the following property (the "Trademark Collateral"), whether now owned or hereafter acquired or existing by it: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of a like nature (all of the foregoing items in this clause (a) being collectively called a "Trademark"), now existing anywhere in the United States or hereafter adopted or acquired in the United States, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State, including those referred to in Item A of Schedule I attached hereto; (b) all Trademark licenses in the United States, including each Trademark license referred to in Item B of Schedule I attached hereto; (c) all reissues, extensions or renewals of any of the items described in clause (a) and (b); (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clauses (a) and (b); and (e) all proceeds of, and rights associated with, the foregoing, including any claim by the Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license referred to in clauses (a) Exhibit B -2- 40 through (c) above, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any such Trademark license. SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Trademark Collateral with the United States Patent and Trademark Office. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the benefit of each Current Assets Secured Party under the Security Agreement. The Security Agreement (and all rights and remedies of the Administrative Agent and each Current Assets Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. Release of Security Interest. Upon (i) the sale, transfer or other disposition of any Trademark Collateral in accordance with the Credit Agreement or (ii) the Current Assets Termination Date, the Administrative Agent shall, at the Grantor's expense, execute and deliver to the Grantor all instruments and other documents as may be necessary or proper to release the lien on and security interest in the Trademark Collateral which has been granted hereunder. SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Trademark Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement. SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. SECTION 8. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. Exhibit B -3- 41 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. [NAME OF GRANTOR] By ------------------------------------- Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Current Assets Secured Parties By ------------------------------------- Title: Exhibit B -4- 42 SCHEDULE I to Trademark Security Agreement Item A. Trademarks Registered Trademarks --------------------- Trademark Registration No. Registration Date - --------- ---------------- ------------------ Pending Trademark Applications ------------------------------ Trademark Serial No. Filing Date - --------- ---------- ----------- Trademark Applications in Preparation ------------------------------------- Expected Products/ Trademark Docket No. Filing Date Services - --------- --------- ----------- --------- Item B. Trademark Licenses Effective Expiration Trademark Licensor Licensee Date Date - --------- -------- -------- --------- ---------- 43 EXHIBIT C to Security Agreement COPYRIGHT SECURITY AGREEMENT This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of __________ __, ____, is made between ___________________, a ____________________ (the "Grantor"), and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for each of the Current Assets Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Current Assets Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"); WHEREAS, as a condition precedent to the making of the Credit Extensions (including the initial Credit Extension) under the Credit Agreement and pursuant to clause (e) of Section 4.5 of the Security Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the Administrative Agent a continuing security interest in all of the Copyright Collateral (as defined below) to secure all Current Assets Obligations; WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Agreement; and 44 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Current Assets Lenders, the Swing Line Lender and the Issuer to make Current Assets Loans and Swing Line Loans and issue Letters of Credit to the Borrowers pursuant to the Credit Agreement, and (ii) the Current Assets Secured Parties to enter into Rate Protection Agreements, the Grantor agrees, for the benefit of each Current Assets Secured Party, as follows: SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement. SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Current Assets Obligations, the Grantor does hereby pledge and hypothecate to the Administrative Agent, and grant to the Administrative Agent a security interest in, for its benefit and the benefit of each Current Assets Secured Party, all of the following property (the "Copyright Collateral"), whether now owned or hereafter acquired or existing by it, being all copyrights of the Grantor, whether statutory or common law, registered or unregistered, now or hereafter in force in the United States including all of the Grantor's right, title and interest in and to all copyrights registered in the United States Copyright Office and also including the copyrights referred to in Item A of Schedule I attached hereto, and all applications for registration thereof, whether pending or in preparation, all copyright licenses in the United States, including each copyright license referred to in Item B of Schedule I attached hereto, the right to sue for past, present and future infringements of any thereof, all rights corresponding thereto in the United States, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Copyright Collateral with the United States Copyright Office. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the benefit of each Current Assets Secured Party under the Security Agreement. The Security Agreement (and all rights and remedies of the Administrative Agent and each Current Assets Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. Release of Security Interest. Upon (i) the sale, transfer or other disposition of any Copyright Collateral in accordance with the Credit Agreement or (ii) the Current Assets Termination Date, the Administrative Agent shall, at the Grantor's expense, execute and deliver to the Grantor all instruments and other documents as may be necessary or proper to release the lien on and security interest in the Copyright Collateral which has been granted hereunder. Exhibit C -2- 45 SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Copyright Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. Loan Document, etc. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement. SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. SECTION 8. Agreement Subject to Revolver Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Revolver Intercreditor Agreement. Exhibit C -3- 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. [NAME OF GRANTOR] By ----------------------------------- Title: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Current Assets Secured Parties By ----------------------------------- Title: Exhibit C -4- 47 SCHEDULE I to Copyright Security Agreement Item A. Copyrights Registered Copyrights --------------------- Registration No. Registration Date Author(s) Title - ---------------- ----------------- --------- ----- Copyright Pending Registration Applications ------------------------------------------- Serial No. Filing Date Author(s) Title - ---------- ----------- --------- ----- Copyright Registration Applications in Preparation -------------------------------------------------- Expected Docket No. Filing Date Author(s) Title - ---------- ----------- --------- ----- Item B. Copyright Licenses Effective Expiration Subject Licensor Licensee Date Date Matter - -------- --------- --------- ----------- ------- 48 EXHIBIT D to Security Agreement PROMISSORY NOTE $2,000,000 July __, 1999 FOR VALUE RECEIVED, the undersigned, [FOREIGN RESTRICTED SUBSIDIARY], a _______________ corporation (the "Maker"), promises to pay to the order of ______________, a _______________ corporation (the "Payee"), on demand, TWO MILLION DOLLARS ($2,000,000) or, if less, the aggregate unpaid principal amount of all intercompany loans made by the Payee to the Maker. Terms not otherwise defined herein are defined in the Revolving Credit Agreement, dated as of July __, 1999 (together with all amendments, supplements and other modifications, if any, from time to time hereafter made thereto, the "Credit Agreement"), among the Payee, each other Borrower party thereto, the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and The CIT Group/Business Credit, Inc., as the Administrative Agent. The unpaid principal amount of this promissory note (this "Note") from time to time outstanding shall bear interest at a rate of interest equal to such rate per annum as shall be agreed upon from time to time by the Payee and the Maker payable at such times as shall be agreed upon by the Payee and the Maker, and all payments of principal of and interest on this Note shall be payable in lawful currency of the United States of America. All such payments and may be recorded on the books and records of the Maker and the Payee and may be recorded on the grid attached hereto by the holder hereof (including recordations made by the Administrative Agent as pledgee). Upon notice from the Administrative Agent that a Default of the nature referred to in Section 8.1.9 of the Credit Agreement or an Event of Default has occurred and is continuing under the Credit Agreement, the Maker shall make such payments, in same day funds, to such other account as the Administrative Agent shall direct in such notice. This Note is one of the Pledged Notes referred to in the Security Agreement, and evidences Indebtedness permitted under the Credit Agreement. Upon the occurrence and during the continuance of an Event of Default under the Credit Agreement, and notice thereof having been delivered by the Administrative Agent to the Maker, the Administrative Agent shall have all rights of the Payee to collect and make demand, and enforce all rights with respect to, the Indebtedness evidenced by this Note. 49 Payee agrees that this Note is subordinate in right of payment to all Obligations of Maker and all obligations of Maker in respect of Indebtedness outstanding under the Senior Secured Note Documents. Reference is made to the Credit Agreement for a description of the Security Agreements pursuant to which this Note has been pledged to the Administrative Agent as security for the Obligations outstanding from time to time under the Credit Agreement and each other Loan Document. In addition to, but not in limitation of, the foregoing, the Maker further agrees to pay all expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder (including the Administrative Agent as pledgee) of this Note endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS NOTE. THE MAKER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE TO ACCEPT THIS NOTE. [NAME OF MAKER] By: --------------------------------- Title: --------------------------- Pay to the order of: ------------------------------------- [NAME OF PAYEE] By: --------------------------------- Title: --------------------------- 50 GRID Intercompany Loans made by _______ to _______ and payments of principal of such Loans.
=============================================================================== Amount of Amount of Outstanding Intercompany Principal Principal Notation Date Loan Payment Balance Made By - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- - ------------ ------------- ------------- ------------- ------------- ===============================================================================
51 ANNEX I to Security Agreement SUPPLEMENT TO SECURITY AGREEMENT THIS SUPPLEMENT NO. ___, dated as of ________ __, ____ (this "Supplement"), to the Current Assets Security Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Security Agreement"), among the initial signatories thereto and each other Person which from time to time thereafter became a party thereto pursuant to Section 7.9 thereof (each, individually, a "Grantor", and, collectively, the "Grantors"), and THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent for each of the Current Assets Secured Parties (such capitalized term and all other capitalized terms being used herein with the meanings provided, or incorporated by reference, in the Security Agreement), is made by the undersigned. W I T N E S S E T H: WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, as a condition precedent to the making and maintenance of the Credit Extensions under the Credit Agreement, the undersigned is required to execute and deliver this Supplement; WHEREAS, the undersigned has duly authorized the execution, delivery and performance of this Supplement and the Security Agreement; WHEREAS, the Security Agreement provides that additional parties may become Grantors under the Security Agreement by execution and delivery of an instrument in the form of this Supplement; 52 WHEREAS, pursuant to the provisions of Section 7.9 of the Security Agreement, the undersigned is becoming a Grantor under the Security Agreement; and WHEREAS, the undersigned desires to become a Grantor under the Security Agreement in order to induce the Current Assets Secured Parties to continue to make and maintain Current Assets Loans and Swing Line Loans and issue and maintain Letters of Credit under the Credit Agreement as consideration therefor; NOW, THEREFORE, the undersigned agrees, for the benefit of each Current Assets Secured Party, as follows: SECTION 1. In accordance with the Security Agreement, the undersigned by its signature below becomes a Grantor under the Security Agreement with the same force and effect as if it were an original signatory thereto as a Grantor. In furtherance of the foregoing, each reference to a "Grantor" in the Security Agreement shall be deemed to include the undersigned and the Schedules hereto shall be deemed to be Schedules thereto. SECTION 2. The undersigned hereby represents and warrants that this Supplement has been duly authorized, executed and delivered by the undersigned and constitutes a legal, valid and binding obligation of the undersigned, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general equitable principles. SECTION 3. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect in accordance with its terms. SECTION 4. Any provision of this Supplement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Supplement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5. Without limiting the provisions of the Credit Agreement (or any other Loan Document, including the Security Agreement), the undersigned agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including reasonable attorneys' fees and expenses of the Administrative Agent. SECTION 6. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST Annex I -2- 53 HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 7. This Supplement hereby incorporates by reference the provisions of the Security Agreement, which provisions are deemed to be a part hereof, and this Supplement shall be deemed to be a part of the Security Agreement. SECTION 8. This Supplement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Supplement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Grantor shall have been received by the Administrative Agent. IN WITNESS WHEREOF, the undersigned has caused this Supplement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [NAME OF ADDITIONAL GRANTOR] By ------------------------------ Title: ACKNOWLEDGED AND ACCEPTED BY: THE CIT GROUP/BUSINESS CREDIT, INC. as Administrative Agent, on behalf of the Current Assets Secured Parties By -------------------------------- Title: Annex I -3- 54 SCHEDULE I to Supplement No. __ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Perfection Certificate See Exhibit M to the Credit Agreement 55 SCHEDULE II to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Item A. Patents Issued Patents -------------- Patent No. Issue Date Inventor(s) Title - ---------- ---------- ----------- ----- Pending Patent Applications --------------------------- Serial No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Patent Applications in Preparation ---------------------------------- Expected Docket No. Filing Date Inventor(s) Title - ---------- ----------- ----------- ----- Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter - -------- -------- --------- ---------- ------- 56 SCHEDULE III to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Item A. Trademarks Registered Trademarks --------------------- Trademark Registration No. Registration Date - --------- ---------------- ----------------- Pending Trademark Applications ------------------------------- Trademark Serial No. Filing Date - --------- ---------- ----------- Trademark Applications in Preparation ------------------------------------- Expected Products/ Trademark Docket No. Filing Date Services - --------- ---------- ----------- --------- Item B. Trademark Licenses Effective Expiration Trademark Licensor Licensee Date Date - --------- -------- -------- --------- ---------- 57 SCHEDULE IV to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Item A. Copyrights Registered Copyrights --------------------- Registration No. Registration Date Author(s) Title - ---------------- ----------------- --------- ----- Copyright Pending Registration Applications ------------------------------------------- Serial No. Filing Date Author(s) Title - ---------- ----------- --------- ------ Copyright Registration Applications in Preparation -------------------------------------------------- Expected Docket No. Filing Date Author(s) Title - --------- ----------- --------- ----- Item B. Copyright Licenses Effective Expiration Subject Licensor Licensee Date Date Matter - -------- -------- --------- ---------- ------- 58 SCHEDULE V to Supplement No. ___ to Security Agreement ([NAME OF ADDITIONAL GRANTOR]) Trade Secret or Know-How Licenses --------------------------------- Effective Expiration Subject Licensor Licensee Date Date Matter - -------- -------- --------- ---------- ------- EX-4.7 8 PARENT PLEDGE AGREEMENT - JULY 23, 1999 1 EXHIBIT 4.7 PARENT PLEDGE AGREEMENT THIS PARENT PLEDGE AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Pledge Agreement"), dated as of July 23, 1999, is made between STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the "Pledgor"), and THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent (such capitalized term and all other capitalized terms not otherwise defined herein shall have the meanings provided for or incorporated by reference in Article I below) for each of the Fixed Assets Secured Parties. W I T N E S S E T H: WHEREAS, pursuant to a Revolving Credit Agreement, dated as of the date hereof (together with all amendments, supplements, restatements and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation, (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Fixed Asset Loan Commitments to make Fixed Asset Loans to the Borrowers; WHEREAS, the Pledgor owns 100% of the Capital Securities of the Company; WHEREAS, as a condition precedent to the making of any Credit Extension under the Credit Agreement, the Pledgor is required to execute and deliver this Pledge Agreement; WHEREAS, the Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement; and WHEREAS, it is in the best interest of the Pledgor to execute this Pledge Agreement inasmuch as the Pledgor will derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Borrowers by the Lenders pursuant to the Credit Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Fixed Assets Lenders to make Fixed Assets 2 Loans (including the initial Fixed Assets Loans) to the Borrowers pursuant to the Credit Agreement, the Pledgor and the Administrative Agent, for the ratable benefit of each Fixed Assets Secured Party, agree as follows: ARTICLE I DEFINITIONS SECTION I.1. Certain Terms. The following terms (whether or not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Borrowers" is defined in the first recital. "Collateral" is defined in Section 2.1. "Company" is defined in the first recital. "Credit Agreement" is defined in the first recital. "Distributions" means all stock dividends, liquidating dividends, Capital Securities resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers or consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other Capital Securities constituting Collateral, but shall not include Dividends. "Dividends" means cash dividends and cash distributions with respect to any Pledged Shares or other Pledged Property made in the ordinary course of business, but shall not include liquidating dividends. "Fixed Assets Termination Date" means the date on which all Fixed Assets Obligations have been paid in full in cash, all Rate Protection Agreements where the counterparty is a Fixed Assets Lender (or its Affiliate) have been terminated and the Fixed Assets Loan Commitment shall have terminated. "Lenders" is defined in the first recital. "Pledge Agreement" is defined in the preamble. "Pledged Property" means all Pledged Shares, all other pledged Capital Securities, all other equity securities, all assignments of any amounts due or to become due with respect -2- 3 thereto, all other instruments which are now being delivered by the Pledgor to the Administrative Agent or may from time to time hereafter be delivered by the Pledgor to the Administrative Agent for the purpose of pledge under this Pledge Agreement or any other Loan Document, and all proceeds of any of the foregoing. "Pledged Share Issuer" means each Person identified in Attachment 1 hereto as the issuer of the Pledged Shares identified opposite the name of such Person. "Pledged Shares" means the Capital Securities of any Pledged Share Issuer in the amounts and percentages listed in Attachment 1 hereto. "Pledgor" is defined in the preamble. "Securities Act" is defined in clause (a) of Section 6.2. SECTION I.2. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION I.3. U.C.C. Definitions. Unless otherwise defined herein or in the Credit Agreement or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II PLEDGE SECTION II.1. Grant of Security Interest. The Pledgor hereby pledges, hypothecates, assigns, charges, delivers and transfers to the Administrative Agent, for the ratable benefit of each of the Fixed Assets Secured Parties, and hereby grants to the Administrative Agent, for the ratable benefit of the Fixed Assets Secured Parties, a continuing security interest in, all of the following property (collectively, the "Collateral"): (a) all issued and outstanding Capital Securities of each Pledged Share Issuer identified in Attachment 1 hereto; -3- 4 (b) all other Pledged Shares issued from time to time; (c) all other Pledged Property, whether now or hereafter delivered to the Administrative Agent in connection with this Pledge Agreement; (d) all Dividends, Distributions and other payments and rights with respect to any Pledged Property; and (e) all proceeds of any of the foregoing. SECTION II.2. Security for Fixed Assets Obligations. This Pledge Agreement secures the payment in full and in cash of all Fixed Assets Obligations. SECTION II.3. Delivery of Pledged Property. All certificates or instruments representing or evidencing any Collateral, including all Pledged Shares shall be delivered to and held by or on behalf of the Administrative Agent pursuant hereto, shall be in suitable form for transfer by delivery and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION II.4. Dividends on Pledged Shares. In the event that any Dividend is to be paid on any Pledged Share at a time when (x) no Default of the nature referred to in Section 8.1.9 of the Credit Agreement has occurred and is continuing, and (y) no Event of Default has occurred and is continuing, such Dividend may be paid directly to the Pledgor. If any such Default or Event of Default has occurred and is continuing, then any such Dividend shall be paid directly to the Administrative Agent. SECTION II.5. Continuing Security Interest. This Pledge Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until the Fixed Assets Termination Date; (b) be binding upon the Pledgor and its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Fixed Assets Secured Parties. Without limiting the foregoing clause (c), any Fixed Assets Lender may assign or otherwise transfer (in whole or in part) any Fixed Assets Loan Commitment or any Fixed Assets Loan held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Fixed Assets Lender under any Loan Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 10.11 of the Credit Agreement. The security interest granted herein shall terminate and all rights to the Collateral shall revert to the Pledgor on the Fixed Assets Termination -4- 5 Date. Upon any such termination or release of Collateral, the Administrative Agent will, at the Pledgor's sole expense, deliver to the Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares, together with all other Collateral held by the Administrative Agent hereunder, and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination or release. SECTION II.6. Waiver, etc. The Pledgor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Fixed Assets Obligations and this Pledge Agreement and any requirement that any Fixed Assets Secured Party protect, secure, perfect or insure any Lien, or any property subject thereto, or exhaust any right or take any action against any Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Fixed Assets Obligations of any Obligor, as the case may be. SECTION II.7. Security Interest Absolute. All rights of the Administrative Agent and the Liens granted to the Administrative Agent hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of any Loan Document, (b) the failure of any Fixed Assets Secured Party (i) to assert any claim or demand or to enforce any right or remedy against the Pledgor, any other Obligor or any other Person under the provisions of the Loan Documents or otherwise, or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Fixed Assets Obligations of the Pledgor or any other Obligor, (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Fixed Assets Obligations or any other extension, compromise or renewal of any Obligation of the Pledgor or any other Obligor, (d) any reduction, limitation, impairment or termination of any Fixed Assets Obligation of the Pledgor or any other Obligor for any reason (other than the repayment in full and in cash of all Fixed Assets Obligations), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Pledgor hereby waives any right to or claim of) any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise or unenforceability of, or any other event or occurrence affecting, any Fixed Assets Obligation of the Pledgor, any other Obligor or otherwise, -5- 6 (e) any amendment to, rescission, waiver or other modification of, or any consent to departure from, any of the terms of the Loan Documents, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Fixed Assets Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Pledgor, any other Obligor, any surety or any guarantor. SECTION II.8. Postponement of Subrogation, etc. The Pledgor will not exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the Fixed Assets Termination Date. Any amount paid to the Pledgor on account of any payment made hereunder prior to the Fixed Assets Termination Date shall be held in trust for the benefit of the Fixed Assets Secured Parties and shall immediately be paid to the Administrative Agent for the ratable benefit of the Fixed Assets Secured Parties, and credited and applied against the Fixed Assets Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if (a) the Pledgor has made payment to the Administrative Agent for the ratable benefit of the Fixed Assets Secured Parties of all or any part of the Fixed Assets Obligations, and (b) the Fixed Assets Termination Date has occurred, each Fixed Assets Secured Party agrees that, at the Pledgor's request, the Administrative Agent, on behalf of the Fixed Assets Secured Parties, will execute and deliver to the Pledgor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the Pledgor of an interest in the Fixed Assets Obligations resulting from such payment by the Pledgor. In furtherance of the foregoing, prior to the Fixed Assets Termination Date, the Pledgor shall refrain from taking any action or commencing any proceeding against any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Pledge Agreement to the Administrative Agent or any Fixed Assets Secured Party. -6- 7 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION III.1. Warranties, etc. The Pledgor represents and warrants unto each Fixed Assets Secured Party, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares) by the Pledgor to the Administrative Agent of any Collateral, as set forth in this Article. SECTION III.2. Organization, etc. The Pledgor is validly organized and existing and in good standing under the laws of the state or jurisdiction of its incorporation or organization, is duly qualified to do business and is in good standing as a foreign entity in each jurisdiction where the nature of its business requires such qualification (except where the failure to be so qualified and in good standing which, when taken together with all other such failures, could not reasonably be expected to have a Material Adverse Effect), and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Pledge Agreement (except for failures to hold such governmental licenses, permits and other approvals which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect) and to own and hold under lease its material property and to conduct its business substantially as currently conducted by it. SECTION III.3. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Pledgor of this Pledge Agreement is within the Pledgor's powers, has been duly authorized by all necessary corporate action, and does not (a) contravene (i) the Pledgor's Organic Documents, (ii) any material contract binding on or affecting the Pledgor, (iii) any court decree or order binding on or affecting the Pledgor or (iv) any law or governmental regulation binding on or affecting the Pledgor; or (b) result in, or require the creation or imposition of, any Lien on any property of the Pledgor (except as permitted by this Pledge Agreement). SECTION III.4. Ownership, No Liens, etc. The Pledgor is the legal and beneficial owner of, and has good and valid title to (and has full right and authority to pledge and assign) the Collateral, free and clear of all Liens or claims other than the Lien granted pursuant hereto in favor of the Administrative Agent and the second priority Lien granted to the trustee under the Senior Secured Discount Notes Indenture. SECTION III.5. Valid Security Interest. The execution and delivery of this Pledge Agreement creates a valid first-priority security interest in the Collateral and (a) in the case of the Pledged Shares, upon the delivery of such Collateral to the Administrative Agent, such security interest will be a valid first-priority, perfected security interest in such Collateral; and (b) in the case of all other Collateral, upon the filing of the U.C.C. financing statements (Form U.C.C.-1) delivered by the Grantor to the Administrative agent with respect to all such other Collateral, such security interest will constitute a valid first-priority, perfected security interest. The Grantor has filed all U.C.C. financing statements (Form U.C.C.-1) referred to -7- 8 above in the appropriate offices therefor (or has provided the Administrative Agent with copies thereof suitable for filing in such offices) and has taken all of the other actions referred to above necessary to create perfected and first-priority security interests in the applicable Collateral. SECTION III.6. As to Pledged Shares. In the case of any Pledged Shares constituting Collateral, all such Pledged Shares are duly authorized and validly issued, fully paid and non-assessable, and constitute all of the issued and outstanding Capital Securities of each Pledged Share Issuer listed on Attachment I hereto. The Pledgor has no Subsidiaries of which it directly owns any Capital Securities other than the Pledged Share Issuers. All Pledged Shares are certificated, and have been delivered to the Administrative Agent with stock powers, accompanied by undated instruments of transfer duly executed in blank and the Administrative Agent has "control" (as defined in the U.C.C.) of such Pledged Shares. SECTION III.7. Authorization, Approval, etc. No authorization or, approval or other action by, and no notice to or filing with, any Governmental Authority, regulatory body or other Person (other than those that have been, or on the Effective Date will be, duly obtained or made and which are, or on the Effective Date will be, in full force and effect) is required either (a) for the pledge by the Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery and performance of this Pledge Agreement by the Pledgor, or (b) for the exercise by the Administrative Agent of the voting or other rights provided for in this Pledge Agreement, or, except with respect to any Pledged Shares as may be required in connection with a disposition of such Pledged Shares by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement, provided, however, that in order to exercise the voting and certain other rights provided for in this Pledge Agreement, the Pledged Shares must be transferred into the name of the Administrative Agent on the books and records of the Pledged Share Issuer prior to the exercise of such voting or other rights. SECTION III.8. Compliance with Laws. The Pledgor is in compliance with the requirements of all applicable laws (including, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every Governmental Authority, the non-compliance with which could have a Material Adverse Effect or adversely affect the value of the Collateral. -8- 9 ARTICLE IV COVENANTS SECTION IV.1. Covenants. The Pledgor covenants and agrees that at all times prior to the Fixed Assets Termination Date, it will perform, comply with and be bound by all of the agreements, covenants and obligations contained in Article VII of the Credit Agreement and this Article which are applicable to the Pledgor or its properties, each such agreement, covenant and obligation contained in such Article and all other terms of the Credit Agreement to which reference is made herein, together with all related definitions and ancillary provisions, being hereby incorporated into this Pledge Agreement by reference as though specifically set forth in this Article. SECTION IV.2. Maintenance of Existence; Compliance with Laws, etc. The Pledgor will:tenance of Existence; Compliance with Laws, etc. (a) preserve and maintain its legal existence; and (b) comply in all material respects with all applicable laws, rules, regulations and orders, including the payment (before the same become delinquent) of all Taxes, assessments and governmental charges imposed upon the Pledgor or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on the books of the Pledgor. SECTION IV.3. Maintenance of Properties. The Pledgor will maintain, preserve, protect and keep its respective properties in good repair, working order and condition (ordinary wear and tear excepted), and make necessary repairs, renewals and replacements so that the business carried on by the Pledgor may be properly conducted at all times, unless the Pledgor determines in good faith that the continued maintenance of such property is no longer economically desirable. SECTION IV.4. Insurance. The Pledgor will:ance (a) maintain insurance on its property with financially sound and reputable insurance companies against loss and damage in at least the amounts (and with only those deductibles) customarily maintained, and against such risks as are typically insured against in the same general area, by Persons of comparable size engaged in the same or similar business as the Pledgor; and (b) all worker's compensation, employer's liability insurance or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business. SECTION IV.5. Business Activities. The Pledgor will not engage in any business activity other than in connection with the Pledgor's continuing ownership of the issued and outstanding Capital Securities of the Company and the maintenance of the Senior Secured Discount Notes (and any refinancing thereof on No Less Favorable Terms and Conditions), unless otherwise permitted by the Credit Agreement or herein. Without limiting the generality -9- 10 of the immediately preceding sentence, the Pledgor will not create, incur, assume or suffer to exist any Indebtedness, create, assume or suffer to exist any Lien upon or grant any options or other rights with respect to, any of its revenues, property or other assets, whether now owned or hereafter acquired (other than pursuant to the Loan Documents or the second priority Lien granted to the trustee under the Senior Secured Discount Notes Indenture), wind-up, liquidate or dissolve itself (or suffer to exist any of the foregoing), Merge into or with any other Person, other than as contemplated by the Credit Agreement or Dispose of all or any part of its assets, in one transaction or a series of transactions, to any Person or Persons create, incur, assume or suffer to exist any Investment in any Person other than in respect of any additional equity Investments in the Borrowers or take any action that would result in a Change in Control other than as contemplated in the Credit Agreement. The Pledgor agrees not to commence or cause the commencement of any of the actions described in clause (b), (c) or (d) of Section 8.1.9 of the Credit Agreement with respect to any of its Subsidiaries. The Pledgor will not amend or modify the Senior Secured Discount Notes Indenture or the Pledge Agreement, dated as of August 21, 1996, between the trustee for the Senior Secured Discount Notes and the Pledgor, in either case, in any way adverse to the interests of the Lenders. SECTION IV.6. Protect Collateral; Further Assurances, etc. Except for the second priority Lien in favor of the trustee under the Senior Secured Discount Notes Indenture, the Pledgor will not sell, assign, transfer, pledge or encumber in any other manner the Collateral (except in favor of the Administrative Agent hereunder or as permitted under Section 7.2.3 of the Credit Agreement). The Pledgor will warrant and defend the right and title herein granted unto the Administrative Agent in and to the Collateral (and all right, title and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. The Pledgor agrees that at any time, and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Administrative Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. The Pledgor will not will permit any Pledged Share Issuer to issue any Capital Securities unless the same are immediately delivered and pledged to the Administrative Agent hereunder. SECTION IV.7. Stock Powers, etc. The Pledgor agrees that all Pledged Shares (and all other Capital Securities constituting Collateral) delivered by the Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed, undated stock powers or other equivalent instruments of transfer reasonably acceptable to the Administrative Agent. The Pledgor will, from time to time upon the reasonable request of the Administrative Agent, promptly deliver to the Administrative Agent such stock powers, instruments and similar documents, reasonably satisfactory in form and substance to the Administrative Agent, with respect to the Collateral as the Administrative Agent may reasonably request and will, from time to time upon the request of the Administrative Agent after the occurrence of any Event of Default, promptly cause the Pledged Share Issuer to transfer any Pledged Shares or other -10- 11 Capital Securities constituting Collateral into the name of any nominee designated by the Administrative Agent. SECTION IV.8. Continuous Pledge. Subject to Section 2.4, the Pledgor will, at all times, keep pledged to the Administrative Agent pursuant hereto all Pledged Shares and all other Capital Securities constituting Collateral, all Dividends and Distributions with respect thereto, and all other Collateral and other Capital Securities, instruments, proceeds and rights from time to time received by or distributable to the Pledgor in respect of any Collateral. Any Distributions on Pledged Shares consisting of Capital Securities will be certificated. SECTION IV.9. Voting Rights; Dividends, etc. The Pledgor agrees: (a) if any Default of the nature referred to in Section 8.1.9 of the Credit Agreement or an Event of Default shall have occurred and be continuing, promptly upon receipt thereof by the Pledgor and without any request therefore by the Administrative Agent, to deliver (properly endorsed where required hereby or requested by the Administrative Agent) to the Administrative Agent all Dividends, Distributions and all proceeds of the Collateral, all of which shall be held by the Administrative Agent as additional Collateral for use in accordance with Section 6.4; and (b) if any Event of Default shall have occurred and be continuing and the Administrative Agent shall have notified the Pledgor of the Administrative Agent's intention to exercise its voting power under this Section: (i) the Administrative Agent may exercise (to the exclusion of the Pledgor) the voting power and all other incidental rights of ownership with respect to any Pledged Shares or other Capital Securities constituting Collateral and the Pledgor hereby grants the Administrative Agent an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Collateral; and (ii) promptly to deliver to the Administrative Agent such additional proxies and other documents as may be necessary to allow the Administrative Agent to exercise such voting power. All Dividends, Distributions and proceeds which may at any time and from time to time be held by the Pledgor but which the Pledgor is then obligated to deliver to the Administrative Agent, shall, until delivery to the Administrative Agent, be held by the Pledgor separate and apart from its other property in trust for the Administrative Agent. The Administrative Agent agrees that unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given the notice referred to in this Section, the Pledgor shall have the exclusive power to exercise all voting and other consensual rights with respect to any Capital Securities (including any of the Pledged Shares) constituting Collateral and the -11- 12 Administrative Agent shall, upon the written request of the Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by the Pledgor which are necessary to allow the Pledgor to exercise such powers with respect to any such Capital Securities (including any of the Pledged Shares) constituting Collateral; provided, however, that no vote shall be cast, or consent, waiver or ratification given, or action taken by the Pledgor that would materially impair the value of any Collateral or be inconsistent with or violate any provision of the Loan Documents. ARTICLE V THE ADMINISTRATIVE AGENT SECTION V.1. Administrative Agent Appointed Attorney-in-Fact. The Pledgor hereby irrevocably appoints the Administrative Agent as the Pledgor's attorney-in-fact, with full authority and in the name, place and stead of the Pledgor or in its own name, from time to time in the Administrative Agent's discretion, to take, upon the occurrence and during the continuance of any Event of Default, any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including: (a) to ask, demand, collect, sue for, recover, compromise and receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral. The Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION V.2. Administrative Agent May Perform. If the Pledgor fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by the Pledgor pursuant to Section 6.5. SECTION V.3. Administrative Agent Has No Duty. The powers conferred on the Administrative Agent hereunder are solely to protect its interest (on behalf of the Fixed Assets Secured Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for -12- 13 moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Property, whether or not the Administrative Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION V.4. Reasonable Care. The Administrative Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, the Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral if it takes such action for that purpose as the Pledgor reasonably requests in writing from time to time, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. If an Event of Default has occurred and is continuing, the Administrative Agent shall not be required to comply with any request of the Pledgor with respect to the matters described in this Section. ARTICLE VI REMEDIES SECTION VI.1. Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Administrative Agent may -13- 14 (i) transfer all or any part of the Collateral into the name of the Administrative Agent or its nominee, with or without disclosing that such Collateral is subject to the Lien and security interest hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Administrative Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts or other writings in the Pledgor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral and (vi) execute (in the name, place and stead of the Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION VI.2. Securities Laws. If the Administrative Agent shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, the Pledgor agrees that, upon request of the Administrative Agent, the Pledgor will use commercially reasonable efforts to, at its own expense: (a) execute and deliver, and cause each issuer of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Administrative Agent, advisable to register such Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Collateral, as requested by the Administrative Agent; -14- 15 (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Administrative Agent or the Fixed Assets Secured Parties by reason of the failure by the Pledgor to perform any of the covenants contained in this Section and, consequently, agrees that, if the Pledgor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Administrative Agent) of the Collateral on the date the Administrative Agent shall demand compliance with this Section. SECTION VI.3. Compliance with Restrictions. The Pledgor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Administrative Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Administrative Agent be liable nor accountable to the Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION VI.4. Application of Proceeds. All cash proceeds received by the Administrative Agent in respect of any sale of, collection from or other realization upon, all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Administrative Agent as additional collateral security for, or then or at any time thereafter be applied (after payment of any amounts payable to the Administrative Agent pursuant to Section 10.4 of the Credit Agreement and Section 6.5 below) in whole or in part by the Administrative Agent against, all or any part of the Fixed Assets Obligations in such order as the Administrative Agent shall elect. Any surplus of such cash or other proceeds held by the Administrative Agent and remaining after the Fixed Assets Termination Date, shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. -15- 16 SECTION VI.5. Indemnity and Expenses. The Pledgor hereby indemnifies and holds harmless the Administrative Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses or liabilities resulting from the Administrative Agent's gross negligence or wilful misconduct, and will upon demand pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Administrative Agent may incur, in each case, in connection with: (a) the administration of this Pledge Agreement; (b) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Administrative Agent hereunder; or (d) the failure by the Pledgor to perform or observe any of the provisions hereof. SECTION VI.6. No Recourse. The Pledgor shall not be liable for any indebtedness, liabilities or Obligations (other than as set forth in this Pledge Agreement) in connection with the Credit Agreement, this Pledge Agreement or any of the other Loan Documents, and neither the Administrative Agent nor any Lender shall have any recourse against the Pledgor or any of its assets or properties (other than the Collateral to the extent of the Fixed Assets Obligations) to satisfy any such indebtedness, liabilities or Obligations; provided, however, that nothing herein shall constitute a waiver of the Administrative Agent's or any Fixed Assets Lender's ability to exercise any right or remedy which any such party may have against the Pledgor on account of any claim for fraud, deceit or other material misrepresentation or omission by and relating to the Pledgor (including its assets and operations, but excluding the Company, any Subsidiary of the Company or any of their assets or operations). ARTICLE VII MISCELLANEOUS PROVISIONS SECTION VII.1. Loan Document. This Pledge Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION VII.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by the Pledgor here from shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent -16- 17 (on behalf of the Lenders or the Required Lenders, as the case may be) and the Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION VII.3. Protection of Collateral. The Administrative Agent may from time to time, at its option, and at the expense of the Pledgor, perform any act which the Pledgor agrees hereunder to perform and which the Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Administrative Agent may from time to time take any other action which the Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION VII.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed, delivered or transmitted, if to the Pledgor, at the address or facsimile number of the Company provided for in the Credit Agreement, and, if to the Administrative Agent, at the address or facsimile number provided for in the Credit Agreement, or as to any such party at such other address or facsimile number as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice, (a) (i) if mailed and properly addressed with postage prepaid or (ii) if properly addressed and sent by pre-paid courier service, shall be deemed given when such notice has been received or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). SECTION VII.5. Headings. The various headings of this Pledge Agreement are inserted for convenience only, and shall not affect the meaning or interpretation of this Pledge Agreement or any provisions hereof. SECTION VII.6. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Pledge Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION VII.7. Governing Law. THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. SECTION VII.8. Counterparts. This Pledge Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of -17- 18 which shall constitute together but one and the same agreement. This Pledge Agreement shall become effective and binding upon the Pledgor when a counterpart hereof executed on behalf of the Pledgor shall have been received by the Administrative Agent. -18- 19 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. STERLING CHEMICALS HOLDINGS, INC. By: ------------------------------------ Title: THE CIT GROUP/BUSINESS CREDIT, INC. By: ------------------------------------ Title: -19- 20 ATTACHMENT 1 to Pledge Agreement PLEDGOR: STERLING CHEMICAL HOLDINGS, INC.
Capital Securities Pledged Shares -------------------------------------------- -------------- Authorized Outstanding % of Shares Pledged Share Issuer Shares Shares Pledged - -------------------- ---------- ----------- ----------- Sterling Chemicals, Inc. 1000 1000 100%
EX-4.8 9 OBLIGOR PLEDGE AGREEMENT - JULY 23, 1999 1 EXHIBIT 4.8 OBLIGOR PLEDGE AGREEMENT THIS OBLIGOR PLEDGE AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Pledge Agreement"), dated as of July 23, 1999, among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), and each of the Persons (such capitalized term and all other capitalized terms not otherwise defined herein shall have the meanings provided for or incorporated by reference in Article I below) identified on the signature pages hereto and each other Person that may from time to time become a party to this Pledge Agreement (each a "Pledgor" and collectively the "Pledgors"), and The CIT Group/Business Credit, Inc., as Administrative Agent for each of the Fixed Assets Secured Parties. W I T N E S S E T H: WHEREAS, pursuant to a Revolving Credit Agreement, dated as of the date hereof (together with all amendments, supplements, restatements and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Company, Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation, (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston, as the Documentation Agent, and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, as a condition precedent to the making of any Credit Extension under the Credit Agreement, the Pledgors are required to execute and deliver this Pledge Agreement; WHEREAS, each Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement; and WHEREAS, it is in the best interests of the Pledgors to execute this Pledge Agreement inasmuch as the Pledgors will derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Borrowers by the Lenders pursuant to the Credit Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Fixed Assets Lenders to make Fixed Assets Loans (including the initial Fixed Assets Loans) to the Borrowers pursuant to the Credit 2 Agreement, each of the Pledgors and the Administrative Agent, for the ratable benefit of each Fixed Assets Secured Party, agrees as follows: ARTICLE I DEFINITIONS SECTION I.1. Certain Terms. The following terms (whether or not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Borrowers" is defined in the first recital. "Collateral" is defined in Section 2.1. "Company" is defined in the preamble. "Credit Agreement" is defined in the first recital. "Distributions" means all stock dividends, liquidating dividends, Capital Securities resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers or consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other Capital Securities constituting Collateral, but shall not include Dividends. "Dividends" means cash dividends and cash distributions with respect to any Pledged Shares or other Pledged Property made in the ordinary course of business, but shall not include liquidating dividends. "Fixed Assets Termination Date" means the date on which all Fixed Assets Obligations have been paid in full in cash, all Rate Protection Agreements where the counterparty is a Fixed Assets Lender (or its Affiliate) have been terminated and the Fixed Assets Loan Commitment shall have terminated. "Lenders" is defined in the first recital. "Pledge Agreement" is defined in the preamble. "Pledged Property" means all Pledged Shares, all other pledged Capital Securities, all other equity securities, all assignments of any amounts due or to become due with respect thereto and all other instruments which are now being delivered by the Pledgor to the Administrative Agent or may from time to time hereafter be delivered by the Pledgor to the Administrative Agent for the purpose of pledge under this Pledge Agreement or any other Loan Document, and all proceeds of any of the foregoing. -2- 3 "Pledged Share Issuer" means each Person identified in Attachment 1 hereto as the issuer of the Pledged Shares identified opposite the name of such Person and each other Person whose Capital Securities are required to be pledged hereunder and under the Credit Agreement from time to time. "Pledged Shares" means the Capital Securities of any Pledged Share Issuer in the amounts and percentages listed in Attachment 1 hereto. "Pledgor" and "Pledgors" are defined in the preamble. "Securities Act" is defined in clause (a) of Section 6.2. SECTION I.2. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION I.3. U.C.C. Definitions. Unless otherwise defined herein or in the Credit Agreement or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II PLEDGE SECTION II.1. Grant of Security Interest. Each Pledgor hereby pledges, hypothecates, assigns, charges, delivers and transfers to the Administrative Agent, for the ratable benefit of each of the Fixed Assets Secured Parties, and hereby grants to the Administrative Agent, for the ratable benefit of the Fixed Assets Secured Parties, a continuing security interest in, all of the following property (collectively, the "Collateral"): (a) all issued and outstanding Pledged Shares of each Pledged Share Issuer identified in Item A of Attachment 1 hereto; -3- 4 (b) all other Pledged Shares issued from time to time; (c) all other Pledged Property, whether now or hereafter delivered to the Administrative Agent in connection with this Pledge Agreement; (d) all Dividends, Distributions and other payments and rights with respect to any Pledged Property; and (e) all proceeds of any of the foregoing. SECTION II.2. Security for Fixed Assets Obligations. This Pledge Agreement secures the payment in full and in cash of all Fixed Assets Obligations. SECTION II.3. Delivery of Pledged Property. All certificates or instruments representing or evidencing any Collateral, including all Pledged Shares shall be delivered to and held by or on behalf of the Administrative Agent pursuant hereto, shall be in suitable form for transfer by delivery and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION II.4. Dividends on Pledged Shares. In the event that any Dividend is to be paid on any Pledged Share at a time when (x) no Default of the nature referred to in Section 8.1.9 of the Credit Agreement has occurred and is continuing, and (y) no Event of Default has occurred and is continuing, such Dividend may be paid directly to the applicable Pledgor. If any such Default or Event of Default has occurred and is continuing, then any such Dividend shall be paid directly to the Administrative Agent. SECTION II.5. Continuing Security Interest. This Pledge Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until the Fixed Assets Termination Date; (b) be binding upon each Pledgor and its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Fixed Assets Secured Parties. Without limiting the foregoing clause (c), any Fixed Assets Lender may assign or otherwise transfer (in whole or in part) any Fixed Assets Loan Commitment or any Fixed Assets Loan held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Fixed Assets Lender under any Loan Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of -4- 5 Section 10.11 of the Credit Agreement. The security interest granted herein shall terminate and all rights to the Collateral shall revert to each Pledgor on the Fixed Assets Termination Date. Upon any such termination or release of Collateral, the Administrative Agent will, at each Pledgor's sole expense, deliver to such Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares, together with all other Collateral held by the Administrative Agent hereunder, and execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to evidence such termination or release. SECTION II.6. Security Interest Absolute. All rights of the Administrative Agent and the Liens granted to the Administrative Agent hereunder, and all obligations of each Pledgor hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of any Loan Document, (b) the failure of any Fixed Assets Secured Party (i) to assert any claim or demand or to enforce any right or remedy against any Pledgor, any other Obligor or any other Person under the provisions of the Loan Documents or otherwise, or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Fixed Assets Obligations of any Pledgor or any other Obligor, (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Fixed Assets Obligations or any other extension, compromise or renewal of any Obligation of any Pledgor or any other Obligor, (d) any reduction, limitation, impairment or termination of any Fixed Assets Obligation of any Pledgor or any other Obligor for any reason (other than the repayment in full and in cash of all Fixed Assets Obligations), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Pledgor hereby waives any right to or claim of) any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise or unenforceability of, or any other event or occurrence affecting, any Fixed Assets Obligation of any Pledgor, any other Obligor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Loan Documents, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or -5- 6 addition to or consent to departure from any guaranty, for any of the Fixed Assets Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Pledgor, any other Obligor, any surety or any guarantor. SECTION II.7. Postponement of Subrogation, etc. No Pledgor will exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the Fixed Assets Termination Date. Any amount paid to any Pledgor on account of any payment made hereunder prior to the Fixed Assets Termination Date shall be held in trust for the benefit of the Fixed Assets Secured Parties and shall immediately be paid to the Administrative Agent, for the ratable benefit of the Fixed Assets Secured Parties, and credited and applied against the Fixed Assets Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if (a) any Pledgor has made payment to the Administrative Agent for the ratable benefit of the Fixed Assets Secured Parties of all or any part of the Fixed Assets Obligations, and (b) the Fixed Assets Termination Date has occurred, each Fixed Assets Secured Party agrees that, at such Pledgor's request, the Administrative Agent, on behalf of the Fixed Assets Secured Parties, will execute and deliver to such Pledgor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Pledgor of an interest in the Fixed Assets Obligations resulting from such payment by such Pledgor. In furtherance of the foregoing, prior to the Fixed Assets Termination Date, each Pledgor shall refrain from taking any action or commencing any proceeding against any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Pledge Agreement to the Administrative Agent or any other Fixed Assets Secured Party. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION III.1. Warranties, etc. Each Pledgor represents and warrants unto each Fixed Assets Secured Party, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares) by such Pledgor to the Administrative Agent of any Collateral, as set forth in this Article. -6- 7 SECTION III.2. Ownership, No Liens, etc. Each Pledgor is the legal and beneficial owner of, and has good and valid title to (and has full right and authority to pledge and assign) the Collateral, free and clear of all Liens, except any Lien granted pursuant hereto in favor of the Administrative Agent or any Permitted Lien. SECTION III.3. Valid Security Interest. The execution and delivery of this Pledge Agreement creates a valid first-priority security interest in the Collateral and (a) in the case of the Pledged Shares, upon the delivery of such Collateral to the Administrative Agent, such security interest will be a valid first-priority, perfected security interest; and (b) in the case of all other Collateral, upon the filing of the U.C.C. financing statements (Form U.C.C.-1) delivered by the Pledgors to the Administrative Agent with respect to such Collateral, such security interest will be a valid first-priority, perfected security interest. Each Pledgor has filed all U.C.C. financing statements (Form U.C.C.-1) referred to above in the appropriate offices therefor (or has provided the Administrative Agent with copies thereof suitable for filing in such offices) and has taken all of the other actions referred to above necessary to create perfected and first-priority security interests in the applicable Collateral. SECTION III.4. As to Pledged Shares. In the case of any Pledged Shares constituting Collateral, all such Pledged Shares are duly authorized and validly issued, fully paid and non-assessable, and constitute all of the issued and outstanding Capital Securities of each Pledged Share Issuer. No Pledgor has any Subsidiaries of which it directly owns any Capital Securities other than the Pledged Share Issuers, Foreign Restricted Subsidiaries or Unrestricted Subsidiaries. All Pledged Shares are certificated, have been delivered to the Administrative Agent with stock powers, accompanied by undated instruments of transfer duly executed in blank and the Administrative Agent has "control" (as defined in the U.C.C.) of such Pledged Shares. SECTION III.5. Authorization, Approval, etc. No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority, regulatory body or other Person (other than those that have been, or on the Effective Date will be, duly obtained or made and which are, or on the Effective Date will be, in full force and effect) is required either (a) for the pledge by such Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery and performance of this Pledge Agreement by such Pledgor, or (b) for the exercise by the Administrative Agent of the voting or other rights provided for in this Pledge Agreement, or, except with respect to any Pledged Shares as may be required in connection with a disposition of such Pledged Shares by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement, provided, however, that in order to exercise the voting and certain other rights provided for in this Pledge Agreement, the Pledged Shares must be transferred into the name of the Administrative Agent on the books and records of the Pledged Share Issuer prior to the exercise of such voting or other rights. -7- 8 SECTION III.6. Compliance with Laws. Each Pledgor is in compliance with the requirements of all applicable laws (including, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every Governmental Authority, the non-compliance with which could have a Material Adverse Effect or adversely affect the value of the Collateral. ARTICLE IV COVENANTS SECTION IV.1. Protect Collateral; Further Assurances, etc. Except for the second priority Lien in favor of the Trustee on the Capital Securities of each Borrower other than the Company and the second priority Lien in favor of the trustee under the Senior Secured Discount Notes Indenture on the Capital Securities of the Company, no Pledgor will sell, assign, transfer, pledge, or encumber in any other manner the Collateral (except in favor of the Administrative Agent hereunder or as permitted under Section 7.2.3 and 7.2.11 of the Credit Agreement). Each Pledgor will warrant and defend the right and title herein granted unto the Administrative Agent in and to the Collateral (and all right, title and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. Each Pledgor agrees that at any time, and from time to time, at the expense of such Pledgor, such Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Administrative Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. No Pledgor will permit any Pledged Share Issuer to issue any Capital Securities unless the same are immediately delivered and pledged to the Administrative Agent hereunder. SECTION IV.2. Stock Powers, etc. Each Pledgor agrees that all Pledged Shares (and all other Capital Securities constituting Collateral) delivered by such Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed, undated stock powers or other equivalent instruments of transfer reasonably acceptable to the Administrative Agent. Each Pledgor will, from time to time upon the reasonable request of the Administrative Agent, promptly deliver to the Administrative Agent such stock powers, instruments and similar documents, reasonably satisfactory in form and substance to the Administrative Agent, with respect to the Collateral as the Administrative Agent may reasonably request and will, from time to time upon the request of the Administrative Agent after the occurrence of any Event of Default, promptly cause each Pledged Share Issuer to transfer any Pledged Shares or other Capital Securities constituting Collateral into the name of any nominee designated by the Administrative Agent. SECTION IV.3. Continuous Pledge. Subject to Section 2.4, each Pledgor will, at all times, keep pledged to the Administrative Agent pursuant hereto all Pledged Shares and all other Capital Securities constituting Collateral, all Dividends and Distributions with respect thereto, and all other Collateral and other Capital Securities, instruments, proceeds and rights from time -8- 9 to time received by or distributable to such Pledgor in respect of any Collateral. Any Distributions on Pledged Shares consisting of Capital Securities will be certificated. SECTION IV.4. Voting Rights; Dividends, etc. Each Pledgor agrees: (a) if any Default of the nature referred to in Section 8.1.9 of the Credit Agreement or an Event of Default shall have occurred and be continuing, promptly upon receipt thereof by such Pledgor and without any request therefore by the Administrative Agent, to deliver (properly endorsed where required hereby or requested by the Administrative Agent) to the Administrative Agent all Dividends, Distributions and all proceeds of the Collateral, all of which shall be held by the Administrative Agent as additional Collateral for use in accordance with Section 6.4; and (b) if any Event of Default shall have occurred and be continuing and the Administrative Agent shall have notified such Pledgor of the Administrative Agent's intention to exercise its voting power under this Section: (i) the Administrative Agent may exercise (to the exclusion of such Pledgor) the voting power and all other incidental rights of ownership with respect to any Pledged Shares or other Capital Securities constituting Collateral and such Pledgor hereby grants the Administrative Agent an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Collateral; and (ii) promptly to deliver to the Administrative Agent such additional proxies and other documents as may be necessary to allow the Administrative Agent to exercise such voting power. All Dividends, Distributions and proceeds which may at any time and from time to time be held by any Pledgor but which such Pledgor is then obligated to deliver to the Administrative Agent, shall, until delivery to the Administrative Agent, be held by such Pledgor separate and apart from its other property in trust for the Administrative Agent. The Administrative Agent agrees that unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given the notice referred to in this Section, each Pledgor have the exclusive power to exercise all voting and other consensual rights with respect to any Capital Securities(including any of the Pledged Shares) constituting Collateral and the Administrative Agent shall, upon the written request of such Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by such Pledgor which are necessary to allow such Pledgor to exercise such powers with respect to any such share of Capital Securities (including any of the Pledged Shares) constituting Collateral; provided, however, that no vote shall be cast, or consent, waiver or ratification given, or action taken by any Pledgor that would materially impair the value of any Collateral or be inconsistent with or violate any provision of the Loan Documents. -9- 10 ARTICLE V THE ADMINISTRATIVE AGENT SECTION V.1. Administrative Agent Appointed Attorney-in-Fact. Each Pledgor hereby irrevocably appoints the Administrative Agent as such Pledgor's attorney-in-fact, with full authority and in the name, place and stead of the Pledgor or in its own name, from time to time in the Administrative Agent's discretion, to take, upon the occurrence and during the continuance of any Event of Default, any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) to ask, demand, collect, sue for, recover, compromise and receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral. Each Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION V.2. Administrative Agent May Perform. If any Pledgor fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by such Pledgor pursuant to Section 6.5. SECTION V.3. Administrative Agent Has No Duty. The powers conferred on the Administrative Agent hereunder are solely to protect its interest (on behalf of the Fixed Assets Secured Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Property, whether or not the Administrative Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. -10- 11 SECTION V.4. Reasonable Care. The Administrative Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, the Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the relevant Pledgor reasonably requests in writing from time to time, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. If an Event of Default has occurred and is continuing, the Administrative Agent shall not be required to comply with any request of the Pledgor with respect to the matters described in this Section. ARTICLE VI REMEDIES SECTION VI.1. Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. Each Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Administrative Agent may (i) transfer all or any part of the Collateral into the name of the Administrative Agent or its nominee, with or without disclosing that such Collateral is subject to the Lien and security interest hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Administrative Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or -11- 12 renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts or other writings in each Pledgor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral and (vi) execute (in the name, place and stead of any Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION VI.2. Securities Laws. If the Administrative Agent shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, each Pledgor agrees that, upon request of the Administrative Agent, such Pledgor will use commercially reasonable efforts to, at its own expense: (a) execute and deliver, and cause each issuer of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Administrative Agent, advisable to register such Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Collateral, as requested by the Administrative Agent; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law. Each Pledgor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Administrative Agent or the Fixed Assets Secured Parties by reason of the failure by such Pledgor to perform any of the covenants contained in this Section and, 13 consequently, agrees that, if such Pledgor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Administrative Agent) of the Collateral on the date the Administrative Agent shall demand compliance with this Section. SECTION VI.3. Compliance with Restrictions. Each Pledgor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Administrative Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Administrative Agent be liable nor accountable to any Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION VI.4. Application of Proceeds. All cash proceeds received by the Administrative Agent in respect of any sale of, collection from or other realization upon, all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Administrative Agent as additional collateral security for, or then or at any time thereafter be applied (after payment of any amounts payable to the Administrative Agent pursuant to Section 10.4 of the Credit Agreement and Section 6.5 below) in whole or in part by the Administrative Agent against, all or any part of the Fixed Assets Obligations in such order as the Administrative Agent shall elect. Any surplus of such cash or other proceeds held by the Administrative Agent and remaining after the Fixed Assets Termination Date, shall be paid over to the applicable Pledgor or to whomsoever may be lawfully entitled to receive such surplus. The Pledgors shall remain liable on a joint and several basis for any deficiency. SECTION VI.5. Indemnity and Expenses. Each Pledgor hereby jointly and severally indemnifies and holds harmless the Administrative Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses or liabilities resulting from the Administrative Agent's gross negligence or wilful misconduct, and each Pledgor will pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Administrative Agent may incur, in each case, in connection with: (a) the administration of this Pledge Agreement; -13- 14 (b) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Administrative Agent hereunder; or (d) the failure by any Pledgor to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION VII.1. Loan Document. This Pledge Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION VII.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by any Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be) and each Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION VII.3. Protection of Collateral. The Administrative Agent may from time to time, at its option, and at the expense of the Pledgors, perform any act which any Pledgor agrees hereunder to perform and which such Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Administrative Agent may from time to time take any other action which the Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION VII.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed, delivered or transmitted, if to any Pledgor, at the address or facsimile number of the Company provided for in the Credit Agreement, and, if to the Administrative Agent, at the address or facsimile number provided for in the Credit Agreement, or as to any such party at such other address or facsimile number as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice, (a)(i) if mailed and properly addressed with postage prepaid or (ii) if properly addressed and sent by pre-paid courier service, shall be deemed given when such notice has been received or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). -14- 15 SECTION VII.5. Headings. The various headings of this Pledge Agreement are inserted for convenience only, and shall not affect the meaning or interpretation of this Pledge Agreement or any provisions hereof. SECTION VII.6. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions of this Pledge Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION VII.7. Governing Law. THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. SECTION VII.8. Counterparts. This Pledge Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Pledge Agreement shall become effective and binding upon any Pledgor when a counterpart hereof executed on behalf of such Pledgor shall have been received by the Administrative Agent. SECTION VII.9. Additional Pledgors. Upon the execution and delivery by any other Person of an instrument in the form of Annex I hereto, together with the Schedule thereto, such Person shall become a "Pledgor" hereunder with the same force and effect as if originally named as a Pledgor herein. The execution and delivery of any such instrument shall not require the consent of any other Pledgor hereunder. The rights and obligations of each Pledgor hereunder shall remain in full force and effect notwithstanding the addition of any new Pledgor as a party to this Pledge Agreement. -15- 16 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. STERLING CHEMICALS, INC. By -------------------------------------- Title: STERLING CANADA, INC. By -------------------------------------- Title: STERLING PULP CHEMICALS US, INC. By -------------------------------------- Title: THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent By -------------------------------------- Title: -16- 17 ATTACHMENT 1 to Pledge Agreement [NAME OF PLEDGOR]
Pledged Shares Capital Securities - -------------- -------------------------------------------- Authorized Outstanding % of Shares Pledged Share Issuer Shares Shares Pledged - -------------------- ---------- ----------- -----------
18 ANNEX I to Obligor Pledge Agreement SUPPLEMENT TO OBLIGOR PLEDGE AGREEMENT This SUPPLEMENT NO. ___, dated as of ________ __, ____ (this "Supplement"), to the Obligor Pledge Agreement, dated as of July __, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Pledge Agreement"), among the initial signatories thereto and each other Person which from time to time thereafter became a party thereto pursuant to Section 7.9 thereof (each, individually, a "Pledgor", and, collectively, the "Pledgors"), in favor of THE CIT GROUP/BUSINESS CREDIT INC., as Administrative Agent for each of the Fixed Assets Secured Parties (such term and all other capitalized terms being used herein with the meanings provided, or incorporated by reference, in the Pledge Agreement), is made by the undersigned. W I T N E S S E T H: WHEREAS, pursuant to a Revolving Credit Agreement, dated as of July __, 1999 (together with all amendments, supplements, restatements and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Company, Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation, (collectively, the "Borrowers"), the various financial institutions as are, or may from time to time become, parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the Syndication Agent, Credit Suisse First Boston as the Documentation Agent and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrowers; WHEREAS, as a condition precedent to the making and maintenance of Fixed Assets Loans under the Credit Agreement, the undersigned is required to execute and deliver this Supplement; WHEREAS, the undersigned has duly authorized the execution, delivery and performance of this Supplement and the Pledge Agreement; WHEREAS, the Pledge Agreement provides that additional parties may become Pledgors under the Pledge Agreement by execution and delivery of an instrument in the form of this Supplement; 19 WHEREAS, pursuant to the provisions of Section 7.9 of the Pledge Agreement, the undersigned is becoming a Pledgor under the Pledge Agreement; and WHEREAS, the undersigned desires to become a Pledgor under the Pledge Agreement in order to induce the Fixed Assets Lenders to continue to make and maintain Fixed Assets Loans under the Credit Agreement as consideration therefor; NOW, THEREFORE, the undersigned agrees, for the benefit of each Fixed Assets Secured Party, as follows: SECTION 1. In accordance with the Pledge Agreement, the undersigned by its signature below becomes a Pledgor under the Pledge Agreement with the same force and effect as if it were an original signatory thereto as a Pledgor and Attachment I hereto shall be deemed to be part of Attachment I thereto. In furtherance of the foregoing, each reference to a "Pledgor" in the Pledge Agreement shall be deemed to include the undersigned. SECTION 2. The undersigned hereby represents and warrants that this Supplement has been duly authorized, executed and delivered by the undersigned and constitutes a legal, valid and binding obligation of the undersigned, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and general equitable principles. SECTION 3. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full force and effect in accordance with its terms. SECTION 4. In the event any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Pledge Agreement shall not in any way be affected or impaired. SECTION 5. Without limiting the provisions of the Credit Agreement (or any other Loan Document, including the Pledge Agreement), the undersigned agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including reasonable attorneys' fees and expenses of the Administrative Agent. SECTION 6. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE -2- 20 STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. SECTION 7. This Supplement hereby incorporates by reference the provisions of the Pledge Agreement, which provisions are deemed to be a part hereof, and this Supplement shall be deemed to be a part of the Pledge Agreement. SECTION 8. This Supplement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Supplement shall become effective and binding upon the Pledgor when a counterpart hereof executed on behalf of the Pledgor shall have been received by the Administrative Agent. IN WITNESS WHEREOF, the undersigned has caused this Supplement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [NAME OF ADDITIONAL PLEDGOR] By: ---------------------------------- Name: Title: ACKNOWLEDGED AND ACCEPTED BY: THE CIT GROUP/BUSINESS CREDIT INC., as Administrative Agent By: --------------------------------- Name: Title: -3- 21 ATTACHMENT 1 to Supplement No. __ Pledge Agreement [NAME OF PLEDGOR]
Pledged Shares -------------- Pledged Share Issuer Capital Securities - -------------------- -------------------------------------------- Authorized Outstanding % of Shares Shares Shares Pledged ---------- ----------- -----------
-4- EX-4.9 10 INDENTURE - DATED JULY 23, 1999 1 EXHIBIT 4.9 STERLING CHEMICALS, INC. as Issuer STERLING CANADA, INC. STERLING CHEMICALS ENERGY, INC. STERLING CHEMICALS INTERNATIONAL, INC. STERLING FIBERS, INC. STERLING PULP CHEMICALS US, INC. STERLING PULP CHEMICALS, INC. as Guarantors SERIES A AND SERIES B 12 3/8% SENIOR SECURED NOTES DUE 2006 ------------------------------ INDENTURE Dated as of July 23, 1999 ------------------------------ Harris Trust Company of New York as Trustee ------------------------------ 2 CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310 (a)(1)............................................................. 7.10 (a)(2)............................................................. 7.10 (a)(3)............................................................. N.A. (a)(4)............................................................. N.A. (a)(5)............................................................. 7.10 (b)................................................................ 7.10 (c)................................................................ N.A. 311 (a)................................................................ 7.11 (b)................................................................ 7.11 (c)................................................................ N.A. 312 (a)................................................................ 2.05 (b)................................................................ 12.03 (c)................................................................ 12.03 313 (a)................................................................ 7.06 (b)(1)............................................................. 10.03 (b)(2)............................................................. 7.07 (c)................................................................ 7.06;12.02 (d)................................................................ 7.06 314 (a)................................................................ 4.03;12.02 (b)................................................................ 10.02 (c)(1)............................................................. 12.04 (c)(2)............................................................. 12.04 (c)(3)............................................................. N.A. (d)................................................................ 10.03, 10.04, 10.05 (e)................................................................ 12.05 (f)................................................................ N.A. 315 (a)................................................................ 7.01 (b)................................................................ 7.05,12.02 (c)................................................................ 7.01 (d)................................................................ 7.01 (e)................................................................ 6.11 316 (a) (last sentence)................................................ 2.09 (a)(1)(A).......................................................... 6.05 (a)(1)(B).......................................................... 6.04 (a)(2)............................................................. N.A. (b)................................................................ 6.07 (c)................................................................ 2.12 317 (a)(1)............................................................. 6.08 (a)(2)............................................................. 6.09 (b)................................................................ 2.04 318 (a)................................................................ 12.01 (b)................................................................ N.A. (c)................................................................ 12.01
N.A. means not applicable. * This Cross Reference Table is not part of the Indenture. 3 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions.........................................................................................1 Section 1.02. Other Definitions..................................................................................27 Section 1.03. Incorporation by Reference of Trust Indenture Act..................................................27 Section 1.04. Rules of Construction..............................................................................28 ARTICLE 2 THE NOTES Section 2.01. Form and Dating....................................................................................28 Section 2.02. Execution and Authentication.......................................................................29 Section 2.03. Registrar and Paying Agent.........................................................................29 Section 2.04. Paying Agent to Hold Money in Trust................................................................30 Section 2.05. Holder Lists.......................................................................................30 Section 2.06. Transfer and Exchange..............................................................................30 Section 2.07. Replacement Notes..................................................................................42 Section 2.08. Outstanding Notes..................................................................................42 Section 2.09. Treasury Notes.....................................................................................42 Section 2.10. Temporary Notes....................................................................................42 Section 2.11. Cancellation.......................................................................................43 Section 2.12. Defaulted Interest.................................................................................43 ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee.................................................................................43 Section 3.02. Selection of Notes to Be Redeemed..................................................................43 Section 3.03. Notice of Redemption...............................................................................44 Section 3.04. Effect of Notice of Redemption.....................................................................44 Section 3.05. Deposit of Redemption Price........................................................................45 Section 3.06. Notes Redeemed in Part.............................................................................45 Section 3.07. Optional Redemption................................................................................45 Section 3.08. Mandatory Redemption...............................................................................46 Section 3.09. Offer to Purchase by Application of Excess Proceeds................................................46 ARTICLE 4 COVENANTS Section 4.01. Payment of Notes...................................................................................47 Section 4.02. Maintenance of Office or Agency....................................................................48 Section 4.03. Reports............................................................................................48 Section 4.04. Compliance Certificate.............................................................................49 Section 4.05. Taxes..............................................................................................49 Section 4.06. Stay, Extension and Usury Laws.....................................................................49 Section 4.07. Limitation on Restricted Payments..................................................................49 Section 4.08. Limitation on Restrictions on Distributions from Restricted Subsidiaries...........................54 Section 4.09. Limitation on Debt.................................................................................55 Section 4.10. Asset Sales........................................................................................56 Section 4.11. Limitation on Transactions with Affiliates.........................................................58 Section 4.12. Liens..............................................................................................59 Section 4.13. Corporate Existence................................................................................59 Section 4.14. Offer to Repurchase Upon Change of Control.........................................................60 Section 4.15. Sale of Principal Properties.......................................................................61 Section 4.16. Transfer of the Fibers Business....................................................................62 Section 4.17. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries.....................64
i 4 Section 4.18. No Amendment of Subordination Provisions...........................................................65 Section 4.19. Additional Note Guarantees.........................................................................65 ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation or Sale of Assets............................................................65 Section 5.02. Successor Corporation Substituted..................................................................66 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default..................................................................................66 Section 6.02. Acceleration.......................................................................................68 Section 6.03. Other Remedies.....................................................................................68 Section 6.04. Waiver of Past Defaults............................................................................68 Section 6.05. Control by Majority................................................................................69 Section 6.06. Limitation on Suits................................................................................69 Section 6.07. Rights of Holders of Notes to Receive Payment......................................................69 Section 6.08. Collection Suit by Trustee.........................................................................70 Section 6.09. Trustee May File Proofs of Claim...................................................................70 Section 6.10. Priorities.........................................................................................70 Section 6.11. Undertaking for Costs..............................................................................71 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee..................................................................................71 Section 7.02. Rights of Trustee..................................................................................72 Section 7.03. Individual Rights of Trustee.......................................................................72 Section 7.04. Trustee's Disclaimer...............................................................................73 Section 7.05. Notice of Defaults.................................................................................73 Section 7.06. Reports by Trustee to Holders of the Notes.........................................................73 Section 7.07. Compensation and Indemnity.........................................................................73 Section 7.08. Replacement of Trustee.............................................................................74 Section 7.09. Successor Trustee by Merger, etc...................................................................75 Section 7.10. Eligibility; Disqualification......................................................................75 Section 7.11. Preferential Collection of Claims Against Company..................................................75 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance...........................................75 Section 8.02. Legal Defeasance and Discharge.....................................................................76 Section 8.03. Covenant Defeasance................................................................................76 Section 8.04. Conditions to Legal or Covenant Defeasance.........................................................76 Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions.........................................................................................78 Section 8.06. Repayment to Company...............................................................................78 Section 8.07. Reinstatement......................................................................................78 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes................................................................79 Section 9.02. With Consent of Holders of Notes...................................................................80 Section 9.03. Compliance with Trust Indenture Act................................................................81 Section 9.04. Revocation and Effect of Consents..................................................................81 Section 9.05. Notation on or Exchange of Notes...................................................................81 Section 9.06. Trustee to Sign Amendments, etc....................................................................82
ii 5 ARTICLE 10 COLLATERAL AND SECURITY Section 10.01. Security Agreements...............................................................................82 Section 10.02. Recording and Opinions............................................................................82 Section 10.03. Release of Collateral.............................................................................83 Section 10.04. Certificates of the Company.......................................................................84 Section 10.05. Certificates of the Trustee.......................................................................84 Section 10.06. Attornment........................................................................................84 Section 10.07. Authorization of Actions to Be Taken by the Trustee Under the Security Agreements.................85 Section 10.08. Authorization of Receipt of Funds by the Trustee Under the Security Agreements....................85 Section 10.09. Termination of Security Interest..................................................................85 ARTICLE 11 SUBSIDIARY GUARANTEES Section 11.01. Subsidiary Guarantees.............................................................................85 Section 11.02. Limitation on Subsidiary Guarantor Liability......................................................86 Section 11.03. Execution and Delivery of Subsidiary Guarantee....................................................87 Section 11.04. Subsidiary Guarantors May Consolidate, etc., on Certain Terms.....................................87 Section 11.05. Releases Following Sale of Assets.................................................................88 ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls......................................................................89 Section 12.02. Notices...........................................................................................89 Section 12.03. Communication by Holders of Notes with Other Holders of Notes.....................................90 Section 12.04. Certificate and Opinion as to Conditions Precedent................................................90 Section 12.05. Statements Required in Certificate or Opinion.....................................................90 Section 12.06. Rules by Trustee and Agents.......................................................................91 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders..........................91 Section 12.08. Governing Law.....................................................................................91 Section 12.09. No Adverse Interpretation of Other Agreements.....................................................91 Section 12.10. Successors........................................................................................91 Section 12.11. Severability......................................................................................91 Section 12.12. Counterpart Originals.............................................................................92 Section 12.13. Table of Contents, Headings, etc..................................................................92
EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF NOTATION OF GUARANTEE Exhibit F SCHEDULE I SCHEDULE OF GUARANTORS iii 6 INDENTURE dated as of July 23, 1999 among Sterling Chemicals, Inc., a Delaware corporation, Sterling Canada, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, Sterling Chemicals International, Inc., a Delaware corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, and Harris Trust Company of New York, as trustee. The Company (as defined below), the Subsidiary Guarantors (as defined below) and the Trustee (as defined below) agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 123/8% Series A Senior Secured Notes due 2006 (the "Series A Notes") and the 123/8% Series B Senior Secured Notes due 2006 (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "144A Global Note" means a global note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Affiliate" of any specified Person means 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 the provisions of Sections 4.10 and 4.11 only, "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 the Company 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 pursuant to the first sentence hereof. "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 the Company 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: (1) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, 1 7 (2) 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 the Company or any Restricted Subsidiary) at fair market value in the ordinary course of business, (3) for purposes of the provisions of Section 4.10 only, a disposition that constitutes a Restricted Payment permitted or a Permitted Investment not prohibited by the provisions of Section 4.07, (4) the disposition of all or substantially all of the assets of the Company permitted by the provisions of Section 5.01, (5) the disposition of assets in exchange for other assets that satisfy the requirements set forth in clause (2)(B) of Section 4.10, (6) a Transfer of the Fibers Business made in accordance with the terms of Section 4.16, and (7) a Sale of a Principal Property made in accordance with the terms of Section 4.15 hereof. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, 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: (1) 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 (2) 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 the Company or any committee thereof duly authorized to act on behalf of such Board. "Borrowers" means collectively, Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International, Inc. "Broker-Dealer" means any broker or dealer registered under the Exchange Act. 2 8 "Business Day" means each day which is not a Legal Holiday. "Capital Lease Obligations" of a Person means 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" of any Person means any and all shares, interests, rights to purchase, warrants, options or participations (or other equivalents thereof) in such Person (however designated), including any Preferred Stock, but excluding any debt securities convertible into or exchangeable for such equity. "Cedel" means Cedelbank. "Change of Control" means: (1) Any "Person" (as that term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more of the 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 will 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, however, 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 (1): (a) such other Person will 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 Permitted Holders will 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). (2) During any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Holdings or the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of Holdings or the Company, as the case may be, was approved by a majority of the directors of Holdings or the Company, 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 3 9 reason to constitute a majority of the Board of Directors of Holdings or the Company, as the case may be, then in office. (3) The merger or consolidation of Holdings or the Company with or into another Person or the merger of another Person (other than a Permitted Holder) with or into Holdings or the Company, or the sale or transfer in one or a series of transactions of all or substantially all of the assets of Holdings or the Company to another Person (other than a Permitted Holder) and, in the case only of any such merger or consolidation, the securities of Holdings or the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of Holdings or the Company 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. (4) For so long as a holding company ownership structure is maintained over the Company, Holdings holds less than a majority of the Capital Stock of the Company (other than Preferred Stock of the Company issued in accordance with the terms of this Indenture) or less than a majority of the Voting Stock of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral Agent" shall have the meaning set forth in the Security Agreements. "Commission" means the Securities and Exchange Commission. "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 the Company or any Restricted Subsidiary that is designed to protect the Company or a 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. "Company" means Sterling Chemicals, Inc., and any and all successors thereto. "Comparable Treasury Issue" means the United States Treasury security selected by a Reference Treasury Dealer as having a maturity comparable to July 23, 2006 that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining life of the Notes. "Comparable Treasury Price" means, with respect to any date of redemption, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such date of redemption, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities," or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the average of the Reference Treasury Dealer Quotations. "Consolidated EBITDA Coverage Ratio" as of any date of determination means the ratio of: 4 10 (1) 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 (2) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (a) if the Company 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, (b) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, EBITDA for such period shall be reduced by an amount equal to 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 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 the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company 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 the Company and its continuing Restricted Subsidiaries are no longer liable for such Debt after such sale), (c) if since the beginning of such period the Company 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 (d) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company 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 (b) or (c) above if made by the Company 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 the Company. 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 5 11 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). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such interest expense: (1) interest expense attributable to Capital Lease Obligations, (2) amortization of debt discount and debt issuance cost, (3) capitalized interest, (4) noncash interest payments, (5) commissions, discounts and other fees and charges owed with respect to letters of credit and bakers' acceptance financing, (6) net costs under Interest Rate Agreements (including amortization of fees), (7) Preferred Stock dividends in respect of all Redeemable Stock of the Company and all Preferred Stock of Restricted Subsidiaries held by Persons other than the Company or a Wholly Owned Subsidiary, (8) interest incurred in connection with Investments in discontinued operations, (9) interest actually paid by the Company or any of its Restricted Subsidiaries under any Guarantee of Debt or other obligation of any other Person, and (10) the cash contribution 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 the Company 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 the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (1) any net income of any Person if such Person is not a Restricted Subsidiary, except that: (a) subject to the exclusion contained in clause (4) below, the Company'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 the Company 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 (3) below), and (b) the Company'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 the Company or a Restricted Subsidiary to such Person during such period, 6 12 (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (3) 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 the Company, except that: (a) subject to the exclusion contained in clause (4) below, the Company'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 the Company 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) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income, (4) any gain or loss realized upon the sale or other disposition of any assets of the Company 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, (5) extraordinary gains or losses, and (6) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes of the provisions of Section 4.07 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 the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted pursuant to clause (3)(E) of Section 4.07. "Consolidated Net Worth" of any Person means 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 (1) the par or stated value of all outstanding Capital Stock of such Person, plus (2) paid-in capital or capital surplus relating to such Capital Stock, plus (3) any retained earnings or earned surplus, less: (1) any accumulated deficit, (2) any amounts attributable to Redeemable Stock, and 7 13 (3) 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 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreement" means that certain Revolving Credit Agreement dated as of July 23, 1999 (as amended, supplemented and restated or otherwise modified from time to time) among the Borrowers, DLJ Capital Funding, Inc., as Syndication Agent, The CIT Group/Business Credit, Inc., as Administrative Agent, Credit Suisse First Boston, as Documentation Agent, and the other lenders party thereto providing for the Fixed Assets Revolver and the Working Capital Revolver. "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 the Trustee, as custodian with respect to the Global Notes, or any successor entity thereto. "Debt" of any Person means, without duplication: (1) 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 the payment of which such Person is responsible or liable, (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person, (3) 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), (4) 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 (1) through (3) 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), (5) 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, not excluding any accrued dividends), (6) all Hedging Obligations of such Person, 8 14 (7) all obligations of the type referred to in clauses (1) through (4) of other Persons and all dividends of other Persons the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee, and (8) all obligations of the type referred to in clauses (1) through (6) 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 on 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, or after notice or the passage of time or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Discount Notes" means the 13 1/2% Senior Secured Discount Notes due 2008 of Holdings. "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense, plus the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of the Company, (2) depreciation expense, (3) amortization expense, (4) an amount equal to any extraordinary loss realized in connection with an Asset Disposition, any Transfer of the Fibers Business or the sale or other disposition of any Sale of a Principal Property and (5) all other noncash items reducing such Consolidated Net Income (excluding any noncash item to the extent it represents an accrual of, or reserve for, cash disbursements for any subsequent period) less all noncash items increasing such Consolidated Net Income (such amount calculated pursuant to this clause (5) not to be less than zero), in each case for such period. 9 15 Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary of the Company 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 the Company by such Subsidiary without further approval, 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. "Equity Interests" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person; and (5) any options, warrants and other rights to acquire or purchase any of the foregoing. "Equity Private Placement" means the private placement of shares of common stock of STX Acquisition Corp. consummated immediately prior to the merger of STX Acquisition Corp. into Sterling Chemicals, Inc. on August 21, 1996, which shares were converted into shares of common stock of Holdings upon consummation of such transaction. "ESOP" means the Sterling Chemicals ESOP as in existence on the Issue Date and as may be modified or amended from time to time in accordance with its terms, provided that any such modifications or amendments are not adverse to the Holders of the Notes, or as otherwise required by applicable law. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued by the Company in exchange for the Notes upon consummation of the Exchange Offer pursuant to the Registration Rights Agreement. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. 10 16 "Exchangeable Stock" means any Capital Stock which is exchangeable or convertible into another security (other than Capital Stock of the Company or any Wholly Owned Subsidiary which is neither Exchangeable Stock nor Redeemable Stock). "Existing Subordinated Notes" means $275,000,000 in original principal amount of the Company's 11 3/4% Senior Subordinated Notes Due 2006 and $150,000,000 in original principal amount of the Company's 11 1/4% Senior Subordinated Notes Due 2007. "Fibers Subsidiaries" means Sterling Chemicals International, Inc. and Sterling Fibers, Inc. which collectively own the assets which constitute the Santa Rosa County acrylic fibers facility. "Fixed Assets Revolver" means the five year senior secured revolving credit facility under the Credit Agreement pursuant to which the Borrowers may borrow, repay and reborrow up to $70.0 million secured by first priority liens on the Shared Collateral and a second priority lien on the accounts receivable, inventory, related general intangibles and certain other assets of the Company and the other Borrowers and any Refinancing Debt with respect thereto provided that the Stated Maturity of such Refinancing Debt does not extend beyond the Stated Maturity of the Fixed Assets Revolver. "Foreign Assets Sale" means an Asset Disposition in respect of Capital Stock or assets of a Non-U.S. 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. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth: (1) in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) in statements and pronouncements of the Financial Accounting Standards Board, (3) in such other statements by such other entity as have been approved by a significant segment of the accounting profession, and (4) in the rules and regulations of the Commission 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 Commission. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. 11 17 "Guarantee" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise of such Person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) any Debt or other obligation of any other 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 (2) entered into for purposes of assuring in any other manner the obligee of any Debt or other obligation of any other Person 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 deposits 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 has a corresponding meaning. "Hedging Obligations" of any Person means 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 a Person in whose name a Note is registered on the registrar's books. "Holdings" means Sterling Chemicals Holdings, Inc., a Delaware corporation and the sole stockholder of the Company. "IAI Global Note" means the Global Note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "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 the Incurrence of Debt. "Indenture" means this Indenture, as amended or supplemented from time to time. "Independent Financial Advisor" means a reputable accounting, appraisal or investment banking firm that, in the reasonable good faith judgment of the Board of Directors of the Company, is qualified to perform the task for which such firm has been engaged and is independent with respect to the Company and its Affiliates. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. 12 18 "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse First Boston Corporation. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "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 the Company or any Restricted Subsidiary against fluctuations in interest rates. "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), any other Person. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and the provisions of Section 4.07: (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company 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; and provided, further, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to: (a) the Company's "Investment" in such Subsidiary at the time of such redesignation, less (b) the portion (proportionate to the Company'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 (2) 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 Notes are originally issued. "Joint Venture Contribution" means any transfer, assignment, conveyance or contribution of the Capital Stock of the Fibers Subsidiaries or all or substantially all of the assets of the Fibers Subsidiaries to a corporation, partnership, limited liability company, joint venture or other entity in which the Company and its Affiliates shall, immediately after giving effect to such transaction, beneficially, own or hold any Equity Interest in the Person to which such contribution is made, including 13 19 any such contribution made through any merger, consolidation or similar transaction or any agreement to operate all or substantially all of the assets of the Fibers Subsidiaries under any similar arrangement. "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 on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "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). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Moody's" means Moody's Investors Service, Inc. "Net Available Cash" from an Asset Disposition, a Transfer of the Fibers Business or a Sale of a Principal Property means cash payments received therefrom (including, to the extent permitted, any cash payments received by way of deferred payment of principal pursuant to a promissory note or installment receivable of any Return of Capital 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), in each case net of: (1) 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 transaction, (2) all payments made on any Debt which is secured by any assets subject to such transaction, 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 transaction, or by applicable law be repaid out of the proceeds from such transaction, (3) all distributions and other payments required to be made to any minority interest holders in Subsidiaries or joint ventures as a result of such transaction, and (4) 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 transaction and retained by the Company or any Restricted Subsidiary after such transaction. "Net Cash Proceeds" means, with respect to any issuance or sale of Capital Stock, the cash proceeds of such issuance of sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultants' and other fees, and other costs and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. 14 20 "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 Capital Stock of such corporation; provided, however, that Non-Convertible Capital Stock shall not include any Redeemable Stock or Exchangeable Stock. "Non-U.S. Person" means a Person who is not a U.S. Person. "Non-U.S. 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. "Notes" has the meaning assigned to it in the preamble to this Indenture. "Obligations" means the obligations and liabilities of the Company under this Indenture and the Notes for principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities. "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, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate that meets the requirements of Section 12.05 hereof signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company. "Opinion of Counsel" means an opinion that meets the requirements of Section 12.05 hereof from legal counsel, who may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to DTC, shall include Euroclear and Cedel). "Permitted Holders" means: (1) each of Frank J. Hevrdejs, William C. Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon Cain; (2) any Permitted Transferee with respect to any Person covered by the preceding clause (1); (3) any savings or investment plan sponsored by the Company or Holdings, including the ESOP; (4) the purchasers in the Equity Private Placement; or 15 21 (5) any Person who on August 21, 1996 was an officer, director, stockholder, employee or consultant of The Sterling Group, Inc. or The Unicorn Group, L.L.C. "Permitted Investment" means an Investment by the Company of any Restricted Subsidiary in: (1) a Wholly Owned Subsidiary or a Person that will, upon the making of such Investment, become a Wholly Owned Subsidiary; (2) Temporary Cash Investments; (3) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (4) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (5) any Person to the extent such Investment represents the noncash portion of the consideration received for (A) an Asset Disposition as permitted pursuant to Section 4.10, (B) a Sale of a Principal Property as permitted, and other sales, transfers and dispositions as permitted, pursuant to Section 4.15 or (C) a Transfer of the Fibers Business as permitted pursuant to Section 4.16; (6) Investments by the Company or a Restricted Subsidiary in a Person to the extent the consideration for such Investment consists of shares of Capital Stock of the Company or Holdings (other than Redeemable Stock of the Company); (7) 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; (8) 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 the Company or such Restricted Subsidiary; (9) 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, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is reasonably related to the business of the Company and its Restricted Subsidiaries; and (10) 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 the Company and its Restricted Subsidiaries, in an aggregate amount not to exceed $10.0 million outstanding at any time; provided, however, that the amount available for Investments pursuant to this clause (10) shall be reduced in accordance with clause (3)(G) of the first paragraph of Section 4.07. "Permitted Liens" means: (1) Liens existing on the Issue Date, including those that secure Debt and other obligations under the Credit Agreement that this Indenture permitted to be Incurred; 16 22 (2) Liens for taxes, assessments or other governmental charges or levies not yet due or that are being contested in good faith by appropriate action or proceedings promptly instituted and diligently pursued to conclusion and with respect to which adequate reserves in conformity with GAAP are being maintained; (3) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen, repairmen, workmen, crews, maritime liens and other Liens imposed by law created in the ordinary course of business for amounts that are not past due or that 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; (4) 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) incurred in the ordinary course of business; (5) minor irregularities in title, boundaries, or other survey defects, easements, rights-of-way, restrictions, servitudes, permits, reservations, exceptions, zoning regulations, conditions, covenants, mineral or royalty rights or reservations or oil, gas and mineral leases and rights of others in any property of the Company or any Restricted Subsidiary for streets, roads, bridges, pipes, pipe lines, railroads, electric transmission and distribution lines, telegraph and telephone lines, the removal of oil, gas or other minerals or other similar purposes, flood control, water rights, rights of others with respect to navigable waters, sewage and drainage rights and other similar charges or encumbrances existing as of the Issue Date (or granted by the Company or any Restricted Subsidiary in the ordinary course of business) that do not, in the aggregate, materially impair the value of the property of the Company or any Restricted Subsidiary and the occupation, use and enjoyment by the Company or any of its Restricted Subsidiaries of any of their respective properties in the normal course of business; (6) Liens securing Debt neither created, assumed nor guaranteed by the Company or any Restricted Subsidiary upon lands over which easements or similar rights are acquired by the Company or any Restricted Subsidiary in the ordinary course of business of the Company or any Restricted Subsidiary; (7) terminable or short term leases or permits for occupancy, which leases or permits expressly grant to the Company or any Restricted Subsidiary the right to terminate them at any time on not more than six months' notice and which occupancy does not interfere with the operation of the business of the Company or any Restricted Subsidiary; (8) any Lien or privilege arising solely by operation of law and vested in any lessor, licensor or permittor on personal property located on premises leased by the Company or any Restricted Subsidiary, for rent to become due or for other obligations or acts to be performed, the payment of which rent or the performance of which other obligations or acts is required under leases, subleases, licenses or permits; (9) Liens or privileges of any employee of the Company or any Restricted Subsidiary for salary or wages earned but not yet payable; 17 23 (10) 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 that do not materially impair the use of such property for the purposes for which it is held; (11) Liens upon property or assets other than as described in clause (12) immediately below acquired by the Company after the Issue Date; provided, however, that such Liens do not extend to any property or assets other than such property or assets; (12) Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Restricted Subsidiary of such Person; provided, however, that such Liens are in existence prior to the contemplation of such Person becoming a Restricted Subsidiary and are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming such a Restricted Subsidiary and do not extend to any assets other than those of the Person that becomes a Restricted Subsidiary; (13) Liens resulting from operation of law with respect to any judgments, awards or orders to the extent that such judgments, awards or orders do not cause or constitute an Event of Default; (14) Liens on any property in favor of domestic or foreign governmental bodies to secure partial, progress, advance or other payments pursuant to any contract or statute, not yet due and payable; (15) Liens securing Debt incurred to finance the construction, purchase or lease of, or repairs, improvements or additions to, property of such Person used in the business of the Company, to the extent such Debt is otherwise permitted by this Indenture; (16) Liens with respect to the so called "greenbelt" or "buffer zone" properties, for as long as those properties are used solely for "greenbelt" or buffer zone" purposes; (17) leases and ground leases of underutilized or vacant properties of the Company or any Restricted Subsidiary to third parties with which the Company has a production, co-production, co-generation, operating or other arrangement or to third party providers of energy or raw materials in the ordinary course of business of the Company or a Restricted Subsidiary, provided such leases do not materially interfere with the operation of the business of the Company or any Restricted Subsidiary or materially diminish the value of the PP&E; (18) easements, rights-of-way, restrictions and other similar charges or encumbrances granted to others, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of its Subsidiaries, provided that such Liens are not violated by the existing PP&E and do not, in the aggregate, materially diminish the value of the PP&E; (19) the burdens of any law or governmental regulation or permit requiring the Company to maintain certain facilities or perform certain acts as a condition of its occupancy of or interference with any public lands or any river or stream or navigable waters; (20) Liens on accounts receivable and inventory and other specified assets of the type securing the Working Capital Revolver, in each case other than assets constituting part of the Pledged Collateral, which Liens secure either (a) extensions, renewals, modifications, replacements or increases of the Working Capital Revolver in whole or in part from time to time or (b) any revolving credit agreement of 18 24 any Non-U.S. Subsidiary; provided, however, that in each case the Debt secured by such Liens is permitted by the terms of this Indenture to be Incurred; (21) extensions, renewals, modifications or replacements of any Lien referred to in clauses (1) through (21) of this definition, provided that such Lien is otherwise permitted by the terms hereof and, with respect to Liens securing Debt, no extension or renewal Lien shall (A) secure more than the amount of the Debt or other obligations secured by the Lien being so extended or renewed, other than as permitted by clause (11) or (20) hereof, or (B) extend to any property or assets not subject to the Lien being so extended or renewed, other than as permitted by clause (11) or (20) hereof, or (C) with respect to the Shared Collateral, relate to any Debt that has a Stated Maturity that extends beyond the Stated Maturity of the Fixed Assets Revolver; and (22) Liens incurred in the ordinary course of business of the Company and its Restricted Subsidiaries that do not secure Debt and which have a value that in the aggregate does not exceed $5.0 million at any one time outstanding. "Permitted Transferee" means with respect to any Person: (1) in the case of an entity, any Affiliate of such Person; and (2) 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 that relationship that exists between persons of whom one is descended (or ascended) in a direct line from the other, as between son, father, grandfather and great-grandfather. Collateral consanguinity is that relationship that exists between persons who have the same ancestors, but who 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, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Pledged Collateral" means any assets of the Company or any Subsidiary Guarantor defined as Pledged Collateral in the Security Agreements. "Preferred Stock" as applied to the Capital Stock of any corporation, means 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. "Principal Properties" means each of the chemical facilities at the following locations: (1) Texas City, Texas; (2) Valdosta, Georgia; (3) Buckingham, Quebec; 19 25 (4) Vancouver, British Columbia; (5) Thunder Bay, Ontario; and (6) Grande Prairie, Alberta "Principal Property Subsidiary" means each of Sterling Pulp Chemicals, Inc., Sterling Pulp Chemicals, Ltd. and Sterling NRO, Ltd. and any other Affiliate that may hereafter own any Principal Property. "PP&E" means the real property, production facilities and certain related general intangibles and other assets currently owned by the Company and its Restricted Subsidiaries, a second priority lien on which will secure the Notes and the Subsidiary Guarantees, as provided in the Security Agreements. "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Equity Offering" means an underwritten primary public offering of common stock of Holdings pursuant to an effective registration statement under the Securities Act. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "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 the Company (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 the Holder thereof without regard to the occurrence of any contingency at any time on or prior to the Stated Maturity of the Notes. "Reference Treasury Dealer" means each of (1) Donaldson, Lufkin & Jenrette Securities Corporation, or its successors, and Credit Suisse First Boston Corporation, or its successors; provided, however, that if the foregoing shall not be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer and (2) any Primary Treasury Dealer selected by the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer on any date of redemption, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such date of redemption. "Refinance" means, in respect of any Debt, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Debt in exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall have correlative meanings. 20 26 "Refinancing Debt" means Debt that Refinances any Debt of the Company 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: (1) such Refinancing Debt has a Stated Maturity no earlier than the Stated Maturity of the Debt being Refinanced, (2) 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, (3) 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 (4) 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; and provided, further, however, that Refinancing Debt shall not include: (1) Debt of a Subsidiary (other than a Wholly Owned Subsidiary which is also a Subsidiary Guarantor) that Refinances Debt of the Company, or (2) Debt of the Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary. "Registration Rights Agreement" means the A/B Exchange Registration Rights Agreement, dated as of July 23, 1999, by and among the Company, the Subsidiary Guarantors and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Global Note bearing the Private Placement Legend and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Representative" means any trustee, agent or representative (if any) for an issue of Senior Debt of the Company. "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 and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. 21 27 "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Return of Capital" means, with respect to any Equity Interest, any sums paid on or in respect of such Equity Interest (1) as a return, in whole or in part, of the capital of the issuer of such Equity Interest as constituted immediately following the consummation of the Transfer of the Fibers Business pursuant to which such Equity Interest was issued to the Company or either of the Fibers Subsidiaries, (2) in redemption of, or in exchange for, such Equity Interest or (3) in connection with a partial or total liquidation or dissolution of the issuer of such Equity Interest. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "Sale of the Fibers Business" means any sale, transfer, assignment, conveyance or other disposition of the Capital Stock of the Fibers Subsidiaries or all or substantially all of the assets of the Fibers Subsidiaries (other than pursuant to a Joint Venture Contribution), including, in either case, any such sale, transfer, assignment, conveyance or disposition made through any merger, consolidation or similar transaction. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person (other than the Company or a Wholly Owned Subsidiary which is also a Subsidiary Guarantor) and the Company or a Restricted Subsidiary leases it from such Person. "Secured Debt" means any Debt of the Company secured by a Lien. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreements" means the security and pledge agreements and the mortgages entered into by the Company and each of its Restricted Subsidiaries that own any of the Pledged Collateral, dated as of the date of this Indenture, to secure the obligations with respect to the Notes, and the Senior Debt Intercreditor Agreement, dated as of the date hereof between the Trustee and the CIT Group/Business Credit, Inc., as such agreements may be amended, modified or supplemented from time to time. "Senior Debt" means: (1) all Debt of the Company or any Restricted Subsidiary outstanding under the Credit Agreement; (2) any other Debt of the Company or any Restricted Subsidiary permitted to be incurred under the terms of this Indenture, unless the instrument under which such Debt is incurred expressly provides that it is subordinated in right of payment to the Notes or any Subsidiary Guarantee; and 22 28 (3) all obligations with respect to the items listed in the preceding clauses (1) and (2). Notwithstanding anything to the contrary in the preceding, Senior Debt shall not include: (1) any liability for federal, state, local or other taxes owed or owing by the Company; (2) any Debt of the Company to any of its Restricted Subsidiaries or other Affiliates; (3) any trade payables; or (4) the portion of any Debt that is incurred in violation of this Indenture. "Senior Subordinated Debt" means the Existing Subordinated Notes and any other Debt of the Company that specifically provides that such Debt is subordinate to the Notes in right of payment and which is not subordinated by its terms in right of payment to any Debt or other obligation of the Company which is not Senior Debt. "Series A Notes" has the meaning assigned to it in the preamble to this Indenture. "Series B Notes" has the meaning assigned to it in the preamble to this Indenture. "Shared Collateral" means the PP&E and the Capital Stock of all of the Company's current U.S. Subsidiaries other than Sterling Chemicals Acquisitions, Inc.. "Shelf Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" of the Company as such term is defined in Rule 1-02 of Regulation S-X, promulgated by the Commission. "S&P" means Standard & Poor's Ratings Group. "Special Adjusted Treasury Rate" means, with respect to any date of redemption, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price equal to the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such date of redemption, plus 0.50%. "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 or Debt 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 the Company (whether outstanding on the Issue Date or hereafter Incurred) which is subordinate or junior in right of payment to the Notes. "Subsidiary" means any corporation, association, partnership or other business entity of which than more 50% of the total voting power of shares of Capital Stock or other interests (including 23 29 partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof at the time is owned or controlled, directly or indirectly, by: (1) the Company, (2) the Company and one or more Subsidiaries, or (3) one or more Subsidiaries. "Subsidiary Guarantees" means the guarantees of the Notes by the Subsidiary Guarantors. "Subsidiary Guarantors" means Sterling Canada, Inc., Sterling Chemicals Energy, Inc., Sterling Fibers, Inc., Sterling Chemicals International, Inc., Sterling Pulp Chemicals, Inc. and Sterling Pulp Chemicals US, Inc., and any other entities that at any time guarantees the Company's obligations, with respect to the Notes. "Tangible Property" means all land, buildings, machinery and equipment and leasehold interests and improvements which would be reflected on a balance sheet of the Company prepared in accordance with GAAP, including: (1) all rights, contracts and other intangible assets of any nature whatsoever, and (2) all inventories and other current assets. "Temporary Cash Investments" means any of the following: (1) 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, (2) 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 $50.0 million (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, (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above, (4) investments in commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company 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-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, 24 30 (5) 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, (6) 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, (7) with respect to any Non-U.S. 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 (8) with respect to Non-U.S. 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 (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. "Texas City Facility" means the petrochemicals production facility that is located at Texas City, Texas and is a Principal Property. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Transfer of the Fibers Business" means any Joint Venture Contribution or any Sale of the Fibers Business or any combination thereof. "Trustee" means Harris Trust Company of New York, as trustee hereunder, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Global Note" means a permanent Global Note substantially in the form of Exhibit A attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Subsidiary" means: (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below, and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Debt of, or holds any Lien on any property of, the Company 25 31 or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either: (1) the Subsidiary to be so designated has total assets of $1,000 or less or (2) if such Subsidiary has assets of greater than $1,000, such designation would be permitted by Section 4.07 hereof, and provided, further, however, that: (1) no Subsidiary of the Company that is it 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 the Company 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: (1) if such Unrestricted Subsidiary at such time has Debt, the Company could Incur $1.00 of additional Debt under paragraph (a) of Section 4.09, and (2) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be communicated by the Company 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. Notwithstanding the foregoing, any entity formed or in which an Equity Interest is acquired as a result of a Transfer of the Fibers Business, and if the Capital Stock of the Fibers Subsidiaries is transferred in connection with such Transfer of the Fibers Business, each of the Fibers Subsidiaries, shall automatically be an Unrestricted Subsidiary without complying with the foregoing requirements; provided, however, that such Transfer of the Fibers Business is made in accordance with the terms of the provisions of Section 4.16, unless the Board of Directors substantially contemporaneously with such Transfer of the Fibers Business designates any such entity as a Restricted Subsidiary. As of the Issue Date, each of Sterling Chemicals Acquisitions, Inc., Sterling (Sask) Holdings Ltd., Sterling Pulp Chemicals (Sask) Ltd., 619220 Saskatchewan Ltd. and Sterling Pulp Chemicals Fuzhou Ltd. is an Unrestricted Subsidiary. "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. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. 26 32 "U.S. Subsidiary" means a Restricted Subsidiary that is incorporated in a jurisdiction in the United States, or a state thereof or the District of Columbia. "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 the Company and/or another Wholly Owned Subsidiary; provided, however, that a Non-U.S. Subsidiary shall be a Wholly Owned Subsidiary if more than 90% of the Capital Stock and Voting Stock thereof is owned by the Company and/or another Wholly Owned Subsidiary. "Working Capital Revolver" means the senior secured revolving credit facility under the Credit Agreement pursuant to which the Company may borrow, repay and reborrow up to $85.0 million, secured by a first priority lien on all of the property and assets of the Company and the Subsidiary Guarantors except for real property, fixtures, related general intangibles and equipment and any Capital Stock owned by the Company or any Subsidiary Guarantor. Section 1.02. Other Definitions.
Defined in Term Section ---- ------- "Affiliate Transaction"............................................................ 4.11 "Asset Sale Offer" ................................................................ 3.09 "Authentication Order"............................................................. 2.02 "Change of Control Offer".......................................................... 4.14 "Change of Control Payment"........................................................ 4.14 "Change of Control Payment Date"................................................... 4.14 "Covenant Defeasance".............................................................. 8.03 "Event of Default"................................................................. 6.01 "Legal Defeasance"................................................................. 8.02 "Make-Whole Amount"................................................................ 4.15 "Offer Amount"..................................................................... 3.09 "Offer Period"..................................................................... 3.09 "Paying Agent"..................................................................... 2.03 "Payment Default" ................................................................. 6.01 "Permitted Debt"................................................................... 4.09 "Purchase Date".................................................................... 3.09 "Registrar"........................................................................ 2.03 "Restricted Payments".............................................................. 4.07
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. 27 33 The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Subsidiary Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; and (f) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the Commission from time to time. ARTICLE 2 THE NOTES Section 2.01. Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Subsidiary Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound 28 34 thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedelbank" and "Customer Handbook" of Cedelbank shall be applicable to transfers of beneficial interests in the Regulation S Global Notes that are held by Participants through Euroclear or Cedelbank. Section 2.02. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional 29 35 paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company 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. The Company 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 the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Holder Lists. 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 all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven 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 and the Company shall otherwise comply with TIA Section 312(a). Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Depositary notifies the Company that it is unwilling or unable to continue to act as Depositary and a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or that the Depositary is no longer a clearing agency registered under the Exchange Act, (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. Upon the occurrence of any of the preceding events in 30 36 (i), (ii) or (iii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee in accordance with its customary procedures. In addition, beneficial interests in a Global Note may be exchanged for Definitive Notes upon prior written notice given to the Trustee by or on behalf of the Depositary in accordance with this Indenture. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Except as otherwise provided in this Section 2.06(a), every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note and owners of interests in Global Notes will not have Notes registered in their names, will not receive physical delivery of Definitive Notes and will not be considered the registered owners or Holders thereof under this Indenture for any purpose. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interest in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) 31 37 shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion of Counsel required by item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted 32 38 Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, subject to Section 2.06(a), upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; 33 39 (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. Subject to Section 2.06(a), a holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: 34 40 (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. Subject to Section 2.06(a), if any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, subject to Section 2.06(a), upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; 35 41 (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: 36 42 (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: 37 43 (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of 38 44 an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. ACCORDINGLY, THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI")), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE 39 45 FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged 40 46 for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.14, 4.15, 4.16 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date (as defined in paragraph 1 of the Notes). (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent, and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent, or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. 41 47 Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent, and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. 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, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10. Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. 42 48 Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and 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 canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.02. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed, or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. 43 49 The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected for redemption shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) 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 upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) 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 the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A 44 50 notice of redemption may not be conditional. 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. Section 3.05. Deposit of Redemption Price. At least one Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent (or if the Company 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 the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. Optional Redemption. (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to July 15, 2003. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below:
Year Percentage ---- ---------- 2003........................................................................... 106.188% 2004........................................................................... 103.094% 2005 and thereafter............................................................ 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time prior to July 15, 2002, the Company may on any one or more occasions redeem Notes with the net proceeds of one or more Public Equity Offerings at a redemption price equal to 112.375% of the aggregate principal amount thereof plus accrued and unpaid Liquidated Damages thereon, if any; provided that at least 65% in aggregate principal amount at maturity of the Notes originally issued remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries) and that such redemption occurs within 60 days of the date of the closing of such Public Equity Offering. 45 51 (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09. Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if 46 52 appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4 COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 11:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for payment of and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. 47 53 The Company shall, to the extent lawful, pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the then applicable interest rate on the Notes; it shall, the extent lawful, pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, 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 for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company 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. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company 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. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. Section 4.03. Reports. (a) Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company, for so long as it is permitted to do so, shall furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case, within the time periods specified in the Commission's rules and regulations. In addition, following consummation of the Exchange Offer, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA Section 314(a). (b) For so long as any Notes remain outstanding, the Company and the Subsidiary Guarantors shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. 48 54 Section 4.04. Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) 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 the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Security Agreements, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the Security Agreements and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or the Security Agreements (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 the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within 30 days after the occurrence of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06. Stay, Extension and Usury Laws. The Company and each of the Subsidiary Guarantors covenants (to the extent that it may lawfully do so) that it 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 the Company and each of the Subsidiary Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it 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 has been enacted. Section 4.07. Limitation on Restricted Payments. The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to: (1) declare or pay any dividend or make any other payment or distribution on or in respect of its or any of its Restricted Subsidiaries' Capital Stock (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any Restricted Subsidiary) or 49 55 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 the Company or a Restricted Subsidiary), other than pro rata dividends or other distributions made by a Restricted Subsidiary of the Company 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); (2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company, any direct or indirect parent of the Company or any Restricted Subsidiary (other than any such Capital Stock owned by the Company or any Wholly Owned Subsidiary); (3) 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 (4) 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") unless, at the time of and after giving effect to such Restricted Payment: (1) no Default shall have occurred and be continuing (or would result therefrom); and (2) the Company, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, would be permitted to Incur an additional $1.00 of Debt pursuant to clause (a) of Section 4.09; and (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date is less than the sum, without duplication, of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recent fiscal quarter for which financial statements are available at the time 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) shall be 100% of Consolidated Net Income during such fiscal quarter; and 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; plus (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Redeemable Stock or Exchangeable Stock) subsequent to the Issue 50 56 Date (other than an issuance or sale to a Subsidiary or an employee stock ownership plan or similar trust); plus (C) the aggregate Net Cash Proceeds received by the Company 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 the Company 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; plus (D) the amount by which Debt of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date, of any Debt of the Company convertible or exchangeable for Capital Stock (other than Redeemable Stock or Exchangeable Stock) of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); plus (E) an amount equal to the sum of: (i) 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 the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company'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 the Company or any Restricted Subsidiary in such Unrestricted Subsidiary; plus (F) to the extent not covered in clauses (A) through (E) above, the aggregate net cash proceeds received after the Issue Date by the Company as capital contributions (other than from any of its Restricted Subsidiaries); plus (G) $5.0 million; provided, however, that, to the extent used, such $5.0 million shall reduce the amount available for Investments pursuant to clause (10) of the definition of "Permitted Investments;" and provided, further, however, that the amounts available under this clause (G) and under clause (10) of the definition of "Permitted Investments" shall in no event exceed $10.0 million in the aggregate. So long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the provisions of the foregoing paragraph shall not prohibit: (1) any purchase or redemption of any Subordinated Obligations of the Company or any Subsidiary Guarantor or any Capital Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Redeemable Stock or Exchangeable Stock of the Company and other than Capital Stock of the Company issued or sold to a Subsidiary or an employee stock ownership plan); provided, however, that: 51 57 (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; and (B) the Net Cash Proceeds from such sale shall be excluded from clauses (3)(B) and (3)(C) of the preceding paragraph; (2) any purchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations of the Company or any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, Debt of the Company or a Subsidiary Guarantor which is permitted to be incurred pursuant to Section 4.09; 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; (3) any purchase or redemption of Subordinated Obligations of the Company or any Subsidiary Guarantor from Net Available Cash to the extent permitted under Section 4.10 hereof; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (4) 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; (5) the declaration or payment of any dividend on shares of the Company's common stock so long as: (A) the Company would be permitted immediately after giving pro forma effect to such declaration or payment to Incur an additional $1.00 of Debt pursuant to clause (a) of Section 4.09; (B) 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 (C) the full amount of such payment is applied by Holdings on such date as payment of such cash interest on the Discount Notes; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (6) payments to the ESOP on behalf of the employees of Holdings or its Subsidiaries; provided, however, that all such payments by the Company and its Subsidiaries 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; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; (7) a payment to Holdings to pay its operating and administrative expenses including, without limitation, directors fees, legal and audit expenses, Commission 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 the Company for the preceding fiscal year; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; 52 58 (8) a payment by the Company to Holdings or to the ESOP or directly by the Company, to be used to repurchase shares of the 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)(l)(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; (9) a payment by the Company to Holdings or the ESOP, or directly by the Company, 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 the Company or Holdings from time to time; provided, however, that the aggregate price paid for all Capital Stock repurchased, redeemed, acquired or retired by the Company or on behalf of Holdings or the Company shall not exceed $5.0 million in any fiscal year; and provided, further, however, that such amount, to the extent related to the ESOP, shall be excluded in the calculation of Restricted Payments; (10) 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 the Company; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; (11) a payment to Holdings to permit Holdings to comply with the terms of the indenture relating to the Discount Notes relating to the application of proceeds from an Asset Disposition (relating to the sale or disposition of property by the Company) as defined in the indenture relating to the Discount Notes; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; (12) an investment made or received in connection with a Transfer of the Fibers Business; provided, however, that such amount shall be excluded in the calculation of Restricted Payments; and (13) a loan to the ESOP; provided, however, that: (A) the aggregate amount of any such loan does not exceed 5% of the cash received subsequent to the Issue Date by the Company or any Restricted Subsidiary as capital contributions from the proceeds of a substantially contemporaneous issue or sale of any Capital Stock of Holdings made in connection with or to provide part of the consideration for a direct or indirect acquisition by the Company or any Restricted Subsidiary of all or substantially all of the Capital Stock or assets of a Person that is not an Affiliate of the Company or any business or division of a Person that is not an Affiliate of the Company; (B) in the case of an acquisition of Capital Stock, immediately after giving effect to such acquisition, the Person whose Capital Stock is acquired is a Restricted Subsidiary and, in the case of an asset acquisition, such assets are acquired by the Company or any Restricted Subsidiary; and (C) any individuals that become employees of the Company or such Restricted Subsidiary in connection with such acquisition, to the extent eligible, are permitted to participate in the ESOP; 53 59 provided, however, that the amount of any such loan shall be included in the calculation of the amount of Restricted Payments. Section 4.08. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company 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: (1) pay dividends or make any other distributions on its Capital Stock or pay any Debt or other obligation owed to the Company; (2) make any loans or advances to the Company; or (3) transfer any of its property or assets to the Company; except: (A) any encumbrance or restriction pursuant to the Credit Agreement or any other agreement in effect on the Issue Date or pursuant to the issuance of the Notes; (B) 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 the Company (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 the Company) and outstanding on such date; (C) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Debt Incurred pursuant to an agreement referred to in clause (A) or (B) above or contained in any amendment to an agreement referred to in clause (A) or (B) above; provided, however, that the encumbrances and restrictions contained in any 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, (D) any such encumbrance or restriction consisting of customary non-assignment 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; (E) in the case of clause (3) above, 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; (F) encumbrances or restrictions imposed by operation of applicable law; and 54 60 (G) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition. Section 4.09. Limitation on Debt. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur any Debt unless the Consolidated EBITDA Coverage Ratio at the date of such Incurrence exceeds 2.0 to 1.0. (b) The preceding sentence shall not prohibit the Incurrence of any of the following Debt (collectively, "Permitted Debt"): (1) Debt Incurred by the Company and any Restricted Subsidiary pursuant to the Credit Agreement or any other revolving credit facility which, when taken together with all letters of credit and the principal amount of all other outstanding Debt Incurred under this clause (1), does not exceed the greater of $100 million and the sum of: (A) 65% of the gross book value of the inventory of the Company and its Restricted Subsidiaries; and (B) 85% of the gross book value of the accounts receivable of the Company and its Restricted Subsidiaries; (2) Debt of the Company 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 the Company; (3) Debt of a Restricted Subsidiary incurred and outstanding on or prior to the date on which such Restricted Subsidiary: (A) became a Restricted Subsidiary; or (B) was acquired by the Company (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 the Company); (4) the incurrence by the Company and the Subsidiary Guarantors of Debt represented by the Notes and the related Subsidiary Guarantees to be issued on the date of the this Indenture and the Exchange Notes and the related Subsidiary Guarantees to be issued pursuant to the Registration Rights Agreement; (5) Debt outstanding on the Issue Date (other than Debt described in clause (1), (2), (3) or (4); 55 61 (6) Refinancing Debt in respect of Debt Incurred pursuant to paragraph (a), or pursuant to clause (4) or (5) or this clause (6); (7) Hedging Obligations; provided, however, 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 the Company pursuant to this Indenture; and (8) Debt in an aggregate principal amount which, together with all other Debt of the Company and the Restricted Subsidiaries then outstanding (other than Debt permitted by clauses (1) through (7) of this paragraph) does not exceed $5.0 million. For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (8) above, or is entitled to be Incurred, in whole or in part, pursuant to the first paragraph of this Section 4.09, the Company shall be permitted to classify such item of Debt on the date of its incurrence in any manner that complies with this Section 4.09. (c) Notwithstanding paragraphs (a) and (b), the Company and its Restricted Subsidiaries 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 will be subordinated to the Notes. Section 4.10. Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition, which term does not include a Sale of a Principal Property or a Transfer of the Fibers Business unless: (1) the Company or the 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 noncash consideration), of the shares and assets subject to such Asset Disposition and at least 85% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents; and (2) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be): (A) first, to the extent the Company elects (or is required by the terms of any Senior Debt), to prepay, repay or purchase Senior Debt or Senior Debt (other than any Redeemable Stock) of a Wholly Owned Subsidiary (in each ease other than Debt owed to the Company or an Affiliate of the Company or Holdings) within 180 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), at the Company's election to the investment by the Company, 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 56 62 Disposition or an asset that (as determined by the Board of Directors) will be used in the business of the Company, any Wholly Owned Subsidiary 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; (C) third, to the extent of the balance of such Net Available Cash after application and in accordance with clauses (A) and (B), to make an offer to purchase Notes (and any other Senior Debt of the Company designated by the Company) pursuant to and subject to the conditions contained in this Indenture; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C) to: (x) the acquisition by the Company, any Wholly Owned Subsidiary or the Restricted Subsidiary making such Asset Disposition of Tangible Property, or (y) the prepayment, repayment or purchase of Debt (other than any Redeemable Stock) of the Company or Debt of any Restricted Subsidiary (in either case other than Debt owed to the Company or an Affiliate of the Company), in each case within one year from the later of the receipt of such Net Available Cash and the date the offer described in clause (C) above is consummated; provided, however, that in connection with any prepayment, repayment or purchase of Debt pursuant to clause (A), (C) or (D) above, the Company shall cause 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, the Company 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 $20.0 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 4.10, the following are deemed to be "cash equivalents": (1) the express assumption of Debt of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Debt; and (2) securities received by the Company or any Restricted Subsidiary that are converted by the Company 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. In the event of an Asset Disposition that requires the purchase of the Notes (and other Senior Debt) pursuant to clause (2)(C) above, the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes (and other Senior Debt) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest and Liquidated Damages, if 57 63 any (or, in respect of such other Senior Debt, such lesser price, if any, as may be provided for by the terms of such Senior 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 Debt) tendered pursuant to such offer is less than the Net Available Cash allotted to the purchase thereof, the Company will be required to apply the remaining Net Available Cash in accordance with clause (2)(D) above. The Company shall not be required to make such an offer to purchase Notes (and other Senior Debt) pursuant to this Section 4.10 if the Net Available Cash available therefor is less than $10.0 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 this Section 4.10) so long, but only so long, as the applicable local law will not permit repatriation to the United States. The Company will 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 as described in this Section 4.10. The Company 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 4.10. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.10, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue of such conflict and compliance. Section 4.11. Limitation on Transactions with Affiliates. The Company 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 the Company (an "Affiliate Transaction") unless: (1) the terms of such Affiliate Transaction are: (A) set forth in writing; and (B) as favorable to the Company 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; (2) 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 (1)(B) above; and 58 64 (3) 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 the Company or its Restricted Subsidiary, as the case may be. The foregoing requirements shall not be applicable to: (1) contracts with Koch Capital Services, Inc. or its affiliates in the ordinary course of business on terms as favorable to the Company 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; (2) any purchase or supply contracts in the ordinary course of business on terms as favorable to the Company 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 clause (2); (3) any Restricted Payment permitted to be paid and any Permitted Investment not prohibited pursuant to Section 4.07; (4) 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; (5) loans or advances to employees in the ordinary course of business, but in any event not to exceed $2.0 million in the aggregate outstanding at any one time; (6) the payment of reasonable and customary fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries; (7) any transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries; and (8) indemnification payments to directors and officers of the Company in accordance with applicable state laws. Section 4.12. Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist or become effective any Lien upon any of its other property or assets, now owned or hereafter acquired, other than Permitted Liens. Section 4.13. Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (1) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted 59 65 Subsidiary and (2) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.14. Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest and Liquidated Damages, if any, due on the relevant interest payment date) (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Notes at a purchase price in cash equal to 101% of the principal amount of Notes repurchased 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 due on the relevant interest payment date); (2) the material circumstances and facts regarding such Change of Control (including, without limitation, information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (3) the repurchase date, which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (4) that any Note not tendered will continue to accrue interest; (5) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (6) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (7) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (8) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder 60 66 of Notes so tendered payment in an amount equal to the purchase price for the Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered by such Holder, if any; provided, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company 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 4.14. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.14, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.14 by virtue of such conflict and compliance. Section 4.15 Sale of Principal Properties. The Company shall not, and shall not permit any Restricted Subsidiary (including each Principal Property Subsidiary) to, directly or indirectly, consummate a sale, lease, transfer or other disposition (or series of related sales, leases, transfers or other dispositions) of any Principal Property or the Capital Stock of any Principal Property Subsidiary or any material part thereof (each, a "Sale of a Principal Property"), except in compliance with the following provisions: (1) Upon the Sale of a Principal Property, the Company must apply an amount equal to any Net Available Cash or Net Cash Proceeds, as applicable, from such transaction remaining after complying with its obligations under the Fixed Assets Revolver to offer to purchase outstanding Notes at a repurchase price equal to the Make Whole Amount, according to the procedures set forth in Section 4.14. "Make Whole Amount" means an amount equal to, as determined by an Independent Investment Banker, the sum of the present values of the remaining scheduled payments of principal of the Notes and the scheduled payment of interest thereon to originally scheduled maturity, discounted to the repurchase date (assuming a 360-day year consisting of twelve 30-day months) at the Special Adjusted Treasury Rate, plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the repurchase date. If the aggregate principal amount of Notes tendered into such offer to repurchase exceeds the amount of any Net Available Cash or Net Cash Proceeds, as applicable, from such transaction remaining after complying with applicable obligations under the Fixed Assets Revolver, the Trustee shall select the Notes to be repurchased on a pro rata basis based upon the principal amount of Notes tendered. (2) With respect to the Texas City Facility, prior to consummating such transaction, the Company must deliver to the Trustee a certificate from a nationally recognized firm of independent accountants that expresses their opinion that the Net Available Cash or Net Cash Proceeds, as applicable, from such transaction will be sufficient at the proposed repurchase date (a) to pay all obligations, including principal, interest, premium, if any, and other charges, under the Fixed Assets Revolver and (b) to purchase all of the Notes at the Make Whole Amount plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the repurchase date. (3) With respect to the Sale of a Principal Property other than the Texas City Facility, prior to consummating such transaction, the Company must either (a) deliver to the Trustee a certificate from a nationally recognized firm of independent accountants that expresses their opinion that the Net Available Cash or Net Cash Proceeds, as applicable, from such proposed transaction, will be sufficient at the proposed repurchase date (1) to pay all obligations, including principal, interest, premium, if any, and 61 67 other charges under the Fixed Assets Revolver and (2) to purchase all of the outstanding Notes at the Make Whole Amount plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the repurchase date; or (b) if such certificate is not delivered: (1) the consideration the Company or its Restricted Subsidiary receives in such Sale of a Principal Property must consist solely of cash; and (2) the Company must deliver an opinion to the Trustee, in form and substance reasonably satisfactory to the Trustee, as to the fairness of the transaction to the Company from a financial point of view issued by an Independent Financial Advisor. (4) The Company or its Restricted Subsidiaries may sell, transfer or dispose of any part of a Principal Property which is worn out or obsolete or no longer used or useful in the business of the Company and its Subsidiaries, provided, such sale, transfer or other disposition is consistent with past practice, and does not significantly reduce the value or usefulness of any Principal Property. (5) With respect to any Sale of a Principal Property, subject to the prior rights, if any, of the lenders under the Fixed Assets Revolver, an amount equal to any Net Available Cash or Net Cash Proceeds, as applicable, from such Sale of a Principal Property shall, concurrently with the closing of such sale, be deposited with the Trustee, who will hold such amount pending its application to satisfy obligations and the purchase of the Notes. To the extent that funds remain after repayment of all obligations in connection with the Fixed Assets Revolver and the purchase of the Notes, such excess amounts and any interest thereon shall be returned to the Company. Pending such application of such amounts or return of excess amounts to the Company, the Trustee shall invest such amounts at the Company's direction in Temporary Cash Investments, provided that the maturity of those investments is prior to the repurchase date of the Notes. Section 4.16 Transfer of the Fibers Business. (a) Notwithstanding anything contained in this Indenture to the contrary, the Company and the Fibers Subsidiaries shall be entitled at any time, in a single transaction or series of related transactions, to make a Transfer of the Fibers Business if each of the following conditions is satisfied: (1) no Default or Event of Default shall have occurred and be continuing; (2) the Transfer of the Fibers Business shall be in the best interests of the Company and the consideration received by the Company and its Restricted Subsidiaries from such Transfer of the Fibers Business shall be at least equal to the fair market value of such transaction, in each case, as determined by written resolution adopted in good faith by the Board of Directors; (3) if less than 85% of the consideration received in a Transfer of the Fibers Business is in the form of cash or cash equivalents, the Company must deliver an opinion to the Trustee, in form and substance reasonably satisfactory to the Trustee, as to the fairness of the transaction to the Company from a financial point of view, issued by an Independent Financial Advisor; (4) in the case of any Joint Venture Contribution, immediately after giving effect to such transaction, the Company will be the beneficial owner of 60% or less of the Equity Interests of the entity to which such Joint Venture Contribution is made; 62 68 (5) in the case of any Sale of the Fibers Business, the transferee in such Transfer of the Fibers Business shall be a Person other than an Affiliate of the Company; (6) the Company (or, if applicable, the Fibers Subsidiaries) shall legally and effectively grant the Trustee a second priority security interest in any noncash proceeds received by the Company (or the Fibers Subsidiaries) in such Transfer of the Fibers Business, including any Equity Interest, as additional security for the repayment of the Notes and deliver an Opinion of Counsel as to the validity of the creation and the perfection of such security interest in form and substance satisfactory to the Trustee; and (7) all Net Available Cash received in such Transfer of the Fibers Business shall be applied as provided in paragraph (b) below. For the purposes of this Section 4.16, the following are deemed to be "cash equivalents": (1) the express assumption of Debt of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Debt; and (2) securities received by the Company or any Restricted Subsidiary that are converted by the Company or such Restricted Subsidiary into cash within 90 days of the receipt of such securities. (b) Upon the receipt by the Company or any of its Subsidiaries of any Net Available Cash or Net Cash Proceeds, as applicable, in connection with a Transfer of the Fibers Business, the Company shall apply or cause to be applied 100% of such Net Available Cash or Net Cash Proceeds: (i) first, to the extent that the Company elects, to prepay or repay Debt under the Fixed Assets Revolver within 180 days after the later of the consummation of the Transfer of the Fibers Business or the receipt of such Net Available Cash or Net Cash Proceeds; provided, however, that the Company causes the related loan commitment, if any, to be permanently reduced in an amount equal to the principal amount so prepaid or repaid; (ii) second, to the extent that the Company elects, to the investment by the Company or any Restricted Subsidiary in Tangible Property that (as determined by the Board of Directors of the Company) will be used or useful in the business of the Company or any of its Restricted Subsidiaries as conducted on the Issue Date or in a business reasonably related thereto, in each case, within one year from the later of the consummation of such Transfer of the Fibers Business or the receipt of such Net Available Cash or Net Cash Proceeds; provided, however, that the Company or such Restricted Subsidiary legally and effectively grants the Trustee a second priority security interest in such assets (or the Trustee otherwise has a second priority security interest in such assets) as additional security for the repayment of the Notes and delivers to the Trustee an Opinion of Counsel as to the validity of the creation and perfection of such security interest in form and substance reasonably satisfactory to the Trustee; and (iii) third, to the extent that at least $10.0 million in Net Available Cash or Net Cash Proceeds remains after giving effect to clauses (i) and (ii) above, to offer to purchase the Notes at a purchase price equal to 100% of the principal amount thereof (without premium), plus accrued and unpaid interest, according to the procedures set forth in Section 4.14 hereof. 63 69 To the extent that any Net Available Cash or Net Cash Proceeds remains after giving effect to clauses (i), (ii) and (iii) above, such Net Available Cash or Net Cash Proceeds shall cease to be subject to this Section 4.16 and the Company shall be entitled to retain such Net Available Cash or Net Cash Proceeds and use it for general corporate purposes. (c) Upon any Transfer of the Fibers Business, (i) any security interest in the assets of the Fibers Subsidiaries securing the repayment of the Notes or the performance of the Company under this Indenture shall automatically cease and terminate and (ii) if more than 50% of the Capital Stock of the Fibers Subsidiaries is transferred by the Company in connection with such Transfer of the Fibers Business, any security interest in such Capital Stock and the Subsidiary Guarantees made by the Fibers Subsidiaries shall immediately cease and terminate. Upon the receipt of written notice from the Company of a proposed Transfer of the Fibers Business, the Trustee shall be authorized and directed to execute and deliver to the Company, concurrently with the closing of such Transfer of the Fibers Business, at the Company's expense, such documents as the Company shall reasonably request to evidence such release of liens and, if applicable, the termination of the Subsidiary Guarantees made by the Fibers Subsidiaries. (d) Unless a Default or an Event of Default shall have occurred and be continuing, the Company (or, if applicable, the Fibers Subsidiaries) shall be entitled to (i) receive cash interest payments on any deferred payment of principal under any promissory note, installment receivable or other arrangement received in connection with any Transfer of the Fibers Business and use such payments for general corporate purposes, (ii) receive and use all distributions in respect of any Equity Interest for general corporate purposes, (iii) vote any Equity Interest and (iv) give consents, approvals, waivers and ratifications in respect of any Equity Interest; provided, however, that (A) the Company shall legally and effectively grant the Trustee a second priority security interest in any distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Equity Interest as additional security for the Notes and deliver to the Trustee an Opinion of Counsel as to the validity of the creation and perfection of such security interest in form and substance satisfactory to the Trustee, (B) no vote shall be cast or consent, approval, waiver or ratification given or action taken which would have a material adverse effect on the value of any Equity Interest or be inconsistent with or violate the provisions of this Indenture and (C) the Company shall apply the proceeds of any distribution received as a Return of Capital as provided in paragraph (b) above. (e) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Securities Act of 1934, as amended, and any other securities laws or regulations in connection with the repurchase of any Notes pursuant to this Section 4.16. To the extent that the provisions of any securities laws or regulations conflict with any of the provisions of this Section 4.16, the Company shall comply with all applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.16 by virtue of such conflict and compliance. Section 4.17 Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company 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: (1) to the Company or a Wholly Owned Subsidiary; 64 70 (2) in connection with a Transfer of the Fibers Business; (3) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary remains a Restricted Subsidiary; or (4) 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 (4), the Company 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, the Company or any such Restricted Subsidiary shall comply with the provisions of Section 4.10 or 4.14, as applicable. Section 4.18 No Amendment of Subordination Provisions. Without the consent of each Holder of the Notes outstanding, the Company will not amend, modify or alter the indentures relating to the Existing Subordinated Notes in any way that will (i) increase the rate of or change the time for payment of interest on any of the Existing Subordinated Notes, (ii) increase the principal of, advance the final maturity date of or shorten the Average Life of any of the Existing Subordinated Notes, (iii) alter the redemption provisions or the price or terms at which the Company is required to offer to purchase any of the Existing Subordinated Notes in any manner adverse to the Holders or (iv) amend the provisions of the indentures relating to the Existing Subordinated Notes which relate to subordination in any manner adverse to the Holders. Section 4.19 Additional Note Guarantees. If the Company or any of its Restricted Subsidiaries shall acquire or create another Subsidiary after the date of this Indenture, or designate an Unrestricted Subsidiary as a Restricted Subsidiary, then such newly acquired or created or designated Subsidiary shall execute a supplemental indenture pursuant to which such Subsidiary shall become a party to and be bound by the terms of this Indenture, including Article 11 hereof, and deliver an Opinion of Counsel, in accordance with the terms of this Indenture, provided, however, that no such acquired or created Subsidiary (i) that is organized outside of the United States and its territories or (ii) is an Unrestricted Subsidiary that has properly been designated as such in accordance with this Indenture shall be required to execute any such supplemental indenture. ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation or Sale of Assets. The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of related transactions, all or substantially all its assets to, any Person unless: (1) the resulting, surviving or transferee Person (the "Successor Company") is a Person organized and existing under the laws of the United States or any State thereof or the District of Columbia and the Successor Company (if not the Company) expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under this Indenture and the Notes; 65 71 (2) immediately after giving effect to such transaction (and treating any Debt which becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been Incurred by such Person at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction the Successor Company would be able to Incur an additional $1.00 of Debt pursuant to paragraph (a) of Section 4.09; (4) immediately after giving effect to such transaction, the Successor Company has Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction minus any costs incurred in connection with the transaction; and (5) the Company delivers 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 this Indenture. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, lease, conveyance or other disposition the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Person shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" means: (1) a default in any payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; (2) a default 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; (3) the failure by the Company to comply with its obligations pursuant to Section 5.01 hereof; 66 72 (4) the failure by the Company to observe or perform any of its obligations under Sections 4.10, 4.14 or 4.15 (in each case, other than a failure to purchase Notes), or under Sections 4.03, 4.07, 4.08, 4.09 or 4.11, of this Indenture for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (5) the failure by the Company to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (6) 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 the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries) whether such Debt or Guarantee now exists, or is created after the date hereof, which default: (a) 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 (b) 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 $10.0 million or more; (7) 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 $10.0 million is rendered against the Company or any 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; (8) The Company or any of its Significant Subsidiaries, pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 67 73 (i) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case; (ii) appoints a custodian of the Company or any of its Significant Subsidiaries for all or substantially all of the property of the Company or any of its Significant Subsidiaries; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (8) or (9) of Section 6.01 hereof with respect to the Company, or any of its Significant Subsidiary occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the principal of and accrued but unpaid interest on the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable. If an Event of Default specified in clause (8) or (9) of Section 6.01 hereof occurs with respect to the Company any of its Significant Subsidiaries, the principal of and accrued but unpaid interest on all the Notes shall ipso facto become and be immediately due and payable immediately 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 6.03. 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 or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). 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 68 74 Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes 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 it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or if, subject to Section 7.01, the Trustee reasonably determines that such action, if taken, would be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (1) such Holder has previously given the Trustee notice that an Event of Default is continuing; (2) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy; (3) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and (5) Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. A Holder of a Note may 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. Section 6.07. Rights 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 the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), 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 such Holder; provided that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien granted under the Security Agreements upon any property subject to such Lien. 69 75 Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to 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 (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, 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 the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, 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 and Liquidated Damages, if any, and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. 70 76 The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. 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 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default 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 its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (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 no implied covenants or obligations shall be read into this Indenture against the Trustee; 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 may not be relieved from liabilities for its own negligent action, its own negligent failure to act, its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (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 it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. 71 77 (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02. Rights of Trustee. (a) The Trustee may conclusively 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 the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it reasonably believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. Section 7.03. 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 the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as Trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. 72 78 Section 7.04. 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 the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of 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 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the Commission and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a Trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or willful misconduct. The Trustee shall notify the Company promptly of any claim for 73 79 which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder except, solely as it pertains to such claim, to the extent that the Company may be materially prejudiced by such failure. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(8) or (9) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. Section 7.08 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. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company in writing. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee 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 Company 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 the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the 74 80 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 who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has, or is a direct or indirect subsidiary Wholly-Owned Subsidiary of a bank holding company that has, a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. 75 81 Section 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Debt represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the provisions of Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17 and 4.18 hereof and clause (3) and (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such Sections, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(7) hereof or Sections 6.01(8) or 6.01(9) (with respect only to Significant Subsidiary) shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: 76 82 (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Debt all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(8) or 6.01(9) hereof is concerned and pertains to the Company, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 77 83 Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or U.S. Government Obligations held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as Trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, 78 84 premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Subsidiary Guarantors and the Trustee (or the Collateral Agent or other representative of the Holders under any Security Agreement) may amend or supplement this Indenture, the Notes (including any notation or endorsement thereon) or any of the Security Agreements without the consent of any Holder of a Note: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (3) to provide for the assumption of the Company's or a Subsidiary Guarantor's obligations to the Holders of the Notes by a successor to the Company or a Subsidiary Guarantor pursuant to Article 5 or Article 11 hereof; (4) to add to the covenants of the Company and its Subsidiaries hereunder for the benefit of the Holders of the Notes or to surrender any right or power conferred upon the Company; (5) 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 legal rights hereunder of any Holder of the Note; (6) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or (7) to allow any Subsidiary Guarantor to execute a supplemental indenture with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture or Security Agreement, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company and the Subsidiary Guarantors in the execution of any amended or supplemental indenture or Security Agreement authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental indenture or Security Agreement that affects its own rights, duties or immunities under this Indenture or otherwise. 79 85 Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company, the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10, 4.14, 4.15 and 4.16 hereof), the Notes or any of the Security Agreements with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Notes, any Security Agreement or the Subsidiary Guarantees may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture or Security Agreement, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental indenture or Security Agreement unless such amended or supplemental indenture directly 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 or Security Agreement. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section or Section 9.01 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or Security Agreement or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture, the Notes or any of the Security Agreements. However, without the consent of each Holder affected, an amendment, supplement or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the rate of or extend the time for payment of interest, including default interest, on any Note; (c) reduce the principal of or extend the Stated Maturity of any Note; 80 86 (d) alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10, 4.14, 4.15 and 4.16 hereof; (e) make any Note payable in money other than that stated in the Notes; (f) impair the right of any Holder of the Notes 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; (g) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (h) make any change in Section 6.04 or 6.07 hereof or in this sentence; (i) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture; or (j) deprive any of the Holders of the benefit of the Liens created by the Security Agreements except in accordance with the terms of the Security Agreements. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing 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 notation of the consent 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 becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. 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 about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. 81 87 Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental indenture or Security Agreement authorized pursuant to this Article 9 if the amendment, supplement or Security Agreement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental indenture or Security Agreement unless the Board of Directors authorizes it. In executing any amended or supplemental indenture or Security Agreement, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture or Security Agreement is authorized or permitted by this Indenture. ARTICLE 10 COLLATERAL AND SECURITY Section 10.01. Security Agreements. The due and punctual payment of the principal of and interest and Liquidated Damages, if any, on the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest and Liquidated Damages (to the extent permitted by law), if any, on the Notes and performance of all other obligations of the Company to the Holders of Notes or the Trustee under this Indenture and the Notes, according to the terms hereunder or thereunder, shall be secured as provided in the Security Agreements which the Company and certain of its Restricted Subsidiaries have entered into simultaneously with the execution of this Indenture. Each Holder of Notes, by its acceptance thereof, consents and agrees to the terms of the Security Agreements (including, without limitation, the provisions providing for foreclosure and release of Pledged Collateral) as the same may be in effect or may be amended from time to time in accordance with its terms and authorizes and directs the Collateral Agent to enter into the Security Agreements and to perform its obligations and exercise its rights thereunder in accordance therewith. The Company shall deliver to the Trustee copies of all documents delivered to the Collateral Agent pursuant to the Security Agreements, and shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Security Agreements, to assure and confirm to the Trustee and the Collateral Agent the security interest in the Pledged Collateral contemplated hereby, by the Security Agreements or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes secured hereby, according to the intent and purposes herein expressed. The Company shall take, or shall cause its Restricted Subsidiaries to take, upon request of the Trustee, any and all actions reasonably required to cause the Security Agreements to create and maintain, as security for the Obligations of the Company hereunder, a valid and enforceable perfected first priority Lien or second priority Lien, as the case may be, in and on all the Pledged Collateral, in favor of the Collateral Agent for the benefit of the Holders of Notes, superior to and prior to the rights of all third Persons and subject to no other Liens other than Permitted Liens. Section 10.02. Recording and Opinions. (a) The Company shall furnish to the Trustee simultaneously with the execution and delivery of this Indenture a letter stating that it is entitled to rely on an Opinion of Counsel stating that in the opinion of such counsel all action has been taken with respect to the delivery of all financing statements 82 88 or other instruments necessary to make effective the Liens intended to be created by the Security Agreements. (b) The Company shall furnish to the Collateral Agent and the Trustee on July 15 in each year beginning with July 15, 2000 a Opinion of Counsel, dated as of such date, either (i) (A) stating that, in the opinion of such counsel, action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of the Security Agreements and reciting with respect to the security interests in the Pledged Collateral the details of such action or referring to prior Opinions of Counsel in which such details are given, (B) stating that, based on relevant laws as in effect on the date of such Opinion of Counsel, all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding 12 months fully to preserve and protect, to the extent such protection and preservation are possible by filing, the rights of the Holders of Notes and the Collateral Agent and the Trustee hereunder and under the Security Agreements with respect to the security interests in the Pledged Collateral, or (ii) stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien and assignment. (c) The Company shall otherwise comply with the provisions of TIA Section 314(b). Section 10.03. Release of Collateral. (a) Subject to subsections (b), (c) and (d) of this Section 10.02, Pledged Collateral may be released from the Lien and security interest created by the Security Agreements at any time or from time to time in accordance with the provisions of the Security Agreements or as provided hereby. In addition, upon the request of the Company pursuant to an Officers' Certificate certifying that all conditions precedent hereunder have been met and stating whether or not such release is in connection with an Asset Disposition, a Sale of a Principal Property or a Transfer of the Fibers Business, (at the sole cost and expense of the Company) the Collateral Agent shall release (i) Pledged Collateral that is sold, conveyed or disposed of in compliance with the provisions of this Indenture; provided, that if such sale, conveyance or disposition constitutes an Asset Disposition, a Sale of a Principal Property or a Transfer of the Fibers Business, the Company shall comply with Section 4.10, Section 4.15 or Section 4.16, as applicable. Upon receipt of such Officers' Certificate the Collateral Agent shall execute, deliver or acknowledge any necessary or proper instruments of termination, satisfaction or release to evidence the release of any Pledged Collateral permitted to be released pursuant to this Indenture or the Security Agreements. (b) No Pledged Collateral shall be released from the Lien and security interest created by the Security Agreements pursuant to the provisions of the Security Agreements unless there shall have been delivered to the Collateral Agent the certificate required by this Section 10.02. (c) No release of Pledged Collateral pursuant to the provisions of the Security Agreements shall be effective as against the Holders of Notes if such release shall have been given at any time when a Default or Event of Default shall have occurred and be continuing and the maturity of the Notes shall have been accelerated (whether by declaration or otherwise) and the Trustee shall have delivered a notice of acceleration to the Collateral Agent. (d) The release of any Pledged Collateral from the terms of this Indenture and the Security Agreements shall not be deemed to impair the security under this Indenture in contravention of the 83 89 provisions hereof if and to the extent the Pledged Collateral is released pursuant to the terms of the Security Agreements. To the extent applicable, the Company shall cause TIA Section 313(b), relating to reports, and TIA Section 314(d), relating to the release of property or securities from the Lien and security interest of the Security Agreements and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Security Agreements, to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person shall be an independent engineer, appraiser or other expert selected or approved by the Trustee and the Collateral Agent in the exercise of reasonable care. Section 10.04. Certificates of the Company. The Company shall furnish to the Trustee and the Collateral Agent, prior to each proposed release of Pledged Collateral pursuant to the Security Agreements, (i) all documents required by TIA Section 314(d) and (ii) an Opinion of Counsel, which may be rendered by internal counsel to the Company, to the effect that such accompanying documents constitute all documents required by TIA Section 314(d). The Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof, accept as conclusive evidence of compliance with the foregoing provisions the appropriate statements contained in such documents and such Opinion of Counsel. Section 10.05. Certificates of the Trustee. In the event that the Company wishes to obtain a release of any Pledged Collateral in accordance with the Security Agreements and has delivered the certificates and documents required by the Security Agreements and Sections 10.02 and 10.03 hereof, the Trustee shall determine whether it has received all documentation required by TIA Section 314(d) in connection with such release and, based on such determination and the Opinion of Counsel delivered pursuant to Section 10.03(b), shall deliver a certificate to the Collateral Agent setting forth such determination. Section 10.06 Attornment. To the extent expressly required under the leases in existence on the Issue Date, the Trustee, on behalf of the Holders of the Notes, hereby acknowledges and agrees that the Liens granted pursuant to the Security Agreements are subject to the rights of certain lessees under such leases (and expressly required thereunder) and will be subject to the rights of lessees under any leases entered into by the Company or any Subsidiary Guarantor after the date hereof which are permitted pursuant to this Indenture (collectively, the "Leases") subject to the express rights contained in the applicable lease. The rights of the tenants under the leases to the leased premises shall not be unreasonably affected by the exercise by the Trustee (or the Collateral Agent or other representative of the Holders under any Security Agreement) of any of their rights under this Indenture or any of the Security Agreements, nor shall any such tenant be in any other way deprived of its rights under the applicable lease except in accordance with the terms of such lease. In the event that the Trustee (or any Collateral Agent or other representative of the Holders under any Security Agreement) succeeds to the interest of the Company or any Subsidiary Guarantor under a Lease, such lease shall not be terminated or affected thereby except as set forth herein or therein, and any sale of the applicable leased premises by the Trustee (or the Collateral Agent or other representative of the Holders under any Security Agreement) under or pursuant to the judgment of any court in an action to enforce the remedies provided for in the Indenture or any of the Security Agreements shall be made subject to such lease and the rights of such tenant expressly set forth thereunder. If the Trustee (or the Collateral Agent or other representative of the Holders under any 84 90 Security Agreement) succeeds to the interests of the Company or Subsidiary Guarantor in and to the applicable leased premises or under such lease or enters into possession of such leased premises, the Trustee or such Collateral Agent or other representative and such tenants shall be bound to each other under all of the express terms, covenants and conditions of such lease, as if the Trustee or such Collateral Agent or other representative was originally the Company or such Subsidiary Guarantor as lessor thereunder. Section 10.07. Authorization of Actions to Be Taken by the Trustee Under the Security Agreements. Subject to the provisions of Section 7.01 and 7.02 hereof, the Trustee may, in its sole discretion and without the consent of the Holders of Notes, direct, on behalf of the Holders of Notes, the Collateral Agent to take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Security Agreements and (b) collect and receive any and all amounts payable in respect of the Obligations of the Company hereunder. The Trustee shall have power to institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Pledged Collateral by any acts that may be unlawful or in violation of the Security Agreements or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders of Notes in the Pledged Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders of Notes or of the Trustee). Section 10.08 Authorization of Receipt of Funds by the Trustee Under the Security Agreements. The Trustee is authorized to receive any funds for the benefit of the Holders of Notes distributed under the Security Agreements, and to make further distributions of such funds to the Holders of Notes according to the provisions of this Indenture. Section 10.09. Termination of Security Interest. Upon the payment in full of all Obligations of the Company under this Indenture and the Notes, or upon Legal Defeasance, the Trustee shall, at the request of the Company, deliver a certificate to the Collateral Agent stating that such Obligations have been paid in full, and instruct the Collateral Agent to release the Liens pursuant to this Indenture and the Security Agreements. ARTICLE 11 SUBSIDIARY GUARANTEES Section 11.01. Subsidiary Guarantees. Subject to this Article 11, each of the Subsidiary Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder 85 91 will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. Each Subsidiary Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Subsidiary Guarantors hereby agree that their obligations hereunder shall be, to the extent permitted by law, unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. To the extent permitted by law, each Subsidiary Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Subsidiary Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of this Subsidiary Guarantee. The Subsidiary Guarantors shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee. Section 11.02. Limitation on Subsidiary Guarantor Liability. Each Subsidiary Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Subsidiary Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Subsidiary Guarantors hereby irrevocably agree that the obligations of such Subsidiary Guarantor will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such 86 92 Subsidiary Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under this Article 11, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. Section 11.03. Execution and Delivery of Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in Section 11.01, each Subsidiary Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form included in Exhibit E shall be endorsed by an Officer of such Subsidiary Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Subsidiary Guarantor by its President or one of its Vice Presidents. Each Subsidiary Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantors. In the event that the Company creates or acquires any new U.S. Subsidiaries subsequent to the date of this Indenture, if required by Section 4.19 hereof, the Company shall cause such U.S. Subsidiaries to execute supplemental indentures to this Indenture and the notation on the Note substantially in the form of Exhibit E to this Indenture in accordance with Section 4.19 hereof and this Article 11, to the extent applicable. Section 11.04. Subsidiary Guarantors May Consolidate, etc., on Certain Terms. Except as otherwise provided in Section 11.05, no Subsidiary Guarantor may sell or otherwise dispose of substantially all of its assets to, or consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person) another Person, other than the Company or another Subsidiary Guarantor, unless immediately after giving effect to such transaction, no Default or Event of Default exists and either: (a) subject to Section 11.05 hereof, the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Subsidiary Guarantor under this Indenture, its Subsidiary Guarantee and the Registration Rights Agreement pursuant to a supplemental indenture and appropriate collateral documents satisfactory to the Trustee; or (b) if applicable, the Net Available Cash from such sale or other disposition is applied in accordance with Section 4.10 hereof; or 87 93 (c) if applicable, that transaction is made in accordance with the terms of Section 4.15 hereof; or (d) if applicable, that transaction is made in accordance with the terms of Section 4.16 hereof. In case of any such consolidation, merger, sale or conveyance (other than pursuant to Section 4.15 or Section 4.16) and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Subsidiary Guarantor, such successor Person shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor, or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor. Section 11.05. Releases Following Sale of Assets. The Subsidiary Guarantee of a Subsidiary Guarantor will be released: (1) with respect to any Subsidiary Guarantor other than a Principal Property Subsidiary or a Fibers Subsidiary, in connection with any sale or other disposition of all or substantially all of the assets of that Subsidiary Guarantor (including by way of merger or consolidation) or any sale or other disposition of all of the Capital Stock of that Subsidiary Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary Guarantor or the Company, provided, that the Company must apply the Net Available Cash or the Net Cash Proceeds, as applicable, from such sale or other disposition in accordance with the provisions of Section 4.10 hereof; (2) with respect to any Principal Property Subsidiary, in connection with the sale or other disposition of any Principal Property owned by such Principal Property Subsidiary, or a sale or other disposition of the Capital Stock of such Principal Property Subsidiary, provided, that the Company must apply the Net Available Cash or the Net Cash Proceeds, as applicable, from such sale or other disposition in accordance with the terms of Section 4.15 hereof; (3) with respect to the Fibers Subsidiaries, upon the consummation of a Transfer of the Fibers Business made in accordance with the terms of Section 4.16 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Subsidiary Guarantor from its obligations under its Subsidiary Guarantee. 88 94 Any Subsidiary Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Subsidiary Guarantor under this Indenture as provided in this Article 11. ARTICLE 12 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), the imposed duties shall control. Section 12.02. Notices. Any notice or communication by the Company, any Subsidiary Guarantor or the Trustee to the others 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 others' address: If to the Company and/or any Subsidiary Guarantor: Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 Houston, TX 77002 Telecopier No.: (713) 654-9551 Attention: General Counsel With a copy to: Andrews & Kurth, L.L.P. 600 Travis, Suite 4200 Houston, TX 77002-3090 Telecopier No.: (713) 220-4285 Attention: William Finnegan, Esq. If to the Trustee: Harris Trust Company of New York Wall Street Plaza, 19th Floor 88 Pine Street New York, NY 10005 Telecopier No.: (212) 701-7664 Attention: Peter Morse The Company, any Subsidiary Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. 89 95 All notices and communications (other than those sent to Holders) 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 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 register kept by the Registrar. 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 or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee, each Agent at the same time. Section 12.03. Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, any 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 the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent 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 provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; 90 96 (b) a brief 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; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, 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. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company or such Subsidiary Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or the Security Agreements or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 12.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES, THE SUBSIDIARY GUARANTEES AND THE SECURITY AGREEMENTS WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 12.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. All agreements of each Subsidiary Guarantor in this Indenture shall bind its successors, except as otherwise provided in Section 11.05. Section 12.11. Severability. In case any provision in this Indenture or in 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. 91 97 Section 12.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent 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 of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 92 98 SIGNATURES STERLING CHEMICALS, INC. By: ------------------------------------- Name: Title: STERLING CHEMICALS ENERGY, INC. By: ------------------------------------- Name: Title: STERLING CHEMICALS INTERNATIONAL, INC. By: ------------------------------------- Name: Title: STERLING PULP CHEMICALS, INC. By: ------------------------------------- Name: Title: STERLING PULP CHEMICALS US, INC. By: ------------------------------------- Name: Title: 93 99 STERLING FIBERS, INC. By: ------------------------------------- Name: Title: STERLING CANADA, INC. By: ------------------------------------- Name: Title: HARRIS TRUST COMPANY OF NEW YORK By: ------------------------------------- Name: Title: 94 100 EXHIBIT A FORM OF NOTE A-1 101 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Sterling Chemicals 1200 Smith Street, Suite 1900 Houston, TX 77002 Harris Trust Company of New York Wall Street Plaza, 19th Floor 88 Pine Street New York, NY 10005 Re: __% Senior Secured Notes due 2006 Reference is hereby made to the Indenture, dated as of July __, 1999 (the "Indenture"), between Sterling Chemicals, Inc., as issuer (the "Company"), the Subsidiary Guarantors listed on Schedule I thereto and Harris Trust Company of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the B-1 102 transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private B-2 103 Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. -------------------------------------------- [Insert Name of Transferor] By: ----------------------------------------- Name: Title: Dated: ----------- B-3 104 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP 858903AF4), or (ii) [ ] Regulation S Global Note (CUSIP U85908AA6), or (iii) [ ] IAI Global Note (CUSIP 858903AG2); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP 858903AF4), or (ii) [ ] Regulation S Global Note (CUSIP U85908AA6), or (iii) [ ] IAI Global Note (CUSIP 858903AG2); or (iv) [ ] Unrestricted Global Note (CUSIP 858903AH0); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 105 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Sterling Chemicals 1200 Smith Street, Suite 1900 Houston, TX 77002 Harris Trust Company of New York Wall Street Plaza, 19th Floor 88 Pine Street New York, NY 10005 Re: __% Senior Secured Notes due 2006 (CUSIP ____________) Reference is hereby made to the Indenture, dated as of July __, 1999 (the "Indenture"), between Sterling Chemicals, Inc., as issuer (the "Company"), the Subsidiary Guarantors listed on Schedule I thereto and Harris Trust Company of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. C-1 106 (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. -------------------------------------------- [Insert Name of Transferor] By: ----------------------------------------- Name: Title: Dated: ----------- C-2 107 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Sterling Chemicals 1200 Smith Street, Suite 1900 Houston, TX 77002 Harris Trust Company of New York Wall Street Plaza, 19th Floor 88 Pine Street New York, NY 10005 Re: __% Senior Secured Notes due 2006 Reference is hereby made to the Indenture, dated as of July __, 1999 (the "Indenture"), between Sterling Chemicals, Inc., as issuer (the "Company"), the Subsidiary Guarantors listed on Schedule I thereto and Harris Trust Company of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and [, if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000,] an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a D-1 108 transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. -------------------------------------------- [Insert Name of Accredited Investor] By: ----------------------------------------- Name: Title: Dated: ----------- D-2 109 EXHIBIT E FORM OF NOTATION OF GUARANTEE For value received, each Subsidiary Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of July 23, 1999 (the "Indenture") among Sterling Chemicals, Inc., the Subsidiary Guarantors listed on Schedule I thereto and Harris Trust Company of New York, as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium, if any, and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Subsidiary Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Debt evidenced by this Subsidiary Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture. [NAME OF SUBSIDIARY GUARANTOR] By: ----------------------------------------- Name: Title: E-1 110 EXHIBIT F SCHEDULE I SCHEDULE OF GUARANTORS The following schedule lists each Subsidiary Guarantor under the Indenture as of the Issue Date: Sterling Canada, Inc. Sterling Chemicals Energy, Inc. Sterling Chemicals International, Inc. Sterling Fibers, Inc. Sterling Pulp Chemicals, Inc. Sterling Pulp Chemicals US, Inc. F-1 EX-4.10 11 SECOND DEED OF TRUST, ASSIGNMENT OF LEASES 1 EXHIBIT 4.10 ================================================================================ STERLING CHEMICALS, INC., Trustor, to John Dorris, an Individual Trustee for the benefit of HARRIS TRUST COMPANY OF NEW YORK, Beneficiary ----------------------------------------------------- SECOND DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING ----------------------------------------------------- Dated as of July 23, 1999 This instrument affects certain real and personal property located in Galveston County, State of Texas. ================================================================================ Record and return to: Latham & Watkins 885 Third Avenue New York, New York 10022 Attention: Wylie S. Allen, Esq. This instrument was prepared by the above-named attorney. 2 TABLE OF CONTENTS Page ARTICLE I COVENANTS AND AGREEMENTS OF THE TRUSTOR Section 1.1. Payment of Obligations......................................................................4 Section 1.2. Title to Trust Premises, etc................................................................5 Section 1.3. Title Insurance.............................................................................5 Section 1.4. Recordation.................................................................................6 Section 1.5. Payment of Impositions, etc.................................................................6 Section 1.6. Insurance and Legal Requirements............................................................6 Section 1.7. Security Interests, etc.....................................................................7 Section 1.8. Permitted Contests..........................................................................7 Section 1.9. Leases......................................................................................8 Section 1.10. Compliance with Instruments.................................................................8 Section 1.11. Maintenance and Repair, etc.................................................................8 Section 1.12. Alterations, Additions, etc.................................................................8 Section 1.13. Acquired Property Subject to Lien...........................................................9 Section 1.14. Assignment of Rents, Proceeds, etc..........................................................9 Section 1.15. No Claims Against the Trustee or the Beneficiary...........................................10 Section 1.16. Indemnification............................................................................10 Section 1.17. No Credit for Payment of Taxes.............................................................11 Section 1.18. Intentionally Omitted......................................................................11 Section 1.19. No Transfer of the Property................................................................12 Section 1.20. Security Agreement.........................................................................12 Section 1.21. Representations and Warranties.............................................................13 Section 1.22. Trustor's Covenants........................................................................13 Section 1.23. Attornment.................................................................................13 ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR taking, ETC. Section 2.1. Insurance..................................................................................13 Section 2.2. Damage, Destruction or Taking; Trustor to Give Notice; Assignment of Awards................15 Section 2.3. Application of Proceeds and Awards.........................................................16 Section 2.4. Total Taking and Total Destruction.........................................................17 ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. Section 3.1. Events of Default; Acceleration............................................................18
i 3 Section 3.2. Legal Proceedings; Judicial Foreclosure....................................................18 Section 3.3. Power of Sale..............................................................................18 Section 3.4. Uniform Commercial Code Remedies...........................................................20 Section 3.5. Beneficiary Authorized to Execute Deeds, etc...............................................20 Section 3.6. Purchase of Trust Premises by Beneficiary..................................................20 Section 3.7. Receipt a Sufficient Discharge to Purchaser................................................21 Section 3.8. Waiver of Appraisement, Valuation, etc.....................................................21 Section 3.9. Sale a Bar Against Trustor.................................................................21 Section 3.10. Obligations to Become Due on Sale..........................................................21 Section 3.11. Application of Proceeds of Sale and Other Moneys...........................................21 Section 3.12. Appointment of Receiver....................................................................22 Section 3.13. Possession, Management and Income..........................................................22 Section 3.14. Right of Beneficiary to Perform Trustor's Covenants, etc...................................22 Section 3.15. Subrogation................................................................................23 Section 3.16. Remedies, etc., Cumulative.................................................................23 Section 3.17. Provisions Subject to Applicable Law.......................................................23 Section 3.18. No Waiver, etc.............................................................................23 Section 3.19. Compromise of Actions, etc.................................................................24 ARTICLE IV DEFINITIONS Section 4.1. Terms Defined in this Deed of Trust........................................................24 Section 4.2. Use of Defined Terms.......................................................................25 Section 4.3. Indenture Definitions......................................................................26 ARTICLE V MISCELLANEOUS Section 5.1. Further Assurances; Financing Statements...................................................26 Section 5.2. Additional Security........................................................................26 Section 5.3. Defeasance; Partial Release, etc...........................................................27 Section 5.4. Notices, etc...............................................................................27 Section 5.5. Waivers, Amendments, etc...................................................................27 Section 5.6. Cross-References...........................................................................27 Section 5.7. Headings...................................................................................27 Section 5.8. Currency...................................................................................27 Section 5.9. Governing Law..............................................................................28 Section 5.10. Successors and Assigns, etc................................................................28 Section 5.11. Concerning the Trustee.....................................................................28 Section 5.12. Waiver of Jury Trial; Submission to Jurisdiction...........................................30 Section 5.13. Severability; Conflicts....................................................................31 Section 5.14. Security Agreement.........................................................................31 Section 5.15. Usury Savings Clause.......................................................................31 Section 5.16. Entire Agreement...........................................................................32
ii 4 Section 5.17. Subordination to First Deed of Trust.......................................................32
Exhibit A Legal Description of the Land Exhibit B Permitted Encumbrances iii 5 SECOND DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING SECOND DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING, dated as of July 23, 1999 (this "Deed of Trust"), made from STERLING CHEMICALS, INC., a Delaware corporation (the "Trustor"), having an address at 1200 Smith, Suite 1900, Houston, Texas 77002-4312, to John Dorris, a resident of Harris County, as trustee, having an address c/o First American Title Insurance Company of Texas, as trustee (the "Trustee"), for the benefit of HARRIS TRUST COMPANY OF NEW YORK, a New York corporation, as collateral agent and indenture trustee for the benefit of itself and certain other holders (collectively, the "Holders") of the 12 3/8% Senior Secured Notes due 2006, having an address at Wall Street Plaza, 19th Floor, 88 Pine Street, New York, New York 10005, as Beneficiary (together with its successors and assigns from time to time, the "Beneficiary"). W I T N E S S E T H T H A T: WHEREAS, the Trustor is on the date of delivery hereof the owner of fee title (or easement or leasehold title if otherwise indicated on Exhibit A hereto) to the parcels of land described in Exhibit A hereto (the "Land") and of the Improvements (hereinafter defined); WHEREAS, the Beneficiary, as collateral agent and indenture trustee, and Trustor, as issuer ("Issuer") have entered into that certain Indenture, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Issuer issued $295 million in the aggregate principal amount of 12 3/8% Senior Secured Notes due 2006 (the "Senior Secured Notes"); and WHEREAS, Trustor has granted a first priority deed of trust (the "First Deed of Trust") encumbering the Property pursuant to the terms of that certain Revolving Credit Agreement (the "Credit Agreement"), by and among Trustor, Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International, Inc., as Borrowers (collectively, "Borrowers"), various financial institutions, as lenders ("Lenders"), DLJ Capital Funding, Inc., as syndication agent ("Syndication Agent"), The CIT Group/Business Credit, Inc., as the administrative agent and collateral agent (the "Administrative Agent"), and Credit Suisse First Boston, as the documentation agent; and WHEREAS, pursuant to the terms of the Credit Agreement, the Lenders (as defined in the Credit Agreement) have agreed to make loans (the "Senior Loan") to the Borrowers in the maximum original principal amount of Seventy Million Dollars ($70,000,000), the payment of which is secured by, inter alia, the First Deed of Trust encumbering the Trust Premises; and WHEREAS, during the pendency of the Senior Loan and any refinancing thereof, to the extent such refinancing is permitted under the Indenture, this Deed of Trust shall be subordinate and inferior to the First Deed of Trust; WHEREAS, the Trustor has duly authorized the execution, delivery and performance of this Deed of Trust. 1 6 GRANT: NOW, THEREFORE, for and in consideration of the premises, and of the mutual covenants herein contained, and in order to secure the full, timely and proper payment and performance of and compliance with each and every one of the Obligations (as hereinafter defined), the Trustor hereby irrevocably grants, bargains, sells, mortgages, warrants, aliens, demises, releases, hypothecates, pledges, assigns, transfers and conveys to the Trustee, IN TRUST, WITH POWER OF SALE, for the benefit of Beneficiary and its successors and assigns, forever, all of the following (the "Trust Premises"): (a) Real Estate. All of Trustor's right, title and interest in and to all of the Land and all additional lands and estates therein now owned by the Trustor for use or development with the Land or any portion thereof, together with all and singular the tenements, rights, easements, hereditaments, rights of way, privileges, liberties, appendages and appurtenances now belonging or in any way pertaining to the Land and such additional lands and estates therein (including, without limitation, all rights relating to storm and sanitary sewer, water, gas, electric, railway and telephone services); all development rights, air rights, riparian rights, water, water rights, water stock, all rights in, to and with respect to any and all oil, gas, coal, minerals and other substances of any kind or character underlying or relating to the Land and such additional lands and estates therein and any interest therein; all estate, claim, demand, right, title or interest of the Trustor in and to any street, road, highway or alley, vacated or other, adjoining the Land or any part thereof and such additional lands and estates therein; all strips and gores belonging, adjacent or pertaining to the Land or such additional lands and estates (herein collectively referred to as the "Real Estate"); (b) Improvements. All of Trustor's right, title and interest in and to all buildings, structures and other improvements now existing on the Land and any additions and alterations thereto or replacements thereof, now or hereafter built, constructed or located upon the Real Estate; and, to the extent that any of the following items of property constitutes fixtures under applicable laws, all furnishings, fixtures, fittings, appliances, apparatus, equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever and all replacements thereof, now or hereafter affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Real Estate or such buildings, structures and other improvements, including, but not limited to, partitions, furnaces, boilers, oil burners, radiators and piping, plumbing and bathroom fixtures, refrigeration, heating, ventilating, air conditioning and sprinkler systems, other fire prevention and extinguishing apparatus and materials, vacuum cleaning systems, gas and electric fixtures, incinerators, compactors, elevators, engines, motors, generators and all other articles of property which are considered fixtures under applicable law (such buildings, structures and other improvements and such other property are herein collectively referred to as the 2 7 "Improvements"; the Real Estate and the Improvements are herein collectively referred to as the "Property"); (c) Goods. All of Trustor's right, title and interest in and to all building materials, construction materials, appliances (including, without limitation, stoves, ranges, ovens, disposals, refrigerators, water fountains and coolers, fans, heaters, dishwashers, clothes washers and dryers, water heaters, hood and fan combinations, kitchen equipment, laundry equipment, kitchen cabinets and other similar equipment), stocks, supplies, blinds, window shades, drapes, carpets, floor coverings, manufacturing equipment and machinery, office equipment, growing plants and shrubberies, control devices, equipment (including window cleaning, building cleaning, swimming pool, recreational, monitoring, garbage, pest control and other equipment), motor vehicles, tools, furnishings, furniture, lighting, non-structural additions to the Real Estate and Improvements and all other tangible property of any kind or character, together with all replacements thereof, now or hereafter located on or in or used or useful in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Property, regardless of whether or not located on or in the Property or located elsewhere for purposes of storage, fabrication or otherwise (herein collectively referred to as the "Goods"); (d) Intentionally Deleted; (e) Leases. All rights of the Trustor in, to and under all leases, licenses, occupancy agreements, concessions and other arrangements, oral or written, now existing or replacements thereof hereafter entered into, whereby any Person agrees to pay money or any other consideration for the use, possession or occupancy of, or any estate in, the Property or any portion thereof or interest therein (herein collectively referred to as the "Leases"), and the right, subject to applicable law, upon the occurrence of any Event of Default hereunder, to receive and collect the Rents (as hereinafter defined) paid or payable thereunder; (f) Plans. All rights of the Trustor in and to all plans and specifications, designs, drawings and other information, materials and matters heretofore or hereafter prepared relating to the Improvements or any construction on the Real Estate (herein collectively referred to as, the "Plans"); (g) Permits. All rights of the Trustor, to the extent assignable, in, to and under all permits, franchises, licenses, approvals and other authorizations respecting the use, occupation and operation of the Property and every part thereof and respecting any business or other activity conducted on or from the Property, and any product or proceed thereof or therefrom, including, without limitation, all building permits, certificates of occupancy and other licenses, permits and approvals issued by governmental authorities having jurisdiction (collectively, the "Permits"); (h) Contracts. All right, title and interest of the Trustor, to the extent assignable, in and to all certificates, warranties, appraisals, engineering, environmental, soils, insurance and other reports and studies, books, records, correspondence, files and 3 8 advertising materials, and other documents, now or hereafter obtained or entered into, as the case may be, pertaining to the construction, use, occupancy, possession, operation, management, leasing, maintenance and/or ownership of the Property and all right, title and interest of the Trustor therein (collectively, the "Contracts"); (i) Leases of Furniture, Furnishings and Equipment. All right, title and interest of the Trustor as lessee in, to and under any leases of furniture, furnishings, equipment and any other Goods now or hereafter installed in or at any time used in connection with the Property; (j) Rents. All rents, issues, profits, royalties, avails, income and other benefits derived or owned, directly or indirectly, by the Trustor from the Property, including, without limitation, all rents and other consideration payable by tenants, claims against guarantors, and any cash or other securities deposited to secure performance by tenants, under the Leases (herein collectively referred to as the "Rents"); and (k) Proceeds. All proceeds of the conversion, voluntary or involuntary of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards (herein collectively referred to as the "Proceeds"); provided however, the Trust Premises shall not include any general intangibles or other rights arising under any contracts, instruments, licenses, or other documents as to which the grant of a lien and/or security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained; and further provided, however, in no event shall the Trust Premises hereunder include any item or classes of "Collateral" as defined in the Current Assets Security Agreement (as defined in the Credit Agreement) and provided further, that the Trust Premises shall only include after acquired property in any of the classes or categories of Collateral to the extent, and only to the extent, that such after acquired property is in replacement or substitution of Collateral existing as of the date hereof. AND, without limiting any of the other provisions of this Deed of Trust the Trustor expressly grants to the Beneficiary, as secured party, a security interest in all of those portions of the Trust Premises which are or may be subject to the State Uniform Commercial Code provisions applicable to secured transactions, subject, however, to the Permitted Encumbrances; TO HAVE AND TO HOLD the Trust Premises unto the Trustee and the successors, successors in trust and assigns of the Trustee for the benefit of the Beneficiary, its successors and assigns, forever, subject, however, to the Permitted Encumbrances. FURTHER to secure the full, timely and proper payment and performance of the Obligations, the Trustor hereby covenants and agrees with and warrants to the Trustee and the Beneficiary as follows: 4 9 ARTICLE I COVENANTS AND AGREEMENTS OF THE TRUSTOR SECTION 1.1. Payment of Obligations. (i) The Trustor agrees that: (a) it will duly and punctually pay and perform or cause to be paid and performed each of the Obligations at the time and in accordance with the terms of the Indenture and the Senior Secured Notes, and (b) when and as due and payable from time to time in accordance with the terms hereof or of any Security Agreement executed pursuant to the Indenture, pay and perform, or cause to be paid and performed, all other Obligations. SECTION 1.2. Title to Trust Premises, etc. The Trustor represents and warrants to and covenants with the Beneficiary that: (a) except as otherwise permitted by the terms of the Indenture, as of the date hereof and at all times hereafter while this Deed of Trust is outstanding, the Trustor (1) is and shall be the absolute owner of the legal and beneficial title to the applicable interest in the Property and to all other property included in the Trust Premises, and (2) has and shall have good and indefeasible title in fee simple absolute, or good and sufficient easement or leasehold title, as currently represented in the granting clause as of the date hereof, to the Property; provided, however, that the portion of the Land described on Part III of Exhibit A is hereby excluded from this covenant, subject in each case only to this Deed of Trust, the Permitted Liens and the encumbrances set forth in Exhibit B hereto (collectively, the "Permitted Encumbrances"); (b) the Trustor has good and lawful right, power and authority to execute this Deed of Trust and to convey, transfer, assign, mortgage and grant a security interest in the Trust Premises, all as provided herein; (c) this Deed of Trust has been duly executed, acknowledged and delivered on behalf of the Trustor, all consents and other actions required to be taken by the officers, directors, shareholders and partners, as the case may be, of the Trustor have been duly and fully given and performed and this Deed of Trust constitutes the legal, valid and binding obligation of the Trustor, enforceable against the Trustor in accordance with its terms; and (d) the Trustor, at its expense, will warrant and defend the Trustee and the Beneficiary and any purchaser under the power of sale herein or at any foreclosure sale such title to the Trust Premises and the second deed of trust lien and second perfected security interest of this Deed of Trust thereon and therein against all claims and demands and will maintain, preserve and protect such lien and security interest and will keep this Deed of Trust a valid, direct deed of trust lien of record on the Property and a second perfected security interest in the Trust Premises other than the Property, subject only to the Permitted Encumbrances. 5 10 SECTION 1.3. Title Insurance. SECTION 1.3.1. Title Insurance Policy. Concurrently with the execution and delivery of this Deed of Trust, the Trustor, at its expense, has obtained and delivered to the Beneficiary a loan policy or policies of title insurance in an amount, and in form and substance, reasonably satisfactory to the Beneficiary naming the Beneficiary as the insured, insuring the title to and the second deed of trust lien of this Deed of Trust on the portion of the Land described on Part I of Exhibit A with endorsements reasonably requested by the Beneficiary. The Trustor has duly paid in full all premiums and other charges due in connection with the issuance of such policy or policies of title insurance. SECTION 1.3.2. Title Insurance Proceeds. All proceeds received by and payable to the Beneficiary for any loss under the loan policy or policies of title insurance delivered to the Beneficiary pursuant to Section 1.3.1, or under any policy or policies of title insurance delivered to the Beneficiary in substitution therefor or replacement thereof, shall be the property of the Beneficiary and shall be applied by the Beneficiary in accordance with the provisions of Section 2.3. SECTION 1.4. Recordation. The Trustor, at its expense, will at all times cause this Deed of Trust and any instruments amendatory hereof or supplemental hereto and any instruments of assignment hereof or thereof (and any appropriate financing statements or other instruments and continuations thereof), and each other instrument delivered in connection with the Indenture, the Senior Secured Notes or any Security Agreements executed pursuant to the Indenture and intended thereunder to be recorded, registered and filed, to be kept recorded, registered and filed, in such manner and in such places, and will pay all such recording, registration, filing fees, taxes and other charges, and will comply with all such statutes and regulations as may be required by law in order to establish, preserve, perfect and protect the lien and security interest of this Deed of Trust as a valid, direct deed of trust lien on the Property and perfected security interest in the Trust Premises other than the Property, subject only to the Permitted Encumbrances. The Trustor will pay or cause to be paid, and will indemnify the Trustee and the Beneficiary in respect of, all taxes (including interest and penalties) at any time payable in connection with the filing and recording of this Deed of Trust and any and all supplements and amendments hereto. SECTION 1.5. Payment of Impositions, etc. Subject to Section 1.8 (relating to permitted contests), the Trustor will pay or cause to be paid before the same would become delinquent and before any fine, penalty, interest or cost may be added for non-payment, all taxes, assessments, water and sewer rates, charges, license fees, inspection fees and other governmental levies or payments, of every kind and nature whatsoever, general and special, ordinary and extraordinary, unforeseen as well as foreseen, which at any time may be assessed, levied, confirmed, imposed or which may become a lien upon the Trust Premises, or any portion thereof, or which are payable with respect thereto, or upon the rents, issues, income or profits thereof, or on the occupancy, operation, use, possession or activities thereof, whether any or all of the same be levied directly or indirectly or as excise taxes or as income taxes, and all taxes, assessments or charges which may be levied on the Obligations, or the interest thereon (collectively, the "Impositions"). The Trustor will deliver to the Beneficiary, upon request, copies of official receipts or other satisfactory proof evidencing such payments. 6 11 SECTION 1.6. Insurance and Legal Requirements. Subject to Section 1.8 (relating to permitted contests), the Trustor, at its expense, will comply in all material respects, or cause compliance in all material respects with (a) all provisions of any insurance policy covering or applicable to the Trust Premises or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Trust Premises or any part thereof or any use or condition of the Trust Premises or any part thereof (collectively, the "Insurance Requirements"); and (b) all laws, including Environmental Laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Trust Premises or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Trust Premises or any part thereof (collectively, the "Legal Requirements"); noncompliance of which could reasonably be expected to cause a Material Adverse Effect (as defined in the Credit Agreement) whether or not compliance therewith shall require structural changes in or interference with the use and enjoyment of the Trust Premises or any part thereof. SECTION 1.7. Security Interests, etc. The Trustor will not directly or indirectly create or permit or suffer to be created or to remain, and will promptly discharge or cause to be discharged, any deed of trust, mortgage, encumbrance or charge on, pledge of, security interest in or conditional sale or other title retention agreement with respect to or any other lien on or in the Trust Premises or any part thereof or the interest of the Trustor or the Beneficiary therein, or any Proceeds thereof or Rents or other sums arising therefrom, other than (a) Permitted Encumbrances, and (b) liens of mechanics, materialmen, suppliers or vendors or rights thereto incurred in the ordinary course of the business of the Trustor for sums not yet due or any such liens or rights thereto which are at the time being contested as permitted by Section 1.8. The Trustor will not postpone the payment of any sums for which liens of mechanics, materialmen, suppliers or vendors or rights thereto have been incurred (unless such liens or rights thereto are at the time being contested as permitted by Section 1.8), for more than 60 days after the completion of the action giving rise to such liens or rights thereto. SECTION 1.8. Permitted Contests. The Trustor at its expense may contest, or cause to be contested, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition, Legal Requirement or Insurance Requirement or lien of a mechanic, materialman, supplier or vendor, provided that, (a) in the case of an unpaid Imposition, lien, encumbrance or charge, such proceedings shall suspend the collection thereof from the Trustor, the Beneficiary, and the Trust Premises (including any rent or other income therefrom) and shall not materially interfere with the payment of any such rent or income, (b) neither the Trust Premises nor any rent or other income therefrom nor any part thereof or interest therein would be in any material danger of being sold, 7 12 forfeited, lost, impaired or interfered with, (c) in the case of a Legal Requirement, neither the Trustor nor the Beneficiary would be in material danger of any civil or criminal liability for failure to comply therewith, (d) the Trustor shall have furnished such security, if any, as may be required in the proceedings or as may be reasonably requested by the Beneficiary, (e) the non-payment of the whole or any part of any Imposition will not result in the delivery of a tax deed to the Trust Premises or any part thereof because of such non-payment, (f) the payment of any sums required to be paid with respect to the Senior Secured Notes or under this Deed of Trust (other than any unpaid Imposition, lien, encumbrance or charge at the time being contested in accordance with this Section 1.8) shall not be interfered with or otherwise affected, (g) in the case of any Insurance Requirement, the failure of the Trustor to comply therewith shall not affect the validity of any insurance required to be maintained by the Trustor under Section 2.1, and (h) that adequate reserves, determined in accordance with GAAP, shall have been set aside on the Trustor's books. SECTION 1.9. Leases. The Trustor represents and warrants to the Trustee and the Beneficiary that, as of the date hereof, there are no written or oral leases or other agreements of any kind or nature, other than the Permitted Encumbrances, relating to the occupancy of any portion of the Property by any Person other than the Trustor. Except as is permitted by the Indenture and any Security Agreements executed pursuant to the Indenture, the Trustor will not enter into any such written or oral lease or other agreement with respect to any portion of the Property without first obtaining the written consent of the Beneficiary. SECTION 1.10. Compliance with Instruments. The Trustor at its expense will promptly comply in all material respects with all rights of way or use, privileges, franchises, servitudes, licenses, easements, tenements, hereditaments and appurtenances forming a part of the Property and all instruments creating or evidencing the same, in each case, to the extent compliance therewith is required of the Trustor under the terms thereof. Except as is permitted by the Indenture and any Security Agreements executed pursuant to the Indenture, the Trustor will not take any action which may result in a forfeiture or termination of the rights afforded to the Trustor under any such instruments, and will not, without the prior written consent of the Beneficiary, amend any of such instruments in any manner adverse to the Beneficiary and the Holders in any material respect. SECTION 1.11. Maintenance and Repair, etc. Subject to the provisions of Section 1.12, the Trustor will keep or cause to be kept all presently and subsequently erected or acquired Improvements and the sidewalks, curbs, vaults and vault space, if any, located on or adjoining the same, and the streets and the ways adjoining the same, in good and substantial order and repair and in such a fashion that neither the value nor utility of the Trust Premises will be diminished, and, at its sole cost and expense, will promptly make or cause to be made all necessary and appropriate repairs, replacements and renewals thereof, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen, so that its business carried on in connection therewith may be properly conducted at all times. The Trustor at its expense will do or cause to be done all shoring of foundations and walls of any building or other Improvements on the Property and (to the extent permitted by law) of the ground adjacent thereto, and every other act necessary or appropriate for the preservation and safety of the Property by reason of or in connection with any excavation or other building operation upon the 8 13 Property and upon any adjoining property, whether or not the Trustor shall, by any Legal Requirement, be required to take such action or be liable for failure to do so. SECTION 1.12. Alterations, Additions, etc. So long as no Event of Default shall have occurred and be continuing, the Trustor shall have the right at any time and from time to time to make or cause to be made reasonable alterations of and additions to the Property or any part thereof, provided that any alteration or addition: (a) shall not change the general character or the use of the Property or reduce the fair market value thereof below its value immediately before such alteration or addition, or impair the usefulness of the Property; (b) is effected with due diligence, in a good and workmanlike manner and in compliance in all material respects with all Legal Requirements and Insurance Requirements; (c) subject to Section 1.8 is promptly and fully paid for, or caused to be paid for, by the Trustor; and (d) is made, in case the estimated cost of such alteration or addition exceeds U.S. $1,000,000, under the supervision of a qualified architect or engineer or another professional. SECTION 1.13. Acquired Property Subject to Lien. Subject to the Permitted Encumbrances and except as otherwise permitted by the Indenture, all property at any time acquired by the Trustor and provided or required by this Deed of Trust to be or become subject to the lien and security interest hereof, whether such property is acquired by exchange, purchase, construction or otherwise, shall forthwith become subject to the lien and security interest of this Deed of Trust without further action on the part of the Trustor or the Beneficiary. The Trustor, at its expense, will execute and deliver to the Beneficiary (and will record and file as provided in Section 1.4) an instrument supplemental to this Deed of Trust reasonably satisfactory in substance and form to the Beneficiary, whenever such an instrument is necessary under applicable law to subject to the lien and security interest of this Deed of Trust all right, title and interest of the Trustor in and to all property provided or required by this Deed of Trust to be subject to the lien and security interest hereof. SECTION 1.14. Assignment of Rents, Proceeds, etc. The assignment, grant and conveyance of the Leases, Rents, Proceeds and other rents, income, proceeds and benefits of the Trust Premises contained in the Granting Clause of this Deed of Trust shall constitute an absolute, present and irrevocable assignment, grant and conveyance, provided, however, that permission is hereby given to the Trustor, so long as no Event of Default has occurred and be continuing hereunder, to collect, receive and apply such Rents, Proceeds and other rents, income, proceeds and benefits as they become due and payable, but not further in advance thereof than is customary, and in accordance with all of the other terms, conditions and provisions hereof, of the Indenture and of the Security Agreements executed pursuant to the Indenture, and of the Leases, contracts, agreements and other instruments with respect to which such payments are made or such other benefits are conferred. Upon the occurrence and continuance of an Event of Default, such permission shall terminate immediately and automatically, without notice to the Trustor or any other Person except as required by law, and shall not be reinstated upon a cure of such Event of Default without the express written consent of the Beneficiary. Such assignment shall be fully effective without any further action on the part of the Trustor, the Trustee, or the Beneficiary, and the Beneficiary shall be entitled, at its option, upon the occurrence and continuance of an Event of Default hereunder, to collect, receive and apply all Rents, Proceeds and all other rents, income, proceeds and benefits from the Trust Premises, including all right, title and interest of the Trustor in any escrowed sums or deposits or any portion thereof or interest therein, whether 9 14 or not the Trustee or the Beneficiary takes possession of the Trust Premises or any part thereof. The Trustor further grants to the Beneficiary the right, at the Beneficiary's option, upon the occurrence and continuance of an Event of Default hereunder, to: (a) enter upon and take possession of the Property for the purpose of collecting Rents, Proceeds and said rents, income, proceeds and other benefits; (b) dispossess by the customary summary proceedings any tenant, purchaser or other Person defaulting in the payment of any amount when and as due and payable, or in the performance of any other obligation, under any Lease, contract or other instrument to which said Rents, Proceeds or other rents, income, proceeds or benefits relate; (c) let or convey the Trust Premises or any portion thereof or any interest therein; and (d) apply Rents, Proceeds and such rents, income, proceeds and other benefits, after the payment of all necessary fees, charges and expenses, on account of the Obligations in accordance with Section 3.11. SECTION 1.15. No Claims Against the Trustee or the Beneficiary. Nothing contained in this Deed of Trust shall constitute any consent or request by the Trustee or the Beneficiary, express or implied, for the performance of any labor or the furnishing of any materials or other property in respect of the Property or any part thereof, or be construed to permit the making of any claim against the Trustee or the Beneficiary in respect of labor or services or the furnishing of any materials or other property or any claim that any lien based on the performance of such labor or the furnishing of any such materials or other property is prior to the lien and security interest of this Deed of Trust. ALL CONTRACTORS SUBCONTRACTORS, VENDORS AND OTHER PERSONS DEALING WITH THE PROPERTY, OR WITH ANY PERSONS INTERESTED THEREIN, ARE HEREBY ADVISED TO TAKE NOTICE OF THE PROVISIONS OF THIS SECTION. SECTION 1.16. Indemnification. The Trustor will protect, indemnify, save harmless and defend the Trustee, the Beneficiary, and each of their respective officers, directors, shareholders, employees, representatives and agents (collectively, the "Indemnified Parties" and individually, an "Indemnified Party"), from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against any Indemnified Party by reason of (a) ownership of an interest in this Deed of Trust, the Indenture, the Senior Secured Notes, the Security Agreements executed pursuant to the Indenture or the Property, (b) any accident, injury to or death of persons or loss of or damage to or loss of the use of property occurring on or about the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (c) any use, non-use or condition of the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (d) any failure on the part of the Trustor to perform or comply with any of the terms of this Deed of Trust, the Indenture, the Senior Secured Notes, or the Security Agreements executed pursuant to the Indenture, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Trust Premises or any part thereof made or suffered to be made by or on behalf of the Trustor, (f) any negligence or tortious act on 10 15 the part of the Trustor or any of its agents, contractors, lessees, licensees or invitees, (g) any work in connection with any alterations, changes, new construction or demolition of or additions to the Property, or (h) (i) any Hazardous Material on, in, under or affecting all or any portion of the Property, the groundwater, or any surrounding areas, (ii) any misrepresentation, inaccuracy or breach of any warranty, covenant or agreement contained or referred to in Sections 1.21 and 1.22, (iii) any violation or claim of violation by the Trustor of any Environmental Laws, or (iv) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of any Hazardous Material, except to the extent that any of the matters described in subsections (a)-(h) arise out of the gross negligence, unlawful acts or willful misconduct of any Indemnified Party. THE TRUSTEE SHALL NOT BE LIABLE FOR ANY ACT OR OMISSION OR ERROR OF JUDGMENT ION CONNECTION WITH THIS DEED OF TRUST, IT BEING THE INTENT OF THE PARTIES HERETO THAT THE TRUSTEE SHALL NOT BE LIABLE FOR THE TRUSTEE'S SOLE OR CONTRIBUTORY NEGLIGENCE. TRUSTOR SHALL AND DOES INDEMNIFY THE TRUSTOR AGAINST ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, CAUSES OF ACTION, JUDGMENTS, COURT COSTS, ATTORNEY'S FEES AND EXPENSES THAT THE TRUSTEE MAY INCUR IN THE PERFORMANCE OF THE TRUSTEE'S DUTIES HEREUNDER OR OTHERWISE IN CONNECTION WITH THIS DEED OF TRUST WHETHER OR NOT THE SAME RESULT FROM THE SALE OR CONTRIBUTORY NEGLIGENCE OF THE TRUSTEE. THE FOREGOING SHALL ALSO APPLY TO ANY SUBSTITUTE TRUSTEE HEREUNDER. If any action or proceeding be commenced, to which action or proceeding any Indemnified Party is made a party by reason of the execution of this Deed of Trust, the Indenture, the Senior Secured Notes, or the Security Agreements executed pursuant to the Indenture, or in which it becomes necessary to defend or uphold the lien of this Deed of Trust, all sums paid by the Indemnified Parties, for the expense of any litigation to prosecute or defend the rights and lien created hereby or otherwise, shall be paid by the Trustor to such Indemnified Parties, as the case may be, as hereinafter provided. The Trustor will pay and save the Indemnified Parties harmless against any and all liability with respect to any intangible personal property tax or similar imposition of the State or any subdivision or authority thereof now or hereafter in effect, to the extent that the same may be payable by the Indemnified Parties in respect of this Deed of Trust, the Indenture, the Senior Secured Notes or any other Obligation. All amounts payable to the Indemnified Parties under this Section 1.16 shall be deemed indebtedness secured by this Deed of Trust and any such amounts which are not paid within ten (10) days after written demand therefor by any Indemnified Party shall bear interest at the rate provided for in the Indenture and the Senior Secured Notes from the date of such demand. In case any action, suit or proceeding is brought against any Indemnified Party by reason of any such occurrence, the Trustor, upon request of such Indemnified Party, will, at the Trustor's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel designated by the Trustor and approved by such Indemnified Party. The obligations of the Trustor under this Section 1.16 shall survive any discharge or reconveyance of this Deed of Trust and payment in full of the Obligations. SECTION 1.17. No Credit for Payment of Taxes. The Trustor shall not be entitled to any credit against the Obligations by reason of the payment of any tax on the Property or any part thereof or by reason of the payment of any other Imposition, and shall not apply for or claim any deduction from the taxable value of the Property or any part thereof by reason of this Deed of Trust. 11 16 SECTION 1.18. Intentionally Omitted SECTION 1.19. No Transfer of the Property. Except as is provided in the Indenture and other Security Agreements executed pursuant to the Indenture, and except for the Permitted Encumbrances, the Trustor shall not, without the prior written consent of the Beneficiary, which consent may be granted or withheld in the sole and absolute discretion of the Beneficiary (i) sell, convey, assign or otherwise transfer the Property or any portion of the Trustor's interest therein or (ii) further encumber the Property or permit the Property to become encumbered by any lien, claim, security interest or other indebtedness of any kind or nature other than the Permitted Encumbrances. SECTION 1.20. Security Agreement. With respect to the items of personal property and fixtures referred to and described in the Granting Clause of this Deed of Trust and included as part of the Trust Premises, this Deed of Trust is hereby made and declared to be a security agreement encumbering each and every item of personal property and fixtures now or hereafter owned by Trustor and included herein as a part of the Trust Premises, in compliance with the provisions of the Uniform Commercial Code as enacted in the State. In this respect (and notwithstanding the conveyance to the Trustee rather than directly to the Beneficiary as provided in this Deed of Trust, Trustor, as "Debtor", expressly grants to Beneficiary, as "Secured Party", a security interest in and to all of the property now or hereafter owned by Trustor which constitutes the personal property and fixtures hereinabove referred to and described in this Deed of Trust, including all extensions, accessions, additions, improvements, betterments, renewals, replacements and substitutions thereof or thereto, and all proceeds from the sale or other disposition thereof. Trustor agrees that Beneficiary may file this Deed of Trust, or a reproduction thereof, in the real estate records or other appropriate index, as, and this Deed of Trust shall be deemed to be, a financing statement filed as a fixture filing in accordance with the laws of the State. Any reproduction of this Deed of Trust or of any other security agreement or financing statement executed by Trustor shall be sufficient as a financing statement. In addition, Trustor agrees to execute and deliver to Beneficiary, upon Beneficiary's request, any other security agreement and financing statements, as well as extensions, renewals, and amendments thereof, and reproductions of this Deed of Trust, in such form as Beneficiary may reasonably require to perfect a security interest with respect to said items. Trustor shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements Beneficiary may reasonably require. Except as is provided in the Indenture and other Security Agreements executed pursuant to the Indenture, and except for the Permitted Encumbrances, without the prior written consent of Beneficiary, Trustor shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the above-described personal property and fixtures, including any replacements and additions thereto. Upon the occurrence and continuance of an Event of Default under this Deed of Trust, the Beneficiary shall have and shall be entitled to exercise any and all of the rights and remedies (i) as prescribed in this Deed of Trust, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory provisions now or hereafter enacted and specified in said Uniform Commercial Code, all at Beneficiary's sole election. Trustor and Beneficiary agree that the filing of any financing statements in the records normally having to do with personal property shall not in any way affect the agreement of Trustor and Beneficiary that everything located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of, the Trust 12 17 Premises, which is described or reflected as a fixture in this Deed of Trust, is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be, regarded as part of the Real Estate conveyed hereby. Trustor warrants that Trustor's name, identity and address are as set forth herein. The mailing address of the Beneficiary from which information may be obtained concerning the security interest created herein is also set forth herein. This information hereof is provided in order that this Deed of Trust shall comply with the requirements of the Uniform Commercial Code as enacted in the State for instruments to be filed as financing statements. In accordance with the laws of the State, this Deed of Trust shall remain effective as a fixture filing until this Deed of Trust is released or satisfied of record or its effectiveness otherwise terminates as to the Trust Premises. SECTION 1.21. Representations and Warranties. In order to induce the Beneficiary to enter into this Deed of Trust, the Indenture and the other Security Agreements, the Trustor agrees that all of the representations and warranties of Trustor set forth in the Indenture are incorporated into this Deed of Trust by reference as if fully set forth herein. SECTION 1.22. Trustor's Covenants. In order to induce the Beneficiary to enter into this Deed of Trust, the Indenture and the other Security Agreements, the Trustor agrees that all of the covenants of Trustor set forth in the Indenture are incorporated into this Deed of Trust by reference as if fully set forth herein. SECTION 1.23. Attornment. Beneficiary hereby acknowledges and agrees that the liens granted herein are subject to the rights of certain lessees under the leases as set forth in the Credit Agreement and will be subject to the rights of lessees under any Leases entered into by Trustor after the date hereof which are permitted as Permitted Real Estate Liens pursuant to the Credit Agreement, subject to the express rights contained in the applicable Lease. The rights of the tenants under the Leases to the leased premises shall not be adversely affected by the exercise by Beneficiary of any of its rights hereunder, nor shall any such tenant be in any way deprived of its rights under the applicable Lease except in accordance with the terms of such Lease. In the event that Beneficiary succeeds to the interest of Trustor under a Lease, such Lease shall not be terminated or affected thereby except as set forth therein, and any sale of the applicable leased premises by Beneficiary or pursuant to the judgment of any court in an action to enforce the remedies provided for in this Deed of Trust shall be made subject to such Lease and the rights of such tenant expressly set forth thereunder. If Beneficiary succeeds to the interests of Trustor in and to the applicable leased premises or under such Lease or enters into possession of such leased premises, the Beneficiary, and such tenants, shall be bound to each other under all of the express terms, covenants and conditions of such Lease, as if the Beneficiary was originally the Trustor as lessor thereunder. ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR taking, ETC. SECTION 2.1. Insurance. SECTION 2.1.1. Risks to be Insured. The Trustor will, at its expense, maintain or cause to be maintained with insurance carriers approved by the Beneficiary (a) insurance with 13 18 respect to the Improvements against loss or damage by fire, lightning and such other risks as are included in standard "all-risk" policies, in amounts sufficient to prevent the Trustor and the Beneficiary from becoming a co-insurer of any partial loss under the applicable policies, but in any event in amounts not less than the then full insurable value (actual replacement value) of the Improvements, as determined by the Trustor in accordance with generally accepted insurance practice and approved by the Beneficiary or, at the request of the Beneficiary, as determined at the Trustor's expense by the insurer or insurers or by an expert approved by the Beneficiary, (b) comprehensive public liability, including bodily injury and product liability and property damage, insurance, with personal injury endorsements, applicable to the Property in such amounts as are customarily carried by Persons operating similar properties in the same general locality, but in any event with a combined single limit of not less than Twenty Million Dollars ($20,000,000) per occurrence, (c) explosion insurance in respect of any steam and pressure boilers and similar apparatus located in the Property in such amounts as are usually carried by persons operating similar properties in the same general locality, but in any event in an amount not less than Twenty Million Dollars ($20,000,000), (d) business interruption insurance (including added expense coverage) against all insurable perils for a period of not fewer than twelve (12) months (subject to a reasonable aggregate deductible not exceeding ten (10) days per any occurence), (e) worker's compensation insurance to the full extent required by applicable law for all employees of the Trustor engaged in any work on or about the Property and employer's liability insurance with a limit of not less than Ten Million Dollars ($10,000,000) for each occurrence, (f) all-risk, builders' risk insurance with respect to the Property during any period during which there is any construction work being performed, against loss or damage by fire or other risks, including vandalism, malicious mischief and sprinkler leakage, as are included in so-called "extended coverage" clauses at the time available and (g) such other insurance with respect to the Property in such amounts and against such insurable hazards as the Beneficiary from time to time may reasonably require by written notice to the Trustor. SECTION 2.1.2. Policy Provisions. All insurance maintained by the Trustor pursuant to Section 2.1.1 shall (a) (except for worker's compensation insurance) list the Trustor and the Beneficiary, as additional insureds as their respective interests may appear, (b) (except for worker's compensation and public liability insurance) provide that the proceeds for any losses shall be adjusted by the Trustor subject to the approval of the Beneficiary in the event the proceeds shall exceed $1,000,000, and shall be payable to the Beneficiary, to be held and applied as provided in Section 2.3, (c) include effective waivers by the insurer of all rights of subrogation against any named insured, the indebtedness secured by this Deed of Trust and the Property and all claims for insurance premiums against the Beneficiary, (d) (except for worker's compensation and public liability insurance) provide that any losses shall be payable notwithstanding (i) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms thereof, (iii) any foreclosure or other action or proceeding taken by the Beneficiary pursuant to any provision of this Deed of Trust, or (iv) any change in title or ownership of the Property, (e) provide that no cancellation, reduction in amount or material change in coverage thereof or any portion thereof shall be effective until at least thirty (30) days after receipt by the Beneficiary of written notice thereof, (f) provide that any notice under such policies shall be simultaneously delivered to the Beneficiary, and (g) be satisfactory in all other reasonable respects to the Beneficiary. Any insurance maintained pursuant to this Section 2.1 may be evidenced by blanket insurance policies covering the Property and other 14 19 properties or assets of the Trustor, provided that any such policy shall specify the portion, if less than all, of the total coverage of such policy that is allocated to the Property and shall in all other respects comply with the requirements of this Section 2.1. SECTION 2.1.3. Delivery of Certificates, etc. The Trustor will deliver to the Beneficiary, promptly upon request, (a) certificates of all policies evidencing all insurance required to be maintained under Section 2.1.1 (or, in the case of blanket policies, certificates thereof by the insurers together with a counterpart of each blanket policy), and (b) evidence as to the payment of all premiums due thereon (with respect to public liability insurance policies, all installments for the current year due thereon to such date), provided that the Beneficiary shall not be deemed by reason of its custody of such certificates to have knowledge of the contents thereof or of the applicable policies. The Trustor will also deliver to the Beneficiary prior to the expiration of any policy a binder or certificate of the insurer evidencing the replacement thereof and when the new policy is issued a certificate of such new policy (or, in the case of a replacement blanket policy, a certificate thereof of the insurer together with a counterpart of the blanket policy). In the event the Trustor shall fail to effect or maintain any insurance required to be effected or maintained pursuant to the provisions of this Section 2.1, the Trustor will indemnify the Beneficiary against damage, loss or liability resulting from all risks for which such insurance should have been effected or maintained. SECTION 2.1.4. Separate Insurance. The Trustor will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Section 2.1. SECTION 2.2. Damage, Destruction or Taking; Trustor to Give Notice; Assignment of Awards. In case of (a) any material damage to or destruction of the Trust Premises or any material part thereof, or (b) any taking, whether for permanent or temporary use, of all or any material part of the Trust Premises or any material interest therein or material right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain, or a change of grade affecting the Trust Premises or any portion thereof (a "Taking"), or the commencement of any proceedings or negotiations which may result in a Taking, the Trustor will promptly give written notice thereof to the Beneficiary, generally describing the nature and extent of such damage or destruction and the Trustor's best estimate of the cost of restoring the Trust Premises, or the nature of such proceedings or negotiations and the nature and extent of the Taking which might result therefrom, as the case may be. The Beneficiary shall be entitled to all insurance proceeds payable on account of such damage or destruction and to all awards or payments allocable to the Trust Premises on account of such Taking up to the amount of the Obligations, and the Trustor hereby irrevocably assigns, transfers and sets over to the Beneficiary all rights of the Trustor to any such proceeds, awards or payments and irrevocably authorizes and empowers the Beneficiary, at its option, in the name of the Trustor or otherwise, to file and prosecute what would otherwise be the Trustor's claim for any such proceeds, award or payment and to collect, receipt for and retain the same for disposition in accordance with 15 20 Section 2.3. The Trustor will pay all reasonable costs and expenses incurred by the Beneficiary in connection with any such damage, destruction or Taking and seeking and obtaining any insurance proceeds, awards or payments in respect thereof. SECTION 2.3. Application of Proceeds and Awards. The Beneficiary may, at its option, apply all amounts recovered under any insurance policy required to be maintained by the Trustor hereunder and all awards received by it on account of any Taking in any one or more of the following ways: (a) to the payment of the reasonable costs and expenses incurred by the Beneficiary in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) to the payment of the principal of the Senior Secured Notes and any interest (including post-petition interest payable in any proceedings for bankruptcy under applicable law ("Post-Petition Interest") to the extent such interest is an Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued on the Senior Secured Notes and unpaid, second, to the payment of all amounts of principal at the time outstanding; (c) to the payment of, or the application to, any Obligation (other than as provided in clause (b) above); (d) to fulfill any of the other covenants contained herein, in the Indenture, Senior Secured Notes, or Security Agreements executed pursuant to the Indenture, as the Beneficiary may determine in its sole discretion; (e) to the Trustor for application to the cost of restoring the Trust Premises and the replacement of Goods destroyed, damaged or taken; or (f) to the Trustor. Notwithstanding the foregoing provisions of this Section 2.3 to the contrary (but subject to the provisions of Section 2.4), and if each of the following conditions is satisfied, the Beneficiary, upon request of the Trustor, shall apply insurance proceeds or condemnation awards received by it to the restoration or replacement of the Trust Premises, to the extent necessary for the restoration or replacement thereof: (i) there shall then exist no uncured Event of Default; (ii) the Trustor shall furnish to the Beneficiary a certificate of an architect or engineer reasonably acceptable to the Beneficiary stating (x) that the Trust Premises is capable of being restored, prior to the maturity of the Indenture, to substantially the same condition as existed prior to the casualty or Taking, (y) 16 21 the aggregate estimated direct and indirect costs of such restoration and (z) as to any Taking, that the property taken in such Taking, or sold under threat thereof, is not necessary to the Trustor's customary use or occupancy of the Property or Trustor otherwise provides Beneficiary adequate assurance that the Trust Premises can be restored or is not necessary to Trustor's customary use or occupancy of the Property; and (iii) in the event that the estimated cost of restoration set forth in the certificate of such architect or engineer (and such revisions to such estimate as are from time to time made) exceeds the net insurance proceeds or condemnation awards actually received from time to time, the Trustor shall deposit the amount of such excess with the Beneficiary. In the event that such insurance proceeds or condemnation awards are to be utilized in the restoration of the Trust Premises, the Beneficiary shall disburse such Proceeds and the additional amounts deposited by the Trustor for such restoration after receipt of a written request for disbursement, on not fewer than five (5) nor more than twelve (12) Business Days notice and, to the extent applicable, in accordance with the Beneficiary's customary construction loan procedures and conditions. In the event that such insurance or condemnation awards are to be utilized to replace the Trust Premises so destroyed or taken, the Beneficiary shall disburse such Proceeds after receipt of a written request for disbursement, on not fewer than five (5) Business Days nor more than twelve (12) Business Days notice simultaneously with the acquisition of such replacement property by the Trustor. In the event that, after the restoration or replacement of the Trust Premises, any insurance or condemnation awards shall remain, such amount shall be paid to the Trustor. Insurance proceeds and condemnation awards shall be invested in the manner reasonably requested by the Trustor and approved by the Beneficiary, and all interest earned thereon shall be applied as provided in this Section 2.3. If, prior to the receipt by the Beneficiary of such insurance proceeds or condemnation awards, the Trust Premises shall have been sold on foreclosure, the Beneficiary shall have the right to receive said insurance proceeds or condemnation awards to the extent of any deficiency found to be due upon such sale, with legal interest thereon, whether or not a deficiency judgment shall have been sought or recovered or denied, and the reasonable attorneys' fees, costs and disbursements incurred by the Beneficiary in connection with the collection of such award or payment. SECTION 2.4. Total Taking and Total Destruction. In the event of a Total Destruction or a Total Taking, the Beneficiary shall apply all amounts recovered under any insurance policy referred to in Section 2.1.1 and all awards received by it on account of any such Taking as follows: (a) first, to the payment of the reasonable costs and expenses incurred by the Beneficiary in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) second, to the payment of the principal of the Senior Secured Notes and any interest (including Post-Petition Interest to the extent such interest is an Obligation) 17 22 accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued on the Senior Secured Notes and unpaid, and second, to the payment of all amounts of principal at the time outstanding; (c) third, to the payment of, or the application to, any Obligation (other than as provided in clause (b) above); (d) fourth, to fulfill any of the other covenants contained herein as the Beneficiary may determine; and (e) fifth, the balance, if any, to the Trustor. ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration. If an "Event of Default" (pursuant to and as defined in the Indenture) shall have occurred and be continuing, then and in any such event the Beneficiary may at any time thereafter (unless all Events of Default shall theretofore have been remedied and all costs and expenses, including, without limitation, attorneys' fees and expenses incurred by or on behalf of the Beneficiary, shall have been paid in full by the Trustor) declare, by written notice to the Trustor, the Senior Secured Notes and all other Obligations to be due and payable immediately or on a date specified in such notice, and on such date the same shall be and become due and payable, together with interest accrued thereon, without presentment, demand, protest or notice, all of which the Trustor hereby waives. The Trustor will pay on demand all costs and expenses, including, without limitation, attorneys' fees and expenses, incurred by or on behalf of the Beneficiary in enforcing this Deed of Trust, the Indenture, the Senior Secured Notes, or the Security Agreements or occasioned by any default hereunder or thereunder. SECTION 3.2. Legal Proceedings; Judicial Foreclosure. If an Event of Default shall have occurred and be continuing, the Beneficiary at any time may, at its election, proceed at law or in equity or otherwise to enforce the payment and performance of the Obligations in accordance with the terms hereof and thereof and to foreclose the lien of this Deed of Trust as against all or any part of the Trust Premises and to have the same sold under the judgment or decree of a court of competent jurisdiction. The Beneficiary shall be entitled to recover in such proceedings all costs incident thereto, including attorneys' fees and expenses in such amounts as may be fixed by the court. SECTION 3.3. Power of Sale. If an Event of Default shall have occurred and be continuing, the Beneficiary may sell or offer for sale the Trust Premises in such portions, order and parcels as the Beneficiary may determine, with or without having first taken possession of the same, to the highest bidder for cash at public auction. Such sale shall be made at the courthouse of the county wherein the Land (or any of that portion thereof to be sold) is situated 18 23 (whether the parts or parcels thereof, if any, in different counties are contiguous or not, and without the necessity of having any personal property hereby mortgaged present at such sale) on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m. after posting a written or printed notice or notices of the place, the earliest time at which the sale will begin and terms of the sale of the Trust Premises for twenty-one (21) days prior to the date of the sale at the courthouse door of the county in which the sale is to be made and at the courthouse door of any other county in which a portion of the Trust Premises may be situated and filing a copy of such notice(s) in the office of the county clerk in each of such counties, and by serving written notice of the proposed sale at least twenty-one (21) days preceding the date of sale by certified mail on each debtor obligated to pay the Obligations according to the records of the Beneficiary. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, properly stamped and addressed to such debtor at the most recent address as shown by the records of the Beneficiary, in a post office or official depository under the care and custody of the United States. It is agreed that the posting and transmittal of notices may be performed by the Trustee, Beneficiary, or by any person acting for them. In lieu of the foregoing, the sale may be accomplished by following the procedures permitted or required by Section 51.002 of the Texas Property Code, as same may be amended from time to time, relating to the sale of real estate and/or by the Texas Uniform Commercial Code-Secured Transactions (same being Chapter 9 of the Texas Business and Commerce Code) relating to the sale of personal property collateral after default by a debtor (as said Section and Chapter may now exist or may hereafter be amended or succeeded), or by any other present or subsequent articles or enactments relating to the same. Nothing contained in this Section shall be construed to limit in any way the Trustee s rights to sell the Trust Premises by private sale if, and to the extent, that such private sale is permitted under the laws of the State or by public or private sale after entry of judgment by any court of competent jurisdiction ordering the same. At any such sale (i) whether made under power herein contained, Section 51.002 of the Texas Property Code, the Texas Uniform Commercial Code-Secured Transactions, any other legal requirement or by virtue of any judicial procedure or any other legal right, remedy or recourse, it shall not be necessary for the Trustee to have physically present, or to have constructive possession of, the Trust Premises (Trustor hereby covenanting and agreeing to deliver to the Trustee any portion of the Trust Premises not actually or constructively possessed by the Trustee immediately upon demand by the Trustee), and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale, (ii) each instrument of conveyance executed by the Trustee shall contain a special warranty of title, binding upon Trustor, (iii) each and every recital contained in any instrument of conveyance made by the Trustee shall conclusively establish the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Obligations, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor to the Trustee hereunder, (iv) any and all prerequisites to the validity thereof shall be conclusively presumed to have been performed, (v) the receipt of the Trustee or of such other party or officer making the sale shall be a sufficient discharge to the purchaser or purchasers for his or their purchase money and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof, (vi) to the fullest extent permitted by law, Trustor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the 19 24 property sold and such sale shall be a perpetual bar, both at law and in equity, against Trustor, and against any and all other persons claiming or to claim the property sold or any part thereof, by, through or under Trustor, and (vii) to the extent and under such circumstances as are permitted by law, Beneficiary may be a purchaser at any such sale. The Trust Premises may be sold in one or more parcels and in such manner and order as Trustee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales but other and successive sales may be made until all of the Trust Premises have been sold or until the Obligations has been fully satisfied. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under this Deed of Trust and shall thereafter elect to discontinue or abandon the same for any reason, Beneficiary shall have the unqualified right so to do and, in such event, Trustor and Beneficiary shall be restored to their former positions with respect to the Obligations, the Trust Premises and otherwise, and the rights, remedies, recourses and powers of Beneficiary shall continue as if same had never been invoked. SECTION 3.4. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Beneficiary may exercise from time to time and at any time any rights and remedies available to it under applicable law upon default in the payment of indebtedness, including, without limitation, any right or remedy available to it as a secured party under the Uniform Commercial Code of the State. The Trustor shall, promptly upon request by the Beneficiary, assemble the Trust Premises, or any portion thereof generally described in such request, and make it available to the Beneficiary at such place or places designated by the Beneficiary and reasonably convenient to the Beneficiary or the Trustor. If the Beneficiary elects to proceed under the Uniform Commercial Code of the State to dispose of portions of the Trust Premises, the Beneficiary, at its option, may give the Trustor notice of the time and place of any public sale of any such property, or of the date after which any private sale or other disposition thereof is to be made, by sending notice by registered or certified first class mail, postage prepaid, to the Trustor at least ten (10) days before the time of the sale or other disposition. If any notice of any proposed sale, assignment or transfer by the Beneficiary of any portion of the Trust Premises or any interest therein is required by law, the Trustor conclusively agrees that ten (10) days notice to the Trustor of the date, time and place (and, in the case of a private sale, the terms) thereof is reasonable. SECTION 3.5. Beneficiary Authorized to Execute Deeds, etc. The Trustor irrevocably appoints the Trustee and the Beneficiary (which appointment is coupled with an interest) the true and lawful attorney of the Trustor, in its name and stead and on its behalf, for the purpose of effectuating any sale, assignment, transfer or delivery for the enforcement hereof, whether pursuant to power of sale, foreclosure or otherwise, to execute and deliver all such deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request. SECTION 3.6. Purchase of Trust Premises by Beneficiary. The Beneficiary may be a purchaser of the Trust Premises or of any part thereof or of any interest therein at any sale thereof, whether pursuant to power of sale, foreclosure or otherwise, and the Beneficiary may apply upon the purchase price thereof the indebtedness secured hereby owing to the Beneficiary. 20 25 Such purchaser shall, upon any such purchase, acquire good title to the properties so purchased, free of the security interest and lien of this Deed of Trust and free of all rights of redemption in the Trustor. SECTION 3.7. Receipt a Sufficient Discharge to Purchaser. Upon any sale of the Trust Premises or any part thereof or any interest therein, whether pursuant to power of sale, foreclosure or otherwise, the receipt of the Beneficiary or the officer making the sale under judicial proceedings shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obliged to see to the application thereof. SECTION 3.8. Waiver of Appraisement, Valuation, etc. The Trustor hereby waives, to the fullest extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Trust Premises or any part thereof or any interest therein. SECTION 3.9. Sale a Bar Against Trustor. Any sale of the Trust Premises or any part thereof or any interest therein under or by virtue of this Deed of Trust, whether pursuant to power of sale, foreclosure or otherwise, shall forever be a bar against the Trustor. SECTION 3.10. Obligations to Become Due on Sale. Except as otherwise provided in the Indenture or herein, upon any sale of the Trust Premises or any portion thereof or interest therein by virtue of the exercise of any remedy by the Beneficiary under or by virtue of this Deed of Trust, whether pursuant to power of sale, foreclosure or otherwise in accordance with this Deed of Trust or by virtue of any other remedy available at law or in equity or by statute or otherwise, at the option of the Beneficiary, any sums or monies due and payable pursuant to the Indenture or Security Agreements and in connection with the Obligations shall, if not previously declared due and payable, immediately become due and payable, together with interest accrued thereon, and all other indebtedness which this Deed of Trust by its terms secures. SECTION 3.11. Application of Proceeds of Sale and Other Moneys. Except as otherwise provided in the Indenture or herein, the proceeds of any sale of the Trust Premises or any part thereof or any interest therein under or by virtue of this Deed of Trust, whether pursuant to power of sale, foreclosure or otherwise, and all other moneys at any time held by the Beneficiary as part of the Trust Premises, shall be applied in such order of priority as the Beneficiary shall determine in its sole and absolute discretion including, without limitation, as follows: (a) first, to the payment of the reasonable costs and expenses of such sale (including, without limitation, the cost of evidence of title and the costs and expenses, if any, of taking possession of, retaining custody over, repairing, managing, operating, maintaining and preserving the Trust Premises or any part thereof prior to such sale), all reasonable costs and expenses incurred by the Beneficiary or any other Person in obtaining or collecting any insurance proceeds, condemnation awards or other amounts received by the Beneficiary, all reasonable costs and expenses of any receiver of the Trust Premises or any part thereof, and any Impositions or other charges or expenses prior to the security interest or lien of this Deed of Trust, which the Beneficiary may consider it necessary or desirable to pay; 21 26 (b) second, to the payment of any Obligation (other than those set forth in Section 3.11(c) below); (c) third, to the payment of all amounts of principal of and interest (including Post-Petition Interest to the extent such interest is an Obligation) at the time due and payable under the Indenture at the time outstanding (whether due by reason of maturity or by reason of any prepayment requirement or by declaration or acceleration or otherwise), including interest at the rate provided for in the Indenture on any overdue principal and (to the extent permitted under applicable law) on any overdue interest; and, in case such moneys shall be insufficient to pay in full such principal and interest, then, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) at the time due and payable and, second, to the payment of all amounts of principal at the time due and payable under the Senior Secured Notes; and (d) fourth, the balance, if any, held by the Beneficiary after payment in full of all amounts referred to in subdivisions Sections 3.11(a), (b) and (c) above, shall, unless a court of competent jurisdiction may otherwise direct by final order not subject to appeal, be paid to or upon the direction of the Trustor. SECTION 3.12. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, the Beneficiary shall, as a matter of right, without notice, and without regard to the adequacy of any security for the indebtedness secured hereby or the solvency of the Trustor, be entitled to the appointment of a receiver for all or any part of the Trust Premises, whether such receivership be incidental to a proposed sale of the Trust Premises or otherwise, and the Trustor hereby consents to the appointment of such a receiver and will not oppose any such appointment. SECTION 3.13. Possession, Management and Income. If an Event of Default shall have occurred and be continuing, in addition to, and not in limitation of, the rights and remedies provided in Section 1.14, the Trustee and the Beneficiary, upon five (5) days written notice to the Trustor, may enter upon and take possession of the Trust Premises or any part thereof by force, summary proceeding, ejectment or otherwise and may remove the Trustor and all other Persons and any and all property therefrom and may hold, operate, maintain, repair, preserve and manage the same and receive all earnings, income, Rents, issues and Proceeds accruing with respect thereto or any part thereof. The Trustee and the Beneficiary shall be under no liability for or by reason of any such taking of possession, entry, removal or holding, operation or management, except that any amounts so received by the Trustee and the Beneficiary shall be applied to pay all costs and expenses of so entering upon, taking possession of, holding, operating, maintaining, repairing, preserving and managing the Trust Premises or any part thereof, and any Impositions or other charges prior to the lien and security interest of this Deed of Trust which the Trustee and the Beneficiary may consider it necessary or desirable to pay, and any balance of such amounts shall be applied as provided in Section 3.11. SECTION 3.14. Right of Beneficiary to Perform Trustor's Covenants, etc. If the Trustor shall fail to make any payment or perform any act required to be made or performed hereunder or under the Indenture or the Senior Secured Notes, the Beneficiary, without notice to or demand upon the Trustor and without waiving or releasing any obligation or Event of Default, 22 27 may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Trustor, and may enter upon the Trust Premises for such purpose and take all such action thereon as, in the Beneficiary's opinion, may be necessary or appropriate therefor. No such entry and no such action shall be deemed an eviction of any lessee of the Property or any part thereof. All sums so paid by the Beneficiary and all costs and expenses (including, without limitation, attorneys' fees and expenses) so incurred, together with interest thereon at the rate provided in the Indenture from the date of payment or incurring, shall constitute additional indebtedness under the Indenture secured by this Deed of Trust and shall be paid by the Trustor to the Trustee or the Beneficiary, as the case may be, on demand. SECTION 3.15. Subrogation. To the extent that the Beneficiary, on or after the date hereof, pays any sum due under any provision of any Legal Requirement or any instrument creating any lien prior or superior to the lien of this Deed of Trust, or the Trustor or any other Person pays any such sum with the proceeds of the Senior Secured Notes, the Beneficiary shall have and be entitled to a lien on the Trust Premises equal in priority to the lien discharged, and the Beneficiary shall be subrogated to, and receive and enjoy all rights and liens possessed, held or enjoyed by, the holder of such lien, which shall remain in existence and benefit the Beneficiary in securing the Obligations. SECTION 3.16. Remedies, etc., Cumulative. Each right, power and remedy of the Beneficiary provided for in this Deed of Trust, the Indenture and in the Senior Secured Notes or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Deed of Trust, the Indenture, the Senior Secured Notes or the Security Agreements or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Beneficiary of any one or more of the rights, powers or remedies provided for in this Deed of Trust, the Indenture, the Senior Secured Notes, or the Security Agreements or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Beneficiary of any or all such other rights, powers or remedies. SECTION 3.17. Provisions Subject to Applicable Law. All rights, powers and remedies provided in this Deed of Trust may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Deed of Trust invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Deed of Trust or any application thereof shall be invalid or unenforceable, the remainder of this Deed of Trust and any other application of such term shall not be affected thereby. SECTION 3.18. No Waiver, etc. No failure by the Trustee or the Beneficiary to insist upon the strict performance of any term hereof or of the Indenture, the Senior Secured Notes, or the Security Agreements or to exercise any right, power or remedy consequent upon a breach hereof or thereof, shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Deed of Trust, which shall continue in full force and effect with respect to any other then existing or subsequent breach. By accepting payment or 23 28 performance of any amount or other Obligations secured hereby before or after its due date, neither the Trustee nor the Beneficiary shall be deemed to have waived its right either to require prompt payment or performance when due of all other amounts and Obligations payable hereunder or to declare a default for failure to effect such prompt payment. SECTION 3.19. Compromise of Actions, etc. Any action, suit or proceeding brought by the Beneficiary pursuant to any of the terms of this Deed of Trust, the Indenture, the Senior Secured Notes, or the Security Agreements, or otherwise, and any claim made by the Beneficiary hereunder or thereunder, may be compromised, withdrawn or otherwise dealt with by the Beneficiary without any notice to or approval of the Trustor. ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Deed of Trust. When used herein the following terms have the following meanings: "Beneficiary" shall have the meaning set forth in the preamble. "Borrowers" shall have the meaning set forth in the second recital. "Contracts" shall have the meaning set forth in clause (h) of the granting clause. "Credit Agreement" shall have the meaning set forth in the third recital. "Deed of Trust" shall have the meaning set forth in the preamble. "Default" means any Event of Default or any condition or event which, after notice or lapse of time, or both, would constitute an Event of Default. "First Deed of Trust Default" means a Default (as defined in the First Deed of Trust). "Goods" shall have the meaning set forth in clause (c) of the granting clause. "herein", "hereof", "hereto", and "hereunder" and similar terms refer to this Deed of Trust and not to any particular Section, paragraph or provision of this Deed of Trust. "Highest Lawful Rate" shall have the meaning set forth in Section 5.15. "Impositions" shall have the meaning set forth in Section 1.5. "Improvements" shall have the meaning set forth in clause (b) of the granting clause. "Indemnified Parties" shall have the meaning set forth in Section 1.16. "Insurance Requirements" shall have the meaning set forth in paragraph (a) of Section 1.6. 24 29 "Land" shall have the meaning set forth in the first recital. "Leases" shall have the meaning set forth in clause (e) of the granting clause. "Legal Requirements" shall have the meaning set forth in paragraph (b) of Section 1.6. "Trustor" shall have the meaning set forth in the preamble. "Obligations" means the Obligations under the Indenture and the Senior Secured Notes. "Permits" shall have the meaning set forth in clause (g) of the granting clause. "Permitted Encumbrances" shall have the meaning set forth in Section 1.2. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency or officer. "Plans" shall have the meaning set forth in clause (f) of the granting clause. "Post-Petition Interest" shall have the meaning set forth in Section 2.3. "Proceeds" shall have the meaning set forth in clause (k) of the granting clause. "Property" shall have the meaning set forth in clause (b) of the granting clause. "Real Estate" shall have the meaning set forth in clause (a) of the granting clause. "Rents" shall have the meaning set forth in clause (j) of the granting clause. "State" means the State of Texas. "Total Destruction" means any damage to or destruction of the Improvements or any part thereof which, in the reasonable estimation of the Beneficiary shall require the expenditure of an amount in excess of Forty Million Dollars ($40,000,000) to restore the Improvements to substantially the same condition of the Improvements immediately prior to such damage or destruction. "Total Taking" means a Taking, whether permanent or for temporary use, which, in the reasonable judgment of the Beneficiary, shall substantially interfere with and adversely affect the normal operation of the Property by the Trustor to such an extent as would reasonably be anticipated to cause a Material Adverse Effect (as defined in the Credit Agreement). "Trust Premises" shall have the meaning set forth in the granting clause. SECTION 4.2. Use of Defined Terms. Terms for which meanings are provided in this Deed of Trust shall, unless otherwise defined or the context otherwise requires, have such 25 30 meanings when used in any certificate and any opinion, notice or other communication delivered from time to time in connection with this Deed of Trust or pursuant hereto. SECTION 4.3. Indenture Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Deed of Trust, including its preamble and recitals, have the meanings provided in the Indenture. ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements. SECTION 5.1.1. Further Assurances. The Trustor, at its expense, will execute, acknowledge and deliver all such instruments and take all such other action as the Beneficiary from time to time may reasonably request: (a) to better subject to the lien and security interest of this Deed of Trust all or any portion of the Trust Premises, (b) to perfect, publish notice or protect the validity of the lien and security interest of this Deed of Trust, (c) to preserve and defend the title to the Trust Premises and the rights of the Beneficiary therein against the claims of all Persons as long as this Deed of Trust shall remain undischarged, (d) to better subject to the lien and security interest of this Deed of Trust or to maintain or preserve the lien and security interest of this Deed of Trust with respect to any replacement or substitution for any Trust Premises or any other after-acquired property except as provided in the Indenture, or (e) in order to further effectuate the purposes of this Deed of Trust and to carry out the terms hereof and to better assure and confirm to the Beneficiary its rights, powers and remedies hereunder. SECTION 5.1.2. Financing Statements. Notwithstanding any other provision of this Deed of Trust, the Trustor hereby agrees that, without notice to or the consent of the Trustor, the Beneficiary may file with the appropriate public officials such financing statements, continuation statements, amendments and similar documents as are or may become necessary to perfect, preserve or protect the security interest granted by this Deed of Trust. SECTION 5.2. Additional Security. Without notice to or consent of the Trustor, and without impairment of the security interest and lien and rights created by this Deed of Trust, the Trustee and the Beneficiary or the Holders may accept from the Trustor or any other Person additional security for the Obligations. Neither the giving of this Deed of Trust nor the acceptance of any such additional security shall prevent the Beneficiary or Trustor from resorting, first, to such additional security, or, first, to the security created by this Deed of Trust, 26 31 or concurrently to both, in any case without affecting the Beneficiary's lien and rights under this Deed of Trust. SECTION 5.3. Defeasance; Partial Release, etc. SECTION 5.3.1. Defeasance. If the Senior Secured Notes and all other amounts owing pursuant to the Indenture and the Security Agreements shall be repaid in full in accordance with the terms thereof, and if the Trustor shall pay, in full, the principal of and premium, if any, and interest on the Obligations in accordance with the terms thereof and hereof and all other sums payable hereunder by the Trustor and shall comply with all the terms, conditions and requirements hereof and of the Obligations, or otherwise as may be provided in the Indenture, then on such date, the Beneficiary shall, upon the request of the Trustor and at the Trustor's sole cost and expense, execute and deliver such instruments, in form and substance reasonably satisfactory to the Beneficiary, as may be necessary to effectively reconvey, release and discharge this Deed of Trust. SECTION 5.3.2. Partial Release, etc. The Beneficiary may, at any time and from time to time, without liability therefor, and without prior notice to the Trustor, release or reconvey any part of the Trust Premises, consent to the making of any map or plat of the Property, join in granting any easement thereon or join in any extension agreement or agreement subordinating the lien of this Deed of Trust. SECTION 5.4. Notices, etc. All notices and other communications provided to any of the parties hereto shall be in writing and addressed, delivered or transmitted to such party as set forth in the Indenture. SECTION 5.5. Waivers, Amendments, etc. The provisions of this Deed of Trust may be amended, discharged or terminated and the observance or performance of any provision of this Deed of Trust may be waived, either generally or in a particular instance and either retroactively or prospectively, only by an instrument in writing executed by the Trustor and the Beneficiary. SECTION 5.6. Cross-References. References in this Deed of Trust and in each instrument executed pursuant hereto to any Section or Article are, unless otherwise specified, to such Section or Article of this Deed of Trust or such instrument, as the case may be, and references in any Section, Article or definition to any clause are, unless otherwise specified, to such clause of such Section, Article or definition. SECTION 5.7. Headings. The various headings of this Deed of Trust and of each instrument executed pursuant hereto are inserted for convenience only and shall not affect the meaning or interpretation of this Deed of Trust or such instrument or any provisions hereof or thereof. SECTION 5.8. Currency. Unless otherwise expressly stated, all references to any currency or money, or any dollar amount, or amounts denominated in "Dollars" herein will be deemed to refer to the lawful currency of the United States. 27 32 SECTION 5.9. Governing Law. THIS MORTGAGE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE. SECTION 5.10. Successors and Assigns, etc. This Deed of Trust shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 5.11. Concerning the Trustee Acceptance of Trusts; Certain Terms the Trusts. The Trustee, for itself and its successors, hereby accepts the trusts of this Deed of Trust, but only upon the terms herein set forth, including the following: (a) The recitals in this Deed of Trust and in any supplement hereto which may hereafter be executed by the Trustor and the Trustee shall be taken as the statements of the Trustor and shall not be considered as made by, or imposing any obligation or liability upon, the Trustee. (b) The Trustee may execute any of the trusts or powers hereof and perform any duty hereunder either directly or through its agents or attorneys, and the Trustee shall not be responsible for the acts of any agent or attorney appointed by it in good faith and without negligence. (c) The Trustee may, at the expense of the Trustor, consult with legal counsel to be selected by it, and the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith in accordance with the advice of counsel. (d) The Trustor will pay to the Trustee from time to time, on demand, compensation for all services rendered hereunder (which shall not be limited to the compensation of trustees of any express trust as provided by law) and also all reasonable expenses, charges, counsel fees and other disbursements and those of its agents and attorneys, made or incurred in the administration of the trusts hereby created and any other duties hereby imposed. The Trustor agrees to indemnify and save harmless the Trustee against and from any liability or damages which it may incur or sustain, in good faith, in the exercise and performance of any of its powers and duties hereunder. (e) The Trustee shall not be liable, in case of taking possession of the Trust Premises, for debts contracted or liability or damages incurred in the management or operation of the Trust Premises, for the salaries of employees of the Trustor or for nonfulfillment of contracts by the Trustor. (f) The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, statement, obligation, appraisal or other document believed by it to be genuine and to have been signed by the proper party or parties or by a person or persons authorized to act on his or their behalf. 28 33 (g) The Trustee shall not be responsible for the validity or genuineness of any securities, personal property, notes or deeds of trust at any time pledged and deposited hereunder. SECTION 5.11.2. Duties and Responsibility of Trustee; In Case of Default; Prior to Default; When Acting Under Direction of Beneficiary. If an Event of Default shall have occurred and shall be continuing to the actual knowledge of the Trustee, or if the Trustee shall have received notice thereof from the Beneficiary, the Trustee, only if so directed by the Beneficiary, shall exercise such of the rights and powers vested in it by this Deed of Trust, and in so doing shall 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. None of the provisions of this Deed of Trust shall be construed as relieving the Trustee from liability for its own negligent action, own negligent failure to act, or own willful misconduct, except that, (a) so long as no Event of Default shall have occurred and be continuing, (1) the Trustee shall not be liable except for the performance of such duties as are specifically set forth in this Deed of Trust, and no implied covenants or obligations shall be read into this Deed of Trust against the Trustee, whose duties and obligations shall be determined solely by the express provisions of this Deed of Trust, and (2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of opinions expressed therein, upon certificates or opinions conforming to the requirements of this Deed of Trust; (b) the Trustee shall not be liable for any error of judgment made in good faith by an officer or officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) 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 provisions of applicable law and the direction of the Beneficiary, relating to the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee under this Deed of Trust; (d) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Deed of Trust; (e) if an Event of Default shall have occurred and shall be continuing, the Trustee shall not exercise any of the powers granted to it hereunder unless and until specifically requested to do so by the Beneficiary; and (f) none of the provisions contained in this Deed of Trust shall require the Trustee to advance or use its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers. 29 34 SECTION 5.11.3. Notice of Default. The Trustee shall, within ten days after it has actual knowledge thereof, give to the Beneficiary notice of any Default. SECTION 5.11.4. Resignation and Removal; Appointment of Successor Trustee. (a) The Trustee may resign and be discharged from the trusts hereby created by giving written notice thereof to the Trustor and to the Beneficiary. Such resignation shall become effective upon the appointment of its successor and such successor's acceptance of such appointment, provided that, if a successor Trustee has not been so appointed, or, if so appointed, has not accepted the appointment within thirty (30) days after the date of such written notice of resignation, the Trustee may apply to any court of competent jurisdiction for the appointment of a successor Trustee. (b) The Trustee may be removed at any time by an instrument or instruments signed by the Beneficiary and filed with the Trustor and the Trustee. (c) The Beneficiary may appoint a successor Trustee at any time by filing for record in the office of the Register of Deeds of the County in which the Property is located a substitution of Trustee. From the time the substitution is filed for record, the successor Trustee shall succeed to all of the powers, duties, authority and title of the Trustee without the necessity of any conveyance from the Trustee originally herein named or any successor. Each such substitution shall be executed and acknowledged, and notice thereof shall be given and proof thereof made in accordance with applicable law. The Trustor agrees to accept and confirm any such successor Trustee hereunder by executing and delivering a supplemental Deed of Trust and security agreement or other appropriate agreement. SECTION 5.12. Waiver of Jury Trial; Submission to Jurisdiction. (a) EACH OF THE TRUSTOR AND THE BENEFICIARY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS MORTGAGE, THE INDENTURE, THE SENIOR SECURED NOTES, THE SECURITY AGREEMENTS OR ANY OTHER RELATED INSTRUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE TRUSTOR OR THE BENEFICIARY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BENEFICIARY AND THE HOLDERS TO ENTER INTO THE TRANSACTIONS PROVIDED FOR IN THE INDENTURE. (b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS MORTGAGE, THE INDENTURE, THE SENIOR SECURED NOTES, OR THE SECURITY AGREEMENTS, THE TRUSTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED 30 35 MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED. THE TRUSTOR AND BENEFICIARY EACH EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS MORTGAGE, THE INDENTURE, THE SENIOR SECURED NOTES, OR THE SECURITY AGREEMENTS IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE PERSON OF THE TRUSTOR. NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE BENEFICIARY FROM BRINGING AN ACTION AGAINST THE TRUSTOR IN ANY OTHER JURISDICTION. SECTION 5.13. Severability; Conflicts. Any provision of this Deed of Trust, the Indenture, the Senior Secured Notes, or the Security Agreements which is prohibited or unenforceable in any jurisdiction shall as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Deed of Trust, the Indenture, the Senior Secured Notes, or the Security Agreements or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of any conflict between the terms of this Deed of Trust and the terms of the Indenture, the terms of the Indenture shall control. SECTION 5.14. Security Agreement. This Deed of Trust is a Loan Document executed pursuant to the Indenture and, unless otherwise expressly indicated herein, shall be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 5.15. Usury Savings Clause.In no event shall any provision of this instrument, the Indenture, the Senior Secured Notes, or any other instrument evidencing or securing the Obligations ever obligate Trustor, to pay or allow Beneficiary to collect interest on the Senior Secured Notes or any other Obligations secured hereby at a rate greater than the maximum non-usurious rate permitted by applicable law (herein referred to as the "Highest Lawful Rate"), or obligate Trustor to pay any amounts that would be held or deemed to constitute interest under applicable law which, when added to the interest payable on the Senior Secured Notes, would be held to constitute the payment by Trustor of interest at a rate greater than the Highest Lawful Rate; and this provision shall control over any provision to the contrary. To the extent the Highest Lawful Rate is determined by reference to the laws of the State of Texas, same shall be determined by reference to the indicated rate ceiling (as defined and described in Chapter 303 of the Texas Finance Code, as amended) at the applicable time in effect. Without limiting the generality of the foregoing, in the event the maturity of all or any part of the principal amount of the Obligations shall be accelerated for any reason, then such 31 36 principal amount so accelerated shall be credited with any interest theretofore paid thereon in advance and remaining unearned at the time of such acceleration. If, pursuant to the terms of this Deed of Trust or the Senior Secured Notes, any funds are applied to the payment of any part of the principal amount of the Obligations prior to the maturity thereof, then (a) any interest which would otherwise thereafter accrue on the principal amount so paid by such application shall be canceled, and (b) the Obligations remaining unpaid after such application shall be credited with the amount of all interest, if any, theretofore collected on the principal amount so paid by such application and remaining unearned at the date of said application; and if the funds so applied shall be sufficient to pay in full all the Obligations, then Beneficiary shall refund to Trustor all interest theretofore paid thereon in advance and remaining unearned at the time of such acceleration. Regardless of any other provision in this instrument, or in any of the written evidences of the Obligations, Trustor shall never be required to pay any unearned interest on the Obligations or any portion thereof, and shall never be required to pay interest thereon at a rate in excess of the Highest Lawful Rate construed by courts having competent jurisdiction thereof. It is the intention of the Trustor and the Beneficiary to conform strictly to the usury laws governing the Indenture and the Security Agreements, and any interest payable under the Indenture and the Security Agreements executed pursuant to the Indenture shall be subject to reduction to the amount not in excess of the maximum non-usurious amount allowed under such laws, as construed by the courts having jurisdiction over such matters. In the event the maturity of the Obligations is accelerated by reason of any provision of the Indenture and the Security Agreements executed pursuant to the Indenture, or by reason of an election by the Beneficiary resulting from an Event of Default, then earned interest may never include more than the maximum amount permitted by law, computed from the dates of each advance of loan proceeds under the Indenture until payment, and any interest in excess of the maximum amount permitted by law shall be canceled automatically or, if theretofore paid, at the option of the Beneficiary, shall be rebated to the Trustor, or shall be credited on the principal amount of the Obligations or, if all principal has been repaid, then the excess shall be rebated to the Trustor. If any interest is canceled, credited against principal or rebated to the Trustor in accordance with the foregoing sentence and, if thereafter the interest payable hereunder is less than the maximum amount permitted by applicable law, the rate hereunder shall automatically be increased to the maximum extent possible to permit repayment to the Beneficiary and the Lenders as soon as possible of any interest in excess of the maximum amount permitted by law which was earlier canceled, credited against principal or rebated to the Trustor pursuant to the provisions of the foregoing sentence. SECTION 5.16. Entire Agreement.THIS WRITTEN SECURITY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. SECTION 5.17. Subordination to First Deed of Trust. (a) The lien of this Deed of Trust shall be subject and subordinate only to the lien of the First Deed of Trust and Permitted Encumbrances. Notwithstanding anything to the contrary contained in this Deed of Trust, this Deed of Trust shall not be subordinate to 32 37 any increases in the aggregate principal amount that may be borrowed (i) under the First Deed of Trust or other documents executed in connection therewith, or (ii) under any amendment, modifications, renewals, replacements or consolidations thereof, made without the prior written consent of Beneficiary, to an amount in excess of $70,000,000. (b) Trustor represents and warrants that (i) the First Deed of Trust is in full force and effect, and (ii) all principal, interest and other amounts payable under the terms, covenants, conditions and provisions of the First Deed of Trust and the other documents executed in connection therewith have been and shall be paid in accordance with the terms, covenants, conditions and provisions thereof. (c) Trustor covenants and agrees that Trustor shall: (i) promptly and faithfully observe, perform and comply with all the terms, covenants, conditions and provisions of the First Deed of Trust and other documents executed in connection therewith; (ii) not modify, or amend, or in any way alter or permit the alteration of any of the terms, covenants, conditions or provisions of the First Deed of Trust or the other documents executed in connection therewith in a manner that will increase the aggregate principal amount of indebtedness that may be borrowed under the First Deed of Trust and the other documents executed in connection therewith the repayment of which is secured by the First Deed of Trust to an amount in excess of $70,000,000; (iii) promptly deliver to Beneficiary a copy of each notice of a First Deed of Trust Default received or delivered by Trustor in connection with the First Deed of Trust; and (iv) furnish to Beneficiary copies of such additional information and evidence as Beneficiary reasonably may require concerning Trustor's due observance, performance and compliance with the terms, covenants, conditions, and provisions of the First Deed of Trust and the other documents executed in connection therewith (including, but without limiting the generality of the foregoing, evidence, reasonably satisfactory to Beneficiary, of the payment by Trustor of principal, interest and other amounts required by the terms, covenants, conditions and provisions of the First Deed of Trust and the other documents executed in connection therewith). (d) Upon the occurrence and during the continuance of a First Deed of Trust Default, in addition to any other rights and remedies that may be available to Beneficiary, Beneficiary may, but shall not be obligated to, cure such First Deed of Trust Default and Beneficiary shall be subrogated to the rights of the holder of the First Deed of Trust against Trustor and the Premises. To the extent Beneficiary makes any payment of any installment of interest or any payment of principal or other sum due under the First Deed of Trust and/or any note secured thereby, such payment (i) shall be deemed to be indebtedness secured hereby, (ii) shall be a lien on the Premises prior to any right or title to, interest in, or claim upon the Premises subordinate to the lien of this Deed of Trust, and (iii) shall accrue interest at a rate equal to the lower of (a) eighteen percent (18%) per annum or (b) the maximum rate permitted by law. (e) If for any reason the indebtedness secured by the First Deed of Trust is accelerated, or the Premises or any part thereof is sold, or attempted to be sold, pursuant to the First Deed of Trust, whether by power of sale, judicial action or otherwise, or any other remedial action or proceeding is taken or instituted in respect of the Premises or any 33 38 part thereof under the First Deed of Trust, Trustor will indemnify and hold Beneficiary harmless from any loss, cost or expense incurred by Beneficiary, including reasonable attorneys' fees, in contesting any such action taken or instituted, or incurred by Beneficiary on account of the acceleration of the indebtedness secured by the First Deed of Trust, the sale of the Premises pursuant thereto or Beneficiary's purchase or payment of the First Deed of Trust. (f) Trustor does herewith irrevocably appoint and constitute Beneficiary as its true and lawful attorney-in-fact in its name, place and stead to, upon the occurrence and during the continuance of a First Deed of Trust Default, perform and comply with all obligations of Trustor under the First Deed of Trust, to do and take, without any obligation to do so, any action as Beneficiary deems necessary or desirable to cure any First Deed of Trust Default. Trustor shall, within five (5) days after written request is made therefor by Beneficiary, execute and deliver to Beneficiary or to any person which Beneficiary shall designate, such further instruments, agreements, powers, deeds, conveyances or the like as may be necessary to complete or perfect the interest, rights or powers of Beneficiary pursuant to this paragraph. (g) Upon receipt by Beneficiary of any notice of a First Deed of Trust Default, Beneficiary may rely thereon and take any such reasonable action as Beneficiary shall reasonably deem necessary, irrespective of whether the existence of such First Deed of Trust Default or the nature thereof be questioned or denied by or on behalf of Trustor. Notwithstanding anything to the contrary contained in this Deed of Trust, and each of the terms, conditions and provisions hereof, and Beneficiary's rights and remedies hereunder, is, and at all times shall be subject and subordinate to the First Deed of Trust. The parties hereto agree to execute a subordination agreement if requested by Lender or any lender under any refinancing of the indebtedness secured by the First Deed of Trust. IN WITNESS WHEREOF, the undersigned, by its duly elected officers and pursuant to proper authority of its board of directors has duly executed, sealed, acknowledged and delivered this instrument as of the day and year first above written. 34 39 TRUSTOR: STERLING CHEMICALS, INC., a Delaware corporation By: ----------------------------------------- Name: ------------------------------------ Title: President DRAFTED BY: Latham & Watkins 885 Third Avenue New York, New York 10022-4802 Attention: Wylie S. Allen, Esq. 35 40 [CORPORATE NOTARY PAGE] MULTI-STATE CORPORATE ACKNOWLEDGMENT State of New York County of New York On this _______________ day of July, 1999, before me, the undersigned officer, personally appeared ___________________________, with a residence at _____________________, personally known and acknowledged himself/herself/themselves to me, or produced _________________________________ as identification, to be the _______________ President of ______________________________, (hereinafter, the "Corporation") and that as such officer(s), being duly authorized to do so pursuant to its bylaws or a resolution of its board of directors, executed, subscribed and acknowledged the foregoing instrument for the purposes therein contained, by signing the name of the Corporation by himself/herself/ themselves in their authorized capacities as such officer(s) as his/her/their free and voluntary act and deed and the free and voluntary act and deed of said Corporation. In Witness Whereof, I hereunto set my hand and official seal. ------------------------------------- Notary Public Notarial Seal My Commission Expires: 36 41 SCHEDULE 1 Legal Description of the Land [ ] 42 SCHEDULE 2 Permitted Encumbrances [ ] [ ] EX-4.11 12 SECOND MORTGAGE, ASSIGNMENT OF LEASES & RENTS 1 EXHIBIT 4.11 =============================================================================== STERLING FIBERS, INC., Mortgagor, to HARRIS TRUST COMPANY OF NEW YORK, Mortgagee -------------------------------------------------- SECOND MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING -------------------------------------------------- Dated as of July 23, 1999 This instrument affects certain real and personal property located in Santa Rosa County, State of Florida. =============================================================================== Record and return to: Latham & Watkins 885 Third Avenue New York, New York 10022 Attention: Wylie S. Allen, Esq. Notwithstanding anything to the contrary contained herein, the maximum principal indebtedness secured under any contingency by this instrument shall in no event exceed $295,000,000. Pursuant to the procedure set forth in Florida Department of Revenue Regulation 12B-4.053(32) (c) the documentary stamp tax due on the indebtedness secured hereby is $59,381.00, which is based upon a value of the Florida property secured hereby in the amount of $16,966,000.000. Based on the valuations of the collateral as a ratio as set forth in Florida Department of Revenue Regulation 12C-2.004(2) the intangible tax due on the indebtedness secured and allocated to Florida real estate is $6,996.36. This is based upon a total value for all Florida Real Estate of $14, 530,000.00 and the value of all collateral in the amount of $1,225,309,000.00. CALCULATIONS: $14,530,000.00 X $295,000,000.00 = $ 3,498,178.83 ----------------- -------------- $1,225,309,000.00 $ 3,498, 178.83 X .002 = $6,996.36 --------- The calculations used for computing documentary stamp taxes and intangible taxes are based upon present valuations as agreed by the parties and in no way limit the Mortgagee's right or ability to fully recover on the indebtedness secured hereby. 2 TABLE OF CONTENTS
Page ARTICLE I COVENANTS AND AGREEMENTS OF THE MORTGAGOR SECTION 1.1. Payment of Obligations......................................................................4 SECTION 1.2. Title to Collateral, etc....................................................................5 SECTION 1.3. Title Insurance.............................................................................5 SECTION 1.4. Recordation.................................................................................6 SECTION 1.5. Payment of Impositions, etc.................................................................6 SECTION 1.6. Insurance and Legal Requirements............................................................6 SECTION 1.7. Security Interests, etc.....................................................................7 SECTION 1.8. Permitted Contests..........................................................................7 SECTION 1.9. Leases......................................................................................8 SECTION 1.10. Compliance with Instruments.................................................................8 SECTION 1.11. Maintenance and Repair, etc.................................................................8 SECTION 1.12. Alterations, Additions, etc.................................................................8 SECTION 1.13. Intentionally Omitted.......................................................................9 SECTION 1.14. Assignment of Rents, Proceeds, etc..........................................................9 SECTION 1.15. No Claims Against the Mortgagee.............................................................9 SECTION 1.16. Indemnification............................................................................10 SECTION 1.17. No Credit for Payment of Taxes.............................................................11 SECTION 1.18. Intentionally Omitted......................................................................11 SECTION 1.19. No Transfer of the Property................................................................11 SECTION 1.20. Security Agreement.........................................................................11 SECTION 1.21. Representations and Warranties.............................................................12 SECTION 1.22. Mortgagor's Covenants......................................................................12 SECTION 1.23. Attornment.................................................................................12 ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR taking, ETC. SECTION 2.1. Insurance..................................................................................13 SECTION 2.2. Damage, Destruction or Taking; Mortgagor to Give Notice; Assignment of Awards..............14 SECTION 2.3. Application of Proceeds and Awards.........................................................15 SECTION 2.4. Total Taking and Total Destruction.........................................................17 ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration............................................................17
i 3 SECTION 3.2. Legal Proceedings; Judicial Foreclosure....................................................18 SECTION 3.3. Power of Sale..............................................................................18 SECTION 3.4. Uniform Commercial Code Remedies...........................................................18 SECTION 3.5. Mortgagee Authorized to Execute Deeds, etc.................................................19 SECTION 3.6. Purchase of Collateral by Mortgagee........................................................19 SECTION 3.7. Receipt a Sufficient Discharge to Purchaser................................................19 SECTION 3.8. Waiver of Appraisement, Valuation, etc.....................................................19 SECTION 3.9. Sale a Bar Against Mortgagor...............................................................19 SECTION 3.10. Obligations to Become Due on Sale..........................................................19 SECTION 3.11. Application of Proceeds of Sale and Other Moneys...........................................20 SECTION 3.12. Appointment of Receiver....................................................................20 SECTION 3.13. Possession, Management and Income..........................................................20 SECTION 3.14. Right of Mortgagee to Perform Mortgagor's Covenants, etc...................................21 SECTION 3.15. Subrogation................................................................................21 SECTION 3.16. Remedies, etc., Cumulative.................................................................21 SECTION 3.17. Provisions Subject to Applicable Law.......................................................22 SECTION 3.18. No Waiver, etc.............................................................................22 SECTION 3.19. Compromise of Actions, etc.................................................................22 ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Mortgage.............................................................22 SECTION 4.2. Use of Defined Terms.......................................................................24 SECTION 4.3. Indenture Definitions......................................................................24 ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements...................................................24 SECTION 5.2. Additional Security........................................................................25 SECTION 5.3. Defeasance; Partial Release, etc...........................................................25 SECTION 5.4. Notices, etc...............................................................................25 SECTION 5.5. Waivers, Amendments, etc...................................................................25 SECTION 5.6. Cross-References...........................................................................25 SECTION 5.7. Headings...................................................................................25 SECTION 5.8. Currency...................................................................................26 SECTION 5.9. Governing Law..............................................................................26 SECTION 5.10. Successors and Assigns, etc................................................................26 SECTION 5.11. Waiver of Jury Trial; Submission to Jurisdiction...........................................26 SECTION 5.12. Severability; Conflicts....................................................................27 SECTION 5.13. Security Agreement.........................................................................27 SECTION 5.14. Usury Savings Clause.......................................................................27 SECTION 5.15. Future Advances............................................................................27 SECTION 5.16. Subordination to First Mortgage............................................................28 Exhibit A Legal Description of the Land Exhibit B Permitted Encumbrances
ii 4 SECOND MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING SECOND MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING, dated as of July 23, 1999 (this "Mortgage"), made by STERLING FIBERS, INC., a Delaware corporation (the "Mortgagor"), having an address at 1200 Smith, Suite 1900, Houston, Texas 77002-4312, to HARRIS TRUST COMPANY OF NEW YORK, a New York corporation, as collateral agent and indenture trustee for the benefit of itself and certain other holders (collectively, the "Holders") of the 12 3/8% Senior Secured Notes due 2006, having an address at Wall Street Plaza, 19th Floor, 88 Pine Street, New York, New York 10005, as mortgagee (together with its successors and assigns from time to time, the "Mortgagee"). All capitalized terms used but not otherwise defined herein shall have the meaning ascribed thereto in the Indenture. WITNESSETH THAT: WHEREAS, the Mortgagor is on the date of delivery hereof the owner of fee title (or easement or leasehold title if otherwise indicated on Exhibit A hereto) to the parcels of land described in Exhibit A hereto (the "Land") and of the Improvements (hereinafter defined); WHEREAS, the Mortgagee, as collateral agent and indenture trustee, and Sterling Chemicals, Inc., a Delaware corporation, as issuer ("Issuer") have entered into that certain Indenture, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Issuer issued $295 million in the aggregate principal amount of 12 3/8% Senior Secured Notes due 2006 (the "Senior Secured Notes"); and WHEREAS, Mortgagor has granted a first priority mortgage (the "First Mortgage") encumbering the Collateral pursuant to that certain Revolving Credit Agreement (the "Credit Agreement"), by and among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Mortgagor, Sterling Chemicals Energy, Inc. and Sterling Chemicals International, Inc., as Borrowers (collectively, "Borrowers"), various financial institutions, as lenders ("Lenders"), DLJ Capital Funding, Inc., as syndication agent ("Syndication Agent"), The CIT Group/Business Credit, Inc., as the administrative agent and collateral agent (the "Administrative Agent"), and Credit Suisse First Boston, as the documentation agent; and WHEREAS, pursuant to the terms of the Credit Agreement, the Lenders (as defined in the Credit Agreement) have agreed to make Fixed Assets Loans (as defined in the Credit Agreement) (the "Senior Loan") to the Borrowers in the maximum original principal amount of Seventy Million Dollars ($70,000,000), the payment of which is secured by, inter alia, the First Mortgage encumbering the Collateral; and WHEREAS, during the pendency of the Senior Loan and any refinancing thereof to the extent permitted hereunder, this Mortgage shall be subordinate and inferior to the First Mortgage; and 1 5 WHEREAS, the Mortgagor has duly authorized the execution, delivery and performance of this Mortgage. GRANT: NOW, THEREFORE, for and in consideration of the premises, and of the mutual covenants herein contained, and in order to secure the full, timely and proper payment and performance of and compliance with each and every one of the Obligations (as hereinafter defined), the Mortgagor hereby irrevocably grants, bargains, sells, mortgages, warrants, aliens, demises, releases, hypothecates, pledges, assigns, transfers and conveys to the Mortgagee and its successors and assigns, forever, all of the following (the "Collateral"): (a) Real Estate. All of Mortgagor's right, title and interest in and to all of the Land and all additional lands and estates therein now owned by the Mortgagor for use or development with the Land or any portion thereof, together with all and singular the tenements, rights, easements, hereditaments, rights of way, privileges, liberties, appendages and appurtenances now or hereafter belonging or in any way pertaining to the Land and such additional lands and estates therein (including, without limitation, all rights relating to storm and sanitary sewer, water, gas, electric, railway and telephone services); all development rights, air rights, riparian rights, water, water rights, water stock, all rights in, to and with respect to any and all oil, gas, coal, minerals and other substances of any kind or character underlying or relating to the Land and such additional lands and estates therein and any interest therein; all estate, claim, demand, right, title or interest of the Mortgagor in and to any street, road, highway or alley, vacated or other, adjoining the Land or any part thereof and such additional lands and estates therein; all strips and gores belonging, adjacent or pertaining to the Land or such additional lands and estates (herein collectively referred to as the "Real Estate"); (b) Improvements. All of Mortgagor's right, title and interest in and to all buildings, structures and other improvements now existing and any additions and alterations thereto or replacements thereof, now or hereafter built, constructed or located upon the Real Estate; and, to the extent that any of the following items of property constitutes fixtures under applicable laws, all furnishings, fixtures, fittings, appliances, apparatus, equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever and all replacements thereof, now affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Real Estate or such buildings, structures and other improvements, including, but not limited to, partitions, furnaces, boilers, oil burners, radiators and piping, plumbing and bathroom fixtures, refrigeration, heating, ventilating, air conditioning and sprinkler systems, other fire prevention and extinguishing apparatus and materials, vacuum cleaning systems, gas and electric fixtures, incinerators, compactors, elevators, engines, motors, generators and all other articles of property which are considered fixtures under applicable law (such buildings, structures and other improvements and such other property are herein collectively referred to as the "Improvements"; the Real Estate and the Improvements are herein collectively referred to as the "Property"); 2 6 (c) Goods. All of Mortgagor's right, title and interest in and to all building materials, construction materials, appliances (including, without limitation, stoves, ranges, ovens, disposals, refrigerators, water fountains and coolers, fans, heaters, dishwashers, clothes washers and dryers, water heaters, hood and fan combinations, kitchen equipment, laundry equipment, kitchen cabinets and other similar equipment), stocks, supplies, blinds, window shades, drapes, carpets, floor coverings, manufacturing equipment and machinery, office equipment, growing plants and shrubberies, control devices, equipment (including window cleaning, building cleaning, swimming pool, recreational, monitoring, garbage, pest control and other equipment), motor vehicles, tools, furnishings, furniture, lighting, non-structural additions to the Real Estate and Improvements and all other tangible property of any kind or character, together with all replacements thereof, now located on or in or used or useful in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Property, regardless of whether or not located on or in the Property or located elsewhere for purposes of storage, fabrication or otherwise (herein collectively referred to as the "Goods"); (d) Leases. All rights of the Mortgagor in, to and under all leases, licenses, occupancy agreements, concessions and other arrangements, oral or written, and now existing or replacements thereof hereafter existing, whereby any Person agrees to pay money or any other consideration for the use, possession or occupancy of, or any estate in, the Property or any portion thereof or interest therein (herein collectively referred to as the "Leases"), and the right, subject to applicable law, upon the occurrence of any Event of Default hereunder, to receive and collect the Rents (as hereinafter defined) paid or payable thereunder; (e) Intentionally Omitted. (f) Plans. All rights of the Mortgagor in and to all plans and specifications, designs, drawings and other information, materials and matters heretofore prepared relating to the Improvements or any construction on the Real Estate (herein collectively referred to as the "Plans"); (g) Permits. All rights of the Mortgagor, to the extent assignable, in, to and under all permits, franchises, licenses, approvals and other authorizations respecting the use, occupation and operation of the Property and every part thereof and respecting any business or other activity conducted on or from the Property, and any product or proceed thereof or therefrom, including, without limitation, all building permits, certificates of occupancy and other licenses, permits and approvals issued by governmental authorities having jurisdiction (collectively, the "Permits"); (h) Contracts. All right, title and interest of the Mortgagor, to the extent assignable, in and to all certificates, warranties, appraisals, engineering, environmental, soils, insurance and other reports and studies, books, records, correspondence, files and advertising materials, and other documents, now or hereafter obtained or entered into, as the case may be, pertaining to the construction, use, occupancy, possession, operation, 3 7 management, leasing, maintenance and/or ownership of the Property and all right, title and interest of the Mortgagor therein (collectively, the "Contracts"); (i) Leases of Furniture, Furnishings and Equipment. All right, title and interest of the Mortgagor as lessee in, to and under any leases of furniture, furnishings, equipment and any other Goods now or hereafter installed in or at any time used in connection with the Property; (j) Rents. All rents, issues, profits, royalties, avails, income and other benefits derived or owned, directly or indirectly, by the Mortgagor from the Property, including, without limitation, all rents and other consideration payable by tenants, claims against guarantors, and any cash or other securities deposited to secure performance by tenants, under the Leases (herein collectively referred to as the "Rents"); and (k) Proceeds. All proceeds of the conversion, voluntary or involuntary of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards (herein collectively referred to as the "Proceeds"); provided however, the Collateral shall not include any general intangibles or other rights arising under any contracts, instruments, licenses, or other documents as to which the grant of a lien and/or security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained; and further provided, however, in no event shall the Collateral hereunder include any item or classes of "Collateral" as defined in the Current Assets Security Agreement (as defined in the Credit Agreement) and provided further, that the Collateral shall include after acquired property to the extent, and only to the extent, that such after acquired property is in replacement or substitution of Collateral existing as of the date hereof. AND, without limiting any of the other provisions of this Mortgage, the Mortgagor expressly grants to the Mortgagee, as secured party, a security interest in all of those portions of the Collateral which are or may be subject to the State Uniform Commercial Code provisions applicable to secured transactions, subject, however, to the Permitted Encumbrances; TO HAVE AND TO HOLD the Collateral unto the Mortgagee, its successors and assigns, forever, subject, however, to the Permitted Encumbrances. FURTHER to secure the full, timely and proper payment and performance of the Obligations, the Mortgagor hereby covenants and agrees with and warrants to the Mortgagee as follows: ARTICLE I COVENANTS AND AGREEMENTS OF THE MORTGAGOR SECTION 1.1 Payment of Obligations. (i) The Mortgagor agrees that: 4 8 (a) it will duly and punctually pay and perform or cause to be paid and performed each of its liabilities, duties and obligations pursuant to its Subsidiary Guarantees under the Indenture at the time and in accordance with the terms thereof, and (b) when and as due and payable from time to time in accordance with the terms hereof, pay and perform, or cause to be paid and performed, all other Obligations. SECTION 1.2 Title to Collateral, etc. The Mortgagor represents and warrants to and covenants with the Mortgagee that: (a) except as otherwise permitted by the terms of the Indenture, as of the date hereof and at all times hereafter while this Mortgage is outstanding, the Mortgagor (1) is and shall be the absolute owner of the legal and beneficial title to the applicable interest in the Property and to all other property included in the Collateral, and (2) has and shall have good and marketable title in fee simple absolute, or good and sufficient easement or leasehold title, as currently represented in the granting clause as of the date hereof, to the Property, subject in each case only to this Mortgage, the Permitted Liens, the First Mortgage and the encumbrances set forth in Exhibit B (collectively, the "Permitted Encumbrances"); (b) the Mortgagor has good and lawful right, power and authority to execute this Mortgage and to convey, transfer, assign, mortgage and grant a security interest in the Collateral, all as provided herein; (c) this Mortgage has been duly executed, acknowledged and delivered on behalf of the Mortgagor, all consents and other actions required to be taken by the officers, directors, shareholders and partners, as the case may be, of the Mortgagor have been duly and fully given and performed and this Mortgage constitutes the legal, valid and binding obligation of the Mortgagor, enforceable against the Mortgagor in accordance with its terms; and (d) the Mortgagor, at its expense, will warrant and defend to the Mortgagee and any purchaser under the power of sale herein or at any foreclosure sale such title to the Collateral and the mortgage lien and perfected security interest of this Mortgage thereon and therein against all claims and demands and will maintain, preserve and protect such lien and security interest and will keep this Mortgage a valid, direct mortgage lien of record on the Property and a perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. SECTION 1.3. Title Insurance. SECTION 1.3.1. Title Insurance Policy. Concurrently with the execution and delivery of this Mortgage, the Mortgagor, at its expense, has obtained and delivered to the Mortgagee a loan policy or policies of title insurance in an amount, and in form and substance, reasonably satisfactory to the Mortgagee naming the Mortgagee as the insured, insuring the title to and the mortgage lien of this Mortgage on the Property, with endorsements reasonably requested by the Mortgagee. The Mortgagor has duly paid in full all premiums and other charges due in connection with the issuance of such policy or policies of title insurance. 5 9 SECTION 1.3.2. Title Insurance Proceeds. All proceeds received by and payable to the Mortgagee for any loss under the loan policy or policies of title insurance delivered to the Mortgagee pursuant to Section 1.3.1, or under any policy or policies of title insurance delivered to the Mortgagee in substitution therefor or replacement thereof, shall be the property of the Mortgagee and shall be applied by the Mortgagee in accordance with the provisions of Section 2.3. SECTION 1.4. Recordation. The Mortgagor, at its expense, will at all times cause this Mortgage and any instruments amendatory hereof or supplemental hereto and any instruments of assignment hereof or thereof (and any appropriate financing statements or other instruments and continuations thereof), and each other instrument delivered in connection with the Indenture, the Senior Secured Notes or any other Security Agreement made pursuant to the terms of the Indenture and intended thereunder to be recorded, registered and filed, to be kept recorded, registered and filed, in such manner and in such places, and will pay all such recording, registration, filing fees, taxes and other charges, and will comply with all such statutes and regulations as may be required by law in order to establish, preserve, perfect and protect the lien and security interest of this Mortgage as a valid, direct second mortgage lien on the Property and second priority perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. The Mortgagor will pay or cause to be paid, and will indemnify the Mortgagee in respect of, all taxes (including interest and penalties) at any time payable in connection with the filing and recording of this Mortgage and any and all supplements and amendments hereto. SECTION 1.5. Payment of Impositions, etc. Subject to Section 1.8 (relating to permitted contests), the Mortgagor will pay or cause to be paid before the same would become delinquent and before any fine, penalty, interest or cost may be added for non-payment, all taxes, assessments, water and sewer rates, charges, license fees, inspection fees and other governmental levies or payments, of every kind and nature whatsoever, general and special, ordinary and extraordinary, unforeseen as well as foreseen, which at any time may be assessed, levied, confirmed, imposed or which may become a lien upon the Collateral, or any portion thereof, or which are payable with respect thereto, or upon the rents, issues, income or profits thereof, or on the occupancy, operation, use, possession or activities thereof, whether any or all of the same be levied directly or indirectly or as excise taxes or as income taxes, and all taxes, assessments or charges which may be levied on the Obligations, or the interest thereon (collectively, the "Impositions"). The Mortgagor will deliver to the Mortgagee, upon request, copies of official receipts or other satisfactory proof evidencing such payments. SECTION 1.6. Insurance and Legal Requirements. Subject to Section 1.8 (relating to permitted contests), the Mortgagor, at its expense, will comply in all material respects, or cause compliance in all material respects with (a) all provisions of any insurance policy covering or applicable to the Collateral or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Collateral or any part thereof or any use or condition of the Collateral or any part thereof (collectively, the "Insurance Requirements"); and 6 10 (b) all laws, including Environmental Laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Collateral or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Collateral or any part thereof (collectively, the "Legal Requirements"); noncompliance of which could reasonably be expected to cause a Material Adverse Effect (as defined in the Credit Agreement) whether or not compliance therewith shall require structural changes in or interference with the use and enjoyment of the Collateral or any part thereof. SECTION 1.7. Security Interests, etc. The Mortgagor will not directly or indirectly create or permit or suffer to be created or to remain, and will promptly discharge or cause to be discharged, any deed of trust, mortgage, encumbrance or charge on, pledge of, security interest in or conditional sale or other title retention agreement with respect to or any other lien on or in the Collateral or any part thereof or the interest of the Mortgagor or the Mortgagee therein, or any Proceeds thereof or Rents or other sums arising therefrom, other than (a) Permitted Encumbrances, and (b) liens of mechanics, materialmen, suppliers or vendors or rights thereto incurred in the ordinary course of the business of the Mortgagor for sums not yet due or any such liens or rights thereto which are at the time being contested as permitted by Section 1.8. The Mortgagor will not postpone the payment of any sums for which liens of mechanics, materialmen, suppliers or vendors or rights thereto have been incurred (unless such liens or rights thereto are at the time being contested as permitted by Section 1.8), for more than 60 days after the completion of the action giving rise to such liens or rights thereto. SECTION 1.8. Permitted Contests. The Mortgagor at its expense may contest, or cause to be contested, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition, Legal Requirement or Insurance Requirement or lien of a mechanic, materialman, supplier or vendor, provided that, (a) in the case of an unpaid Imposition, lien, encumbrance or charge, such proceedings shall suspend the collection thereof from the Mortgagor, the Mortgagee, and the Collateral (including any rent or other income therefrom) and shall not materially interfere with the payment of any such rent or income, (b) neither the Collateral nor any rent or other income therefrom nor any part thereof or interest therein would be in any material danger of being sold, forfeited, lost, impaired or interfered with, (c) in the case of a Legal Requirement, neither the Mortgagor nor the Mortgagee would be in material danger of any civil or criminal liability for failure to comply therewith, (d) the Mortgagor shall have furnished such security, if any, as may be required in the proceedings or as may be reasonably requested by the Mortgagee, (e) the non-payment of the whole or any part of any Imposition will not result in the delivery of a tax deed to the Collateral or any part thereof because of such non-payment, (f) the payment of any sums required to be paid with respect to any of the Senior Secured Notes or under this Mortgage (other than any unpaid Imposition, lien, encumbrance or charge at the time being contested in accordance with this Section 1.8) shall not be interfered with or otherwise affected, (g) in the case of any Insurance Requirement, the failure of the Mortgagor to comply therewith shall not affect the validity of any insurance required to be maintained by the Mortgagor under 7 11 Section 2.1, and (h) that adequate reserves, determined in accordance with GAAP, shall have been set aside on the Mortgagor's books. SECTION 1.9. Leases. The Mortgagor represents and warrants to the Mortgagee that, as of the date hereof, there are no written or oral leases or other agreements of any kind or nature, other than the Permitted Encumbrances, relating to the occupancy of any portion of the Property by any Person other than the Mortgagor. Except as is permitted by the Indenture and any Security Agreements executed pursuant to the Indenture, the Mortgagor will not enter into any such written or oral lease or other agreement with respect to any portion of the Property without first obtaining the written consent of the Mortgagee. SECTION 1.10. Compliance with Instruments. The Mortgagor at its expense will promptly comply in all material respects with all rights of way or use, privileges, franchises, servitudes, licenses, easements, tenements, hereditaments and appurtenances forming a part of the Property and all instruments creating or evidencing the same, in each case, to the extent compliance therewith is required of the Mortgagor under the terms thereof. Except as is permitted by the Indenture and any Security Agreements executed pursuant to the Indenture, the Mortgagor will not take any action which may result in a forfeiture or termination of the rights afforded to the Mortgagor under any such instruments, and will not, without the prior written consent of the Mortgagee, amend any of such instruments in any manner adverse to the Holders in any material respect. SECTION 1.11. Maintenance and Repair, etc. Subject to the provisions of Section 1.12, the Mortgagor will keep or cause to be kept all presently and subsequently erected or acquired Improvements and the sidewalks, curbs, vaults and vault space, if any, located on or adjoining the same, and the streets and the ways adjoining the same, in good and substantial order and repair and in such a fashion that neither the value nor utility of the Collateral will be diminished, and, at its sole cost and expense, will promptly make or cause to be made all necessary and appropriate repairs, replacements and renewals thereof, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen, so that its business carried on in connection therewith may be properly conducted at all times. The Mortgagor at its expense will do or cause to be done all shoring of foundations and walls of any building or other Improvements on the Property and (to the extent permitted by law) of the ground adjacent thereto, and every other act necessary or appropriate for the preservation and safety of the Property by reason of or in connection with any excavation or other building operation upon the Property and upon any adjoining property, whether or not the Mortgagor shall, by any Legal Requirement, be required to take such action or be liable for failure to do so. SECTION 1.12. Alterations, Additions, etc. So long as no Event of Default shall have occurred and be continuing, the Mortgagor shall have the right at any time and from time to time to make or cause to be made reasonable alterations of and additions to the Property or any part thereof, provided that any alteration or addition: (a) shall not change the general character or the use of the Property or reduce the fair market value thereof below its value immediately before such alteration or addition, or impair the usefulness of the Property; (b) is effected with due diligence, in a good and workmanlike manner and in compliance in all material respects with all Legal Requirements and Insurance Requirements; (c) subject to Section 1.8 is promptly and fully paid for, or caused to be paid for, by the Mortgagor; and (d) is made, in case the estimated 8 12 cost of such alteration or addition exceeds U.S. $1,000,000, under the supervision of a qualified architect or engineer or another professional. SECTION 1.13. Intentionally Omitted. SECTION 1.14. Assignment of Rents, Proceeds, etc. The assignment, grant and conveyance of the Leases, Rents, Proceeds and other rents, income, proceeds and benefits of the Collateral contained in the Granting Clause of this Mortgage shall constitute an absolute, present and irrevocable assignment, grant and conveyance, provided, however, that permission is hereby given to the Mortgagor, so long as no Event of Default has occurred and be continuing hereunder, to collect, receive and apply such Rents, Proceeds and other rents, income, proceeds and benefits as they become due and payable, but not further in advance thereof than is customary, and in accordance with all of the other terms, conditions and provisions hereof, of the Indenture, the Senior Secured Notes and the Security Agreements made pursuant to the terms of the Indenture, and of the Leases, contracts, agreements and other instruments with respect to which such payments are made or such other benefits are conferred. Upon the occurrence and continuance of an Event of Default, such permission shall terminate immediately and automatically, without notice to the Mortgagor or any other Person except as required by law, and shall not be reinstated upon a cure of such Event of Default without the express written consent of the Mortgagee. Such assignment shall be fully effective without any further action on the part of the Mortgagor or the Mortgagee and the Mortgagee shall be entitled, at its option, upon the occurrence and continuance of an Event of Default hereunder, to collect, receive and apply all Rents, Proceeds and all other rents, income, proceeds and benefits from the Collateral, including all right, title and interest of the Mortgagor in any escrowed sums or deposits or any portion thereof or interest therein, whether or not the Mortgagee takes possession of the Collateral or any part thereof. The Mortgagor further grants to the Mortgagee the right, at the Mortgagee's option, upon the occurrence and continuance of an Event of Default hereunder, to: (a) enter upon and take possession of the Property for the purpose of collecting Rents, Proceeds and said rents, income, proceeds and other benefits; (b) dispossess by the customary summary proceedings any tenant, purchaser or other Person defaulting in the payment of any amount when and as due and payable, or in the performance of any other obligation, under any Lease, contract or other instrument to which said Rents, Proceeds or other rents, income, proceeds or benefits relate; (c) let or convey the Collateral or any portion thereof or any interest therein; and (d) apply Rents, Proceeds and such rents, income, proceeds and other benefits, after the payment of all necessary fees, charges and expenses, on account of the Obligations in accordance with Section 3.11. SECTION 1.15. No Claims Against the Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or the furnishing of any materials or other property in respect of the Property or any part thereof, or be construed to permit the making of any claim against the Mortgagee in respect of labor or services or the furnishing of any materials or other property or 9 13 any claim that any lien based on the performance of such labor or the furnishing of any such materials or other property is prior to the lien and security interest of this Mortgage. ALL CONTRACTORS SUBCONTRACTORS, VENDORS AND OTHER PERSONS DEALING WITH THE PROPERTY, OR WITH ANY PERSONS INTERESTED THEREIN, ARE HEREBY REQUIRED TO TAKE NOTICE OF THE PROVISIONS OF THIS SECTION. SECTION 1.16. Indemnification. The Mortgagor will protect, indemnify, save harmless and defend the Holders, the Mortgagee, and each of its respective officers, directors, shareholders, employees, representatives and agents (collectively, the "Indemnified Parties" and individually, an "Indemnified Party"), from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against any Indemnified Party by reason of (a) ownership of an interest in this Mortgage, the Indenture, the Senior Secured Notes, any Security Agreement executed pursuant to the Indenture made pursuant to the terms of the Indenture or the Property, (b) any accident, injury to or death of persons or loss of or damage to or loss of the use of property occurring on or about the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (c) any use, non-use or condition of the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (d) any failure on the part of the Mortgagor to perform or comply with any of the terms of this Mortgage, the Indenture, the Senior Secured Notes, or any Security Agreement made pursuant to the terms of the Indenture, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Collateral or any part thereof made or suffered to be made by or on behalf of the Mortgagor, (f) any negligence or tortious act on the part of the Mortgagor or any of its agents, contractors, lessees, licensees or invitees, (g) any work in connection with any alterations, changes, new construction or demolition of or additions to the Property, or (h) (i) any Hazardous Material on, in, under or affecting all or any portion of the Property, the groundwater, or any surrounding areas, (ii) any misrepresentation, inaccuracy or breach of any warranty, covenant or agreement contained or referred to in Sections 1.21 and 1.22, (iii) any violation or claim of violation by the Mortgagor of any Environmental Laws, or (iv) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of any Hazardous Material, except to the extent that any of the matters described in subsections (a)-(h) arise out of the gross negligence or willful misconduct of any Indemnified Party. If any action or proceeding be commenced, to which action or proceeding any Indemnified Party is made a party by reason of the execution of this Mortgage, the Indenture, the Senior Secured Notes or any Security Agreement executed pursuant to the Indenture, or in which it becomes necessary to defend or uphold the lien of this Mortgage, all sums paid by the Indemnified Parties, for the expense of any litigation to prosecute or defend the rights and lien created hereby or otherwise, shall be paid by the Mortgagor to such Indemnified Parties, as the case may be, as hereinafter provided. The Mortgagor will pay and save the Indemnified Parties harmless against any and all liability with respect to any intangible personal property tax or similar imposition of the State or any subdivision or authority thereof now or hereafter in effect, to the extent that the same may be payable by the Indemnified Parties in respect of this Mortgage, the Indenture, the Senior Secured Notes, any Security Agreement executed pursuant to the Indenture or any other Obligation. All amounts payable to the Indemnified Parties under this Section 1.16 shall be deemed indebtedness secured by this Mortgage and any such amounts which are not paid within ten (10) days after written demand therefor by any Indemnified Party 10 14 shall bear interest at the rate provided for in the Indenture and the Senior Secured Notes from the date of such demand. In case any action, suit or proceeding is brought against any Indemnified Party by reason of any such occurrence, the Mortgagor, upon request of such Indemnified Party, will, at the Mortgagor's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel designated by the Mortgagor and approved by such Indemnified Party. The obligations of the Mortgagor under this Section 1.16 shall survive any discharge or reconveyance of this Mortgage and payment in full of the Obligations. SECTION 1.17. No Credit for Payment of Taxes. The Mortgagor shall not be entitled to any credit against the Obligations by reason of the payment of any tax on the Property or any part thereof or by reason of the payment of any other Imposition, and shall not apply for or claim any deduction from the taxable value of the Property or any part thereof by reason of this Mortgage. SECTION 1.18. Intentionally Omitted SECTION 1.19. No Transfer of the Property. Except as is provided in the Indenture and other Security Agreements executed pursuant to the Indenture, and except for the Permitted Encumbrances, the Mortgagor shall not, without the prior written consent of the Mortgagee, which consent may be granted or withheld in the sole and absolute discretion of the Mortgagee (i) sell, convey, assign or otherwise transfer the Property or any portion of the Mortgagor's interest therein or (ii) further encumber the Property or permit the Property to become encumbered by any lien, claim, security interest or other indebtedness of any kind or nature other than the Permitted Encumbrances. SECTION 1.20. Security Agreement. With respect to the items of personal property and fixtures referred to and described in the Granting Clause of this Mortgage and included as part of the Collateral, this Mortgage is hereby made and declared to be a security agreement encumbering each and every item of personal property and fixtures now or hereafter owned by Mortgagor and included herein as a part of the Collateral, in compliance with the provisions of the Uniform Commercial Code as enacted in the State. In this respect, Mortgagor, as "Debtor", expressly grants to Mortgagee, as "Secured Party", a security interest in and to all of the property now or hereafter owned by Mortgagor which constitutes the personal property and fixtures hereinabove referred to and described in this Mortgage, including all extensions, accessions, additions, improvements, betterments, renewals, replacements and substitutions thereof or thereto, and all proceeds from the sale or other disposition thereof. Mortgagor agrees that Mortgagee may file this Mortgage, or a reproduction thereof, in the real estate records or other appropriate index, as, and this Mortgage shall be deemed to be, a financing statement filed as a fixture filing in accordance with the laws of the State. Any reproduction of this Mortgage or of any other security agreement or financing statement executed by Mortgagor shall be sufficient as a financing statement. In addition, Mortgagor agrees to execute and deliver to Mortgagee, upon Mortgagee's request, any other security agreement and financing statements, as well as extensions, renewals, and amendments thereof, and reproductions of this Mortgage, in such form as Mortgagee may reasonably require to perfect a security interest with respect to said items. Mortgagor shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements Mortgagee may reasonably require. Except as is provided in 11 15 the Indenture and other Security Agreements, and except for the Permitted Encumbrances, without the prior written consent of Mortgagee, Mortgagor shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the above-described personal property and fixtures, including any replacements and additions thereto. Upon the occurrence and continuance of an Event of Default under this Mortgage, the Mortgagee shall have and shall be entitled to exercise any and all of the rights and remedies (i) as prescribed in this Mortgage, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory provisions now or hereafter enacted and specified in said Uniform Commercial Code, all at Mortgagee's sole election. Mortgagor and Mortgagee agree that the filing of any financing statements in the records normally having to do with personal property shall not in any way affect the agreement of Mortgagor and Mortgagee that everything located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of, the Collateral, which is described or reflected as a fixture in this Mortgage, is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be, regarded as part of the Real Estate conveyed hereby. Mortgagor warrants that Mortgagor's name, identity and address are as set forth herein. The mailing address of the Mortgagee from which information may be obtained concerning the security interest created herein is also set forth herein. This information hereof is provided in order that this Mortgage shall comply with the requirements of the Uniform Commercial Code as enacted in the State for instruments to be filed as financing statements. In accordance with the laws of the State, this Mortgage shall remain effective as a fixture filing until this Mortgage is released or satisfied of record or its effectiveness otherwise terminates as to the Collateral. SECTION 1.21. Representations and Warranties. In order to induce the Mortgagee to enter into this Mortgage, the Indenture and the other Security Agreements, the Mortgagor agrees that all of the representations and warranties of Mortgagor set forth in the Indenture and the Security Agreements made pursuant to the terms of the Indenture are incorporated into this Mortgage by reference as if fully set forth herein. SECTION 1.22. Mortgagor's Covenants. In order to induce the Mortgagee to enter into this Mortgage, the Indenture and the other Security Agreements, the Mortgagor agrees that all of the covenants of Mortgagor set forth in the Indenture are incorporated into this Mortgage by reference as if fully set forth herein. SECTION 1.23. Attornment. Mortgagee hereby acknowledges and agrees that the liens granted herein are subject to the rights of certain lessees under the leases as disclosed in the Credit Agreement set forth on and will be subject to the rights of lessees under any Leases entered into by Mortgagor after the date hereof which are permitted as Permitted Liens pursuant to the Credit Agreement, subject to the express rights contained in the applicable Lease. The rights of the tenants under the Leases to the leased premises shall not be adversely affected by the exercise by Mortgagee of any of its rights hereunder, nor shall any such tenant be in any way deprived of its rights under the applicable Lease except in accordance with the terms of such Lease. In the event that Mortgagee succeeds to the interest of Mortgagor under a Lease, such Lease shall not be terminated or affected thereby except as set forth therein, and any sale of the applicable leased premises by Mortgagee or pursuant to the judgment of any court in an action to enforce the remedies provided for in this Mortgage shall be made subject to such Lease and the rights of such tenant expressly set forth thereunder. If Mortgagee succeeds to the interests of 12 16 Mortgagor in and to the applicable leased premises or under such Lease or enters into possession of such leased premises, the Mortgagee, and such tenants, shall be bound to each other under all of the express terms, covenants and conditions of such Lease, as if the Mortgagee was originally the Mortgagor as lessor thereunder. ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. SECTION 2.1. Insurance. SECTION 2.1.1. Risks to be Insured. The Mortgagor will, at its expense, maintain or cause to be maintained with insurance carriers approved by the Mortgagee (a) insurance with respect to the Improvements against loss or damage by fire, lightning and such other risks as are included in standard "all-risk" policies, in amounts sufficient to prevent the Mortgagor and the Mortgagee from becoming a co-insurer of any partial loss under the applicable policies, but in any event in amounts not less than the then full insurable value (actual replacement value) of the Improvements, as determined by the Mortgagor in accordance with generally accepted insurance practice and approved by the Mortgagee or, at the request of the Mortgagee, as determined at the Mortgagor's expense by the insurer or insurers or by an expert approved by the Mortgagee, (b) comprehensive public liability, including bodily injury and product liability and property damage, insurance, with personal injury endorsements, applicable to the Property in such amounts as are customarily carried by Persons operating similar properties in the same general locality, but in any event with a combined single limit of not less than Twenty Million Dollars ($20,000,000) per occurrence, (c) explosion insurance in respect of any steam and pressure boilers and similar apparatus located in the Property in such amounts as are usually carried by persons operating similar properties in the same general locality, but in any event in an amount not less than Twenty Million Dollars ($20,000,000), (d) business interruption insurance (including added expense coverage) against all insurable perils for a period of not fewer than twelve (12) months (subject to a reasonable aggregate deductible not exceeding ten (10) days per any occurrence), (e) worker's compensation insurance to the full extent required by applicable law for all employees of the Mortgagor engaged in any work on or about the Property and employer's liability insurance with a limit of not less than Ten Million Dollars ($10,000,000) for each occurrence, (f) all-risk, builders' risk insurance with respect to the Property during any period during which there is any construction work being performed, against loss or damage by fire or other risks, including vandalism, malicious mischief and sprinkler leakage, as are included in so-called "extended coverage" clauses at the time available and (g) such other insurance with respect to the Property in such amounts and against such insurable hazards as the Mortgagee from time to time may reasonably require by written notice to the Mortgagor. SECTION 2.1.2. Policy Provisions. All insurance maintained by the Mortgagor pursuant to Section 2.1.1 shall (a) (except for worker's compensation insurance) list the Mortgagee, as additional insureds as its interests may appear, (b) (except for worker's compensation and public liability insurance) provide that the proceeds for any losses shall be adjusted by the Mortgagor subject to the approval of the Mortgagee in the event the proceeds shall exceed $1,000,000, and shall be payable to the Mortgagee, to be held and applied as provided in Section 2.3, (c) include effective waivers by the insurer of all rights of subrogation 13 17 against any named insured, the indebtedness secured by this Mortgage and the Property and all claims for insurance premiums against the Mortgagee, (d) (except for worker's compensation and public liability insurance) provide that any losses shall be payable notwithstanding (i) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms thereof, (iii) any foreclosure or other action or proceeding taken by the Mortgagee pursuant to any provision of this Mortgage, or (iv) any change in title or ownership of the Property, (e) provide that no cancellation, reduction in amount or material change in coverage thereof or any portion thereof shall be effective until at least thirty (30) days after receipt by the Mortgagee of written notice thereof, (f) provide that any notice under such policies shall be simultaneously delivered to the Mortgagee, and (g) be satisfactory in all other reasonable respects to the Mortgagee. Any insurance maintained pursuant to this Section 2.1 may be evidenced by blanket insurance policies covering the Property and other properties or assets of the Mortgagor, provided that any such policy shall specify the portion, if less than all, of the total coverage of such policy that is allocated to the Property and shall in all other respects comply with the requirements of this Section 2.1. SECTION 2.1.3. Delivery of Policies, etc. The Mortgagor will deliver to the Mortgagee, promptly upon request, (a) certificates of all policies evidencing all insurance required to be maintained under Section 2.1.1 (or, in the case of blanket policies, certificates thereof by the insurers together with a counterpart of each blanket policy), and (b) evidence as to the payment of all premiums due thereon (with respect to public liability insurance policies, all installments for the current year due thereon to such date), provided that the Mortgagee shall not be deemed by reason of its custody of such certificates to have knowledge of the contents thereof or the applicable policies. The Mortgagor will also deliver to the Mortgagee prior to the expiration of any policy a binder or certificate of the insurer evidencing the replacement thereof and when the new policy is issued a certificate of such new policy (or, in the case of a replacement blanket policy, a certificate thereof of the insurer together with a counterpart of the blanket policy). In the event the Mortgagor shall fail to effect or maintain any insurance required to be effected or maintained pursuant to the provisions of this Section 2.1, the Mortgagor will indemnify the Mortgagee against damage, loss or liability resulting from all risks for which such insurance should have been effected or maintained. SECTION 2.1.4. Separate Insurance. The Mortgagor will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Section 2.1. SECTION 2.2. Damage, Destruction or Taking; Mortgagor to Give Notice; Assignment of Awards. In case of (a) any material damage to or destruction of the Collateral or any material part thereof, or (b) any taking, whether for permanent or temporary use, of all or any material part of the Collateral or any material interest therein or material right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain, or a change of 14 18 grade affecting the Collateral or any portion thereof (a "Taking"), or the commencement of any proceedings or negotiations which may result in a Taking, the Mortgagor will promptly give written notice thereof to the Mortgagee, generally describing the nature and extent of such damage or destruction and the Mortgagor's best estimate of the cost of restoring the Collateral, or the nature of such proceedings or negotiations and the nature and extent of the Taking which might result therefrom, as the case may be. The Mortgagee shall be entitled to all insurance proceeds payable on account of such damage or destruction and to all awards or payments allocable to the Collateral on account of such Taking up to the amount of the Obligations, and the Mortgagor hereby irrevocably assigns, transfers and sets over to the Mortgagee all rights of the Mortgagor to any such proceeds, awards or payments and irrevocably authorizes and empowers the Mortgagee, at its option, in the name of the Mortgagor or otherwise, to file and prosecute what would otherwise be the Mortgagor's claim for any such proceeds, award or payment and to collect, receipt for and retain the same for disposition in accordance with Section 2.3. The Mortgagor will pay all reasonable costs and expenses incurred by the Mortgagee in connection with any such damage, destruction or Taking and seeking and obtaining any insurance proceeds, awards or payments in respect thereof. SECTION 2.3. Application of Proceeds and Awards. The Mortgagee may, at its option, apply all amounts recovered under any insurance policy required to be maintained by the Mortgagor hereunder and all awards received by it on account of any Taking in any one or more of the following ways: (a) to the payment of the reasonable costs and expenses incurred by the Mortgagee in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) to the payment of the principal of the Senior Secured Notes and any interest (including post-petition interest payable in any proceedings for bankruptcy under applicable law ("Post-Petition Interest") to the extent such interest is an Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued on the Senior Secured Notes and unpaid, second, to the payment of all amounts of principal at the time outstanding; (c) to the payment of, or the application to, any Obligation (other than as provided in clause (b) above); (d) to fulfill any of the other covenants contained herein, in the Indenture, the Senior Secured Notes, or Security Agreements executed pursuant to the Indenture, as the Mortgagee may determine in its sole discretion; 15 19 (e) to the Mortgagor for application to the cost of restoring the Collateral and the replacement of Goods destroyed, damaged or taken; or (f) to the Mortgagor. Notwithstanding the foregoing provisions of this Section 2.3 to the contrary (but subject to the provisions of Section 2.4), and if each of the following conditions is satisfied, the Mortgagee, upon request of the Mortgagor, shall apply insurance proceeds or condemnation awards received by it to the restoration or replacement of the Collateral, to the extent necessary for the restoration or replacement thereof: (i) there shall then exist no uncured Event of Default; (ii) the Mortgagor shall furnish to the Mortgagee a certificate of an architect or engineer reasonably acceptable to the Mortgagee stating (x) that the Collateral is capable of being restored, prior to the maturity of the Indenture, to substantially the same condition as existed prior to the casualty or Taking, (y) the aggregate estimated direct and indirect costs of such restoration and (z) as to any Taking, that the property taken in such Taking, or sold under threat thereof, is not necessary to the Mortgagor's customary use or occupancy of the Property or Mortgagor otherwise provides Mortgagee adequate assurance that the Collateral can be restored or is not necessary to the Mortgagor's customary use or occupancy of the Property; and (iii) in the event that the estimated cost of restoration set forth in the certificate of such architect or engineer (and such revisions to such estimate as are from time to time made) exceeds the net insurance proceeds or condemnation awards actually received from time to time, the Mortgagor shall deposit the amount of such excess with the Mortgagee. In the event that such insurance proceeds or condemnation awards are to be utilized in the restoration of the Collateral, the Mortgagee shall disburse such Proceeds and the additional amounts deposited by the Mortgagor for such restoration after receipt of a written request for disbursement, on not fewer than five (5) nor more than twelve (12) Business Days notice and, to the extent applicable, in accordance with the Mortgagee's customary construction loan procedures and conditions. In the event that such insurance or condemnation awards are to be utilized to replace the Collateral so destroyed or taken, the Mortgagee shall disburse such Proceeds after receipt of a written request for disbursement, on not fewer than five (5) Business Days nor more than twelve (12) Business Days notice simultaneously with the acquisition of such replacement property by the Mortgagor. In the event that, after the restoration or replacement of the Collateral, any insurance or condemnation awards shall remain, such amount shall be paid to the Mortgagor. Insurance proceeds and condemnation awards shall be invested in the manner reasonably requested by the Mortgagor and approved by the Mortgagee, and all interest earned thereon shall be applied as provided in this Section 2.3. If, prior to the receipt by the Mortgagee of such insurance proceeds or condemnation awards, the Collateral shall have been sold on foreclosure, the Mortgagee shall have the right to receive said insurance proceeds or condemnation awards to the extent of any deficiency found to be due upon such sale, with legal interest thereon, whether or not a deficiency judgment shall have been sought or recovered or 16 20 denied, and the reasonable attorneys' fees, costs and disbursements incurred by the Mortgagee in connection with the collection of such award or payment. SECTION 2.4. Total Taking and Total Destruction. In the event of a Total Destruction or a Total Taking, the Mortgagee shall apply all amounts recovered under any insurance policy referred to in Section 2.1.1 and all awards received by it on account of any such Taking as follows: (a) first, to the payment of the reasonable costs and expenses incurred by the Mortgagee in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) second, to the payment of the principal of the Senior Secured Notes and any interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued on the Senior Secured Notes and unpaid, and second, to the payment of all amounts of principal at the time outstanding; (c) third, to the payment of, or the application to, any Obligation (other than as provided in clause (b) above); (d) fourth, to fulfill any of the other covenants contained herein as the Mortgagee may determine; and (e) fifth, the balance, if any, to the Mortgagor. ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration. If an "Event of Default" (pursuant to and as defined in the Indenture) shall have occurred and be continuing, then and in any such event the Mortgagee may at any time thereafter (unless all Events of Default shall theretofore have been remedied and all costs and expenses, including, without limitation, attorneys' fees and expenses incurred by or on behalf of the Mortgagee, shall have been paid in full by the Mortgagor) declare, by written notice to the Mortgagor, the Senior Secured Notes and all other Obligations to be due and payable immediately or on a date specified in such notice, and on such date the same shall be and become due and payable, together with interest accrued thereon, without presentment, demand, protest or notice, all of which the Mortgagor hereby waives. The Mortgagor will pay on demand all costs and expenses, including, without limitation, attorneys' fees and expenses, incurred by or on behalf of the Mortgagee in enforcing this Mortgage, the Indenture, the Senior Secured Notes, or the Security Agreements executed pursuant to the Indenture or occasioned by any default hereunder or thereunder. 17 21 SECTION 3.2. Legal Proceedings; Judicial Foreclosure. If an Event of Default shall have occurred and be continuing, the Mortgagee at any time may, at its election, proceed at law or in equity or otherwise to enforce the payment and performance of the Obligations in accordance with the terms hereof and thereof and to foreclose the lien of this Mortgage as against all or any part of the Collateral and to have the same sold under the judgment or decree of a court of competent jurisdiction. The Mortgagee shall be entitled to recover in such proceedings all costs incident thereto, including attorneys' fees and expenses in such amounts as may be fixed by the court. SECTION 3.3. Power of Sale. If an Event of Default shall have occurred and be continuing, the Mortgagee may grant, bargain, sell, assign, transfer, convey and deliver the whole or, from time to time, any part of the Collateral, or any interest in any part thereof, at any private sale or at public auction, with or without demand, advertisement or notice, for cash, on credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Mortgagee in its sole discretion may determine, or as may be required by law, and upon such sale the Mortgagee may execute and deliver to the purchaser(s) instruments of conveyance pursuant to the terms hereof and to applicable laws. Without limiting the authority granted in this Section 3.3, the Mortgagee shall, without demand on the Mortgagor, after the lapse of such time as may then be required by law, and notice of default and notice of sale having been given as then required by law, sell the Collateral on the date and at the time and place designated in the notice of sale, either as a whole or in separate parcels and in such order as the Mortgagee may determine, but subject to any statutory right of the Mortgagor to direct the order in which such property, if consisting of several known lots, parcels or interests, shall be sold, at public auction to the highest bidder, the purchase price payable in lawful money of the United States at the time of sale. The Person conducting the sale may, for any cause deemed expedient, postpone the sale from time to time until it shall be completed and, in every such case, notice of postponement shall be given by public declaration thereof by such Person at the time and place last appointed for the sale; provided that, if the sale is postponed for longer than one (1) day beyond the day designated in the notice of sale, notice of sale and notice of the time, date and place of sale shall be given in the same manner as the original notice of sale. The Mortgagee shall execute and deliver to the purchaser at any such sale a mortgagee's deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such mortgagee's deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including the Mortgagee, may bid at the sale. SECTION 3.4. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Mortgagee may exercise from time to time and at any time any rights and remedies available to it under applicable law upon default in the payment of indebtedness, including, without limitation, any right or remedy available to it as a secured party under the Uniform Commercial Code of the State. The Mortgagor shall, promptly upon request by the Mortgagee, assemble the Collateral, or any portion thereof generally described in such request, and make it available to the Mortgagee at such place or places designated by the Mortgagee and reasonably convenient to the Mortgagee or the Mortgagor. If the Mortgagee elects to proceed under the Uniform Commercial Code of the State to dispose of portions of the Collateral, the Mortgagee, at its option, may give the Mortgagor notice of the time and place of any public sale of any such property, or of the date after which any private sale or other disposition thereof is to be made, by sending notice by registered or certified first class mail, 18 22 postage prepaid, to the Mortgagor at least ten (10) days before the time of the sale or other disposition. If any notice of any proposed sale, assignment or transfer by the Mortgagee of any portion of the Collateral or any interest therein is required by law, the Mortgagor conclusively agrees that ten (10) days notice to the Mortgagor of the date, time and place (and, in the case of a private sale, the terms) thereof is reasonable. SECTION 3.5. Mortgagee Authorized to Execute Deeds, etc. The Mortgagor irrevocably appoints the Mortgagee (which appointment is coupled with an interest) the true and lawful attorney of the Mortgagor, in its name and stead and on its behalf, for the purpose of effectuating any sale, assignment, transfer or delivery for the enforcement hereof, whether pursuant to power of sale, foreclosure or otherwise, to execute and deliver all such deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request. SECTION 3.6. Purchase of Collateral by Mortgagee. The Mortgagee may be a purchaser of the Collateral or of any part thereof or of any interest therein at any sale thereof, whether pursuant to power of sale, foreclosure or otherwise, and the Mortgagee may apply upon the purchase price thereof the indebtedness secured hereby owing to the Mortgagee. Such purchaser shall, upon any such purchase, acquire good title to the properties so purchased, free of the security interest and lien of this Mortgage and free of all rights of redemption in the Mortgagor. SECTION 3.7. Receipt a Sufficient Discharge to Purchaser. Upon any sale of the Collateral or any part thereof or any interest therein, whether pursuant to power of sale, foreclosure or otherwise, the receipt of the Mortgagee or the officer making the sale under judicial proceedings shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obliged to see to the application thereof. SECTION 3.8. Waiver of Appraisement, Valuation, etc. The Mortgagor hereby waives, to the fullest extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Collateral or any part thereof or any interest therein. SECTION 3.9. Sale a Bar Against Mortgagor. Any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Mortgage, whether pursuant to power of sale, foreclosure or otherwise, shall forever be a bar against the Mortgagor. SECTION 3.10. Obligations to Become Due on Sale. Except as otherwise provided in the Indenture, upon any sale of the Collateral or any portion thereof or interest therein by virtue of the exercise of any remedy by the Mortgagee under or by virtue of this Mortgage, whether pursuant to power of sale, foreclosure or otherwise in accordance with this Mortgage or by virtue of any other remedy available at law or in equity or by statute or otherwise, at the option of the Mortgagee, any sums or monies due and payable pursuant to the Indenture, the Senior Secured Notes or Security Agreements executed pursuant to the Indenture and in connection with the Obligations shall, if not previously declared due and payable, immediately become due and payable, together with interest accrued thereon, and all other indebtedness which this Mortgage by its terms secures. 19 23 SECTION 3.11. Application of Proceeds of Sale and Other Moneys. Except as otherwise provided in the Indenture or herein, the proceeds of any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Mortgage, whether pursuant to power of sale, foreclosure or otherwise, and all other moneys at any time held by the Mortgagee as part of the Collateral, shall be applied in such order of priority as the Mortgagee shall determine in its sole and absolute discretion including, without limitation, as follows: (a) first, to the payment of the reasonable costs and expenses of such sale (including, without limitation, the cost of evidence of title and the costs and expenses, if any, of taking possession of, retaining custody over, repairing, managing, operating, maintaining and preserving the Collateral or any part thereof prior to such sale), all reasonable costs and expenses incurred by the Mortgagee or any other Person in obtaining or collecting any insurance proceeds, condemnation awards or other amounts received by the Mortgagee, all reasonable costs and expenses of any receiver of the Collateral or any part thereof, and any Impositions or other charges or expenses prior to the security interest or lien of this Mortgage, which the Mortgagee may consider it necessary or desirable to pay; (b) second, to the payment of any Obligation (other than those set forth in Section 3.11(c) below); (c) third, to the payment of all amounts of principal of and interest (including Post-Petition Interest to the extent such interest is an Obligation) at the time due and payable under the Indenture at the time outstanding (whether due by reason of maturity or by reason of any prepayment requirement or by declaration or acceleration or otherwise), including interest at the rate provided for in the Indenture on any overdue principal and (to the extent permitted under applicable law) on any overdue interest; and, in case such moneys shall be insufficient to pay in full such principal and interest, then, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) at the time due and payable and, second, to the payment of all amounts of principal at the time due and payable under the Senior Secured Notes; and (d) fourth, the balance, if any, held by the Mortgagee after payment in full of all amounts referred to in subdivisions Sections 3.11(a), (b) and (c) above, shall, unless a court of competent jurisdiction may otherwise direct by final order not subject to appeal, be paid to or upon the direction of the Mortgagor. SECTION 3.12. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, the Mortgagee shall, as a matter of right, without notice, and without regard to the adequacy of any security for the indebtedness secured hereby or the solvency of the Mortgagor, be entitled to the appointment of a receiver for all or any part of the Collateral, whether such receivership be incidental to a proposed sale of the Collateral or otherwise, and the Mortgagor hereby consents to the appointment of such a receiver and will not oppose any such appointment. SECTION 3.13. Possession, Management and Income. If an Event of Default shall have occurred and be continuing, in addition to, and not in limitation of, the rights and remedies 20 24 provided in Section 1.14, the Mortgagee, upon five (5) days written notice to the Mortgagor, may enter upon and take possession of the Collateral or any part thereof by force, summary proceeding, ejectment or otherwise and may remove the Mortgagor and all other Persons and any and all property therefrom and may hold, operate, maintain, repair, preserve and manage the same and receive all earnings, income, Rents, issues and Proceeds accruing with respect thereto or any part thereof. The Mortgagee shall be under no liability for or by reason of any such taking of possession, entry, removal or holding, operation or management, except that any amounts so received by the Mortgagee shall be applied to pay all costs and expenses of so entering upon, taking possession of, holding, operating, maintaining, repairing, preserving and managing the Collateral or any part thereof, and any Impositions or other charges prior to the lien and security interest of this Mortgage which the Mortgagee may consider it necessary or desirable to pay, and any balance of such amounts shall be applied as provided in Section 3.11. SECTION 3.14. Right of Mortgagee to Perform Mortgagor's Covenants, etc. If the Mortgagor shall fail to make any payment or perform any act required to be made or performed hereunder or under the Indenture, the Senior Secured Notes, or the Security Agreements executed pursuant to the Indenture, the Mortgagee, without notice to or demand upon the Mortgagor and without waiving or releasing any obligation or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Mortgagor, and may enter upon the Collateral for such purpose and take all such action thereon as, in the Mortgagee's opinion, may be necessary or appropriate therefor. No such entry and no such action shall be deemed an eviction of any lessee of the Property or any part thereof. All sums so paid by the Mortgagee and all costs and expenses (including, without limitation, attorneys' fees and expenses) so incurred, together with interest thereon at the rate provided for in the Indenture from the date of payment or incurring, shall constitute additional indebtedness under the Indenture secured by this Mortgage and shall be paid by the Mortgagor to the Mortgagee on demand. SECTION 3.15. Subrogation. To the extent that the Mortgagee, on or after the date hereof, pays any sum due under any provision of any Legal Requirement or any instrument creating any lien prior or superior to the lien of this Mortgage, or the Mortgagor or any other Person pays any such sum with the proceeds of the Senior Secured Notes, the Mortgagee shall have and be entitled to a lien on the Collateral equal in priority to the lien discharged, and the Mortgagee shall be subrogated to, and receive and enjoy all rights and liens possessed, held or enjoyed by, the holder of such lien, which shall remain in existence and benefit the Mortgagee in securing the Obligations. SECTION 3.16. Remedies, etc., Cumulative. Each right, power and remedy of the Mortgagee provided for in this Mortgage, the Indenture, the Senior Secured Notes, or the Security Agreements executed pursuant to the Indenture or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Mortgage, the Indenture, the Senior Secured Notes or the Security Agreements executed pursuant to the Indenture or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Mortgagee of any one or more of the rights, powers or remedies provided for in this Mortgage, the Indenture, the Senior Secured Notes, or the Security Agreements executed pursuant to the Indenture or now or hereafter existing at law or in equity or by statute or 21 25 otherwise shall not preclude the simultaneous or later exercise by the Mortgagee of any or all such other rights, powers or remedies. SECTION 3.17. Provisions Subject to Applicable Law. All rights, powers and remedies provided in this Mortgage may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Mortgage invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Mortgage or any application thereof shall be invalid or unenforceable, the remainder of this Mortgage and any other application of such term shall not be affected thereby. SECTION 3.18. No Waiver, etc. No failure by the Mortgagee to insist upon the strict performance of any term hereof or of the Indenture, the Senior Secured Notes, or the Security Agreements executed pursuant to the Indenture or to exercise any right, power or remedy consequent upon a breach hereof or thereof, shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Mortgage, which shall continue in full force and effect with respect to any other then existing or subsequent breach. By accepting payment or performance of any amount or other Obligations secured hereby before or after its due date, the Mortgagee shall not be deemed to have waived its right either to require prompt payment or performance when due of all other amounts and Obligations payable hereunder or to declare a default for failure to effect such prompt payment. SECTION 3.19. Compromise of Actions, etc. Any action, suit or proceeding brought by the Mortgagee pursuant to any of the terms of this Mortgage, the Indenture, the Senior Secured Notes, or the Security Agreements, or otherwise, and any claim made by the Mortgagee hereunder or thereunder, may be compromised, withdrawn or otherwise dealt with by the Mortgagee without any notice to or approval of the Mortgagor. ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Mortgage. When used herein the following terms have the following meanings: "Borrowers" shall have the meaning set forth in the third recital. "Collateral" shall have the meaning set forth in the granting clause. "Contracts" shall have the meaning set forth in clause (g) of the granting clause. "Credit Agreement" shall have the meaning set forth in the third recital. "Default" means any Event of Default or any condition or event which, after notice or lapse of time, or both, would constitute an Event of Default. "First Mortgage Default" means a Default (as defined in the First Mortgage). 22 26 "Goods" shall have the meaning set forth in clause (c) of the granting clause. "herein", "hereof", "hereto", and "hereunder" and similar terms refer to this Mortgage and not to any particular Section, paragraph or provision of this Mortgage. "Impositions" shall have the meaning set forth in Section 1.5. "Improvements" shall have the meaning set forth in clause (b) of the granting clause. "Indemnified Parties" shall have the meaning set forth in Section 1.16. "Insurance Requirements" shall have the meaning set forth in paragraph (a) of Section 1.6. "Land" shall have the meaning set forth in the first recital. "Leases" shall have the meaning set forth in clause (d) of the granting clause. "Legal Requirements" shall have the meaning set forth in paragraph (b) of Section 1.6. "Mortgage" shall have the meaning set forth in the preamble. "Mortgagee" shall have the meaning set forth in the preamble. "Mortgagor" shall have the meaning set forth in the preamble. "Obligations" means all liabilities, duties and obligations of the Mortgagor as the Subsidiary Guarantor under the Indenture, all advances, if any, made by Mortgagee pursuant to the terms of this Mortgage, and all duties and obligations of Mortgagor under this Mortgage[, and the Security Agreements executed pursuant to the terms of the Indenture]. "Permits" shall have the meaning set forth in clause (g) of the granting clause. "Permitted Encumbrances" shall have the meaning set forth in Section 1.2. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency or officer. "Plans" shall have the meaning set forth in clause (f) of the granting clause. "Post-Petition Interest" shall have the meaning set forth in Section 2.3. "Proceeds" shall have the meaning set forth in clause (k) of the granting clause. "Property" shall have the meaning set forth in clause (b) of the granting clause. "Real Estate" shall have the meaning set forth in clause (a) of the granting clause. "Rents" shall have the meaning set forth in clause (j) of the granting clause. 23 27 "State" means the State of Florida. "Total Destruction" means any damage to or destruction of the Improvements or any part thereof which, in the reasonable estimation of the Mortgagee shall require the expenditure of an amount in excess of Ten Million Dollars ($10,000,000) to restore the Improvements to substantially the same condition of the Improvements immediately prior to such damage or destruction. "Total Taking" means a Taking, whether permanent or for temporary use, which, in the reasonable judgment of the Mortgagee, shall substantially interfere with and adversely affect the normal operation of the Property by the Mortgagor to such an extent as would reasonably be anticipated to cause a Material Adverse Effect (as defined in the Credit Agreement). SECTION 4.2. Use of Defined Terms. Terms for which meanings are provided in this Mortgage shall, unless otherwise defined or the context otherwise requires, have such meanings when used in any certificate and any opinion, notice or other communication delivered from time to time in connection with this Mortgage or pursuant hereto. SECTION 4.3. Indenture Definitions. Unless otherwise defined herein or the context otherwise requires, capitalized terms used in this Mortgage, including its preamble and recitals, have the meanings provided in the Indenture. ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements. SECTION 5.1.1. Further Assurances. The Mortgagor, at its expense, will execute, acknowledge and deliver all such instruments and take all such other action as the Mortgagee from time to time may reasonably request: (a) to better subject to the lien and security interest of this Mortgage all or any portion of the Collateral, (b) to perfect, publish notice or protect the validity of the lien and security interest of this Mortgage, (c) to preserve and defend the title to the Collateral and the rights of the Mortgagee therein against the claims of all Persons as long as this Mortgage shall remain undischarged, (d) in order to further effectuate the purposes of this Mortgage and to carry out the terms hereof and to better assure and confirm to the Mortgagee its rights, powers and remedies hereunder. SECTION 5.1.2. Financing Statements. Notwithstanding any other provision of this Mortgage, the Mortgagor hereby agrees that, without notice to or the consent of the Mortgagor, 24 28 the Mortgagee may file with the appropriate public officials such financing statements, continuation statements, amendments and similar documents as are or may become necessary to perfect, preserve or protect the security interest granted by this Mortgage. SECTION 5.2. Additional Security. Without notice to or consent of the Mortgagor, and without impairment of the security interest and lien and rights created by this Mortgage, the Mortgagee and the Lenders may accept from the Mortgagor or any other Person additional security for the Obligations. Neither the giving of this Mortgage nor the acceptance of any such additional security shall prevent the Mortgagee from resorting, first, to such additional security, or, first, to the security created by this Mortgage, or concurrently to both, in any case without affecting the Mortgagee's lien and rights under this Mortgage. SECTION 5.3. Defeasance; Partial Release, etc. SECTION 5.3.1. Defeasance. If the Senior Secured Notes and all other amounts owing pursuant to the Indenture and the Security Agreements shall be repaid in full in accordance with the terms thereof, and if the Mortgagor shall pay, in full, the principal of and premium, if any, and interest on the Obligations in accordance with the terms thereof and hereof and all other sums payable hereunder by the Mortgagor and shall comply with all the terms, conditions and requirements hereof and of the Obligations, or otherwise as may be provided in the Indenture, then on such date, the Mortgagee shall, upon the request of the Mortgagor and at the Mortgagor's sole cost and expense, execute and deliver such instruments, in form and substance reasonably satisfactory to the Mortgagee, as may be necessary to effectively reconvey, release and discharge this Mortgage. SECTION 5.3.2. Partial Release, etc. The Mortgagee may, at any time and from time to time, without liability therefor, and without prior notice to the Mortgagor, release or reconvey any part of the Collateral, consent to the making of any map or plat of the Property, join in granting any easement thereon or join in any extension agreement or agreement subordinating the lien of this Mortgage. SECTION 5.4. Notices, etc. All notices and other communications provided to any of the parties hereto shall be in writing and addressed, delivered or transmitted to such party as set forth in the Indenture. SECTION 5.5. Waivers, Amendments, etc. The provisions of this Mortgage may be amended, discharged or terminated and the observance or performance of any provision of this Mortgage may be waived, either generally or in a particular instance and either retroactively or prospectively, only by an instrument in writing executed by the Mortgagor and the Mortgagee. SECTION 5.6. Cross-References. References in this Mortgage and in each instrument executed pursuant hereto to any Section or Article are, unless otherwise specified, to such Section or Article of this Mortgage or such instrument, as the case may be, and references in any Section, Article or definition to any clause are, unless otherwise specified, to such clause of such Section, Article or definition. SECTION 5.7. Headings. The various headings of this Mortgage and of each instrument executed pursuant hereto are inserted for convenience only and shall not affect the 25 29 meaning or interpretation of this Mortgage or such instrument or any provisions hereof or thereof. SECTION 5.8. Currency. Unless otherwise expressly stated, all references to any currency or money, or any dollar amount, or amounts denominated in "Dollars" herein will be deemed to refer to the lawful currency of the United States. SECTION 5.9. Governing Law. THIS MORTGAGE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE. SECTION 5.10. Successors and Assigns, etc. This Mortgage shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 5.11. Waiver of Jury Trial; Submission to Jurisdiction. (a) EACH OF THE MORTGAGOR AND THE MORTGAGEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS MORTGAGE, THE INDENTURE, THE SENIOR SECURED NOTES, THE SECURITY AGREEMENTS OR ANY OTHER RELATED INSTRUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE MORTGAGOR OR THE MORTGAGEE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE MORTGAGEE AND THE HOLDERS TO ENTER INTO THE TRANSACTIONS PROVIDED FOR IN THE INDENTURE. (b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS MORTGAGE, THE INDENTURE, THE SENIOR SECURED NOTES, OR THE SECURITY AGREEMENTS, THE MORTGAGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED. THE MORTGAGOR AND MORTGAGEE EACH EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS MORTGAGE, THE INDENTURE, THE SENIOR SECURED NOTES, OR THE SECURITY AGREEMENTS IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE PERSON OF THE MORTGAGOR. 26 30 NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE MORTGAGEE FROM BRINGING AN ACTION AGAINST THE MORTGAGOR IN ANY OTHER JURISDICTION. SECTION 5.12. Severability; Conflicts. Any provision of this Mortgage, the Indenture, the Senior Secured Notes, or the Security Agreements which is prohibited or unenforceable in any jurisdiction shall as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Mortgage, the Indenture, the Senior Secured Notes, or the Security Agreements or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of any conflict between the terms of this Mortgage and the terms of the Indenture, the terms of the Indenture shall control. SECTION 5.13. Security Agreement. This Mortgage is a Security Agreement executed pursuant to the Indenture and, unless otherwise expressly indicated herein, shall be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 5.14. Usury Savings Clause. It is the intention of the Mortgagor and the Mortgagee to conform strictly to the usury laws governing the Indenture, the Senior Secured Notes and the Security Agreements made pursuant to the Indenture, and any interest payable under the Indenture, the Senior Secured Notes and the Security Agreements shall be subject to reduction to the amount not in excess of the maximum non-usurious amount allowed under such laws, as construed by the courts having jurisdiction over such matters. In the event the maturity of the Obligations is accelerated by reason of any provision of the Indenture, the Senior Secured Notes and the Security Agreements made pursuant to the Indenture, or by reason of an election by the Mortgagee resulting from an Event of Default, then earned interest may never include more than the maximum amount permitted by law, computed from the dates of each advance of loan proceeds under the Indenture until payment, and any interest in excess of the maximum amount permitted by law shall be canceled automatically or, if theretofore paid, at the option of the Mortgagee, shall be rebated to the Mortgagor, or shall be credited on the principal amount of the Obligations or, if all principal has been repaid, then the excess shall be rebated to the Mortgagor. If any interest is canceled, credited against principal or rebated to the Mortgagor in accordance with the foregoing sentence and, if thereafter the interest payable hereunder is less than the maximum amount permitted by applicable law, the rate hereunder shall automatically be increased to the maximum extent possible to permit repayment to the Mortgagee and the Lenders as soon as possible of any interest in excess of the maximum amount permitted by law which was earlier canceled, credited against principal or rebated to the Mortgagor pursuant to the provisions of the foregoing sentence. SECTION 5.15. Future Advances. This Mortgage is a "Future Advance Mortgage" under the laws of the State. Any and all future advances under this Mortgage made within a period not to exceed twenty years and in an amount not to exceed Four Hundred and Fifty Million Dollars ($450,000,000) and the Indenture and Security Agreements shall have the same priority as if the future advance was made on the date that this Mortgage was recorded. This Mortgage shall secure the Obligations, whenever incurred, such Obligations to be due at the times provided in the Indenture and Security Agreements. Notice is hereby given that the Obligations may increase as a result of any defaults hereunder by Mortgagor due to, for example, 27 31 and without limitation, unpaid interest or late charges, unpaid taxes or insurance premiums which the Mortgagee elects to advance, defaults under leases that the Mortgagee elects to cure, attorney fees or costs incurred in enforcing the Indenture and Security Agreements or other expenses incurred by the Mortgagee in protecting the Collateral, the security of this Mortgage or the Mortgagee's rights and interests. SECTION 5.16. Subordination to First Mortgage. (a) The lien of this Mortgage shall be subject and subordinate only to the lien of the First Mortgage and Permitted Encumbrances. Notwithstanding anything to the contrary contained in this Mortgage, this Mortgage shall not be subordinate to any increases in the aggregate principal amount that may be borrowed (i) under the First Mortgage or other documents executed in connection therewith, or (ii) under any amendment, modifications, renewals, replacements or consolidations thereof, made without the prior written consent of Mortgagee, to an amount in excess of $70,000,000. (b) Mortgagor represents and warrants that (i) the First Mortgage is in full force and effect, and (ii) all principal, interest and other amounts payable under the terms, covenants, conditions and provisions of the First Mortgage and the other documents executed in connection therewith have been and shall be paid in accordance with the terms, covenants, conditions and provisions thereof. (c) Mortgagor covenants and agrees that Mortgagor shall: (i) promptly and faithfully observe, perform and comply with all the terms, covenants, conditions and provisions of the First Mortgage and other documents executed in connection therewith; (ii) not modify, or amend, or in any way alter or permit the alteration of any of the terms, covenants, conditions or provisions of the First Mortgage or the other documents executed in connection therewith in a manner that will increase the aggregate principal amount of indebtedness that may be borrowed under the First Mortgage and the other documents executed in connection therewith the repayment of which is secured by the First Mortgage to an amount in excess of $70,000,000; (iii) promptly deliver to Mortgagee a copy of each notice of a First Mortgage Default received or delivered by Mortgagor in connection with the First Mortgage; and (iv) furnish to Mortgagee copies of such additional information and evidence as Mortgagee reasonably may require concerning Mortgagor's due observance, performance and compliance with the terms, covenants, conditions, and provisions of the First Mortgage and the other documents executed in connection therewith (including, but without limiting the generality of the foregoing, evidence, reasonably satisfactory to Mortgagee, of the payment by Mortgagor of principal, interest and other amounts required by the terms, covenants, conditions and provisions of the First Mortgage and the other documents executed in connection therewith). (d) Upon the occurrence and during the continuance of a First Mortgage Default, in addition to any other rights and remedies that may be available to Mortgagee, Mortgagee may, but shall not be obligated to, cure such First Mortgage Default and Mortgagee shall be subrogated to the rights of the holder of the First Mortgage against Mortgagor and the Property. To the extent Mortgagee makes any payment of any 28 32 installment of interest or any payment of principal or other sum due under the First Mortgage and/or any note secured thereby, such payment (i) shall be deemed to be an Obligation secured hereby, (ii) shall be a lien on the Property prior to any right or title to, interest in, or claim upon the Property subordinate to the lien of this Mortgage, and (iii) shall accrue interest at a rate equal to the lower of (a) eighteen percent (18%) per annum or (b) the maximum rate permitted by law. (e) If for any reason the indebtedness secured by the First Mortgage is accelerated, or the Property or any part thereof is sold, or attempted to be sold, pursuant to the First Mortgage, whether by power of sale, judicial action or otherwise, or any other remedial action or proceeding is taken or instituted in respect of the Property or any part thereof under the First Mortgage, Mortgagor will indemnify and hold Mortgagee harmless from any loss, cost or expense incurred by Mortgagee, including reasonable attorneys' fees, in contesting any such action taken or instituted, or incurred by Mortgagee on account of the acceleration of the indebtedness secured by the First Mortgage, the sale of the Property pursuant thereto or Mortgagee's purchase or payment of the First Mortgage. (f) Mortgagor does herewith irrevocably appoint and constitute Mortgagee as its true and lawful attorney-in-fact in its name, place and stead to, upon the occurrence and during the continuance of a First Mortgage Default, perform and comply with all obligations of Mortgagor under the First Mortgage, to do and take, without any obligation to do so, any action as Mortgagee deems necessary or desirable to cure any First Mortgage Default. Mortgagor shall, within five (5) days after written request is made therefor by Mortgagee, execute and deliver to Mortgagee or to any person which Mortgagee shall designate, such further instruments, agreements, powers, deeds, conveyances or the like as may be reasonably necessary to complete or perfect the interest, rights or powers of Mortgagee pursuant to this paragraph. (g) Upon receipt by Mortgagee of any notice of a First Mortgage Default, Mortgagee may rely thereon and take any such reasonable action as Mortgagee shall reasonably deem necessary , irrespective of whether the existence of such First Mortgage Default or the nature thereof be questioned or denied by or on behalf of Mortgagor. Notwithstanding anything to the contrary contained in this Mortgage, and each of the terms, conditions and provisions hereof, the Mortgagee's rights and remedies hereunder are and at all times shall be subject and subordinate to the First Mortgage and shall be subject to the terms of the Senior Debt Intercreditor Agreement. The Mortgagee agrees to execute a subordination agreement if requested by Senior Lender or any lender under any refinancing of the indebtedness secured by the First Mortgage. 29 33 IN WITNESS WHEREOF, the undersigned, by its duly elected officers and pursuant to proper authority of its board of directors has duly executed, sealed, acknowledged and delivered this instrument as of the day and year first above written. MORTGAGOR: STERLING FIBERS, INC., a Delaware corporation By: ------------------------------------------- Name: -------------------------------------- Title: Witnessed and acknowledged in the presence of: --------------------------------------------- Name: --------------------------------------------- Name: DRAFTED BY: Latham & Watkins 885 Third Avenue New York, New York 10022-4802 Attention: Wylie S. Allen, Esq. 30 34 [CORPORATE NOTARY PAGE] MULTI-STATE CORPORATE ACKNOWLEDGMENT State of New York County of New York On this _______________ day of July, 1999, before me, the undersigned officer, personally appeared ______________________________, with a residence at _____________________, personally known and acknowledged himself/herself/themselves to me, or produced _________________________________ as identification, to be the _______________ President of ______________________________, (hereinafter, the "Corporation") and that as such officer(s), being duly authorized to do so pursuant to its bylaws or a resolution of its board of directors, executed, subscribed and acknowledged the foregoing instrument for the purposes therein contained, by signing the name of the Corporation by himself/herself/ themselves in their authorized capacities as such officer(s) as his/her/their free and voluntary act and deed and the free and voluntary act and deed of said Corporation. In Witness Whereof, I hereunto set my hand and official seal. ------------------------------------ Notary Public Notarial Seal My Commission Expires: 31 35 EXHIBIT A Legal Description of the Land 36 EXHIBIT B Permitted Encumbrances [ ] EX-4.12 13 SECOND LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT 1 Record and return to: EXHIBIT 4.12 Latham & Watkins 885 Third Avenue New York, New York 10022 Attention: Wylie S. Allen, Esq. STERLING PULP CHEMICALS, INC., Grantor, to HARRIS TRUST COMPANY OF NEW YORK, as collateral agent for the benefit of itself and certain other holders (collectively, the "Holders") of the 12 3/8% Senior Secured Notes due July 15, 2006 (together with its successors and assigns from time to time acting as the collateral agent under the Indenture referred to below, the "Collateral Agent"), and U.S. BANK TRUST NATIONAL ASSOCIATION, as Georgia co-agent (together with its successors and assigns from time to time acting as Georgia co-agent, the "Georgia Agent," the Collateral Agent and the Georgia Agent herein collectively referred to as "Grantee") --------------------------------------------------- SECOND LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT AND SECURITY AGREEMENT --------------------------------------------------- Dated as of July 23, 1999 This instrument affects certain real and personal property located in Lowndes County, State of Georgia. 2 TABLE OF CONTENTS
Page ARTICLE I COVENANTS AND AGREEMENTS OF THE GRANTOR SECTION 1.1 Payment of Obligations........................................................5 SECTION 1.2 Title to Collateral, etc......................................................5 SECTION 1.3 Title Insurance...............................................................5 SECTION 1.4 Recordation...................................................................6 SECTION 1.5 Payment of Impositions, etc...................................................6 SECTION 1.6 Insurance and Legal Requirements..............................................6 SECTION 1.7 Security Interests, etc.......................................................7 SECTION 1.8 Permitted Contests............................................................7 SECTION 1.9 Leases........................................................................7 SECTION 1.10 Compliance with Instruments...................................................7 SECTION 1.11 Maintenance and Repair, etc...................................................8 SECTION 1.12 Alterations, Additions, etc...................................................8 SECTION 1.13 Acquired Property Subject to Security Title/Security Interest.................8 SECTION 1.14 Assignment of Rents, Proceeds, etc............................................8 SECTION 1.15 No Claims Against the Grantee.................................................9 SECTION 1.16 Indemnification...............................................................9 SECTION 1.17 No Credit for Payment of Taxes...............................................10 SECTION 1.18 Intentionally Omitted........................................................10 SECTION 1.19 No Transfer of the Property..................................................10 SECTION 1.20 Security Agreement...........................................................10 SECTION 1.21 Representations and Warranties...............................................11 SECTION 1.22 Grantor's Covenants..........................................................11 SECTION 1.23 Attornment...................................................................11 ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC SECTION 2.1 Insurance.....................................................................12 SECTION 2.2 Damage, Destruction or Taking; Grantor to Give Notice; Assignment of Awards...13 SECTION 2.3 Application of Proceeds and Awards............................................14 SECTION 2.4 Total Taking and Total Destruction............................................15 ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC SECTION 3.1 Events of Default; Acceleration...............................................16 SECTION 3.2 Legal Proceedings; Judicial Foreclosure.......................................16 SECTION 3.3 Power of Sale.................................................................16 SECTION 3.4 Uniform Commercial Code Remedies..............................................17 SECTION 3.5 Grantee Authorized Go Execute Deeds, etc......................................17
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Page SECTION 3.6 Purchase of Collateral by Grantee.............................................17 SECTION 3.7 Receipt a Sufficient Discharge to Purchaser...................................17 SECTION 3.8 Waiver of Appraisement, Valuation, etc........................................17 SECTION 3.9 Sale a Bar Against Grantor....................................................17 SECTION 3.10 Obligations to Become Due on Sale.............................................18 SECTION 3.11 Application of Proceeds of Sale and Other Moneys..............................18 SECTION 3.12 Appointment of Receiver.......................................................18 SECTION 3.13 Possession, Management and Income.............................................19 SECTION 3.14 Right of Grantee to Perform Grantor's Covenants, etc..........................19 SECTION 3.15 Subrogation...................................................................19 SECTION 3.16 Remedies, etc., Cumulative....................................................19 SECTION 3.17 Provisions Subject to Applicable Law..........................................19 SECTION 3.18 No Waiver, etc................................................................20 SECTION 3.19 Compromise of Actions, etc....................................................20 SECTION 3.20 Foreclosure - Authority Lease.................................................20 ARTICLE IV DEFINITIONS SECTION 4.1 Terms Defined in this Deed.....................................................20 SECTION 4.2 Use of Defined Terms...........................................................22 SECTION 4.3 Indenture Definitions..........................................................22 ARTICLE V MISCELLANEOUS SECTION 5.1 Further Assurances; Financing Statements......................................22 SECTION 5.2 Additional Security...........................................................22 SECTION 5.3 Satisfaction; Partial Release, etc............................................23 SECTION 5.4 Notices, etc..................................................................23 SECTION 5.5 Waivers, Amendments, etc......................................................23 SECTION 5.6 Cross-References..............................................................23 SECTION 5.7 Headings......................................................................23 SECTION 5.8 Currency......................................................................23 SECTION 5.9 Governing Law.................................................................23 SECTION 5.10 Successors and Assigns, etc...................................................23 SECTION 5.11 Waiver of Jury Trial; Submission to Jurisdiction..............................23 SECTION 5.12 Severability; Conflicts.......................................................24 SECTION 5.13 Security Agreements...........................................................24 SECTION 5.14 Usury Savings Clause..........................................................24 SECTION 5.15 Future Advances...............................................................25 SECTION 5.16 Georgia Agent.................................................................25 SECTION 5.17 Subordination to First Deed...................................................25 SCHEDULE 1 Legal Description of the Land SCHEDULE 2 Permitted Encumbrances
ii 4 SECOND LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT AND SECURITY AGREEMENT THIS SECOND LEASEHOLD DEED TO SECURE DEBT, ASSIGNMENT AND SECURITY AGREEMENT, dated as of July 23 1999 (this "Deed"), made by STERLING PULP CHEMICALS, INC., a Georgia corporation (the "Grantor"), having an address at 1200 Smith, Suite 1900, Houston, Texas 77002-4312, to HARRIS TRUST COMPANY OF NEW YORK, a New York corporation ("Harris Trust"), as collateral agent for the benefit of itself and certain other holders (collectively, the "Holders") of the 12 3/8% Senior Secured Notes due July 15, 2006, having an address at Wall Street Plaza, 19th Floor, 88 Pine Street, New York, New York 10005 (together with its successors and assigns from time to time acting as collateral agent under the Indenture referred to below, the "Collateral Agent"), and U.S. BANK TRUST NATIONAL ASSOCIATION, a banking association, having an address at GAAT 3384, 3384 Peachtree Road, NE, Suite 200, Atlanta, Georgia 30326, as Georgia co-agent (together with its successors and assigns from time to time acting as Georgia co-agent, the "Georgia Agent," with the Collateral Agent and the Georgia Agent herein collectively referred to as "Grantee"). W I T N E S S E T H T H A T: WHEREAS, the Grantor is on the date of delivery hereof the owner of fee title (or easement or leasehold estate if otherwise indicated herein or on Schedule 1 hereto) to the parcel of land described in Schedule 1 hereto (the "Land") and of the Improvements (hereinafter defined); WHEREAS, the Collateral Agent, as collateral agent and indenture trustee, and Sterling Chemicals, Inc., a Delaware corporation, as issuer ("Issuer") have entered into that certain Indenture, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Issuer issued Two Hundred Ninety Five Million and NO/100 Dollars ($295,000,000) in the aggregate principal amount of 12 3/8% Senior Secured Notes due July 15, 2006 (the "Senior Secured Notes"); and WHEREAS, Grantor has granted a first priority Leasehold Deed to Secure Debt, Assignment and Security Agreement (the "First Deed") encumbering the Collateral pursuant to that certain Revolving Credit Agreement (the "Credit Agreement"), by and among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Grantor, Sterling Chemicals Energy, Inc. and Sterling Chemicals 5 International, Inc., as Borrowers (collectively, "Borrowers"), various financial institutions, as lenders ("Lenders"), DLJ Capital Funding, Inc., as syndication agent ("Syndication Agent"), The CIT Group/Business Credit, Inc., as the administrative agent and collateral agent (the "Administrative Agent"), and Credit Suisse First Boston, as the documentation agent; and WHEREAS, pursuant to the terms of the Credit Agreement, the Lenders (as defined in the Credit Agreement) have agreed to make Fixed Assets Loans (as defined in the Credit Agreement) (the "Senior Loan") to the Borrowers (as defined in the Credit Agreement) in the maximum original principal amount of Seventy Million Dollars ($70,000,000), the payment of which is secured by, inter alia, the First Deed encumbering the Property; and WHEREAS, during the pendency of the Senior Loan, this Deed shall be subordinate and inferior to the First Deed; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Deed. GRANT: NOW, THEREFORE, for and in consideration of the premises, and of the mutual covenants herein contained, and in order to induce the Holders to purchase the Senior Secured Notes, and to secure the full, timely and proper payment and performance of and compliance with each and every one of the Obligations (as hereinafter defined), the Grantor hereby irrevocably grants, bargains, sells, sets over, warrants, aliens, demises, releases, hypothecates, pledges, assigns, transfers and conveys to the Grantee and its successors, successors in title and assigns, forever, all of the following (the "Collateral"): (a) Real Estate. All of Grantor's estate, interest, rights, privileges and benefits (including, without limitation, any option to purchase fee simple title) existing under or created by that certain Indenture of Lease by and between Valdosta-Lowndes County Industrial Authority (as Lessor) and Sterling Pulp Chemicals US, Inc. (as Lessee) dated October 1, 1995, and recorded in Deed Book 1331, Page 27, Lowndes County, Georgia Records, with a Memorandum of Lease Agreement dated as of October 1, 1995, being recorded in Deed Book 1240, page 1, aforesaid records, as assigned by Sterling Pulp Chemicals US, Inc. to Grantor by instrument dated August 6, 1996, and recorded in Deed Book 1333, Page 123, and rerecorded in Deed Book 1349, Page 83, aforesaid records (collectively, the "Authority Lease") covering and affecting the Land, and all of Grantor's interest in and to all of the Land and all additional lands and estates therein now owned or hereafter-acquired by the Grantor for use or development with the Land or any portion thereof, together with all and singular the tenements, rights, easements, hereditaments, rights of way, privileges, liberties, appendages and appurtenances now or hereafter belonging or in any way pertaining to the Land and such additional lands and estates therein (including, without limitation, all rights relating to storm and sanitary sewer, water, gas, electric, railway and telephone services); all development rights, air rights, riparian rights, water, water rights, water stock, all rights in, to and with respect to any and all oil, gas, coal, minerals and other substances of any kind or character underlying or relating to the Land and such additional lands and estates therein and any interest therein; all estate, claim, demand, right, title or interest of the Grantor in and to any street, road, highway or alley, vacated or other, adjoining the Land or any part thereof and such additional lands and estates therein; all strips and gores belonging, adjacent or pertaining to the Land or such additional lands and estates (herein collectively referred to as the "Real Estate"); 2 6 (b) Improvements. All of Grantor's right, title and interest in and to all buildings, structures and other improvements now existing on the Land and any additions and alterations thereto or replacements thereof, now or hereafter built, constructed or located upon the Real Estate; and, to the extent that any of the following items of property constitutes fixtures under applicable laws, all furnishings, fixtures, fittings, appliances, apparatus, equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever and all replacements thereof, now or hereafter affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Real Estate or such buildings, structures and other improvements, including, but not limited to, partitions, furnaces, boilers, oil burners, radiators and piping, plumbing and bathroom fixtures, refrigeration, heating, ventilating, air conditioning and sprinkler systems, other fire prevention and extinguishing apparatus and materials, vacuum cleaning systems, gas and electric fixtures, incinerators, compactors, elevators, engines, motors, generators and all other articles of property which are considered fixtures under applicable law (such buildings, structures and other improvements and such other property are herein collectively referred to as the "Improvements"; the Real Estate and the Improvements are herein collectively referred to as the "Property"); (c) Goods. All of Grantor's right, title and interest in and to all building materials, construction materials, appliances (including, without limitation, stoves, ranges, ovens, disposals, refrigerators, water fountains and coolers, fans, heaters, dishwashers, clothes washers and dryers, water heaters, hood and fan combinations, kitchen equipment, laundry equipment, kitchen cabinets and other similar equipment), stocks, supplies, blinds, window shades, drapes, carpets, floor coverings, manufacturing equipment and machinery, office equipment, growing plants and shrubberies, control devices, equipment (including window cleaning, building cleaning, swimming pool, recreational, monitoring, garbage, pest control and other equipment), motor vehicles, tools, furnishings, furniture, lighting, non-structural additions to the Real Estate and Improvements and all other tangible property of any kind or character, together with all replacements thereof, now or hereafter located on or in or used or useful in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Property, regardless of whether or not located on or in the Property or located elsewhere for purposes of storage, fabrication or otherwise (herein collectively referred to as the "Goods"); (d) Leases. All rights of the Grantor in, to and under all leases (other than the Authority Lease), licenses, occupancy agreements, concessions and other arrangements, oral or written, now existing or replacements thereof hereafter entered into, whereby any Person agrees to pay money or any other consideration for the use, possession or occupancy of, or any estate in, the Property or any portion thereof or interest therein (herein collectively referred to as the "Leases"), and the right, subject to applicable law, upon the occurrence of any Event of Default hereunder, to receive and collect the Rents (as hereinafter defined) paid or payable thereunder; (e) Plans. All rights of the Grantor in and to all plans and specifications, designs, drawings and other information, materials and matters heretofore or hereafter prepared relating to the Improvements or any construction on the Real Estate (herein collectively referred to as the "Plans"); (f) Permits. All rights of the Grantor, to the extent assignable, in, to and under all permits, franchises, licenses, approvals and other authorizations respecting the use, occupation and operation of the Property and every part thereof and respecting any business or other activity conducted on or from the Property, and any product or proceed thereof or therefrom, including, 3 7 without limitation, all building permits, certificates of occupancy and other licenses, permits and approvals issued by governmental authorities having jurisdiction (herein collectively referred to as the "Permits"); (g) Contracts. All right, title and interest of the Grantor, to the extent assignable, in and to all certificates, warranties, appraisals, engineering, environmental, soils, insurance and other reports and studies, books, records, correspondence, files and advertising materials, and other documents, now or hereafter obtained or entered into, as the case may be, pertaining to the construction, use, occupancy, possession, operation, management, leasing, maintenance and/or ownership of the Property and all right, title and interest of the Grantor therein (herein collectively referred to as the "Contracts"); (h) Leases of Furniture, Furnishings and Equipment. All right, title and interest of the Grantor as lessee in, to and under any leases of furniture, furnishings, equipment and any other Goods now or hereafter installed in or at any time used in connection with the Property; (i) Rents. All rents, issues, profits, royalties, avails, income and other benefits derived or owned, directly or indirectly, by the Grantor from the Property, including, without limitation, all rents and other consideration payable by tenants, claims against guarantors, and any cash or other securities deposited to secure performance by tenants, under the Leases (herein collectively referred to as "Rents"); and (j) Proceeds. All proceeds of the conversion, voluntary or involuntary of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards (herein collectively referred to as "Proceeds"), provided however, the Collateral shall not include any general intangibles or other rights arising under any contracts, instruments, licenses, or other documents as to which the grant of a lien and/or security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained; and further provided, however, in no event shall the Collateral hereunder include any item or classes of "Collateral" as defined in the Current Assets Security Agreement (as defined in the Credit Agreement) and provided further, that the Collateral shall include after acquired property to the extent, and only to the extent, that such after acquired property is in replacement or substitution of Collateral existing as of the date hereof. AND, without limiting any of the other provisions of this Deed, the Grantor expressly grants to the Grantee, as secured party, a security interest in all of those portions of the Collateral which are or may be subject to the State Uniform Commercial Code provisions applicable to secured transactions; TO HAVE AND TO HOLD the Collateral to the use, benefit and behoof of the Grantee, its successors, successors-in-title, and assigns, forever. This Deed is intended to operate and is to be construed as a deed passing the title to the Collateral to Grantee and is made under those provisions of the existing laws of the State relating to deeds to secure debt and not as a mortgage, and is given to secure the payment of the Obligations. FURTHER to secure the full, timely and proper payment and performance of the Obligations, the Grantor hereby covenants and agrees with and warrants to the Grantee as follows: 4 8 ARTICLE I COVENANTS AND AGREEMENTS OF THE GRANTOR SECTION 1.1. Payment of Obligations. (i) The Grantor agrees that: (a) Grantor will duly and punctually pay and perform or cause to be paid and performed each of its liabilities, duties and obligations pursuant to its Subsidiary Guarantees under the Indenture at the time and in accordance with the terms thereof, and (b) when and as due and payable from time to time in accordance with the terms hereof, pay and perform, or cause to be paid and performed, all other Obligations. SECTION 1.2. Title to Collateral, etc. The Grantor represents and warrants to and covenants with the Grantee that: (a) except as otherwise permitted by the terms of the Indenture, as of the date hereof and at all times hereafter while this Deed is outstanding, the Grantor (1) is and shall be the absolute owner of the legal and beneficial title to the applicable interest in the Property and to all other property included in the Collateral, and (2) has and shall have good and marketable title in fee simple absolute, or easement or leasehold estate, as currently represented in the granting clause as of the date hereof, to the Property, subject in each case only to this Deed, the liens expressly permitted pursuant to the terms of the Indenture and the encumbrances set forth in Schedule 2 hereto (collectively, the "Permitted Encumbrances"); (b) the Grantor has good and lawful right, power and authority to execute this Deed and to convey, transfer, assign, set over and grant the security title to and a security interest in the Collateral, all as provided herein; (c) this Deed has been duly executed, acknowledged and delivered on behalf of the Grantor, all consents and other actions required to be taken by the officers, directors, shareholders and partners, as the case may be, of the Grantor have been duly and fully given and performed and this Deed constitutes the legal, valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms; and (d) the Grantor, at its expense, will warrant and defend to the Grantee and any purchaser under the power of sale herein or at any foreclosure sale such title to the Collateral and the second security title and second priority perfected security interest of this Deed thereon and therein against all claims and demands and will maintain, preserve and protect such security title and security interest and will keep this Deed a valid, direct second security title of record on the Property and a second priority perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. SECTION 1.3. Title Insurance. SECTION 1.3.1. Title Insurance Policy. Concurrently with the execution and delivery of this Deed, the Grantor, at its expense, has obtained and delivered to the Grantee a loan policy or policies of title insurance in an amount, and in form and substance, reasonably satisfactory to the Grantee naming the Grantee as the insured, insuring the title to and the second security title of this Deed on the Property, with endorsements reasonably requested by the Grantee. The Grantor has duly paid in full all premiums and other charges due in connection with the issuance of such policy or policies of title insurance. 5 9 Section 1.3.2. Title Insurance Proceeds. All proceeds received by and payable to the Grantee for any loss under the loan policy or policies of title insurance delivered to the Grantee pursuant to Section 1.3.1, or under any policy or policies of title insurance delivered to the Grantee in substitution therefor or replacement thereof, shall be the property of the Grantee and shall be applied by the Grantee in accordance with the provisions of Section 2.3. Section 1.4. Recordation. The Grantor, at its expense, will at all times cause this Deed and any instruments amendatory hereof or supplemental hereto and any instruments of assignment hereof or thereof (and any appropriate financing statements or other instruments and continuations thereof), and each other instrument delivered in connection with the Indenture, the Senior Secured Notes or any other Security Agreements executed pursuant to the Indenture and intended thereunder to be recorded, registered and filed, to be kept recorded, registered and filed, in such manner and in such places, and will pay all such recording, registration, filing fees, taxes and other charges, and will comply with all such statutes and regulations as may be required by law in order to establish, preserve, perfect and protect the security title and security interest of this Deed as a valid, direct second security title on the Property and second priority perfected security interest in the Collateral other than the Property, subject only to the Permitted Encumbrances. The Grantor will pay or cause to be paid, and will indemnify the Grantee in respect of, all taxes (including interest and penalties) at any time payable in connection with the filing and recording of this Deed and any and all supplements and amendments hereto. Section 1.5. Payment of Impositions, etc. Subject to Section 1.8 (relating to permitted contests), the Grantor will pay or cause to be paid before the same would become delinquent and before any fine, penalty, interest or cost may be added for non-payment, all taxes, assessments, water and sewer rates, charges, license fees, inspection fees and other governmental levies or payments, of every kind and nature whatsoever, general and special, ordinary and extraordinary, unforeseen as well as foreseen, which at any time may be assessed, levied, confirmed, imposed or which may become a lien upon the Collateral, or any portion thereof, or which are payable with respect thereto, or upon the rents, issues, income or profits thereof, or on the occupancy, operation, use, possession or activities thereof, whether any or all of the same be levied directly or indirectly or as excise taxes or as income taxes, and all taxes, assessments or charges which may be levied on the Obligations, or the interest thereon (collectively, the "Impositions"). The Grantor will deliver to the Grantee, upon request, copies of official receipts or other satisfactory proof evidencing such payments. Section 1.6. Insurance and Legal Requirements. Subject to Section 1.8 (relating to permitted contests), the Grantor, at its expense, will comply in all material respects, or cause compliance in all material respects with (a) all provisions of any insurance policy covering or applicable to the Collateral or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Collateral or any part thereof or any use or condition of the Collateral or any part thereof (collectively, the "Insurance Requirements"); and (b) all laws, including Environmental Laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Collateral or any part thereof, or any of the adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any use or condition of the Collateral or any part thereof (collectively, the "Legal Requirements"); 6 10 noncompliance of which could reasonably be expected to cause a Material Adverse Effect (as defined in the Credit Agreement) whether or not compliance therewith shall require structural changes in or interference with the use and enjoyment of the Collateral or any part thereof. SECTION 1.7. Security Interests, etc. The Grantor will not directly or indirectly create or permit or suffer to be created or to remain, and will promptly discharge or cause to be discharged, any deed to secure debt, deed of trust, mortgage, encumbrance or charge on, pledge of, security interest in or conditional sale or other title retention agreement with respect to or any other lien or security interest or security title on or in the Collateral or any part thereof or the interest of the Grantor or the Grantee therein, or any Proceeds thereof or Rents or other sums arising therefrom, other than (a) Permitted Encumbrances, and (b) liens of mechanics, materialmen, suppliers or vendors or rights thereto incurred in the ordinary course of the business of the Grantor for sums not yet due or any such liens or rights thereto which are at the time being contested as permitted by Section 1.8. The Grantor will not postpone the payment of any sums for which liens of mechanics, materialmen, suppliers or vendors or rights thereto have been incurred (unless such liens or rights thereto are at the time being contested as permitted by Section 1.8), for more than 60 days after the completion of the action giving rise to such liens or rights thereto. SECTION 1.8. Permitted Contests. The Grantor at its expense may contest, or cause to be contested, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition, Legal Requirement or Insurance Requirement or lien of a mechanic, materialman, supplier or vendor, provided that, (a) in the case of an unpaid Imposition, lien, encumbrance or charge, such proceedings shall suspend the collection thereof from the Grantor, the Grantee, and the Collateral (including any rent or other income therefrom) and shall not materially interfere with the payment of any such rent or income, (b) neither the Collateral nor any rent or other income therefrom nor any part thereof or interest therein would be in any material danger of being sold, forfeited, lost, impaired or interfered with, (c) in the case of a Legal Requirement, neither the Grantor nor the Grantee would be in material danger of any civil or criminal liability for failure to comply therewith, (d) the Grantor shall have furnished such security, if any, as may be required in the proceedings or as may be reasonably requested by the Grantee, (e) the non-payment of the whole or any part of any Imposition will not result in the delivery of a tax deed to the Collateral or any part thereof because of such non-payment, (f) the payment of any sums required to be paid with respect to any of the Senior Secured Notes or under this Deed (other than any unpaid Imposition, lien, encumbrance or charge at the time being contested in accordance with this Section 1.8) shall not be interfered with or otherwise affected, (g) in the case of any Insurance Requirement, the failure of the Grantor to comply therewith shall not affect the validity of any insurance required to be maintained by the Grantor under Section 2.1, and (h) that adequate reserves, determined in accordance with GAAP, shall have been set aside on the Grantor's books. SECTION 1.9. Leases. The Grantor represents and warrants to the Grantee that, as of the date hereof, there are no written or oral leases or other agreements of any kind or nature relating to the occupancy of any portion of the Property by any Person other than the Grantor other than the Permitted Encumbrances. Except as is permitted by the Indenture, the Grantor will not enter into any such written or oral lease or other agreement with respect to any portion of the Property without first obtaining the written consent of the Grantee. SECTION 1.10. Compliance with Instruments. The Grantor at its expense will promptly comply in all material respects with all rights of way or use, privileges, franchises, servitudes, licenses, easements, tenements, hereditaments and appurtenances forming a part of the Property and all instruments creating or evidencing the same, in each case, to the extent compliance therewith is required of the Grantor under the terms thereof. Except as is permitted by the Indenture, the Grantor will not take any 7 11 which action which may result in a forfeiture or termination of the rights afforded to the Grantor under any such instruments and will not, without the prior written consent of the Grantee, amend any of such instruments in any manner adverse to the Holders in any material respect. SECTION 1.11. Maintenance and Repair, etc. Subject to the provisions of Section 1.12, the Grantor will keep or cause to be kept all presently and subsequently erected or acquired Improvements and the sidewalks, curbs, vaults and vault space, if any, located on or adjoining the same, and the streets and the ways adjoining the same, in good and substantial order and repair and in such a fashion that neither the value nor utility of the Collateral will be diminished, and, at its sole cost and expense, will promptly make or cause to be made all necessary and appropriate repairs, replacements and renewals thereof, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen, so that its business carried on in connection therewith may be properly conducted at all times. The Grantor at its expense will do or cause to be done all shoring of foundations and walls of any building or other Improvements on the Property and (to the extent permitted by law) of the ground adjacent thereto, and every other act necessary or appropriate for the preservation and safety of the Property by reason of or in connection with any excavation or other building operation upon the Property and upon any adjoining property, whether or not the Grantor shall, by any Legal Requirement, be required to take such action or be liable for failure to do so. SECTION 1.12. Alterations, Additions, etc. So long as no Event of Default shall have occurred and be continuing, the Grantor shall have the right at any time and from time to time to make or cause to be made reasonable alterations of and additions to the Property or any part thereof, provided that any alteration or addition: (a) shall not change the general character or the use of the Property or reduce the fair market value thereof below its value immediately before such alteration or addition, or impair the usefulness of the Property; (b) is effected with due diligence, in a good and workmanlike manner and in compliance in all material respects with all Legal Requirements and Insurance Requirements; (c) subject to Section 1.8 is promptly and fully paid for, or caused to be paid for, by the Grantor; and (d) is made, in case the estimated cost of such alteration or addition exceeds U.S. $1,000,000, under the supervision of a qualified architect or engineer or another professional. SECTION 1.13. Acquired Property Subject to Security Title/Security Interest. Subject to the Permitted Encumbrances and except as otherwise permitted by the Indenture, all property at any time acquired by the Grantor and provided or required by this Deed to be or become subject to the security title and security interest hereof, whether such property is acquired by exchange, purchase, construction or otherwise, shall forthwith become subject to the security title and security interest of this Deed without further action on the part of the Grantor or the Grantee. The Grantor, at its expense, will execute and deliver to the Grantee (and will record and file as provided in Section 1.4) an instrument supplemental to this Deed reasonably satisfactory in substance and form to the Grantee, whenever such an instrument is necessary under applicable law to subject to the security title and security interest of this Deed all right, title and interest of the Grantor in and to all property provided or required by this Deed to be subject to the security title and security interest hereof. SECTION 1.14. Assignment of Rents, Proceeds, etc. The assignment, grant and conveyance of the Leases, Rents, Proceeds and other rents, income, proceeds and benefits of the Collateral contained in the granting clause of this Deed constitutes an absolute, present and irrevocable assignment, grant and conveyance, provided, however, that a revocable license is hereby given to the Grantor, so long as no Event of Default has occurred and be continuing hereunder, to collect, receive and apply such Rents, Proceeds and other rents, income, proceeds and benefits as they become due and payable, but not further in advance thereof than is customary, and in accordance with all of the other terms, conditions and provisions hereof, of the Indenture, the Senior Secured Notes and Security Agreements executed pursuant to the Indenture, and of the Leases, contracts, agreements and other instruments with respect to 8 12 such payments are made or such other benefits are conferred. Upon the occurrence and continuance of an Event of Default, such license shall terminate immediately and automatically, without notice to the Grantor or any other Person except as required by law, and shall not be reinstated upon a cure of such Event of Default without the express written consent of the Grantee. Such assignment shall be fully effective without any further action on the part of the Grantor or the Grantee and the Grantee shall be entitled, at its option, upon the occurrence and continuance of an Event of Default hereunder, to collect, receive and apply all Rents, Proceeds and all other rents, income, proceeds and benefits from the Collateral, including all right, title and interest of the Grantor in any escrowed sums or deposits or any portion thereof or interest therein, whether or not the Grantee takes possession of the Collateral or any part thereof. The Grantor further grants to the Grantee the right, at the Grantee's option, upon the occurrence and continuance of an Event of Default hereunder, to: (a) enter upon and take possession of the Property for the purpose of collecting Rents, Proceeds and said rents, income, proceeds and other benefits; (b) dispossess by the customary summary proceedings any tenant, purchaser or other Person defaulting in the payment of any amount when and as due and payable, or in the performance of any other obligation, under any Lease, contract or other instrument to which said Rents, Proceeds or other rents, income, proceeds or benefits relate; (c) let or convey the Collateral or any portion thereof or any interest therein; and (d) apply Rents, Proceeds and such rents, income, proceeds and other benefits, after the payment of all necessary fees, charges and expenses, on account of the Obligations in accordance with Section 3.11. SECTION 1.15. No Claims Against the Grantee. Nothing contained in this Deed shall constitute any consent or request by the Grantee, express or implied, for the performance of any labor or the furnishing of any materials or other property in respect of the Property or any part thereof, or be construed to permit the making of any claim against the Grantee in respect of labor or services or the furnishing of any materials or other property or any claim that any lien based on the performance of such labor or the furnishing of any such materials or other property is prior to the security title and security interest of this Deed. ALL CONTRACTORS, SUBCONTRACTORS, VENDORS AND OTHER PERSONS DEALING WITH THE PROPERTY, OR WITH ANY PERSONS INTERESTED THEREIN, ARE HEREBY REQUIRED TO TAKE NOTICE OF THE PROVISIONS OF THIS SECTION. SECTION 1.16. Indemnification. The Grantor will protect, indemnify, save harmless and defend the Grantee, the Holders of the Senior Secured Notes, and each of their respective officers, directors, shareholders, employees, representatives and agents (collectively, the "Indemnified Parties" and individually, an "Indemnified Party"), from and against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against any Indemnified Party by reason of (a) ownership of an interest in this Deed, the Senior Secured Notes or the Property, (b) any accident, injury to or death of persons or loss of or damage to or loss of the use of property occurring on or about the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (c) any use, non-use or condition of the Property or any part thereof or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or ways, (d) any failure on the part of the Grantor to perform or comply with any of the terms of this Deed, the Indenture, the Senior Secured Notes or the Security Agreements executed pursuant to the Indenture, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Collateral or any part thereof made or suffered to be made by or on behalf of the Grantor, (f) any negligence or tortuous act 9 13 on the part of the Grantor or any of its agents, contractors, lessees, licensees or invitees, (g) any work in connection with any alterations, changes, new construction or demolition of or additions to the Property, or (h) (i) any Hazardous Material (as defined in the Credit Agreement) on, in, under or affecting all or any portion of the Property, the groundwater, or any surrounding areas, (ii) any misrepresentation, inaccuracy or breach of any warranty, covenant or agreement contained or referred to in Sections 1.21 and 1.22, (iii) any violation or claim of violation by the Grantor of any Environmental Laws (as defined in the Credit Agreement), or (iv) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of any Hazardous Material, except to the extent that any of the matters described in subsections (a)-(h) arise out of the gross negligence or willful misconduct of any Indemnified Party. If any action or proceeding be commenced, to which action or proceeding any Indemnified Party is made a party by reason of the execution of this Deed or any other Security Agreements executed pursuant to the Indenture, or in which it becomes necessary to defend or uphold the lien of this Deed, all sums paid by the Indemnified Parties, for the expense of any litigation to prosecute or defend the rights and lien created hereby or otherwise, shall be paid by the Grantor to such Indemnified Parties, as the case may be, as hereinafter provided. The Grantor will pay and save the Indemnified Parties harmless against any and all liability with respect to any intangible personal property tax or similar imposition of the State or any subdivision or authority thereof now or hereafter in effect, to the extent that the same may be payable by the Indemnified Parties in respect of this Deed, any Indenture, Senior Secured Notes and Security Agreements executed pursuant to the Indenture or any Secured Obligation. All amounts payable to the Indemnified Parties under this Section 1.16 shall be deemed indebtedness secured by this Deed and any such amounts which are not paid within ten (10) days after written demand therefor by any Indemnified Party shall bear interest at the rate provided for in Section 3.2.2 of the Indenture from the date of such demand. In case any action, suit or proceeding is brought against any Indemnified Party by reason of any such occurrence, the Grantor, upon request of such Indemnified Party, will, at the Grantor's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel designated by the Grantor and approved by such Indemnified Party. The obligations of the Grantor under this Section 1.16 shall survive any cancellation and surrender of this Deed. SECTION 1.17. No Credit for Payment of Taxes. The Grantor shall not be entitled to any credit against the Obligations by reason of the payment of any tax on the Property or any part thereof or by reason of the payment of any other Imposition, and shall not apply for or claim any deduction from the taxable value of the Property or any part thereof by reason of this Deed. SECTION 1.18. Intentionally Omitted SECTION 1.19. No Transfer of the Property. Except as is provided in the Indenture, and except for the Permitted Encumbrances, the Grantor shall not, without the prior written consent of the Grantee, which consent may be granted or withheld in the sole and absolute discretion of the Grantee (i) sell, convey, assign or otherwise transfer the Property or any portion of the Grantor's interest therein or (ii) further encumber the Property or permit the Property to become encumbered by any lien, claim, security title, security interest or other indebtedness of any kind or nature other than the Permitted Encumbrances. SECTION 1.20. Security Agreement. With respect to the items of personal property and fixtures referred to and described in the granting clause of this Deed and included as part of the Collateral, this Deed is hereby made and declared to be a security agreement encumbering each and every item of personal property and fixtures now or hereafter owned by Grantor and included herein as a part of the Collateral, in compliance with the provisions of the Uniform Commercial Code as enacted in the State. In this respect, Grantor, as "Debtor", expressly grants to Grantee, as "Secured Party", a security interest in and to all of the property now or hereafter owned by Grantor which constitutes the personal property and fixtures hereinabove referred to and described in this Deed, including all extensions, accessions, 10 14 additions, improvements, betterments, renewals, replacements and substitutions thereof or thereto, and all proceeds from the sale or other disposition thereof. Grantor agrees to execute and deliver to Grantee, upon Grantee's request, any other security agreement and financing statements, as well as extensions, renewals, and amendments thereof, in such form as Grantee may require to perfect a security interest with respect to said items. Grantor shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements Grantee may reasonably require. Except as is provided in the Indenture, and except for the Permitted Encumbrances, without the prior written consent of Grantee, Grantor shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the above-described personal property and fixtures, including any replacements and additions thereto. Upon the occurrence and continuance of an Event of Default under this Deed, the Grantee shall have and shall be entitled to exercise any and all of the rights and remedies (i) as prescribed in this Deed, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory provisions now or hereafter enacted and specified in said Uniform Commercial Code, all at Grantee's sole election. Grantor and Grantee agree that the filing of any financing statements in the records normally having to do with personal property shall not in any way affect the agreement of Grantor and Grantee that everything located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of, the Collateral, which is described or reflected as a fixture in this Deed, is, and at all times and for all purposes and in all proceedings, both legal and equitable, shall be, regarded as part of the Real Estate conveyed hereby. Grantor warrants that Grantor's name, identity and address are as set forth herein. The mailing address of the Grantee from which information may be obtained concerning the security interest created herein is also set forth herein. SECTION 1.21. Representations and Warranties. In order to induce the Grantee to enter into this Deed, the Indenture and the other Senior Secured Notes and Security Agreements executed pursuant to the Indenture as applicable, the Grantor agrees that all of the representations and warranties of Grantor set forth in the Senior Secured Notes and Security Agreements executed pursuant to the Indenture are incorporated into this Deed by reference as if fully set forth herein. SECTION 1.22. Grantor's Covenants In order to induce the Grantee to enter into this Deed, the Indenture and the other Senior Secured Notes and Security Agreements as applicable, the Grantor agrees that all of the covenants of Grantor set forth in the Indenture are incorporated into this Deed by reference as if fully set forth herein. SECTION 1.23. Attornment. Grantee hereby acknowledges and agrees that the security and security interest granted herein are subject to the rights of certain lessees under the leases as set forth in the Credit Agreement and will be subject to the rights of lessees under any Leases entered into by the Grantor after the date hereof which are permitted as Permitted Liens pursuant to the Indenture, subject to the express rights contained in the applicable Lease. The rights of the tenants under the Leases to the leased premises shall not be adversely affected by the exercise by Grantee of any of its rights hereunder, nor shall any such tenant be in any way deprived of its rights under the applicable Lease except in accordance with the terms of such Lease. In the event that the Grantee succeeds to the interest of the Grantor under a Lease, such Lease shall not be terminated or affected thereby except as set forth therein, and any sale of the applicable leased premises by Grantee or pursuant to the judgment of any court in an action to enforce the remedies provided for in this Deed shall be made subject to such Lease and the rights of such tenant expressly set forth thereunder. If Grantee succeeds to the interests of the Grantor in and to the applicable leased premises or under such Lease or enters into possession of such leased premises, the Grantee, and such tenants, shall be bound to 11 15 each other under all of the express terms, covenants and conditions of such Lease, as if the Grantee was originally the Grantor as lessor thereunder. ARTICLE II INSURANCE; DAMAGE, DESTRUCTION OR TAKING, ETC. SECTION 2.1. Insurance. SECTION 2.1.1. Risks to be Insured. The Grantor will, at its expense, maintain or cause to be maintained with insurance carriers approved by the Grantee (a) insurance with respect to the Improvements against loss or damage by fire, lightning and such other risks as are included in standard "all-risk" policies, in amounts sufficient to prevent the Grantor and the Grantee from becoming a co-insurer of any partial loss under the applicable policies, but in any event in amounts not less than the then full insurable value (actual replacement value) of the Improvements, as determined by the Grantor in accordance with generally accepted insurance practice and approved by the Grantee or, at the request of the Grantee, as determined at the Grantor's expense by the insurer or insurers or by an expert approved by the Grantee, (b) comprehensive public liability, including bodily injury and product liability and property damage, insurance, with personal injury endorsements, applicable to the Property in such amounts as are customarily carried by Persons operating similar properties in the same general locality, but in any event with a combined single limit of not less than Twenty Million Dollars ($20,000,000) per occurrence, (c) explosion insurance in respect of any steam and pressure boilers and similar apparatus located in the Property in such amounts as are usually carried by persons operating similar properties in the same general locality, but in any event in an amount not less than Twenty Million Dollars ($20,000,000), (d) business interruption insurance (including added expense coverage) against all insurable perils for a period of not fewer than twelve (12) months (subject to a reasonable aggregate deductible not exceeding ten (10) days per occurence), (e) worker's compensation insurance to the full extent required by applicable law for all employees of the Grantor engaged in any work on or about the Property and employer's liability insurance with a limit of not less than Ten Million Dollars ($10,000,000) for each occurrence, (f) all-risk, builders' risk insurance with respect to the Property during any period during which there is any construction work being performed, against loss or damage by fire or other risks, including vandalism, malicious mischief and sprinkler leakage, as are included in so-called "extended coverage" clauses at the time available and (g) such other insurance with respect to the Property in such amounts and against such insurable hazards as the Grantee from time to time may reasonably require by written notice to the Grantor. SECTION 2.1.2. Policy Provisions. All insurance maintained by the Grantor pursuant to Section 2.1.1 shall (a) (except for worker's compensation insurance) list the Grantee as an additional insured as its interests may appear, (b) (except for worker's compensation and public liability insurance) provide that the proceeds for any losses shall be adjusted by the Grantor subject to the approval of the Grantee in the event the proceeds shall exceed $1,000,000, and shall be payable to the Grantee, to be held and applied as provided in Section 2.3, (c) include effective waivers by the insurer of all rights of subrogation against any named insured, the indebtedness secured by this Deed and the Property and all claims for insurance premiums against the Grantee, (d) (except for worker's compensation and public liability insurance) provide that any losses shall be payable notwithstanding (i) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms thereof, (iii) any foreclosure or other action or proceeding taken by the Grantee pursuant to any provision of this Deed, or (iv) any change in title or ownership of the Property, (e) provide that no cancellation, reduction in 12 16 amount or material change in coverage thereof or any portion thereof shall be effective until at least thirty (30) days after receipt by the Grantee of written notice thereof, (f) provide that any notice under such policies shall be simultaneously delivered to the Grantee, and (g) be satisfactory in all other reasonable respects to the Grantee. Any insurance maintained pursuant to this Section 2.1 may be evidenced by blanket insurance policies covering the Property and other properties or assets of the Grantor, provided that any such policy shall specify the portion, if less than all, of the total coverage of such policy that is allocated to the Property and shall in all other respects comply with the requirements of this Section 2.1. SECTION 2.1.3. Delivery of Policies, etc. The Grantor will deliver to the Grantee, promptly upon request, (a) certificates of all policies evidencing all insurance required to be maintained under Section 2.1.1 (or, in the case of blanket policies, certificates thereof by the insurers together with a counterpart of each blanket policy), and (b) evidence as to the payment of all premiums due thereon (with respect to public liability insurance policies, all installments for the current year due thereon to such date), provided that the Grantee shall not be deemed by reason of its custody of such certificates to have knowledge of the contents thereof or of the applicable policies. The Grantor will also deliver to the Grantee prior to the expiration of any policy a binder or certificate of the insurer evidencing the replacement thereof and when the new policy is issued a certificate of such new policy (or, in the case of a replacement blanket policy, a certificate thereof of the insurer together with a counterpart of the blanket policy). In the event the Grantor shall fail to effect or maintain any insurance required to be effected or maintained pursuant to the provisions of this Section 2.1, the Grantor will indemnify the Grantee against damage, loss or liability resulting from all risks for which such insurance should have been effected or maintained. SECTION 2.1.4. Separate Insurance. The Grantor will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained pursuant to this Section 2.1. SECTION 2.2. Damage, Destruction or Taking; Grantor to Give Notice; Assignment of Awards. In case of (a) any material damage to or destruction of the Collateral or any material part thereof, or (b) any taking, whether for permanent or temporary use, of all or any material part of the Collateral or any material interest therein or material right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain, or a change of grade affecting the Collateral or any portion thereof (a "Taking"), or the commencement of any proceedings or negotiations which may result in a Taking, the Grantor will promptly give written notice thereof to the Grantee, generally describing the nature and extent of such damage or destruction and the Grantor's best estimate of the cost of restoring the Collateral, or the nature of such proceedings or negotiations and the nature and extent of the Taking which might result therefrom, as the case may be. The Grantee shall be entitled to all insurance proceeds payable on account of such damage or destruction and to all awards or payments allocable to the Collateral on account of such Taking up to the amount of the Obligations, and the Grantor hereby irrevocably assigns, transfers and sets over to the Grantee all rights of the Grantor to any such proceeds, awards or payments and irrevocably authorizes and empowers the Grantee, at its option, in the name of the Grantor or otherwise, to file and prosecute what would otherwise be the Grantor's claim for any such proceeds, award or payment and to collect, receipt for and retain the same for disposition in accordance with Section 2.3. The Grantor will pay all reasonable costs and expenses incurred by the Grantee in 13 17 connection with any such damage, destruction or Taking and seeking and obtaining any insurance proceeds, awards or payments in respect thereof. SECTION 2.3. Application of Proceeds and Awards. The Grantee may, at its option, apply all amounts recovered under any insurance policy required to be maintained by the Grantor hereunder and all awards received by it on account of any Taking in any one or more of the following ways: (a) to the payment of the reasonable costs and expenses incurred by the Grantee in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) to the payment of the principal of the Obligations and any interest (including post-petition interest payable in any proceedings for bankruptcy under applicable law ("Post-Petition Interest") to the extent such interest is an Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured, and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued on the Obligations and unpaid, second, to the payment of all amounts of principal at the time outstanding thereon; (c) to the payment of, or the application to, any Obligation (other than as provided in clause (b) above); (d) to fulfill any of the other covenants contained herein, in the Indenture, Senior Secured Notes and Security Agreements as the Grantee may determine in its sole discretion; (e) to the Grantor for application to the cost of restoring the Collateral and the replacement of Goods destroyed, damaged or taken; or (f) to the Grantor. Notwithstanding the foregoing provisions of this Section 2.3 to the contrary (but subject to the provisions of Section 2.4), and if each of the following conditions is satisfied, the Grantee, upon request of the Grantor, shall apply insurance proceeds or condemnation awards received by it to the restoration or replacement of the Collateral, to the extent necessary for the restoration or replacement thereof: (i) there shall then exist no uncured Event of Default; (ii) the Grantor shall furnish to the Grantee a certificate of an architect or engineer reasonably acceptable to the Grantee stating (x) that the Collateral is capable of being restored, prior to the maturity of the Indenture, to substantially the same condition as existed prior to the casualty or Taking, (y) the aggregate estimated direct and indirect costs of such restoration and (z) as to any Taking, that the property taken in such Taking, or sold under threat thereof, is not necessary to the Grantor's customary use or occupancy of the Property or Grantor otherwise provides Grantee adequate assurance that the Collateral can be restored or is not necessary to Grantor's use or occupancy of the Property; and 14 18 (iii) in the event that the estimated cost of restoration set forth in the certificate of such architect or engineer (and such revisions to such estimate as are from time to time made) exceeds the net insurance proceeds or condemnation awards actually received from time to time, the Grantor shall deposit the amount of such excess with the Grantee. In the event that such insurance proceeds or condemnation awards are to be utilized in the restoration of the Collateral, the Grantee shall disburse such Proceeds and the additional amounts deposited by the Grantor for such restoration after receipt of a written request for disbursement, on not fewer than five (5) nor more than twelve (12) Business Days notice and, to the extent applicable, in accordance with the Grantee's customary construction loan procedures and conditions. In the event that such insurance or condemnation awards are to be utilized to replace the Collateral so destroyed or taken, the Grantee shall disburse such Proceeds after receipt of a written request for disbursement, on not fewer than five (5) Business Days nor more than twelve (12) Business Days notice simultaneously with the acquisition of such replacement property by the Grantor. In the event that, after the restoration or replacement of the Collateral, any insurance or condemnation awards shall remain, such amount shall be paid to the Grantor. Insurance proceeds and condemnation awards shall be invested in the manner reasonably requested by the Grantor and approved by the Grantee, and all interest earned thereon shall be applied as provided in this Section 2.3. If, prior to the receipt by the Grantee of such insurance proceeds or condemnation awards, the Collateral shall have been sold on foreclosure, the Grantee shall have the right to receive said insurance proceeds or condemnation awards to the extent of any deficiency found to be due upon such sale, with legal interest thereon, whether or not a deficiency judgment shall have been sought or recovered or denied, and the reasonable attorneys' fees, costs and disbursements incurred by the Grantee in connection with the collection of such award or payment. SECTION 2.4. Total Taking and Total Destruction. In the event of a Total Destruction or a Total Taking, the Grantee shall apply all amounts recovered under any insurance policy referred to in Section 2.1.1 and all awards received by it on account of any such Taking as follows: (a) first, to the payment of the reasonable costs and expenses incurred by the Grantee in obtaining any such insurance proceeds or awards, including the fees and expenses of attorneys and insurance and other experts and consultants, the costs of litigation, arbitration, mediation, investigations and other judicial, administrative or other proceedings and all other out-of-pocket expenses; (b) second, to the payment of the principal of the Obligations and any interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued and unpaid thereon, without regard to whether any portion or all of such amounts shall be matured or unmatured and, in case such amount shall be insufficient to pay in full all such amounts, then such amount shall be applied, first, to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) accrued on the Obligations and unpaid, and second, to the payment of all amounts of principal at the time outstanding thereon; (c) third, to the payment of, or the application to, any Obligation (other than as provided in clause (b) above); (d) fourth, to fulfill any of the other covenants contained herein as the Grantee may determine; and (e) fifth, the balance, if any, to the Grantor. 15 19 ARTICLE III EVENTS OF DEFAULT; REMEDIES, ETC. SECTION 3.1. Events of Default; Acceleration. If an "Event of Default" (pursuant to and as defined in Section 6.01 of the Indenture) shall have occurred and be continuing, then and in any such event the Grantee may at any time thereafter (unless all Events of Default shall theretofore have been remedied and all costs and expenses, including, without limitation, attorneys' fees and expenses incurred by or on behalf of the Grantee, shall have been paid in full by the Grantor) declare, by written notice to the Grantor, the Obligations to be due and payable immediately or on a date specified in such notice, and on such date the same shall be and become due and payable, without presentment, demand, protest or notice, all of which the Grantor hereby waives. The Grantor will pay on demand all costs and expenses, including, without limitation, attorneys' fees and expenses, incurred by or on behalf of the Grantee in enforcing this Deed, or any other Indenture and any Security Agreements executed pursuant to the Indenture, evidencing or securing the Senior Secured Notes or occasioned by any default hereunder or thereunder. SECTION 3.2. Legal Proceedings; Judicial Foreclosure. If an Event of Default shall have occurred and be continuing, the Grantee at any time may, at its election, proceed at law or in equity or otherwise to enforce the payment and performance of the Obligations in accordance with the terms hereof and thereof and to foreclose the security title of this Deed as against all or any part of the Collateral and to have the same sold under the judgment or decree of a court of competent jurisdiction. The Grantee shall be entitled to recover in such proceedings all costs incident thereto, including attorneys' fees and expenses in such amounts as may be fixed by the court. SECTION 3.3. Power of Sale. If an Event of Default shall have occurred and be continuing, Grantee, at its option, may sell the Collateral or any part of the Collateral at one or more public sale or sales before the door of the courthouse of the county in which the Land or any part of the Land is situated, to the highest bidder for cash, in order to pay the Obligations, and all expenses of sale and of all proceedings in connection therewith, including attorney's fees, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff's sales are advertised in said county. At any such public sale, Grantee may execute and deliver to the purchaser a conveyance of the Collateral or any part of the Collateral, and to this end, Grantor hereby constitutes and appoints Grantee the agent and attorney-in-fact of Grantor to make such sale and conveyance, and thereby to divest Grantor of all right, title and equity that Grantor may have in and to the Collateral and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Grantor. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the Obligations and shall not be exhausted by one exercise thereof but may be exercised until full payment of all of the Obligations. In the event of any sale under this Deed by virtue of the exercise of the powers herein granted, or pursuant to any order in any judicial proceeding or otherwise, the Collateral may be sold as an entirety or in separate parcels and in such manner or order as Grantee in its sole discretion may elect. One or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Collateral is sold or the Obligations paid in full. If the Obligations are now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Grantee may at its option exhaust the remedies granted under any of said security instruments either concurrently or independently, and in such order as Grantee may determine. Upon any public foreclosure sale or sales of all or any portion of the Collateral under the power herein granted, Grantee may bid for and purchase the Collateral 16 20 and shall be entitled to apply all or any part of the Obligations as a credit to the purchase price. In the event of any such public foreclosure sale or sales under the power herein granted, Grantor shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. SECTION 3.4. Uniform Commercial Code Remedies. If an Event of Default shall have occurred and be continuing, the Grantee may exercise from time to time and at any time any rights and remedies available to it under applicable law upon default in the payment of the Obligations, including, without limitation, any right or remedy available to it as a secured party under the Uniform Commercial Code of the State. The Grantor shall, promptly upon request by the Grantee, assemble the Collateral, or any portion thereof generally described in such request, and make it available to the Grantee at such place or places designated by the Grantee and reasonably convenient to the Grantee or the Grantor. If the Grantee elects to proceed under the Uniform Commercial Code of the State to dispose of portions of the Collateral, the Grantee, at its option, may give the Grantor notice of the time and place of any public sale of any such property, or of the date after which any private sale or other disposition thereof is to be made, by sending notice by registered or certified first class mail, postage prepaid, to the Grantor at least ten (10) days before the time of the sale or other disposition. If any notice of any proposed sale, assignment or transfer by the Grantee of any portion of the Collateral or any interest therein is required by law, the Grantor conclusively agrees that ten (10) days notice to the Grantor of the date, time and place (and, in the case of a private sale, the terms) thereof is reasonable. SECTION 3.5. Grantee Authorized to Execute Deeds, etc. The Grantor irrevocably appoints the Grantee (which appointment is coupled with an interest and is irrevocable by death or otherwise) the true and lawful attorney-in-fact of the Grantor, in its name and stead and on its behalf, for the purpose of effectuating any sale, assignment, transfer or delivery for the enforcement hereof, whether pursuant to power of sale, foreclosure or otherwise, to execute and deliver all such deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request. SECTION 3.6. Purchase of Collateral by Grantee. The Grantee may be a purchaser of the Collateral or of any part thereof or of any interest therein at any public sale thereof, whether pursuant to power of sale, foreclosure or otherwise, and the Grantee may apply upon the purchase price thereof the Obligations secured hereby owing to the Grantee. Such purchaser shall, upon any such purchase, acquire good title to the properties so purchased, free of the security interest and security title of this Deed and free of all rights of redemption in the Grantor. Section 3.7. Receipt a Sufficient Discharge to Purchaser. Upon any sale of the Collateral or any part thereof or any interest therein, whether pursuant to power of sale, foreclosure or otherwise, the receipt of the Grantee or the officer making the sale under judicial proceedings shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obliged to see to the application thereof. SECTION 3.8. Waiver of Appraisement, Valuation, etc. The Grantor hereby waives, to the fullest extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Collateral or any part thereof or any interest therein. SECTION 3.9. Sale a Bar Against Grantor. Any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Deed, whether pursuant to power of sale, foreclosure or otherwise, shall forever be a bar against the Grantor. 17 21 SECTION 3.10. Obligations to Become Due on Sale. Except as otherwise provided in the Indenture, upon any sale of the Collateral or any portion thereof or interest therein by virtue of the exercise of any remedy by the Grantee under or by virtue of this Deed, whether pursuant to power of sale, foreclosure or otherwise in accordance with this Deed or by virtue of any other remedy available at law or in equity or by statute or otherwise, at the option of the Grantee, any sums or monies due and payable pursuant to the Indenture, the Senior Secured Notes and Security Agreements and/or the Obligations shall, if not previously declared due and payable, immediately become due and payable, together with interest accrued thereon, and all other indebtedness which this Deed by its terms secures. SECTION 3.11. Application of Proceeds of Sale and Other Moneys. Except as otherwise provided in the Indenture or herein, the proceeds of any sale of the Collateral or any part thereof or any interest therein under or by virtue of this Deed, whether pursuant to power of sale, foreclosure or otherwise, and all other moneys at any time held by the Grantee as part of the Collateral, shall be applied in such order of priority as the Grantee shall determine in its sole and absolute discretion including, without limitation, as follows: (a) first, to the payment of the reasonable costs and expenses of such sale (including, without limitation, the cost of evidence of title and the costs and expenses, if any, of taking possession of, retaining custody over, repairing, managing, operating, maintaining and preserving the Collateral or any part thereof prior to such sale), all reasonable costs and expenses incurred by the Grantee or any other Person in obtaining or collecting any insurance proceeds, condemnation awards or other amounts received by the Grantee, all reasonable costs and expenses of any receiver of the Collateral or any part thereof, and any Impositions or other charges or expenses prior to the security interest or security title of this Deed, which the Grantee may consider it necessary or desirable to pay; (b) second, to the payment of any Obligation (other than those set forth in Section 3.11(c) below); (c) third, to the payment of all amounts of principal of and interest (including Post-Petition Interest to the extent such interest is an Obligation) at the time due and payable under the Obligations at the time outstanding (whether due by reason of maturity or by reason of any prepayment requirement or by declaration or acceleration or otherwise), including interest at the rate provided for in the Indenture on any overdue principal and (to the extent permitted under applicable law) on any overdue interest; and, in case such moneys shall be insufficient to pay in full such principal and interest, then, first, ----- to the payment of all amounts of interest (including Post-Petition Interest to the extent such interest is an Obligation) at the time due and payable and, second, to the payment of all amounts of principal at ------ the time due and payable under the Obligations; and (d) fourth, the balance, if any, held by the Grantee after payment in full of all amounts referred to in subdivisions Sections 3.11(a), (b) and (c) above, shall, unless a court of competent jurisdiction may otherwise direct by final order not subject to appeal, be paid to or upon the direction of the Grantor. SECTION 3.12. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, the Grantee shall, as a matter of right, without notice, and without regard to the adequacy of any security for the indebtedness secured hereby or the solvency of the Grantor, be entitled to the appointment of a receiver for all or any part of the Collateral, whether such receivership be incidental to a proposed sale of the Collateral or otherwise, and the Grantor hereby consents to the appointment of such a receiver and will not oppose any such appointment. 18 22 SECTION 3.13. Possession, Management and Income. If an Event of Default shall have occurred and be continuing, in addition to, and not in limitation of, the rights and remedies provided in Section 1.14, the Grantee, upon five (5) days written notice to the Grantor, may enter upon and take possession of the Collateral or any part thereof by force, summary proceeding, ejectment or otherwise and may remove the Grantor and all other Persons and any and all property therefrom and may hold, operate, maintain, repair, preserve and manage the same and receive all earnings, income, Rents, issues and Proceeds accruing with respect thereto or any part thereof. The Grantee shall be under no liability for or by reason of any such taking of possession, entry, removal or holding, operation or management, except that any amounts so received by the Grantee shall be applied to pay all costs and expenses of so entering upon, taking possession of, holding, operating, maintaining, repairing, preserving and managing the Collateral or any part thereof, and any Impositions or other charges prior to the security title and security interest of this Deed which the Grantee may consider it necessary or desirable to pay, and any balance of such amounts shall be applied as provided in Section 3.11. SECTION 3.14. Right of Grantee to Perform Grantor's Covenants, etc. If the Grantor shall fail to make any payment or perform any act required to be made or performed hereunder or under the other Obligations, the Grantee, without notice to or demand upon the Grantor and without waiving or releasing any obligation or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Grantor, and may enter upon the Collateral for such purpose and take all such action thereon as, in the Grantee's opinion, may be necessary or appropriate therefor. No such entry and no such action shall be deemed an eviction of any lessee of the Property or any part thereof. All sums so paid by the Grantee and all costs and expenses (including, without limitation, attorneys' fees and expenses) so incurred, together with interest thereon at the rate provided for in the Indenture from the date of payment or incurring, shall constitute additional indebtedness under the Indenture secured by this Deed and shall be paid by the Grantor to the Grantee on demand. SECTION 3.15. Subrogation. To the extent that the Grantee, on or after the date hereof, pays any sum due under any provision of any Legal Requirement or any instrument creating any lien or security title prior or superior to the lien or security title of this Deed, or the Grantor or any other Person pays any such sum with the proceeds of the Senior Secured Notes, the Grantee shall have and be entitled to a lien or security title on the Collateral equal in priority to the lien or security title discharged, and the Grantee shall be subrogated to, and receive and enjoy all rights and liens or security titles possessed, held or enjoyed by, the holder of such lien or security title, which shall remain in existence and benefit the Grantee in securing the Obligations. SECTION 3.16. Remedies, etc., Cumulative. Each right, power and remedy of the Grantee provided for in this Deed, the Indenture or any other Security Agreements, or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Deed, the Indenture, Senior Secured Notes or any other Security Agreements, or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Grantee of any one or more of the rights, powers or remedies provided for in this Deed, the Indenture, Senior Secured Notes, or any other Security Agreements executed pursuant to the Indenture, or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Grantee of any or all such other rights, powers or remedies. SECTION 3.17. Provisions Subject to Applicable Law. All rights, powers and remedies provided in this Deed may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Deed invalid, unenforceable or not entitled to be recorded, registered or filed under the 19 23 provisions of any applicable law. If any term of this Deed or any application thereof shall be invalid or unenforceable, the remainder of this Deed and any other application of such term shall not be affected thereby. SECTION 3.18. No Waiver, etc. No failure by the Grantee to insist upon the strict performance of any term hereof or of the Indenture, or of any other Security Agreements executed pursuant to the Indenture, or to exercise any right, power or remedy consequent upon a breach hereof or thereof, shall constitute a waiver of any such term or of any such breach. No waiver of any breach shall affect or alter this Deed, which shall continue in full force and effect with respect to any other then existing or subsequent breach. By accepting payment or performance of any amount or other Obligations secured hereby before or after its due date, the Grantee shall not be deemed to have waived its right either to require prompt payment or performance when due of all other amounts and Obligations payable hereunder or to declare a default for failure to effect such prompt payment. SECTION 3.19. Compromise of Actions, etc. Any action, suit or proceeding brought by the Grantee pursuant to any of the terms of this Deed, the Indenture, Senior Secured Notes or any other Security Agreement executed pursuant to the Indenture, or otherwise, and any claim made by the Grantee hereunder or thereunder, may be compromised, withdrawn or otherwise dealt with by the Grantee without any notice to or approval of the Grantor. SECTION 3.20. Foreclosure - Authority Lease. If action is brought to foreclose this Deed, the rents, income and profits issuing from the Land and the Improvements shall be collected either through a receiver appointed by the court after notice of application for such appointment has been given to the Lessor under the Authority Lease or by Grantee. Notwithstanding anything to the contrary contained in this Deed, all such money collected shall be first applied for the payment of the rent due and owing under the Authority Lease or to become due and owing to the Lessor under the Authority Lease, then for any ad valorem taxes, insurance premiums or other charges due and payable under the Authority Lease and for all other maintenance and operating charges and disbursements incurred in connection with the operation and maintenance of the Land and the Improvements. The balance of such monies shall be applied pursuant to the terms of this Deed. ARTICLE IV DEFINITIONS SECTION 4.1. Terms Defined in this Deed. When used herein the following terms have the following meanings: "Borrowers" shall have the meaning set forth in the third recital. "Collateral" shall have the meaning set forth in the granting clause. "Contracts" shall have the meaning set forth in clause (g) of the granting clause. "Deed" shall have the meaning set forth in the preamble. "Default" means any Event of Default or any condition or event which, after notice or lapse of time, or both, would constitute an Event of Default. "Goods" shall have the meaning set forth in clause (c) of the granting clause. 20 24 "herein", "hereof", "hereto", and "hereunder" and similar terms refer to this Deed and not to any particular Section, paragraph or provision of this Deed. "Impositions" shall have the meaning set forth in Section 1.5. "Improvements" shall have the meaning set forth in clause (b) of the granting clause. "Indemnified Parties" shall have the meaning set forth in Section 1.16. "Insurance Requirements" shall have the meaning set forth in paragraph (a) of Section 1.6. "Land" shall have the meaning set forth in the first recital. "Leases" shall have the meaning set forth in clause (d) of the granting clause. "Legal Requirements" shall have the meaning set forth in paragraph (b) of Section 1.6. "Grantee" shall have the meaning set forth in the preamble. "Grantor" shall have the meaning set forth in the preamble. "Obligations" means all liabilities, duties and obligations of the Grantor as the Subsidiary Guarantor under and pursuant to its Subsidiary Guarantees under the Indenture, all advances, if any, made by Grantee pursuant to the terms of this Deed, and all duties and obligations of Grantor under this Deed. "Permits" shall have the meaning set forth in clause (f) of the granting clause. "Permitted Encumbrances" shall have the meaning set forth in Section 1.2. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency or officer. "Plans" shall have the meaning set forth in clause (e) of the granting clause. "Post-Petition Interest" shall have the meaning set forth in Section 2.3. "Proceeds" shall have the meaning set forth in clause (j) of the granting clause. "Property" shall have the meaning set forth in clause (b) of the granting clause. "Real Estate" shall have the meaning set forth in clause (a) of the granting clause. "Rents" shall have the meaning set forth in clause (i) of the granting clause. "State" means the State of Georgia. "Total Destruction" means any damage to or destruction of the Improvements or any part thereof which, in the reasonable estimation of the Grantee shall require the expenditure of an amount in excess of Ten Million Dollars ($10,000,000) to restore the Improvements to substantially the same condition of the Improvements immediately prior to such damage or destruction. 21 25 "Total Taking" means a Taking, whether permanent or for temporary use, which, in the reasonable judgment of the Grantee, shall substantially interfere with and adversely affect the normal operation of the Property by the Grantor to such an extent as would reasonably be anticipated to cause a Material Adverse Effect (as defined in the Credit Agreement). SECTION 4.2. Use of Defined Terms. Terms for which meanings are provided in this Deed shall, unless otherwise defined or the context otherwise requires, have such meanings when used in any certificate and any opinion, notice or other communication delivered from time to time in connection with this Deed or pursuant hereto. SECTION 4.3. Indenture Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Deed, including its preamble and recitals, have the meanings provided in the Indenture. ARTICLE V MISCELLANEOUS SECTION 5.1. Further Assurances; Financing Statements. SECTION 5.1.1. Further Assurances. The Grantor, at its expense, will execute, acknowledge and deliver all such instruments and take all such other action as the Grantee from time to time may reasonably request: (a) to better subject to the security title and security interest of this Deed all or any portion of the Collateral, (b) to perfect, publish notice or protect the validity of the security title and security interest of this Deed, (c) to preserve and defend the title to the Collateral and the rights of the Grantee therein against the claims of all Persons as long as this Deed shall remain undischarged, (d) to better subject to the security title and security interest of this Deed or to maintain or preserve the security title and security interest of this Deed with respect to any replacement or substitution for any Collateral or any other after-acquired property except as provided in the Indenture, or (e) in order to further effectuate the purposes of this Deed and to carry out the terms hereof and to better assure and confirm to the Grantee its rights, powers and remedies hereunder. SECTION 5.1.2. Financing Statements. Notwithstanding any other provision of this Deed, the Grantor hereby agrees that, without notice to or the consent of the Grantor, the Grantee may file with the appropriate public officials such financing statements, continuation statements, amendments and similar documents as are or may become necessary to perfect, preserve or protect the security interest granted by this Deed. SECTION 5.2. Additional Security. Without notice to or consent of the Grantor, and without impairment of the security interest and security title and rights created by this Deed, the Grantee and the Holders may accept from the Grantor or any other Person additional security for the Obligations. Neither the giving of this Deed nor the acceptance of any such additional security shall prevent the Grantee from 22 26 resorting, first, to such additional security, or, first, to the security created by this Deed, or concurrently to both, in any case without affecting the Grantee's security title and rights under this Deed. SECTION 5.3. Satisfaction; Partial Release, etc. SECTION 5.3.1. Satisfaction. If the Obligations shall be repaid and performed in full in accordance with the terms thereof, or otherwise as may be provided in the Indenture, then on such date, the Grantee shall, upon the request of the Grantor and at the Grantor's sole cost and expense, execute and deliver such instruments, in form and substance reasonably satisfactory to the Grantee, as may be necessary to effectively cancel and surrender this Deed. Partial Release, etc. The Grantee may, at any time and from time to time, without liability therefor, and without prior notice to the Grantor, release or reconvey any part of the Collateral, consent to the making of any map or plat of the Property, join in granting any easement thereon or join in any extension agreement or agreement subordinating the security title and security interest of this Deed. SECTION 5.4. Notices, etc. All notices and other communications provided to any of the parties hereto shall be in writing and addressed, delivered or transmitted to such party as set forth in the Indenture. SECTION 5.5. Waivers, Amendments, etc. The provisions of this Deed may be amended, discharged or terminated and the observance or performance of any provision of this Deed may be waived, either generally or in a particular instance and either retroactively or prospectively, only by an instrument in writing executed by the Grantor and the Grantee. SECTION 5.6. Cross-References. References in this Deed and in each instrument executed pursuant hereto to any Section or Article are, unless otherwise specified, to such Section or Article of this Deed or such instrument, as the case may be, and references in any Section, Article or definition to any clause are, unless otherwise specified, to such clause of such Section, Article or definition. SECTION 5.7. Headings. The various headings of this Deed and of each instrument executed pursuant hereto are inserted for convenience only and shall not affect the meaning or interpretation of this Deed or such instrument or any provisions hereof or thereof. SECTION 5.8. Currency. Unless otherwise expressly stated, all references to any currency or money, or any dollar amount, or amounts denominated in "Dollars" herein will be deemed to refer to the lawful currency of the United States. SECTION 5.9. Governing Law. THIS DEED SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE. SECTION 5.10. Successors and Assigns, etc. This Deed shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, successors-in-title and assigns. SECTION 5.11. Waiver of Jury Trial; Submission to Jurisdiction. (a) EACH OF THE GRANTOR AND THE GRANTEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS DEED, THE INDENTURE, THE SENIOR SECURED NOTES AND THE SECURITY AGREEMENTS, OR ANY OTHER RELATED 23 27 INSTRUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE GRANTOR OR THE GRANTEE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE GRANTEE AND TO ENTER INTO THE TRANSACTIONS PROVIDED FOR IN THE INDENTURE AND TO PURCHASE THE SENIOR SECURED NOTES. (b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS DEED, THE INDENTURE, THE SENIOR SECURED NOTES AND THE SECURITY AGREEMENTS EXECUTED PURSUANT TO THE INDENTURE, THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED. THE GRANTOR AND GRANTEE EACH EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS DEED, THE INDENTURE, THE SENIOR SECURED NOTES AND THE SECURITY AGREEMENTS EXECUTED PURSUANT TO THE INDENTURE IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER THE PERSON OF THE GRANTOR. NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE GRANTEE FROM BRINGING AN ACTION AGAINST THE GRANTOR IN ANY OTHER JURISDICTION. SECTION 5.12. Severability; Conflicts. Any provision of this Deed, the Indenture or any other Security Agreements which is prohibited or unenforceable in any jurisdiction shall as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Deed, the Indenture or such Security Agreements or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of any conflict between the terms of this Deed and the terms of the Indenture, the terms of the Indenture shall control. SECTION 5.13. Security Agreements. This Deed is a Security Agreements executed pursuant to the Indenture and, unless otherwise expressly indicated herein, shall be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 5.14. Usury Savings Clause. It is the intention of the Grantor and the Grantee to conform strictly to the usury laws governing the Senior Secured Notes and Security Agreements, and any interest payable under the Senior Secured Notes and Security Agreements shall be subject to reduction to the amount not in excess of the maximum non-usurious amount allowed under such laws, as construed by the courts having jurisdiction over such matters. In the event the Obligations become due and payable in full by reason of any provision of the Senior Secured Notes and Security Agreements, or by reason of an election by the Grantee resulting from an Event of Default, then earned interest may never include more than the maximum amount permitted by law, computed from the dates of each advance of loan proceeds under the Indenture until payment, and any interest in excess of the maximum amount permitted by law shall be canceled automatically or, if theretofore paid, at the option of the Grantee, shall be rebated to the 24 28 Grantor, or shall be credited on the principal amount of the Obligations or, if all principal has been repaid, then the excess shall be rebated to the Grantor. If any interest is canceled, credited against principal or rebated to the Grantor in accordance with the foregoing sentence and, if thereafter the interest payable hereunder is less than the maximum amount permitted by applicable law, the rate hereunder shall automatically be increased to the maximum extent possible to permit repayment to the Grantee and the Holders as soon as possible of any interest in excess of the maximum amount permitted by law which was earlier canceled, credited against principal or rebated to the Grantor pursuant to the provisions of the foregoing sentence. SECTION 5.15. Future Advances. This Deed is a "Future Advance Deed" under the laws of the State. Any and all future advances under this Deed, the Indenture and the Senior Secured Notes and Security Agreements executed pursuant to the Indenture shall have the same priority as if the future advance was made on the date that this Deed was recorded. This Deed shall secure the Obligations, whenever incurred, such Obligations to be due at the times provided herein and in the Subsidiary Guarantees executed by Grantor. Notice is hereby given that the Obligations may increase as a result of any defaults hereunder by Grantor due to, for example, and without limitation, unpaid interest or late charges, unpaid taxes or insurance premiums which the Grantee elects to advance, defaults under leases that the Grantee elects to cure, attorney fees or costs incurred in enforcing the Indenture, the Senior Secured Notes and the Security Agreements or other expenses incurred by the Grantee in protecting the Collateral, the Obligations, the security of this Deed or the Grantee's rights and interests. SECTION 5.16. Georgia Agent. The rights, powers, duties and obligations conferred or imposed upon the Collateral Agent under the Indenture pursuant to this Deed with respect to the Collateral (including, without limitation, holding the security title hereunder) are hereby conferred and imposed upon the Georgia Agent to the extent, but only to the extent, that pursuant to the laws of the State in effect from time to time the Collateral Agent shall be incompetent or unqualified to exercise or perform such rights, power, duties and obligations. SECTION 5.17. Subordination to First Deed. (a) The security title and security interest of this Deed shall be subject and subordinate only to the security title and security interest of the First Deed and Permitted Encumbrances. Notwithstanding anything to the contrary contained in this Deed, this Deed shall not be subordinate to any increases in the aggregate principal amount that may be borrowed (i) under the First Deed or other documents executed in connection therewith, or (ii) under any amendment, modifications, renewals, replacements or consolidations thereof, made without the prior written consent of Grantee, to an amount in excess of $70,000,000. (b) Grantor represents and warrants that (i) the First Deed is in full force and effect, and (ii) all principal, interest and other amounts payable under the terms, covenants, conditions and provisions of the First Deed and the other documents executed in connection therewith have been and shall be paid in accordance with the terms, covenants, conditions and provisions thereof. (c) Grantor covenants and agrees that Grantor shall: (i) promptly and faithfully observe, perform and comply with all the terms, covenants, conditions and provisions of the First Deed and other documents executed in connection therewith; (ii) not modify, or amend, or in any way alter or permit the alteration of any of the terms, covenants, conditions or provisions of the First Deed or the other documents executed in connection therewith in a manner that will increase the aggregate principal amount of indebtedness that may be borrowed under the First Deed and the other documents executed in connection therewith the repayment of which is secured by the First Deed to an amount in excess of $70,000,000; (iii) promptly deliver to Grantee a copy of 25 29 each notice of a default under the First Deed (hereinafter, a "First Deed Default") received or delivered by Grantor in connection with the First Deed; and (iv) furnish to Grantee copies of such additional information and evidence as Grantee reasonably may require concerning Grantor's due observance, performance and compliance with the terms, covenants, conditions, and provisions of the First Deed and the other documents executed in connection therewith (including, but without limiting the generality of the foregoing, evidence, reasonably satisfactory to Grantee, of the payment by Grantor of principal, interest and other amounts required by the terms, covenants, conditions and provisions of the First Deed and the other documents executed in connection therewith). (d) Upon the occurrence and during the continuance of a First Deed Default, in addition to any other rights and remedies that may be available to Grantee, Grantee may, but shall not be obligated to, cure such First Deed Default and Grantee shall be subrogated to the rights of the holder of the First Deed against Grantor and the Property. To the extent Grantee makes any payment of any installment of interest or any payment of principal or other sum due under the First Deed and/or any Senior Secured Note secured thereby, such payment (i) shall be deemed to be Obligations secured hereby, (ii) shall be a security title and security interest in the Premises prior to any right or title to, interest in, or claim upon the Property subordinate to the security title and security interest of this Deed, and (iii) shall accrue interest at a rate equal to the lower of (a) eighteen percent (18%) per annum or (b) the maximum rate permitted by law. (e) If for any reason the indebtedness secured by the First Deed is accelerated, or the Property or any part thereof is sold, or attempted to be sold, pursuant to the First Deed, whether by power of sale, judicial action or otherwise, or any other remedial action or proceeding is taken or instituted in respect of the Property or any part thereof under the First Deed, Grantor will indemnify and hold Grantee harmless from any loss, cost or expense incurred by Grantee, including reasonable attorneys' fees, in contesting any such action taken or instituted, or incurred by Grantee on account of the acceleration of the indebtedness secured by the First Deed, the sale of the Property pursuant thereto or Grantee's purchase or payment of the First Deed. (f) Grantor does herewith irrevocably appoint and constitute Grantee as its true and lawful attorney-in-fact in its name, place and stead to, upon the occurrence and during the continuance of a First Deed Default, perform and comply with all obligations of Grantor under the First Deed, to do and take, without any obligation to do so, any action as Grantee deems necessary or desirable to cure any First Deed Default. Grantor shall, within five (5) days after written request is made therefor by Grantee, execute and deliver to Grantee or to any person which Grantee shall designate, such further instruments, agreements, powers, deeds, conveyances or the like as may be necessary to complete or perfect the interest, rights or powers of Grantee pursuant to this paragraph. (g) Upon receipt by Grantee of any notice of a First Deed Default, Grantee may rely thereon and take any such reasonable action as Grantee shall reasonably deem necessary , irrespective of whether the existence of such First Deed Default or the nature thereof be questioned or denied by or on behalf of Grantor. Notwithstanding anything to the contrary contained in this Deed, and each of the terms, conditions and provisions hereof, and Grantee's rights and remedies hereunder, is, and at all times shall be subject and subordinate to the First Deed. The parties hereto agree to execute a subordination agreement if requested by Senior Lender or any lender under any refinancing of the indebtedness secured by the First Deed. 26 30 IN WITNESS WHEREOF, the undersigned, by its duly elected officers and pursuant to proper authority of its board of directors has duly executed, sealed, acknowledged and delivered this instrument as of the day and year first above written. Signed, sealed and delivered STERLING PULP CHEMICALS, INC., in the presence of: a Georgia corporation By: - --------------------------------- ----------------------------------- Name: Title: - --------------------------------- Notary Public My commission expires: [CORPORATE SEAL] [AFFIX NOTARIAL SEAL] DRAFTED BY: Latham & Watkins 885 Third Avenue New York, New York 10022 Attention: Wylie S. Allen, Esq. 27 31 SCHEDULE 1 Legal Description of the Land [ ] 32 SCHEDULE 2 Permitted Encumbrances [ ] EX-4.13 14 SECURITY AGREEMENT - DATED JULY 23, 1999 1 EXHIBIT 4.13 SECURITY AGREEMENT THIS SECURITY AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Agreement"), dated as of July 23, 1999 (the "Closing Date"), is made by STERLING CHEMICALS, INC., a Delaware corporation, STERLING CANADA, INC., a Delaware corporation, STERLING PULP CHEMICALS, INC., a Georgia corporation, STERLING PULP CHEMICALS US, INC., a Delaware corporation, STERLING FIBERS, INC., a Delaware corporation, STERLING CHEMICALS ENERGY, INC., a Delaware corporation, and STERLING CHEMICALS INTERNATIONAL, INC., a Delaware corporation (individually referred to as an "Assignor", and collectively referred to as the "Assignors"), and HARRIS TRUST COMPANY OF NEW YORK, a New York corporation, as indenture trustee and collateral agent (the "Collateral Agent") for the benefit of the holders (the "Holders") of the 12 3/8% Senior Secured Notes due 2006 of Sterling Chemicals, Inc. WITNESSETH: WHEREAS, the Assignors and the Collateral Agent, as trustee, have entered into that certain indenture dated as of July 23, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which Sterling Chemicals, Inc. issued $295 million in the aggregate principal amount of 12 3/8% Senior Secured Notes due 2006 (together with any notes issued in replacement thereof or in exchange or substitution therefor, the "Senior Secured Notes"); and WHEREAS, pursuant to the terms of that certain Revolving Credit Agreement, dated as of July 23, 1999, by and among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc. and Sterling Chemicals International, Inc., as Borrowers (collectively, "Borrowers"), various financial institutions, as lenders ("Lenders"), DLJ Capital Funding, Inc., as syndication agent ("Syndication Agent"), The CIT Group/Business Credit, Inc., as the administrative agent (the "Administrative Agent"), and Credit Suisse First Boston, as the documentation agent (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Credit Agreement"), the Lenders have agreed to make Fixed Assets Loans (as defined in the Credit Agreement) (collectively, the "Senior Loan") to the Borrowers in the maximum original principal amount of Seventy Million Dollars ($70,000,000), the payment of which is secured (pursuant to the terms of the Fixed Assets Security Agreement, dated as of July 23, 1999 (the "Fixed Assets Security Agreement")) by, inter alia, a first priority security interest in the Collateral (the "Senior Pledge") in favor of the Fixed Assets Secured Parties and certain other parties to the Credit Agreement, as set forth on the signature pages thereto or as may be added from time to time pursuant to the terms thereof. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Holders to enter into the Indenture, each Assignor jointly and severally agrees, for the benefit of each Holder, as follows: 2 ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Agreement" is defined in the preamble. "Closing Date" is defined in the preamble. "Collateral" is defined in Section 2.1. "Collateral Agent" is defined in the preamble. "Current Assets Security Agreement" is defined in the Credit Agreement. "Equipment" has the meaning as defined in Section 9-109 of the U.C.C. "Fixed Assets Security Agreement" is defined in the recitals. "Holders" is defined in the preamble. "Indenture" is defined in the recitals. "Material Contracts" means all service contracts, supply contracts and contract rights, but only to the extent necessary or appropriate for the continued operation of the plants located at the Real Properties, as the business thereupon is now conducted. "Obligations" is defined in Section 2.5. "Patent Collateral" means: (a) all letters patent and applications for letters patent in the United States, including all patent applications in preparation for filing in the United States and including each patent and patent application referred to in Item A of Schedule II attached hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a); (c) all patent licenses in the United States, including each patent license referred to in Item B of Schedule II attached hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, referred to in clauses (a) or (b) above, and for breach or enforcement of any patent license referred to in clause (c) above; -2- 3 but only to the extent any of the foregoing is necessary or appropriate for the continued operation of the plants located at the Real Properties, as the business thereupon is now conducted. "Real Properties" means the plant facilities of the Assignors located in Lowndes County, Georgia, Galveston County, Texas and Santa Rosa County, Florida. "Satisfaction Date" means the date on which all Obligations have been paid in full or otherwise satisfied "Senior Loan" is defined in the preamble. "Senior Secured Notes" is defined in the preambles. SECTION 1.2. Indenture Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided in the Indenture. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or in the Indenture or the context otherwise requires, terms for which meanings are provided in the Uniform Commercial Code from time to time in effect in the State of New York (the "U.C.C.") are used in this Agreement, including its preamble and recitals, with such meanings. ARTICLE II SECURITY INTEREST SECTION 2.1. Grant of Security. Each Assignor hereby assigns, pledges, hypothecates, charges, delivers, and transfers to the Collateral Agent for its benefit and the ratable benefit of the Holders and hereby grants to the Collateral Agent for its benefit and the ratable benefit of the Holders a security interest in all of the following (collectively, the "Collateral"): (a) the real property, buildings, structures and other improvements to any of the foregoing, of the Assignors and to the extent any of the following items of property constitute fixtures and/or equipment under applicable laws, all fixtures, fittings, appliances, apparatus, Equipment, machinery, building and construction materials and other articles of every kind and nature whatsoever and all replacements thereof, now or hereafter affixed or attached to, placed upon or used in any way in connection with the complete and comfortable use, enjoyment, occupation, operation, development and/or maintenance of the Real Property of the Assignors or such buildings, structures and other improvements, the Patent Collateral and the Material Contracts; (b) all products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in clause (a) and, to the extent not otherwise included, all payments under insurance (whether or not the Collateral Agent is the loss payee thereof) or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). -3- 4 Notwithstanding the foregoing, "Collateral" shall not include (a) any general intangibles or other rights arising under any contracts, instruments, licenses or other documents as to which the grant of a security interest would constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained or (b) any Collateral (as defined in the Current Assets Security Agreement). Each Assignor agrees to use its best efforts to obtain any such required consent with respect to any material item of Collateral. SECTION 2.2. Security for Obligations. This Agreement secures the payment in cash in full of all Obligations under the Indenture and the Senior Secured Notes. SECTION 2.3. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until the satisfaction of all obligations under the Indenture and Senior Secured Notes (the "Obligations"); (b) be binding upon each Assignor, its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and the Holders. SECTION 2.4. Assignor Remains Liable. Anything herein to the contrary notwithstanding: (a) each Assignor will remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of its duties and obligations under such contracts and agreements to the same extent as if this Agreement had not been executed; (b) the exercise by the Collateral Agent of any of its rights hereunder will not release any Assignor from any of its duties or obligations under any such contracts or agreements included in the Collateral; and (c) neither the Collateral Agent nor any Holder will have any obligation or liability under any such contracts or agreements included in the Collateral by reason of this Agreement, nor will the Collateral Agent or any other Collateral Agent or any Holder be obligated to perform any of the obligations or duties of any Assignor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 2.5. Security Interest Absolute. All rights of the Collateral Agent and the security interests granted to the Collateral Agent hereunder, and all obligations of each Assignor hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of the Indenture or any Security Agreement; (b) the failure of the Collateral Agent or any Holder -4- 5 (i) to assert any claim or demand or to enforce any right or remedy against the Assignors or any other Person under the provisions of the Indenture or any Security Agreement or otherwise or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other extension, compromise or renewal of any Obligations; (d) any reduction, limitation, impairment or termination of any Obligations for any reason (other than the repayment in full and in cash of all Obligations), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Assignor hereby waives any right to or claim of) any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise or unenforceability of, or any other event or occurrence affecting, any Obligations or otherwise; (e) any amendment to, rescission, waiver or other modification of, or any consent to departure from, any of the terms of the Indenture or any Security Agreement; (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Obligations; or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Assignor, any surety or any guarantor. SECTION 2.6. Postponement of Subrogation, etc. Each Assignor hereby agrees that it will not exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the Satisfaction Date. Any amount paid to any Assignor on account of any payment made hereunder prior to the Satisfaction Date shall be held in trust for the benefit of the Collateral Agent and the Holders of the Senior Secured Notes and shall immediately be paid to the Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes and credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Indenture; provided, however, that if: (a) such Assignor has made payment to the Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes of all or any part of the Obligations; and (b) the Satisfaction Date has occurred, the Collateral Agent, on behalf of the Holders of the Senior Secured Notes, agrees that, at the requesting Assignor's request, the Collateral Agent, on behalf of the Collateral Agent and the Holders of the Senior Secured Notes, will execute and deliver to such Assignor appropriate -5- 6 documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Assignor of an interest in the Obligations resulting from such payment by such Assignor. In furtherance of the foregoing, prior to the Satisfaction Date, each Assignor shall refrain from taking any action or commencing any proceeding against any Assignor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Agreement to the Collateral Agent or Holders of the Senior Secured Notes. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. Each Assignor represents and warrants to the Collateral Agent and the Holders as set forth in this Article III. SECTION 3.2. Ownership, No Liens, etc. Each Assignor owns its Collateral free and clear of any Lien, except for the security interest created by this Agreement, the Lien in favor of the Fixed Assets Secured Parties (as such term is defined in the Credit Agreement) and the Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Agent relating to this Agreement or as have been filed in connection with the Fixed Assets Security Agreement and Permitted Liens. SECTION 3.3. Validity, etc. This Agreement creates a valid second priority security interest in the Collateral securing the payment of the Obligations, and the Assignors will at all times cause the security interests granted pursuant to this Agreement to constitute valid perfected second priority security interests (and, upon the expiration or termination of the Senior Debt Intercreditor Agreement, first priority security interests) in the Collateral, enforceable as such against all creditors of Assignor and (except as otherwise specifically provided herein) any Persons purporting to purchase any Collateral from Assignor. Assignor will, promptly upon request by Collateral Agent, execute and deliver or cause to be executed and delivered, or use its best efforts to procure, tax stamps, assignments, instruments and other documents, all in form and substance reasonably satisfactory to the Collateral Agent, and take any other actions that are necessary or, in the reasonable opinion of Collateral Agent, desirable to perfect, continue the perfection of, or protect the second (or, upon the expiration or termination of the Senior Debt Intercreditor Agreement, first) priority of the Collateral Agent's security interest in the Collateral, to protect the Collateral against the rights, claims or interests of third persons (subject to the terms of the Senior Debt Intercreditor Agreement), to enable the Collateral Agent to exercise or enforce its rights and remedies hereunder, or otherwise to effect the purposes of this Agreement. Assignor also hereby authorizes the Collateral Agent to file any financing or continuation statements with respect to the Collateral without the signature of Assignor to the extent permitted by applicable law. Assignor will pay all costs incurred in connection with any of the foregoing. SECTION 3.4. Authorization, Approval, etc. Except as have been obtained or made and are in full force and effect, no material authorization, material approval or other action by, and no material notice to or material filing with, any Governmental Authority or regulatory body is required either (a) for the grant by such Assignor of the security interest granted hereby, the -6- 7 pledge by such Assignor of any Collateral pursuant hereto or for the execution, delivery and performance of this Agreement by such Assignor or (b) for the perfection of or the exercise by the Collateral Agent of its rights and remedies hereunder. SECTION 3.5. Compliance with Laws. Such Assignor is in compliance with the requirements of all applicable laws (including the provisions of the Fair Labor Standards Act), rules, regulations and orders of every Governmental Authority, the non-compliance with which could reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to materially adversely affect the value of the Collateral. ARTICLE IV COVENANTS SECTION 4.1. Further Assurances, etc. Such Assignor agrees that, from time to time at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing and subject to the terms of the Senior Debt Intercreditor Agreement, such Assignor will: (a) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as may be necessary or desirable, or as the Collateral Agent may request, in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Collateral Agent hereby; and (b) furnish to the Collateral Agent, from time to time at the Collateral Agent's request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. With respect to the foregoing and the grant of the security interest hereunder, such Assignor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Assignor where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. ARTICLE V THE COLLATERAL AGENT SECTION 5.1. Collateral Agent Appointed Attorney-in-Fact. Each Assignor hereby irrevocably appoints the Collateral Agent as such Assignor's attorney-in-fact, with full authority and in the name, place and stead of the Assignor or in its own name, from time to time in the Collateral Agent's discretion, to take, upon the occurrence and during the continuance of an Event of Default, any action and to execute any instrument which the Collateral Agent may deem -7- 8 necessary or advisable to accomplish the purposes of this Agreement, including without limitation: (a) to ask, demand, collect, sue for, recover, compromise and receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; (c) to file any claims or take any action or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral; and (d) to perform the affirmative obligations of such Assignor hereunder (including all obligations of such Assignor pursuant to Section 4.1). SECTION 5.2. Authority of Collateral Agent. The Collateral Agent shall have and be entitled to exercise all powers hereunder that are specifically granted to Collateral Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder or in connection with the Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. Neither the Collateral Agent nor any director, officer, employee, attorney or agent of the Collateral Agent shall be responsible for the validity, effectiveness or sufficiency hereof or of any document or security furnished pursuant hereto. The Collateral Agent and its directors, officers, employees, attorneys and agents shall be entitled to rely on any communication, instrument or document reasonably believed by it or them to be genuine and correct and to have been signed or sent by the proper person or persons. Each Assignor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the Holders of the Senior Secured Notes, be governed by the Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and Assignor, the Collateral Agent shall be conclusively presumed to be acting as agent for the Holders of the Senior Secured Notes with full and valid authority so to act or refrain from acting, and Assignor shall not be obligated or entitled to make any inquiry respecting such authority. SECTION 5.3. Resignation or Removal of the Collateral Agent. Until such time as the Obligations shall have been paid in full, the Collateral Agent may at any time, by giving written notice to the Assignors, the Trustee (as defined in the Indenture) and the Holders of the Senior Secured Notes, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon (i) the appointment of a successor Collateral Agent and (ii) the acceptance of such appointment by such successor Collateral Agent. As promptly as -8- 9 practicable after the giving of any such notice, the Trustee (if the Trustee is not then acting as the Collateral Agent hereunder) or if the Trustee and the Collateral Agent are the same person or entity, the Holders of the Senior Secured Notes shall appoint a successor Collateral Agent, which successor Collateral Agent shall be reasonably acceptable to Assignor. If no successor Collateral Agent shall be appointed and shall have accepted such appointment within 90 days after the Collateral Agent gives the aforesaid notice of resignation, the Collateral Agent may apply to any court of competent jurisdiction to appoint a successor Collateral Agent to act until such time, if any, as a successor shall have been appointed as provided in this Section 5.3. Any successor so appointed by such court shall immediately and without further act be superseded by any successor Collateral Agent appointed by the Holders of the Senior Secured Notes, as provided in this Section 5.3. Any Collateral Agent that has resigned shall be entitled to fees, costs and expenses to the extent incurred or arising, or relating to events occurring, before its resignation or removal. SECTION 5.4. Release; Termination of Agreement. This Agreement shall terminate upon the earlier to occur of (i) the Satisfaction Date, (ii) the day of the Legal Defeasance of all of the Obligations pursuant to Section 8.02 of the Indenture (other than those surviving Obligations specified therein) and (iii) such other termination date as is provided in the Indenture. At such time, the Collateral Agent shall, at the request of Assignor, reassign and redeliver to Assignor all of the Collateral hereunder that has not been sold, disposed of, retained or applied by the Collateral Agent in accordance with the terms hereof. Such reassignment and redelivery shall be without warranty by or recourse to the Collateral Agent, except as to the absence of any prior assignments by the Collateral Agent of its interest in the Collateral, and shall be at the expense of Assignor. Assignor agrees that it will not, except as permitted by the Indenture, sell or dispose of, or grant any option or warrant with respect to, any of the Collateral; provided, however, that if Assignor shall sell any of the Collateral in accordance with the terms of the Indenture, the Collateral Agent shall, at the request of Assignor and subject to requirements of Section 10.03 of the Indenture, release the Collateral subject to such sale free and clear of the Lien under this Agreement. SECTION 5.5. Collateral Agent Has No Duty. The powers conferred on the Collateral Agent hereunder are solely to protect its interest (on behalf of the Collateral Agent and the Holders of the Senior Secured Notes) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or responsibility for: (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any investment property, whether or not the Collateral Agent has or is deemed to have knowledge of such matters; or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. -9- 10 SECTION 5.6. Reasonable Care. The Collateral Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, that the Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as any Assignor reasonably requests in writing from time to time, but failure of the Collateral Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. If an Event of Default has occurred and is continuing, the Collateral Agent shall not be required to comply with any request of the Assignor with respect to the matters described in this Section. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may (i) require each Assignor to, and such Assignor hereby agrees that it will, at its expense and upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place to be designated by the Collateral Agent which is reasonably convenient to both parties, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. Each Assignor agrees that, to the extent notice of sale shall be required by law, at least ten days prior notice to such Assignor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of such Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral shall be applied by the Collateral Agent against all or any part of the Obligations as follows: (i) first, to the payment of any amounts payable to the Collateral Agent pursuant to the Indenture and Section 6.3; -10- 11 (ii) second, to the equal and ratable payment of any Obligations owed to Collateral Agent or any Holder of the Senior Secured Notes pursuant to the Indenture or any other Security Agreement, applied (A) first to fees and expense reimbursements then due to such Collateral; (B) then to interest due to such Collateral Agent; (C) then to pay the remaining outstanding Obligations; (iii) third, to be held as additional collateral security until the Satisfaction Date, after which such remaining cash proceeds shall be paid over to the applicable Assignor or to whomsoever may be lawfully entitled to receive such surplus. (c) The Collateral Agent may (i) transfer all or any part of the Collateral into the name of the Collateral Agent or its nominee, with or without disclosing that such Collateral is subject to the lien and security interest hereunder, (ii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iii) take control of any proceeds of the Collateral and (iv) execute (in the name, place and stead of such Assignor), assignments and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION 6.2. Compliance with Restrictions. Each Assignor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Collateral Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority or official, and such Assignor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Agent be liable nor accountable to such Assignor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.3. Indemnity and Expenses. Each Assignor hereby jointly and severally indemnifies and holds harmless the Collateral Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses or liabilities resulting from the Collateral Agent's gross -11- 12 negligence or willful misconduct and each Assignor will, upon demand pay to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Collateral Agent may incur, in each case, in connection with: (a) the administration of this Agreement; (b) the custody, preservation, use, or operation of or the sale of, collection from, or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Collateral Agent hereunder; or (d) the failure by any Assignor to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Security Agreement. This Agreement is a Security Agreement executed pursuant to the Indenture and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments; etc. No amendment to or waiver of any provision of this Agreement nor consent to any departure by any Assignor herefrom shall in any event be effective unless the same shall be in writing and signed by the Collateral Agent (on behalf of the Holders of the Senior Secured Notes) and each Assignor and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.3. Protection of Collateral. The Collateral Agent may from time to time, at its option, perform any act which each Assignor agrees hereunder to perform and which such Assignor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Collateral Agent may from time to time take any other action which the Collateral Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed, delivered or transmitted, if to any Assignor, at the address or facsimile number of the Company provided for in the Indenture, and if to the Collateral Agent, at the following address or facsimile number: Harris Trust Company of New York, Wall Street Plaza, 19th Floor, 88 Pine Street, New York, NY 10005, Facsimile No.: (212) 701-7664, Attn: Peter Morse, or as to any such party, at such other address or facsimile number as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice, (a) if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received, or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). -12- 13 SECTION 7.5. Headings. The various headings of this Agreement are inserted for convenience only, and shall not affect the meaning or interpretation of this Agreement or any provisions thereof. SECTION 7.6. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 7.7. Counterparts; Effectiveness. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective as of the date first above written and be binding upon a Assignor when a counterpart hereof executed on behalf of such Assignor shall have been received by the Collateral Agent. SECTION 7.8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 7.9. Agreement Subject to the Senior Debt Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Senior Debt Intercreditor Agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -13- 14 IN WITNESS WHEREOF, each Assignor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. STERLING CHEMICALS, INC. By ------------------------------------ Title: STERLING CANADA, INC. By ------------------------------------ Title: STERLING PULP CHEMICALS US, INC. By ------------------------------------ Title: STERLING PULP CHEMICALS, INC. By ------------------------------------ Title: STERLING FIBERS, INC. By ------------------------------------ Title: STERLING CHEMICALS ENERGY, INC. By ------------------------------------ Title: STERLING CHEMICALS INTERNATIONAL, INC. By ------------------------------------ Title: -14- 15 HARRIS TRUST COMPANY OF NEW YORK. as Collateral Agent, on behalf of the Holders of the Senior Secured Notes By -------------------------------------- Title: -15- 16 SCHEDULE I to Security Agreement ([NAME OF ASSIGNOR]) Item A. Patents Issued Patents Patent No. Issue Date Inventor(s) Title Pending Patent Applications Serial No. Filing Date Inventor(s) Title Patent Applications in Preparation Expected Docket No. Filing Date Inventor(s) Title Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter 17 EXHIBIT A TO SECURITY AGREEMENT PATENT SECURITY AGREEMENT This PATENT SECURITY AGREEMENT (this "Agreement"), dated as of________ __, ____, is made between ___________________, a ____________________ (the "Assignor"), and HARRIS TRUST COMPANY OF NEW YORK, as Collateral Agent (together with any successor(s) thereto in such capacity, the "Collateral Agent") for each of the Collateral Agent and the Holders of the Senior Secured Notes. WITNESSETH: WHEREAS, Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals, Inc., Sterling Pulp Chemicals, US, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc., and Sterling Chemicals International, Inc., and the Collateral Agent, as trustee, have entered into that certain indenture dated as of July 23, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which Sterling Chemicals, Inc. issued $295 million in the aggregate principal amount of 123/8% Senior Secured Notes due 2006 (together with any notes issued in replacement thereof or in exchange or substitution therefor, the "Senior Secured Notes"); and WHEREAS, the terms of the Indenture require that the Assignor (i) pledge to the Collateral Agent for the ratable benefit of the Holders (as defined in the Indenture) of the Senior Secured Notes, and grant to the Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes a second priority security interest in the Collateral (as defined herein) and (ii) execute and deliver this Agreement in order to secure the payment and performance by the Assignor of all of its obligations under the Indenture and the Senior Secured Notes (the "Obligations"); NOW, THEREFORE, in consideration of the premises, the Assignor hereby agrees with the Collateral Agent for its benefit and the ratable benefit of the Holders of the Senior Secured Notes as follows: SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided (or incorporated by reference) in the Security Agreement dated July 23, 1999 by and among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals, Inc., Sterling Pulp Chemicals, US, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc., Sterling Chemicals International, Inc. and Harris Trust Company of New York as indenture trustee and collateral agent for the benefit of the Holders of the Senior Secured Notes. SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure all of the Obligations, the Assignor does hereby pledge and hypothecate to the Collateral Agent, and grant to the Collateral Exhibit A -1- 18 Agent a security interest in, for its benefit and the benefit of each Holder, all of the following property (the "Patent Collateral"), whether now owned or hereafter acquired or existing by it: (e) all letters patent and applications for letters patent in the United States, including all patent applications in preparation for filing in the United States and including each patent and patent application referred to in Item A of Schedule I attached hereto; (f) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a); (g) all patent licenses in the United States, including each patent license referred to in Item B of Schedule I attached hereto; and (h) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, referred to in clauses (a) or (b) above, and for breach or enforcement of any patent license referred to in clause (c) above; in each case, to the extent, but only to the extent, that any of the foregoing is necessary or appropriate for the continued operation of the plant facilities of Assignor located in Valdosta-Lowndes County, Georgia, Galveston County, Texas and Santa Rosa County, Florida. SECTION 3. Security Agreement. This Agreement has been executed and delivered by the Assignor for the purpose of registering the security interest of the Collateral Agent in the Patent Collateral with the United States Patent and Trademark Office. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Collateral Agent for its benefit and the benefit of each Holder. The Security Agreement (and all rights and remedies of the Collateral Agent and each Holder thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. Release of Security Interest. Upon the earliest to occur of (i) the sale, transfer or other disposition of any Patent Collateral in accordance with the Indenture, (ii) the day of the Legal Defeasance of all Obligations pursuant to Section 8.02 of the Indenture, (iii) the Satisfaction Date and (iv) such other termination date as is provided in the Indenture, the Collateral Agent shall, at the Assignor's expense, execute and deliver to the Assignor all instruments and other documents as may be necessary or proper to release the Lien on the Patent Collateral which has been granted hereunder. SECTION 5. Acknowledgment. The Assignor does hereby further acknowledge and affirm that the rights and remedies of the Collateral Agent with respect to the Lien on the Patent Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. Exhibit A -2- 19 SECTION 6. The Indenture or any other Security Agreements, etc. This Agreement is a Security Agreement executed pursuant to the Indenture and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Indenture. SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective and binding as of the date first above written when a counterpart hereof executed on behalf of the Assignor shall have been received by the Collateral Agent. SECTION 8. Agreement Subject to Senior Debt Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed by the parties hereto that this Agreement shall be subject to the terms of the Senior Debt Intercreditor Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. ASSIGNOR: By: ------------------------------------ Title: ------------------------------ HARRIS TRUST COMPANY OF NEW YORK, as Collateral Agent, on behalf of the Holders of the Senior Secured Notes By: ------------------------------------ Title: ------------------------------ Exhibit A -3- 20 SCHEDULE I to Patent Security Agreement Item A. Patents Issued Patents -------------- Patent No. Issue Date Inventor(s) Title ---------- ---------- ----------- ----- Pending Patent Applications --------------------------- Serial No. Filing Date Inventor(s) Title ---------- ----------- ----------- ----- Patent Applications in Preparation ---------------------------------- Expected Docket No. Filing Date Inventor(s) Title ---------- ----------- ----------- ----- Item B. Patent Licenses Effective Expiration Subject Licensor Licensee Date Date Matter -------- -------- --------- ---------- ------- EX-4.14 15 STOCK PLEDGE AND SECURITY AGREEMENT - 07/23/1999 1 EXHIBIT 4.14 STOCK PLEDGE AND SECURITY AGREEMENT THIS STOCK PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement") is made and entered into as of July 23, 1999 (the "Closing Date"), by and among Sterling Chemicals, Inc. the "Company"), a Delaware corporation, Sterling Canada, Inc., a Delaware corporation and Sterling Pulp Chemicals US, Inc., a Delaware corporation, each having its principal place of business c/o Sterling Chemicals, Inc., 1200 Smith Street, Houston, Texas 77002-4312 (the Company and each of the foregoing, a "Pledgor" and collectively, "Pledgors"), and Harris Trust Company of New York, as indenture trustee and collateral agent (the "Collateral Agent") for the benefit of itself and for the holders (the "Holders") of the Company's 12 3/8% Senior Secured Notes due 2006, and having an office at Wall Street Plaza, 19th Floor, 88 Pine Street, New York, New York 10005. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Indenture (hereinafter defined). W I T N E S S E T H: WHEREAS, as of the Closing Date, the Pledgors own and hold the issued and outstanding shares of capital stock (collectively, the "Pledged Shares") of the following corporations: (a) Sterling Fibers, Inc., a Delaware corporation; (b) Sterling Chemicals International, Inc., a Delaware corporation; (c) Sterling Chemicals Energy, Inc., a Delaware corporation; (d) Sterling Canada, Inc., a Delaware corporation; (e) Sterling Pulp Chemicals US, Inc., a Delaware corporation; and (f) Sterling Pulp Chemicals, Inc., a Georgia corporation ((a) - - (f), collectively and individually, "Issuer"); and WHEREAS, Pledgor and Collateral Agent, as trustee, have entered into that certain indenture dated as of July 23, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Company issued $295 million in the aggregate principal amount of 12 3/8% Senior Secured Notes due 2006 (together with any notes issued in replacement thereof or in exchange or substitution therefor, the "Senior Secured Notes"); and WHEREAS, the terms of the Indenture require that the Pledgors (i) pledge to Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes, and grant to Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes, a second priority security interest in the Pledged Collateral (as defined herein) and (ii) execute and deliver this Pledge Agreement in order to secure the payment and performance by the Pledgors of all of their obligations under both the Indenture and the Senior Secured Notes (including all guarantees thereof) (the "Obligations"); and WHEREAS, pursuant to the terms of the Revolving Credit Agreement, by and among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals US, Inc., Sterling Pulp Chemicals, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc., and Sterling Chemicals International, Inc., as borrowers (the "Borrowers"), various financial institutions, as lenders ("Lenders"), DLJ Capital Funding, Inc., as syndication agent ("Syndication Agent"), The CIT/Business Credit, Inc., as administrative agent (the "Administrative Agent"), and Credit Suisse First Boston, as documentation agent ("Documentation Agent"), the Fixed Assets Lenders 2 (as defined in the Credit Agreement) have agreed to make Fixed Assets Loans (as defined in the Credit Agreement) (the "Senior Loan") to the Borrowers in the maximum original principal amount of Seventy Million Dollars ($70,000,000), the payment of which is secured by, inter alia, a first priority pledge of the Collateral (the "Senior Pledge") in favor of the Lenders and certain other parties to the Credit Agreement, as set forth on the signature pages thereto or as may be added from time to time pursuant to the terms thereof; and WHEREAS, each Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement: NOW, THEREFORE, in consideration of the premises, and in order to induce the purchase of the Senior Secured Notes, Pledgor hereby agrees with the Collateral Agent for its benefit and the ratable benefit of the Holders of the Senior Secured Notes as follows: ARTICLE I. DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof) when used in this Pledge Agreement: "Distributions" means any and all stock dividends, liquidating dividends, Capital Stock resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers or consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other Capital Stock constituting Collateral, but shall not include Dividends. "Dividends" means any and all cash dividends and cash distributions with respect to any Pledged Shares or other Pledged Collateral made in the ordinary course of business, but shall not include liquidating dividends. "Pledge Agreement" is defined in the preamble. "Pledged Collateral" means all Pledged Shares, all other pledged Capital Stock, all other equity securities, all assignments of any amounts due or to become due with respect thereto, and all other instruments which are now being delivered by the Pledgor to the Collateral Agent or may from time to time hereafter be delivered by the Pledgor to the Collateral Agent for the purpose of pledge under this Pledge Agreement, and all proceeds of any of the foregoing. "Pledged Shares" means the Capital Stock of any Issuer in the amounts and percentages listed in Attachment 1 hereto. "Satisfaction Date" means the date on which all Obligations under the Indenture and the Senior Secured Notes have been paid in full or otherwise satisfied. "Securities Act" is defined in clause (a) of Section 6.2. -2- 3 SECTION 1.2. Indenture Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Indenture. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or in the Indenture or the context otherwise requires, terms for which meanings are provided in the Uniform Commercial Code from time to time in effect in the State of New York (the "U.C.C.") are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II. PLEDGE SECTION 2.1. Grant of Security Interest. Each Pledgor hereby pledges, hypothecates, assigns, charges, delivers and transfers to the Collateral Agent for its benefit and for the ratable benefit of the Holders of the Senior Secured Notes, and hereby grants to the Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes, a continuing security interest in, all of the following property (collectively, the "Collateral"): (a) all issued and outstanding Pledged Shares of each Issuer identified on Attachment 1 hereto; (b) all other Pledged Shares issued from time to time; (c) all other Pledged Collateral, whether now or hereafter delivered to the Collateral Agent in connection with this Pledge Agreement; (d) all Dividends, Distributions, and other payments and rights with respect to any Pledged Collateral; and (e) all proceeds of any of the foregoing. SECTION 2.2. Security for Obligations. This Pledge Agreement secures the payment in full and in cash of all Obligations. SECTION 2.3. Delivery of Pledged Collateral. Pledgor hereby agrees that, pursuant to the terms of the Senior Debt Intercreditor Agreement (as defined in the Credit Agreement), all certificates or instruments representing or evidencing the Collateral shall be held by the Administrative Agent for the benefit of the Lenders and the Holders. Upon expiration or termination of the Senior Debt Intercreditor Agreement, Pledgor shall immediately deliver or cause to be delivered to the Collateral Agent all certificates or instruments representing or evidencing the Collateral. All such certificates or instruments shall be in suitable form for transfer by delivery and shall be accompanied by instruments of transfer or assignment duly executed in blank and undated, all in form and substance satisfactory to the Collateral Agent. SECTION 2.4. Dividends on Pledged Share. In the event that any Dividend is to be paid on any Pledged Share at a time when no Event of Default has occurred and is continuing, such Dividend may be paid directly to the applicable Pledgor. If any such Event of Default has occurred and is continuing, then any such Dividend shall be paid directly to the Collateral Agent. -3- 4 SECTION 2.5. Continuing Security Interest. This Pledge Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until all Obligations under the Indenture and the Senior Secured Notes are satisfied in full; (b) be binding upon each Pledgor and its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Holders of the Senior Secured Notes. The security interest granted herein shall terminate and all rights to the Collateral shall revert to each Pledgor on the Satisfaction Date. Upon any such termination or release of Collateral, the Collateral Agent will, at each Pledgor's sole expense, deliver to such Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares, together with all other Collateral held by the Collateral Agent hereunder, and execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to evidence such termination or release. SECTION 2.6. Security Interest Absolute. All rights of the Collateral Agent and the Liens granted to the Collateral Agent hereunder, and all obligations of each Pledgor hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of the Indenture or any other agreement or instrument relating thereto; (b) the failure of the Collateral Agent, for its own benefit or the benefit of the Holders of the Senior Secured Notes: (i) to assert any claim or demand or to enforce any right or remedy against any Pledgor, any other Guarantor (as such term is defined in the Indenture) or any other Person under the provisions of the Indenture, the Senior Secured Notes or the Security Agreements or otherwise, or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Obligations of any Pledgor or any other Guarantor. (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other extension, compromise or renewal of any Obligation of any Pledgor or any other Guarantor, (d) any reduction, limitation, impairment or termination of any Obligation of any Pledgor or any other Guarantor for any reason (other than the satisfaction of and repayment in full and in cash of all Obligations), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Pledgor hereby waives any right to or claim of) any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, -4- 5 irregularity, compromise or unenforceability of, or any other event or occurrence affecting, any Obligation of any Pledgor, any other Guarantor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Indenture, the Senior Secured Notes or the other Security Agreements, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Pledgor, any other Guarantor, any surety or any guarantor. SECTION 2.7. Postponement of Subrogation, etc. No Pledgor will exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the Satisfaction Date. Any amount paid to any Pledgor on account of any payment made hereunder shall be held in trust for the benefit of the Holders of the Senior Secured Notes and shall immediately be paid to the Collateral Agent, for the ratable benefit of the Holders of the Senior Secured Notes, and credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Indenture, provided, however, that if (a) any Pledgor has made payment to the Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes of all or any part of the Obligations, and (b) the Satisfaction Date has occurred, the Collateral Agent, on behalf of the Holders of the Senior Secured Notes, agrees that, at such Pledgor's request, the Collateral Agent, on behalf of the Holders of the Senior Secured Notes, will execute and deliver to such Pledgor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Pledgor of an interest in the Obligations resulting from such payment by such Pledgor. In furtherance of the foregoing, prior to the Satisfaction Date, each Pledgor shall refrain from taking any action or commencing any proceeding against any other Guarantor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Pledge Agreement to the Collateral Agent or the Holders of the Senior Secured Notes. ARTICLE III. REPRESENTATIONS AND WARRANTIES SECTION 3.1. Warranties, etc. Each Pledgor represents and warrants unto the Collateral Agent and the Holders of the Senior Secured Notes, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares) by such Pledgor to the Collateral Agent of any Collateral as set forth in this Article. -5- 6 SECTION 3.2. Ownership, No Liens, etc. Each Pledgor is the legal and beneficial owner of, and has good and valid title to (and has full right and authority to pledge and assign) the Collateral, free and clear of all Liens, except any Lien granted pursuant hereto in favor of the Collateral Agent or any Permitted Lien. SECTION 3.3. Valid Security Interest. (a) The execution and delivery of this Pledge Agreement creates a valid second-priority security interest in the Collateral and (i) in the case of the Pledged Shares, upon the delivery of such Collateral to the Administrative Agent or a person described in Section 8-301(a)(2) of the U.C.C. such security interest will be a valid second-priority, perfected security interest, and (ii) in the case of all other Collateral, upon the filing of the U.C.C. financing statements (Form U.C.C.-1) delivered by the Pledgors to the Collateral Agent with respect to such Collateral, such security interest will be a valid second-priority, perfected security interest. Each Pledgor has filed all U.C.C. financing statements (Form U.C.C.-1) referred to above in the appropriate offices therefor (or has provided the Collateral Agent with copies thereof suitable for filing in such offices) and has taken all of the other actions referred to above necessary to create perfected and second-priority security interests in the applicable Collateral. (b) Upon the expiration or termination of the Senior Debt Intercreditor Agreement, and the receipt of notice of such satisfaction by Pledgor, Pledgor shall deliver, or cause the Collateral to be delivered, to the Collateral Agent, at which time the pledge made pursuant to this Pledge Agreement shall create a valid and perfected first priority security interest in the Collateral, securing the payment of the Obligations for the benefit of Collateral Agent and the Holders of the Senior Secured Notes, and enforceable as such against all creditors of Pledgor and any Persons purporting to purchase any of the Collateral from Pledgor. SECTION 3.4. INTENTIONALLY OMITTED. SECTION 3.5. As to Pledged Shares. In the case of any Pledged Shares constituting Collateral, all such Pledged Shares are duly authorized and validly issued, fully paid and non-assessable, and constitute all of the issued and outstanding Capital Stock of each Issuer. No Pledgor has any Subsidiaries incorporated in the United States of which it directly owns any Capital Stock other than the Issuers and the Unrestricted Subsidiaries. All Pledged Shares are certificated, have been delivered to the Collateral Agent or a person described in Section 8-301(a)(2) of the U.C.C., with stock powers, accompanied by undated instruments of transfer duly executed in blank and the Collateral Agent has "control" (as defined in the U.C.C.) of such Pledged Shares. SECTION 3.6. Authorization, Approval, etc. No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority, regulatory body or other Person (other than those that have been, or on the Closing Date will be, duly obtained or made and which are, or on the Closing Date will be, in full force and effect) is required either -6- 7 (a) for the pledge by such Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery and performance of this Pledge Agreement by such Pledgor, or (b) for the exercise by the Collateral Agent of the voting or other rights provided for in this Pledge Agreement, or, except with respect to any Pledged Shares as may be required in connection with a disposition of such Pledged Shares by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement, provided, however, that in order to exercise the voting and certain other rights provided for in this Pledge Agreement, the Pledged Shares must be transferred into the name of the Collateral Agent on the books and records of the Issuer prior to the exercise of such voting or other rights. SECTION 3.7. Compliance with Laws. Each Pledgor is in compliance with the requirements of all applicable laws (including, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every Governmental Authority, the non-compliance with which could have a material adverse effect on the business, prospects, financial condition or results of operations of the Pledgor and its Subsidiaries (as defined in the Indenture) taken as a whole, or draw into question the validity of this Pledge Agreement or the other documents contemplated by the Indenture or adversely affect the value of the Pledged Shares. SECTION 3.8. Power to Enter Into Agreement. Each Pledgor has full corporate power and authority to enter into this Pledge Agreement. SECTION 3.9. Due Execution. This Pledge Agreement has been duly executed and delivered by Pledgor and constitutes a legal, valid and binding obligation of each Pledgor, enforceable against such Pledgor in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. SECTION 3.10. No Litigation. No litigation, investigation or proceeding of or before any arbitrator or governmental authority is pending or, to the best knowledge of any Pledgor, threatened by or against Pledgor or against any of its properties or revenues with respect to this Pledge Agreement or any of the transactions contemplated hereby. SECTION 3.11. Legal Pledge. The pledge of the Collateral pursuant to this Pledge Agreement is not prohibited by any applicable law or governmental regulation, release, interpretation or opinion of the Board of Governors of the Federal Reserve System or other regulatory agency (including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System). ARTICLE IV. COVENANTS SECTION 4.1. Protect Collateral, Further Assurances, etc. Except for the Senior Pledge, or as otherwise provided for in the Credit Agreement, no Pledgor will sell, assign, transfer, pledge, or encumber in any other manner the Collateral (except in favor of the -7- 8 Collateral Agent hereunder or as specifically permitted by the Indenture). Each Pledgor will warrant and defend the right and title herein granted unto the Collateral Agent in and to the Collateral (and all right, title and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. Each Pledgor agrees that at any time, and from time to time, at the expense of such Pledgor, such Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. No Pledgor will permit any Issuer to issue any Capital Stock unless the same are immediately pledged to the Collateral Agent hereunder and delivered to the Administrative Agent, the Collateral Agent or a person described in Section 8-301(a) of the U.C.C. SECTION 4.2. Stock Powers, etc. Each Pledgor agrees that all Pledged Shares (and all other Capital Stock constituting Collateral) delivered by such Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed, undated stock powers or other equivalent instruments of transfer reasonably acceptable to the Collateral Agent. Each Pledgor will, from time to time upon the reasonable request of the Collateral Agent, promptly deliver to the Collateral Agent such stock powers, instruments and similar documents, reasonably satisfactory in form and substance to the Collateral Agent, with respect to the Collateral as the Collateral Agent may reasonably request and will, from time to time upon the request of the Collateral Agent after the occurrence of any Event of Default, promptly cause each Issuer to transfer any Pledged Shares or other Capital Stock constituting Collateral into the name of any nominee designated by the Collateral Agent. SECTION 4.3. Continuous Pledge. Subject to Section 2.4 hereof, each Pledgor will, at all times, keep pledged to the Collateral Agent pursuant hereto all Pledged Shares and all other Capital Stock constituting Collateral, all Dividends and Distributions with respect thereto, and all other Collateral and other Capital Stock, instruments, proceeds and rights from time to time received by or distributable to such Pledgor in respect of any Collateral. Any Distributions on Pledged Shares consisting of Capital Stock will be certificated. SECTION 4.4. Voting Rights, Dividends, etc. Each Pledgor agrees: (a) if an Event of Default shall have occurred and be continuing, promptly upon receipt of notice thereof by such Pledgor and without any request therefore by the Collateral Agent, to deliver (properly endorsed where required hereby or requested by the Collateral Agent) to the Collateral Agent all Dividends, Distributions and all proceeds of the Collateral, all of which shall be held by the Collateral Agent as additional Collateral for use in accordance with Section 6.4 hereof; and (b) if an Event of Default shall have occurred and be continuing and the Collateral Agent shall have notified such Pledgor of the Collateral Agent's intention to exercise its voting power under this Section: (i) the Collateral Agent may exercise (to the exclusion of such Pledgor) the voting power and all other incidental rights of ownership with respect to any -8- 9 Pledged Shares or other Capital Stock constituting Collateral, and such Pledgor hereby grants the Collateral Agent an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Collateral; and (ii) promptly to deliver to the Collateral Agent such additional proxies and other documents as may be necessary to allow the Collateral Agent to exercise such voting power. All Dividends, Distributions and proceeds which may at any time and from time to time be held by Pledgor but which Pledgor is then obligated to deliver to the Collateral Agent, shall, until delivery to the Collateral Agent, be held by such Pledgor separate and apart from its other property in trust for the Collateral Agent. The Collateral Agent agrees that unless an Event of Default shall have occurred and be continuing and the Collateral Agent shall have given the notice referred to in this Section, each Pledgor have the exclusive power to exercise all voting and other consensual rights with respect to any Capital Stock (including any of the Pledged Shares) constituting Collateral and the Collateral Agent shall, upon the written request of such Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by such Pledgor, and which are necessary to allow such Pledgor to exercise such powers with respect to any such share of Capital Stock (including any of the Pledged Shares) constituting Collateral; provided, however, that no vote shall be cast, or consent, waiver or ratification given, or action taken by any Pledgor that would materially impair the value of any Collateral or be inconsistent with or violate any provision of the Indenture, the Senior Secured Notes or this Pledge Agreement. ARTICLE V. THE COLLATERAL AGENT SECTION 5.1. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor hereby irrevocably appoints the Collateral Agent as such Pledgor's attorney-in-fact, with full authority and in the name, place and stead of the Pledgor or in its own name, from time to time in the Collateral Agent's discretion, to take, upon the occurrence and during the continuance of an Event of Default, any action and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) to ask, demand, collect, sue for, recover, compromise and receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) to file any claims or take any action or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral. -9- 10 SECTION 5.2. Authority of Collateral Agent. (a) The Collateral Agent shall have and be entitled to exercise all powers hereunder that are specifically granted to the Collateral Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder or in connection with the Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. Neither the Collateral Agent nor any director, officer, employee, attorney or agent of the Collateral Agent shall be responsible for the validity, effectiveness or sufficiency hereof or of any document or security furnished pursuant hereto. The Collateral Agent and its directors, officers, employees, attorneys and agents shall be entitled to rely on any communication, instrument or document reasonably believed by it or them to be genuine and correct and to have been signed or sent by the proper person or persons. (b) Each Pledgor acknowledges that the rights and responsibilities of the Collateral Agent under this Pledge Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Collateral Agent and the Holders of the Senior Secured Notes, be governed by the Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and each or any Pledgor, the Collateral Agent shall be conclusively presumed to be acting as agent for the Holders of the Senior Secured Notes with full and valid authority so to act or refrain from acting, and each Pledgor shall not be obligated or entitled to make any inquiry respecting such authority. SECTION 5.3. Resignation or Removal of the Collateral Agent. Until such time as the Obligations shall have been paid in full, the Collateral Agent may at any time, by giving written notice to Pledgor, the Trustee (as defined in the Indenture) and the Holders of the Senior Secured Notes, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon (i) the appointment of a successor Collateral Agent and (ii) the acceptance of such appointment by such successor Collateral Agent. As promptly as practicable after the giving of any such notice, the Trustee (if the Trustee is not then acting as the Collateral Agent hereunder), or if the Trustee and the Collateral Agent are the same person or entity, the Holders of the Senior Secured Notes shall appoint a successor Collateral Agent, which successor Collateral Agent shall be reasonably acceptable to the Pledgors. If no successor Collateral Agent shall be appointed and shall have accepted such appointment within 90 days after the Collateral Agent gives the aforesaid notice of resignation, the Collateral Agent may apply to any court of competent jurisdiction to appoint a successor Collateral Agent to act until such time, if any, as a successor shall have been appointed as provided in this Section. Any successor so appointed by such court shall immediately and without further act be superseded by any successor Collateral Agent appointed by the Holders of the Senior Secured Notes, as provided in this Section. Simultaneously with its replacement as Collateral Agent hereunder, the Collateral Agent so replaced shall deliver to its successor all documents, instruments, certificates and other items of whatever kind (including, without limitation, the certificates and instruments evidencing the Collateral and all instruments of transfer or assignment) held by it pursuant to the terms hereof. -10- 11 Any Collateral Agent that has resigned shall be entitled to fees, costs and expenses to the extent incurred or arising, or relating to events occurring, before its resignation or removal. SECTION 5.4. Release; Termination of Agreement. (a) This Pledge Agreement shall terminate upon the earlier to occur of: (i) full and final payment and performance of the Obligations (and upon receipt by the Collateral Agent of Pledgor's written certification that all such Obligations have been satisfied) and payment in full of all fees and expenses owing by the Pledgors to the Collateral Agent, (ii) the day of the Legal Defeasance of all of the Obligations pursuant to Section 8.02 of the Indenture (other than those surviving Obligations specified therein) or (iii) such other termination date as is provided by the Indenture. At such time, the Collateral Agent shall, at the request of any Pledgor, reassign and redeliver to such Pledgor all of the Collateral hereunder that has not been sold, disposed of, retained or applied by the Collateral Agent in accordance with the terms hereof. Such reassignment and redelivery shall be without warranty by or recourse to the Collateral Agent, except as to the absence of any prior assignments by the Collateral Agent of its interest in the Collateral, and shall be at the expense of the Pledgors. (b) Each Pledgor agrees that it will not, except as permitted by the Indenture, sell or dispose of, or grant any option or warrant with respect to, any of the Collateral; provided, however, that if any Pledgor shall sell any of the Collateral in accordance with the terms of the Indenture, the Collateral Agent shall, at the request of such Pledgor and subject to requirements of Section 10.03 of the Indenture, release the Collateral subject to such sale free and clear of the Lien under this Pledge Agreement. SECTION 5.5. Collateral Agent May Perform. If any Pledgor falls to perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by such Pledgor pursuant to Section 6.5 hereof. SECTION 5.6. Collateral Agent Has No Duty. The powers conferred on the Collateral Agent hereunder are solely to protect its interest (on behalf of the Holders of the Senior Secured Notes) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for the reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.7. Reasonable Care. The Collateral Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession, provided, however, the Collateral Agent shall be deemed to have exercised reasonable care in the -11- 12 custody and preservation of any of the Collateral, if it takes such action for that purpose as the relevant Pledgor reasonably requests in writing from time to time, but failure of the Collateral Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. ARTICLE VI. REMEDIES SECTION 6.1. Certain Remedies. If an Event of Default shall have occurred and be continuing: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. Each Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten day's prior notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Collateral Agent may (i) transfer all or any part of the Collateral into the name of the Collateral Agent or its nominee, with or without disclosing that such Collateral is subject to the Lien hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Collateral Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts or other writings in any Pledgor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral and -12- 13 (vi) execute (in the name, place and stead of any Pledgor) endorsements, assignments., stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION 6.2. Securities Laws. If the Collateral Agent shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, each Pledgor agrees that, upon request of the Collateral Agent, such Pledgor will use commercially reasonable efforts to, at its own expense: (a) execute and deliver, and cause each issuer of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Collateral Agent, advisable to register such Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to -------------- become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Collateral Agent, are necessary or advisable. all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Collateral, as requested by the Collateral Agent, (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law. Each Pledgor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Collateral Agent or the Holders of the Senior Secured Notes by reason of the failure by such Pledgor to perform any of the covenants contained in this Section and, consequently, agrees that, if such Pledgor shall fall to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Collateral Agent) of the Collateral on the date the Collateral Agent shall demand compliance with this Section. SECTION 6.3. Compliance with Restrictions. Each Pledgor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Collateral Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have -13- 14 certain qualifications and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority, and each Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Agent be liable nor accountable to any Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. Application of Proceeds. All cash proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon, all or any part of the Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as additional collateral security for, or then or at any time thereafter be applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 7.07 of the Indenture and, Section 6.5 below) in whole or in part by the Collateral Agent against, all or any part of the Obligations in such order as the Collateral Agent shall elect. Any surplus of such cash or other proceeds held by the Collateral Agent and remaining after the Satisfaction Date, shall be paid over to the applicable Pledgor or to whomsoever may be lawfully entitled to receive such surplus. The Pledgors shall remain liable on a joint and several basis for any deficiency. SECTION 6.5. Indemnity and Expenses. Each Pledgor hereby jointly and severally indemnifies and holds harmless the Collateral Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses or liabilities resulting from the Collateral Agent's gross negligence or wilful misconduct, and each Pledgor will pay to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Collateral Agent may incur, in each case, in connection with: (a) the administration of this Pledge Agreement, (b) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral, (c) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (d) the failure by any Pledgor to perform or observe any of the provisions hereof. ARTICLE VII. MISCELLANEOUS PROVISIONS SECTION 7.1. Security Agreement. This Pledge Agreement is a Security Agreement executed pursuant to the Indenture and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by any Pledgor herefrom shall in any event -14- 15 be effective unless the same shall be in writing and signed by the Collateral Agent (on behalf of the Holders of the Senior Secured Notes) and each Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of Collateral .The Collateral Agent may from time to time, at its option, and at the expense of the Pledgors, perform any act which any Pledgor agrees hereunder to perform and which such Pledgor shall fall to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Collateral Agent may from time to time take any other action which the Collateral Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed, delivered or transmitted, if to any Pledgor, at the address or facsimile number of the Company provided for in the Indenture, and, if to the Collateral Agent, at Harris Trust Company of New York, Wall Street Plaza, 19th Floor, 88 Pine Street, New York, NY 10005, Telecopier No.: (212) 701-7664, Attn: Peter Morse, or as to any such party at such other address or facsimile number as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any notice, (a)(i) if mailed and properly addressed with postage prepaid or (ii) if properly addressed and sent by pre-paid courier service, shall be deemed given when such notice has been received or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). SECTION 7.5. Headings. The various headings of this Pledge Agreement are inserted for convenience only, and shall not affect the meaning or interpretation of this Pledge Agreement or any provisions hereof. SECTION 7.6. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions of this Pledge Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 7.7. Governing Law. THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS. SECTION 7.8. Counterparts. This Pledge Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Pledge Agreement shall become effective and binding upon any Pledgor when a counterpart hereof executed on behalf of such Pledgor shall have been received by the Collateral Agent. -15- 16 [Signatures commence on the following page} -16- 17 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. STERLING CHEMICALS, INC. By ------------------------------------- Title: STERLING CANADA, INC. By ------------------------------------- Title: STERLING PULP CHEMICALS US, INC. By ------------------------------------- Title: HARRIS TRUST COMPANY OF NEW YORK as Collateral Agent By ------------------------------------- Title: -17- 18 ATTACHMENT 1 to Pledge Agreement [NAME OF PLEDGOR]
Pledged Shares -------------- Issuer Capital Stock - ------ ------------- Authorized Outstanding % of Shares Shares Shares Pledged ---------- ----------- ----------- Sterling Fibers, Inc. 100% Sterling Chemicals 100% International, Inc. Sterling Chemicals 100% Energy, Inc. Sterling Canada, Inc. 100% Sterling Pulp 100% Chemicals, Inc. Sterling Pulp 100% Chemicals US, Inc.
-18- EX-4.15 16 STOCK PLEDGE AND SECURITY AGREEMENT - 07/23/1999 1 EXHIBIT 4.15 STOCK PLEDGE AND SECURITY AGREEMENT THIS STOCK PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement") is made and entered into as of July 23, 1999 (the "Closing Date"), by Sterling Chemicals, Inc., a Delaware corporation (the "Company"), and Sterling Canada, Inc., a Delaware corporation, each having as its principal place of business c/o Sterling Chemicals, Inc., 1200 Smith Street, Houston, Texas 77002-4312 (the Company and each of the foregoing, a "Pledgor," and collectively, the "Pledgors"), in favor of Harris Trust Company of New York, a New York corporation, as indenture trustee and collateral agent (the "Collateral Agent") for the benefit of itself and for the holders (the "Holders") of the Company's 12 3/8% Senior Secured Notes due 2006, and having an office at Wall Street Plaza, 19th Floor, 88 Pine Street, New York, New York 10005. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Indenture (hereinafter defined). W I T N E S S E T H: WHEREAS, as of the Closing Date, the Pledgors own and hold the issued and outstanding shares of capital stock (collectively, the "Pledged Shares") of the following corporations: (a) Sterling Pulp Chemicals, Ltd., an Ontario corporation; (b) Sterling NRO Ltd., an Ontario corporation; and (c) Sterling Chemicals Marketing, Inc., a Barbados corporation ((a) - (c), collectively and individually, the "Issuer"); and WHEREAS, Pledgor and Collateral Agent, as trustee, have entered into that certain indenture dated as of July 23, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Company issued $295 million in the aggregate principal amount of 12 3/8% Senior Secured Notes due 2006 (together with any notes issued in replacement thereof or in exchange or substitution therefor, the "Senior Secured Notes"); and WHEREAS, the terms of the Indenture require that the Pledgors (i) pledge to Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes, and grant to Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes, a first priority security interest in the Pledged Collateral (as defined herein) and (ii) execute and deliver this Pledge Agreement in order to secure the payment and performance by the Pledgors of all of their obligations under both the Indenture and the Senior Secured Notes (including all guarantees thereof) (the "Obligations"); and WHEREAS, each Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement: NOW, THEREFORE, in consideration of the premises, and in order to induce the Holders of the Senior Secured Notes to purchase the Senior Secured Notes, Pledgor hereby agrees with the Collateral Agent for its benefit and the ratable benefit of the Holders of the Senior Secured Notes as follows: 2 ARTICLE I. DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof) when used in this Pledge Agreement: "Distributions" means any and all stock dividends, liquidating dividends, Capital Stock resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers or consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other Capital Stock constituting Collateral, but shall not include Dividends. "Dividends" means any and all cash dividends and cash distributions with respect to any Pledged Shares or other Pledged Collateral made in the ordinary course of business, but shall not include liquidating dividends. "Pledge Agreement" is defined in the preamble. "Pledged Collateral" means all Pledged Shares, all other pledged Capital Stock, all other equity securities, all assignments of any amounts due or to become due with respect thereto, and all other instruments which are now being delivered by the Pledgor to the Collateral Agent or may from time to time hereafter be delivered by the Pledgor to the Collateral Agent for the purpose of pledge under this Pledge Agreement and all proceeds of any of the foregoing. "Pledged Shares" means the Capital Stock of any Issuer in the amounts and percentages listed on Attachment 1 hereto. "Satisfaction Date" means the date on which all Obligations under the Indenture and the Senior Secured Notes have been paid in full or otherwise satisfied. "Securities Act" is defined in clause (a) of Section 6.2. SECTION 1.2. Indenture Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Indenture. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or in the Indenture or the context otherwise requires, terms for which meanings are provided in the Uniform Commercial Code from time to time in effect in the State of New York (the "U.C.C.") are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II. PLEDGE SECTION 2.1. Grant of Security Interest. Each Pledgor hereby pledges, hypothecates, assigns, charges, delivers and transfers to the Collateral Agent for its benefit and for the ratable benefit of the Holders of the Senior Secured Notes, and hereby grants to the -2- 3 Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes, a continuing security interest in, all of the following property (collectively, the "Collateral"): (a) 65% of the issued and outstanding Pledged Shares of each Issuer identified on Attachment 1 hereto; (b) 65% of all other Pledged Shares issued from time to time; (c) all other Pledged Collateral, whether now or hereafter delivered to the Collateral Agent in connection with this Pledge Agreement; (d) all Dividends, Distributions, and other payments and rights with respect to any Pledged Collateral; and (e) all proceeds of any of the foregoing. Notwithstanding the foregoing, at no time shall the Pledged Shares of any Issuer constitute in excess of 65% of all issued and outstanding Capital Stock of such Issuer. SECTION 2.2. Security for Obligations. This Pledge Agreement secures the payment in full and in cash of all Obligations. SECTION 2.3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing any Collateral, including all Pledged Shares, shall be delivered to and held by or on behalf of the Collateral Agent and for the benefit of the Holders of the Senior Secured Notes pursuant hereto, shall be in suitable form for transfer by delivery and shall be accompanied by all necessary instruments of transfer or assignment, shall be duly executed in blank, all in form and substance satisfactory to the Collateral Agent. SECTION 2.4. Dividends on Pledged Share. In the event that any Dividend is to be paid on any Pledged Share at a time when no Event of Default has occurred and is continuing, such Dividend may be paid directly to the applicable Pledgor. If any such Event of Default has occurred and is continuing, then any such Dividend shall be paid directly to the Collateral Agent. SECTION 2.5. Continuing Security Interest. This Pledge Agreement shall create a continuing security interest in the Collateral and shall: (a) remain in full force and effect until all Obligations under the Indenture and the Senior Secured Notes are satisfied in full; (b) be binding upon each Pledgor and its successors, transferees and assigns; and (c) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Holders of the Senior Secured Notes. The security interest granted herein shall terminate and all rights to the Collateral shall revert to each Pledgor on the Satisfaction Date. Upon any such termination or release of Collateral, the Collateral Agent will, at each Pledgor's sole expense, deliver to such Pledgor, without any -3- 4 representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares, together with all other Collateral held by the Collateral Agent hereunder, and execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to evidence such termination or release. SECTION 2.6. Security Interest Absolute. All rights of the Collateral Agent and the Liens granted to the Collateral Agent hereunder, and all obligations of each Pledgor hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of the Indenture or any other agreement or instrument relating thereto; (b) the failure of the Collateral Agent, for its own benefit or the benefit of the Holders of the Senior Secured Notes: (i) to assert any claim or demand or to enforce any right or remedy against any Pledgor, any other Guarantor (as such term is defined in the Indenture) or any other Person under the provisions of the Indenture, the Senior Secured Notes and the Security Agreements or otherwise, or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Obligations of any Pledgor or any other Guarantor. (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other extension, compromise or renewal of any Obligation of any Pledgor or any other Guarantor, (d) any reduction, limitation, impairment or termination of any Obligation of any Pledgor or any other Guarantor for any reason (other than the satisfaction of and repayment in full and in cash of all Obligations), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Pledgor hereby waives any right to or claim of) any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise or unenforceability of, or any other event or occurrence affecting, any Obligation of any Pledgor, any other Guarantor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Indenture, the Senior Secured Notes or the other Security Agreements, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Pledgor, any other Guarantor, any surety or any guarantor. -4- 5 SECTION 2.7. Postponement of Subrogation, etc. No Pledgor will exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, until the Satisfaction Date. Any amount paid to any Pledgor on account of any payment made hereunder shall be held in trust for the benefit of the Holders of the Senior Secured Notes and shall immediately be paid to the Collateral Agent, for the ratable benefit of the Holders of the Senior Secured Notes, and credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of the Indenture, provided, however, that if (a) any Pledgor has made payment to the Collateral Agent for the ratable benefit of the Holders of the Senior Secured Notes of all or any part of the Obligations, and (b) the Satisfaction Date has occurred, the Collateral Agent, on behalf of the Holders of the Senior Secured Notes, agrees that, at such Pledgor's request, the Collateral Agent, on behalf of the Holders of the Senior Secured Notes, will execute and deliver to such Pledgor appropriate documents (without recourse and without representation or warranty necessary to evidence the transfer by subrogation to such Pledgor of an interest in the Obligations resulting from such payment by such Pledgor. In furtherance of the foregoing, prior to the Satisfaction Date, each Pledgor shall refrain from taking any action or commencing any proceeding against any other Guarantor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Pledge Agreement to the Collateral Agent or the Holders of the Senior Secured Notes. ARTICLE III. REPRESENTATIONS AND WARRANTIES SECTION 3.1. Warranties, etc. Each Pledgor represents and warrants unto the Collateral Agent and the Holders of the Senior Secured Notes, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares) by such Pledgor to the Collateral Agent of any Collateral as set forth in this Article. SECTION 3.2. Ownership, No Liens, etc. Each Pledgor is the legal and beneficial owner of, and has good and valid title to (and has full right and authority to pledge and assign) the Collateral, free and clear of all Liens, except any Lien granted pursuant hereto in favor of the Collateral Agent or any Permitted Lien. SECTION 3.3. Valid Security Interest. The execution and delivery of this Pledge Agreement creates a valid first-priority security interest in the Collateral and (a) in the case of the Pledged Shares, upon the delivery of such Collateral to the Collateral Agent or a person described in Section 8-301(a)(2) of the U.C.C. such security interest will be a valid first-priority, perfected security interest, and (b) in the case of all other Collateral, upon the filing of the U.C.C. financing statements (Form U.C.C.-1) delivered by the Pledgors to the Collateral Agent with respect to such Collateral, such security interest will be a valid first-priority, perfected security interest. Each Pledgor has filed all U.C.C. financing statements (Form U.C.C.-1) referred to above in the appropriate offices therefor (or has provided the Collateral Agent with copies -5- 6 thereof suitable for filing in such offices) and has taken all of the other actions referred to above necessary to create perfected and first-priority security interests in the applicable Collateral. SECTION 3.4. INTENTIONALLY OMITTED. SECTION 3.5. As to Pledged Shares. In the case of any Pledged Shares constituting Collateral, all such Pledged Shares are duly authorized and validly issued, fully paid and non-assessable, and constitute sixty-five percent (65%) of the issued and outstanding Capital Stock of each Issuer. No Pledgor has any Subsidiaries incorporated outside of the United States of which it directly owns any Capital Stock other than the Issuers and the Unrestricted Subsidiaries. All Pledged Shares are certificated, have been delivered to the Collateral Agent or a person described in Section 8-301(a)(2) of the U.C.C., with stock powers, accompanied by undated instruments of transfer duly executed in blank and the Collateral Agent has "control" (as defined in the U.C.C.) of such Pledged Shares. SECTION 3.6. Authorization, Approval, etc. No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority, regulatory body or other Person (other than those that have been, or on the Closing Date will be, duly obtained or made and which are, or on the Closing Date will be, in full force and effect) is required either (a) for the pledge by such Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery and performance of this Pledge Agreement by such Pledgor, or (b) for the exercise by the Collateral Agent of the voting or other rights provided for in this Pledge Agreement, or, except with respect to any Pledged Shares as may be required in connection with a disposition of such Pledged Shares by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement, provided, however, that in order to exercise the voting and certain other rights provided for in this Pledge Agreement, the Pledged Shares must be transferred into the name of the Collateral Agent on the books and records of the Issuer prior to the exercise of such voting or other rights. SECTION 3.7. Compliance with Laws. Each Pledgor is in compliance with the requirements of all applicable laws (including, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every Governmental Authority, the non-compliance with which could have a material adverse effect on the business, prospects, financial condition or results of operations of the Pledgor and its Subsidiaries (as defined in the Indenture), taken as a whole, or draw into question the validity of this Pledge Agreement or the other documents contemplated by the Indenture or adversely affect the value of the Pledged Shares. SECTION 3.8. Power to Enter Into Agreement. Each Pledgor has full corporate power and authority to enter into this Pledge Agreement. SECTION 3.9. Due Execution. This Pledge Agreement has been duly executed and delivered by Pledgor and constitutes a legal, valid and binding obligation of each Pledgor, enforceable against each Pledgor in accordance with its terms, except as the enforceability hereof -6- 7 may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. SECTION 3.10. No Litigation. No litigation, investigation or proceeding of or before any arbitrator or governmental authority is pending or, to the best knowledge of any Pledgor, threatened by or against Pledgor or against any of its properties or revenues with respect to this Pledge Agreement or any of the transactions contemplated hereby. SECTION 3.11. Legal Pledge. The pledge of the Collateral pursuant to this Pledge Agreement is not prohibited by any applicable law or governmental regulation, release, interpretation or opinion of the Board of Governors of the Federal Reserve System or other regulatory agency (including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System). ARTICLE IV. COVENANTS SECTION 4.1. Protect Collateral, Further Assurances, etc. No Pledgor has or will sell, assign, transfer, pledge, or encumber in any other manner the Collateral (except in favor of the Collateral Agent hereunder and as specifically provided by the Indenture). Each Pledgor will warrant and defend the right and title herein granted unto the Collateral Agent in and to the Collateral (and all right, title and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. Each Pledgor agrees that at any time, and from time to time, at the expense of such Pledgor, such Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. No Pledgor will permit any Issuer to issue any Capital Stock unless the same are immediately pledged to the Collateral Agent hereunder and the additional Capital Stock is pledged to Collateral Agent at the pro-rata levels outlined in Section 2.1 hereof and delivered to the Collateral Agreement or a person described in Section 8.301(a)(2) of the U.C.C. SECTION 4.2. Stock Powers, etc. Each Pledgor agrees that all Pledged Shares (and all other Capital Stock constituting Collateral) delivered by such Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed, undated stock powers or other equivalent instruments of transfer reasonably acceptable to the Collateral Agent. Each Pledgor will, from time to time upon the reasonable request of the Collateral Agent, promptly deliver to the Collateral Agent such stock powers, instruments and similar documents, reasonably satisfactory in form and substance to the Collateral Agent, with respect to the Collateral as the Collateral Agent may reasonably request and will, from time to time upon the request of the Collateral Agent after the occurrence of any Event of Default, promptly cause each Issuer to transfer any Pledged Shares or other Capital Stock constituting Collateral into the name of any nominee designated by the Collateral Agent. SECTION 4.3. Continuous Pledge. Subject to Section 2.4 hereof, each Pledgor will, at all times, keep pledged to the Collateral Agent pursuant hereto all Pledged Shares and all other -7- 8 Capital Stock constituting Collateral, all Dividends and Distributions with respect thereto, and all other Collateral and other Capital Stock, instruments, proceeds and rights from time to time received by or distributable to such Pledgor in respect of any Collateral. Any Distributions on Pledged Shares consisting of Capital Stock will be certificated. SECTION 4.4. Voting Rights, Dividends, etc. Each Pledgor agrees: (a) if an Event of Default shall have occurred and be continuing, promptly upon receipt thereof by such Pledgor and without any request therefore by the Collateral Agent, to deliver (properly endorsed where required hereby or requested by the Collateral Agent) to the Collateral Agent all Dividends, Distributions and all proceeds of the Collateral, all of which shall be held by the Collateral Agent as additional Collateral for use in accordance with Section 6.4 hereof; and (b) if an Event of Default shall have occurred and be continuing and the Collateral Agent shall have notified such Pledgor of the Collateral Agent's intention to exercise its voting power under this Section: (i) the Collateral Agent may exercise (to the exclusion of such Pledgor) the voting power and all other incidental rights of ownership with respect to any Pledged Shares or other Capital Stock constituting Collateral, and such Pledgor hereby grants the Collateral Agent an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Collateral; and (ii) promptly to deliver to the Collateral Agent such additional proxies and other documents as may be necessary to allow the Collateral Agent to exercise such voting power. All Dividends, Distributions and proceeds which may at any time and from time to time be held by Pledgor but which Pledgor is then obligated to deliver to the Collateral Agent, shall, until delivery to the Collateral Agent, be held by such Pledgor separate and apart from its other property in trust for the Collateral Agent. The Collateral Agent agrees that unless an Event of Default shall have occurred and be continuing and the Collateral Agent shall have given the notice referred to in this Section, each Pledgor have the exclusive power to exercise all voting and other consensual rights with respect to any Capital Stock (including any of the Pledged Shares) constituting Collateral and the Collateral Agent shall, upon the written request of such Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by such Pledgor, and which are necessary to allow such Pledgor to exercise such powers with respect to any such share of Capital Stock (including any of the Pledged Shares) constituting Collateral; provided, however, that no vote shall be cast, or consent, waiver or ratification given, or action taken by any Pledgor that would materially impair the value of any Collateral or be inconsistent with or violate any provision of the Indenture, the Senior Secured Notes or this Pledge Agreement. -8- 9 ARTICLE V. THE COLLATERAL AGENT SECTION 5.1. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor hereby irrevocably appoints the Collateral Agent as such Pledgor's attorney-in-fact, with full authority and in the name, place and stead of the Pledgor or in its own name, from time to time in the Collateral Agent's discretion, to take, upon the occurrence and during the continuance of an Event of Default, any action and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) to ask, demand, collect, sue for, recover, compromise and receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) to file any claims or take any action or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral. SECTION 5.2. Authority of Collateral Agent. (a) The Collateral Agent shall have and be entitled to exercise all powers hereunder that are specifically granted to the Collateral Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder or in connection with the Pledged Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. Neither the Collateral Agent nor any director, officer, employee, attorney or agent of the Collateral Agent shall be responsible for the validity, effectiveness or sufficiency hereof or of any document or security furnished pursuant hereto. The Collateral Agent and its directors, officers, employees, attorneys and agents shall be entitled to rely on any communication, instrument or document reasonably believed by it or them to be genuine and correct and to have been signed or sent by the proper person or persons. (b) Each Pledgor acknowledges that the rights and responsibilities of the Collateral Agent under this Pledge Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Collateral Agent and the Holders of the Senior Secured Notes, be governed by the Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and each and any Pledgor, the Collateral Agent shall be conclusively presumed to be acting as agent for the Holders of the Senior Secured Notes -9- 10 with full and valid authority so to act or refrain from acting, and each Pledgor shall not be obligated or entitled to make any inquiry respecting such authority. SECTION 5.3. Resignation or Removal of the Collateral Agent. Until such time as the Obligations shall have been paid in full, the Collateral Agent may at any time, by giving written notice to Pledgor, the Trustee (as defined in the Indenture) and the Holders of the Senior Secured Notes, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon (i) the appointment of a successor Collateral Agent and (ii) the acceptance of such appointment by such successor Collateral Agent. As promptly as practicable after the giving of any such notice, the Trustee (if the Trustee is not then acting as the Collateral Agent hereunder), or if the Trustee and the Collateral Agent are the same person or entity, the Holders of the Senior Secured Notes shall appoint a successor Collateral Agent, which successor Collateral Agent shall be reasonably acceptable to the Pledgors. If no successor Collateral Agent shall be appointed and shall have accepted such appointment within 90 days after the Collateral Agent gives the aforesaid notice of resignation, the Collateral Agent may apply to any court of competent jurisdiction to appoint a successor Collateral Agent to act until such time, if any, as a successor shall have been appointed as provided in this Section. Any successor so appointed by such court shall immediately and without further act be superseded by any successor Collateral Agent appointed by the Holders of the Senior Secured Notes, as provided in this Section. Simultaneously with its replacement as Collateral Agent hereunder, the Collateral Agent so replaced shall deliver to its successor all documents, instruments, certificates and other items of whatever kind (including, without limitation, the certificates and instruments evidencing the Collateral and all instruments of transfer or assignment) held by it pursuant to the terms hereof. Any Collateral Agent that has resigned shall be entitled to fees, costs and expenses to the extent incurred or arising, or relating to events occurring, before its resignation or removal. SECTION 5.4. Release; Termination of Agreement. (a) This Pledge Agreement shall terminate upon the earlier to occur of: (i) full and final payment and performance of the Obligations (and upon receipt by the Collateral Agent of the Pledgors' written certification that all such Obligations have been satisfied) and payment in full of all fees and expenses owing by the Pledgors to the Collateral Agent, (ii) the day of the Legal Defeasance of all of the Obligations pursuant to Section 8.02 of the Indenture (other than those surviving Obligations specified therein) or (iii) such other termination date as is provided by the Indenture. At such time, the Collateral Agent shall, at the request of any Pledgor, reassign and redeliver to such Pledgor all of the Collateral hereunder that has not been sold, disposed of, retained or applied by the Collateral Agent in accordance with the terms hereof. Such reassignment and redelivery shall be without warranty by or recourse to the Collateral Agent, except as to the absence of any prior assignments by the Collateral Agent of its interest in the Collateral, and shall be at the expense of such Pledgor. (b) Each Pledgor agrees that it will not, except as permitted by the Indenture, sell or dispose of, or grant any option or warrant with respect to, any of the Collateral; provided, however, that if any Pledgor shall sell any of the Collateral in accordance with the terms of the Indenture, the Collateral Agent shall, at the request of such Pledgor and -10- 11 subject to requirements of Section 10.03 of the Indenture, release the Collateral subject to such sale free and clear of the Lien under this Pledge Agreement. SECTION 5.5. Collateral Agent May Perform. If any Pledgor falls to perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by such Pledgor pursuant to Section 6.5 hereof. SECTION 5.6. Collateral Agent Has No Duty. The powers conferred on the Collateral Agent hereunder are solely to protect its interest (on behalf of the Holders of the Senior Secured Notes) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for the reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.7. Reasonable Care. The Collateral Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession, provided, however, the Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the relevant Pledgor reasonably requests in writing from time to time, but failure of the Collateral Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. If an Event or Event of Default has occurred and is continuing, the Collateral Agent shall not be required to comply with any request of any Pledgor with respect to the matters described in this Section. ARTICLE VI. REMEDIES SECTION 6.1. Certain Remedies. If an Event of Default shall have occurred and be continuing: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. Each Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten day's prior notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable -11- 12 notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Collateral Agent may (i) transfer all or any part of the Collateral into the name of the Collateral Agent or its nominee, with or without disclosing that such Collateral is subject to the Lien hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Collateral Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts or other writings in any Pledgor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral and (vi) execute (in the name, place and stead of any Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION 6.2. Securities Laws. If the Collateral Agent shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, each Pledgor agrees that, upon request of the Collateral Agent, such Pledgor will use commercially reasonable efforts to, at its own expense: (a) execute and deliver, and cause each issuer of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Collateral Agent, advisable to register such Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Collateral Agent, are necessary or advisable. all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; -12- 13 (b) use its best efforts to qualify the Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Collateral, as requested by the Collateral Agent; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law. Each Pledgor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Collateral Agent or the Holders of the Senior Secured Notes by reason of the failure by such Pledgor to perform any of the covenants contained in this Section and, consequently, agrees that, if such Pledgor shall fall to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Collateral Agent) of the Collateral on the date the Collateral Agent shall demand compliance with this Section. SECTION 6.3. Compliance with Restrictions. Each Pledgor agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Collateral Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority, and each Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Agent be liable nor accountable to any Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. Application of Proceeds. All cash proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon, all or any part of the Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as additional collateral security for, or then or at any time thereafter be applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 7.07 of the Indenture and, Section 6.5 below) in whole or in part by the Collateral Agent against, all or any part of the Obligations in such order as the Collateral Agent shall elect. Any surplus of such cash or other proceeds held by the Collateral Agent and remaining after the Satisfaction Date, shall be paid over to the applicable Pledgor or to whomsoever may be lawfully entitled to receive such surplus. The Pledgors shall remain liable on a joint and several basis for any deficiency. -13- 14 SECTION 6.5. Indemnity and Expenses. Each Pledgor hereby jointly and severally indemnifies and holds harmless the Collateral Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses or liabilities resulting from the Collateral Agent's gross negligence or wilful misconduct, and each Pledgor will pay to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Collateral Agent may incur, in each case, in connection with: (a) the administration of this Pledge Agreement, (b) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral, (c) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (d) the failure by any Pledgor to perform or observe any of the provisions hereof. ARTICLE VII. MISCELLANEOUS PROVISIONS SECTION 7.1. Security Agreement. This Pledge Agreement is a Security Agreement executed pursuant to the Indenture and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by any Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Collateral Agent (on behalf of the Holders of the Senior Secured Notes) and each Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of Collateral. The Collateral Agent may from time to time, at its option, and at the expense of the Pledgors, perform any act which any Pledgor agrees hereunder to perform and which such Pledgor shall fall to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Collateral Agent may from time to time take any other action which the Collateral Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and addressed, delivered or transmitted, if to any Pledgor, at the address or facsimile number of the Company provided for in the Indenture, and, if to the Collateral Agent, at Harris Trust Company of New York, Wall Street Plaza, 19th Floor, 88 Pine Street, New York, NY 10005, Telecopier No.: (212) 701-7664, Attn: Peter Morse, or as to any such party at such other address or facsimile number as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. Any -14- 15 notice, (a)(i) if mailed and properly addressed with postage prepaid or (ii) if properly addressed and sent by pre-paid courier service, shall be deemed given when such notice has been received or (b) if transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). SECTION 7.5. Heading. The various headings of this Pledge Agreement are inserted for convenience only, and shall not affect the meaning or interpretation of this Pledge Agreement or any provisions hereof. SECTION 7.6. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions of this Pledge Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 7.7. Governing Law. THIS PLEDGE AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS. SECTION 7.8. Counterparts. This Pledge Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original) and all of which shall constitute together but one and the same agreement. This Pledge Agreement shall become effective and binding upon any Pledgor when a counterpart hereof executed on behalf of such Pledgor shall have been received by the Collateral Agent. [Signatures commence on the following page] -15- 16 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. PLEDGORS: STERLING CHEMICALS, INC. By ---------------------------------------- Title: STERLING CANADA, INC. By ---------------------------------------- Title: COLLATERAL AGENT: HARRIS TRUST COMPANY OF NEW YORK, a New York corporation, as Collateral Agent By ---------------------------------------- Title: -16- 17 ATTACHMENT 1 to Pledge Agreement
NAME OF PLEDGOR Pledged Shares -------------- Issuer Capital Stock ------ -------------------------------------------------------------------------- Authorized % of Shares Outstanding Number of Shares Pledged Shares Shares ---------- ----------- ----------- ----------- Sterling Pulp Chemicals, Ltd. o Class A Special -- 43,685.127 65% 28,395.333 Sterling NRO Ltd. o Class A Special -- 73,714.994 65% 47,914.714 o Common 1000 1000 65% 650 Sterling Chemicals Marketing, Inc. 1000 1000 65% 650
-17- EX-4.16 17 A/B EXCHANGE REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.16 ================================================================================ A/B EXCHANGE REGISTRATION RIGHTS AGREEMENT DATED AS OF JULY 23, 1999 BY AND AMONG STERLING CHEMICALS, INC. CERTAIN OF ITS DOMESTIC SUBSIDIARIES AS GUARANTORS AND DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND CREDIT SUISSE FIRST BOSTON CORPORATION AS INITIAL PURCHASERS ================================================================================ 2 This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of July 23, 1999, by and among Sterling Chemicals, Inc., a Delaware corporation (the "COMPANY"), the domestic Subsidiaries of the Company set forth on Schedule A attached hereto (each a "GUARANTOR" and collectively, the "GUARANTORS"), and Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse First Boston Corporation (each an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of whom has agreed to purchase the Company's 12 3/8% Senior Secured Notes due 2006 (the "SERIES A NOTES") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the purchase agreement, dated July 19, 1999 (the "PURCHASE AGREEMENT"), by and among the Company, the Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Series A Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 3 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the indenture, dated July 23, 1999, between the Company and Harris Trust Company of New York, as Trustee, relating to the Series A Notes and the Series B Notes (the "INDENTURE"). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: ACT: The Securities Act of 1933, as amended. AFFILIATE: As defined in Rule 144 of the Act. BROKER-DEALER: Any broker or dealer registered under the Exchange Act. BUSINESS DAY: Any day on which commercial banks are not authorized or required to close in New York, New York. CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture. CLOSING DATE: The date hereof. COMMISSION: The Securities and Exchange Commission. CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Series B Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof, and (c) the delivery by the Company to the Registrar under the Indenture of 1 3 Series B Notes in the same aggregate principal amount as the aggregate principal amount of Series A Notes duly and validly tendered by Holders thereof pursuant to the Exchange Offer. CONSUMMATION DEADLINE: As defined in Section 3(b) hereof. EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. EXCHANGE OFFER: The exchange and issuance by the Company of a principal amount of Series B Notes (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Series A Notes that are duly and validly tendered by Holders in connection with such exchange and issuance. EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating to the Exchange Offer, including the related Prospectus. EXEMPT RESALES: The transactions in which the Initial Purchasers propose to sell the Series A Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act and pursuant to Regulation S under the Act. FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof. HOLDERS: As defined in Section 2 hereof. PROSPECTUS: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. RECOMMENCEMENT DATE: As defined in Section 6(d) hereof. REGISTRATION DEFAULT: As defined in Section 5 hereof. REGISTRATION STATEMENT: Any registration statement of the Company and the Guarantors relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. REGULATION S: Regulation S promulgated under the Act. RULE 144: Rule 144 promulgated under the Act. SERIES B NOTES: The Company's 12 3/8% Series B Senior Secured Notes due 2006 to be issued pursuant to the Indenture: (a) in the Exchange Offer or (b) as contemplated by Section 4 hereof. 2 4 SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof. SUSPENSION NOTICE: As defined in Section 6(d) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. TRANSFER RESTRICTED SECURITIES: Each (a) Series A Note, until the earliest to occur of (i) the date on which such Series A Note is exchanged in the Exchange Offer for a Series B Note which is entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (ii) the date on which such Series A Note has been disposed of in accordance with a Shelf Registration Statement (and the purchasers thereof have been issued Series B Notes), or (iii) the date on which such Series A Note is sold to the public pursuant to Rule 144 under the Act (or any successor rule thereof) and (b) Series B Note held by a Broker Dealer until the date on which such Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including the delivery of the Prospectus contained therein). SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "HOLDER") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company and the Guarantors shall: (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 60 days after the Closing Date (such 60th day being the "FILING DEADLINE"), (ii) use its best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 180 days after the Closing Date (such 180th day being the "EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Series B Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting (i) registration of the Series B Notes to be offered in exchange for the Series A Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. 3 5 (b) The Company and the Guarantors shall use their respective best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company and the Guarantors shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Series B Notes shall be included in the Exchange Offer Registration Statement. The Company and the Guarantors shall use their respective best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 Business Days thereafter (such 30th Business Day being the "CONSUMMATION DEADLINE"). (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. See the Shearman & Sterling no-action letter (available July 2, 1993). Because such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Series B Notes received by such Broker-Dealer in the Exchange Offer, the Company and the Guarantors shall permit the use of the Prospectus contained in the Exchange Offer Registration Statement by such Broker-Dealer to satisfy such prospectus delivery requirement. To the extent necessary to ensure that the prospectus contained in the Exchange Offer Registration Statement is available for sales of Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use their respective best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 6(a) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of one year from the Consummation Deadline or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company and the Guarantors shall provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers, promptly upon request, and in no event later than one Business Day after such request (if the request is received by 3 p.m. Central Time), at any time during such period. 4 6 SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Exchange Offer is not permitted by applicable law (after the Company and the Guarantors have complied with the procedures set forth in Section 6(a)(i) below) or (ii) any Holder of Transfer Restricted Securities shall notify the Company within 20 days following the Consummation Deadline that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer, (B) such Holder may not resell the Series B Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A Notes acquired directly from the Company or any of its Affiliates, then the Company and the Guarantors shall: (x) cause to be filed, on or prior to 30 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a)(ii) above (such earlier date being the "FILING DEADLINE"), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities, and (y) shall use their respective best efforts to cause such Shelf Registration Statement to become effective on or prior to the day that is 120 days after the Filing Deadline for the Shelf Registration Statement or, if later, the date by which the Exchange Offer Registration Statement would otherwise have been required to be declared effective if the obligation to file the Shelf Registration Statement had not arisen (such 120th day or later date, if applicable, being the "EFFECTIVENESS DEADLINE"). If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law (i.e., clause (a)(i) above), then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y) above. To the extent necessary to ensure that the Shelf Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a) and the other securities required to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and the Guarantors shall use their respective best efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(b) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(c)(i)) following the Closing Date, or such shorter period as will terminate when (x) all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant thereto or (y) the only remaining Transfer Restricted Securities have been determined in good faith by the Company, after reasonable inquiry, to be eligible for resale under Rule 144(k); provided, however, that the Company shall not be obligated to keep the Shelf Registration 5 7 Statement effective if (i) the Company is required to file a post-effective amendment to such Shelf Registration Statement to incorporate audited financial information with respect to the Company or any of the Guarantors where such post-effective amendment needs to be declared effective to permit Holders to use the related Prospectus or (ii) the Company determines, in its reasonable judgment, upon advice of counsel, that the continued effectiveness and usability of the Shelf Registration Statement would (A) require the disclosure of material information that the Company has a bona fide business reason for keeping confidential or (B) interfere with any merger, sale of all or substantially all of the assets, or material financing, acquisition or disposition involving the Company or any of its direct or indirect Subsidiaries or its parent which the Company has a bona fide business reason for keeping confidential; provided that the failure to keep the Shelf Registration Statement effective and usable for offers and sales of Series A Notes for such reasons shall last no longer than 30 days in any 12-month period (whereafter Liquidated Damages shall accrue and be payable) (the period during which the Company is excused from keeping the Shelf Registration Statement effective and usable, a "SUSPENSION PERIOD"). (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof, and liquidated damages shall not accrue with respect to any Transfer Restricted Securities of such Holder, unless and until two Business Days after such Holder shall have provided all such information. Each selling Holder of Transfer Restricted Securities agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the Consummation Deadline or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose (except during any Suspension Period) without being succeeded within five days by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective within such five day period (each such event referred to in clauses (i) through (iv), a "REGISTRATION Default"), then the Company and the Guarantors hereby jointly and severally agree to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer 6 8 Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Company and the Guarantors shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. Notwithstanding the fact that any securities for which liquidated damages are due cease to be Transfer Restricted Securities and thereafter cease to accrue liquidated damages, all obligations of the Company and the Guarantors to pay accrued liquidated damages with respect to such securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company and the Guarantors shall (x) comply with all applicable provisions of Section 6(c) below, (y) use their respective best efforts to effect such exchange and to permit the resale of Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of its market making activities or other trading activities (other than Series A Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and (z) comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company and the Guarantors hereby agree to seek a no-action letter or other favorable decision from the Commission allowing the Company and the Guarantors to Consummate an Exchange Offer for such Transfer Restricted Securities. The Company and the Guarantors hereby agree to pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company and the Guarantors hereby agree to take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by 7 9 counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker-Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company and the Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Series B Notes to be issued in the Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary course of business. As a condition to its participation in the Exchange Offer each Holder using the Exchange Offer to participate in a distribution of the Series B Notes shall acknowledge and agree that, if the resales are of Series B Notes obtained by such Holder in exchange for Series A Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall provide a supplemental letter to the Commission (A) stating that the Company and the Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that neither the Company nor any Guarantor has entered into any arrangement or understanding with any Person to distribute the Series B Notes to be received in the Exchange Offer and that, to the best of the Company's and each Guarantor's information and belief, each Holder participating in the Exchange Offer is acquiring the Series B Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Series B Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Guarantors shall: (i) comply with all the provisions of Section 6(c) below 8 10 and use their respective best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company and the Guarantors will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof, and (ii) issue, upon the request of any Holder or purchaser of Series A Notes covered by any Shelf Registration Statement contemplated by this Agreement, Series B Notes having an aggregate principal amount equal to the aggregate principal amount of Series A Notes sold pursuant to the Shelf Registration Statement and surrendered to the Company for cancellation; the Company shall register Series B Notes on the Shelf Registration Statement for this purpose and issue the Series B Notes to the purchaser(s) of securities subject to the Shelf Registration Statement in the names as such purchaser(s) shall designate. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company and the Guarantors shall: (i) use their respective best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company and the Guarantors shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use their respective best efforts to cause such amendment to be declared effective as soon as practicable; (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise each Initial Purchaser who is required to deliver a prospectus in connection with sales or market making activities (an "AFFILIATED MARKET MAKER") and, in the case of a Shelf Registration Statement, each Holder of securities covered thereby, promptly and, if requested by any such Affiliated Market Maker or Holder, confirm such 9 11 advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes and (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company and the Guarantors shall use their respective best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an 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; (v) furnish to the Initial Purchasers and, in the case of a Shelf Registration Statement, each Holder of securities covered thereby, in connection with such exchange or sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of the Initial Purchasers and such Holders in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which the Initial Purchasers and such Holders shall reasonably object within five Business Days after the receipt thereof. An Initial Purchaser or a Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a 10 12 material fact or omits to state any material fact necessary to make the statements therein not misleading or fails to comply with the applicable requirements of the Act; (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to the Initial Purchasers and, in the case of a Shelf Registration Statement, each Holder of securities covered thereby, in connection with such exchange or sale, if any, make the Company's and the Guarantors' representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as the Initial Purchasers or such Holders may reasonably request; (vii) make available, at reasonable times, for inspection by the Initial Purchasers and, in the case of a Shelf Registration Statement, each Holder of securities covered thereby, and any attorney or accountant retained by such Holders, all relevant financial and other records, pertinent corporate documents of the Company and the Guarantors and cause the Company's and the Guarantors' officers, directors and employees to supply all information reasonably requested by any such Holder, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; provided, however, that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such persons unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally through a third party without an accompanying obligation of confidentiality; provided further, that the foregoing investigation shall be coordinated on behalf of such persons by one representative designated by and on behalf of such persons and any such confidential information shall be available from such representative so long as any such person agrees to be bound by such confidentiality agreement, provided further, that if any Holder determines, in good faith, that (i) it has a conflict of interest with such designated representative or otherwise concludes it would be inappropriate for such representative to act on its behalf or (ii) the investigation by such designated representative on behalf of such Holder would violate such Holder's internal procedures, then such Holder shall be permitted to conduct an independent inspection of the Company. (viii) if requested by any Initial Purchaser and, in the case of a Shelf Registration Statement, any Holder of securities covered thereby, in connection with such exchange or sale, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Holder may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to the Initial Purchasers, and in the case of a Shelf Registration Statement, each Holder of securities covered thereby, in connection with such exchange or 11 13 sale, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each Holder without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Holder reasonably may request; the Company and the Guarantors hereby consent to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each selling Holder in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by (A) any Initial Purchaser (without regard to the principal amount of the Transfer Restricted Securities held) or (B) in the case of a Shelf Registration Statement, the Holders of 33 1/3% in aggregate principal amount of the Transfer Restricted Securities covered thereby (the "REQUISITE HOLDERS"), in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection, the Company and the Guarantors shall: (A) upon request of any Initial Purchaser (in the case of an Exchange Offer) or the Requisite Holders (in the case of a Shelf Registration Statement), furnish (or in the case of paragraphs (2) and (3), use its best efforts to cause to be furnished) to each Holder, upon Consummation of the Exchange Offer or upon the effectiveness of the Shelf Registration Statement, as the case may be: (1) a certificate, dated such date, signed on behalf of the Company and each Guarantor by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company and such Guarantor, confirming, as of the date thereof, the matters set forth in Sections 6(aa), 9(a) and 9(b) of the Purchase Agreement and such other similar matters as such Holders may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company and the Guarantors covering matters similar to those set forth in paragraph (e) of Section 9 of the Purchase Agreement and such other matter as such Holder may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and the Guarantors, representatives of the independent public accountants for the Company and the Guarantors and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises 12 14 that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Company and the Guarantors) and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration Statement, as of the date of Consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of Consummation of the Exchange Offer, or as of the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(g) of the Purchase Agreement; and (B) deliver such other documents and certificates as may be reasonably requested by the selling Holders to evidence compliance with the matters covered in clause (A) above and with any customary conditions contained in the any agreement entered into by the Company and the Guarantors pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that neither the Company nor any Guarantor shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; 12 15 (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xiv) use their respective best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xv) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvi) otherwise use their respective best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xvii) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use their respective best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xviii)provide promptly to each Holder, upon request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated 14 16 by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's and the Guarantors' performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Series B Notes to be issued in the Exchange Offer and printing of Prospectuses, messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, the Guarantors and as provided in Section 7(b) hereof, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the Series B Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its and the Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Guarantors. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company and the Guarantors will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Series A Notes in the Exchange Offer and/or selling or reselling Series A Notes or Series B Notes pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company and the Guarantors agree, jointly and severally, to indemnify and hold harmless each Holder, its directors, officers and each Person, if any, who controls such Holder 15 17 (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities and judgments, (including without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Series B Notes or registered Series A Notes, or caused by any 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 were made) not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders; provided, however, that the foregoing indemnity agreement with respect to any Registration Statement, preliminary prospectus or Prospectus shall not inure to the benefit of any Holder or its directors, officers or persons who control such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) who failed to deliver a final Prospectus (as then amended or supplemented, provided by the Company to the several Holders in the requisite quantity and on a timely basis to permit proper delivery on or prior to written confirmation of such sale) to the person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in the final Prospectus and it shall have been determined that such person would not have incurred such losses, claims, damages and liabilities and judgments had the final Prospectus been delivered. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, and their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company or the Guarantors to the same extent as the foregoing indemnity from the Company and the Guarantors set forth in section (a) above, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement, preliminary prospectus or Prospectus. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party shall assume the defense of such 16 18 action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company and Guarantors, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by 17 19 clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company and the Guarantors, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Guarantor, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include, subject to the limitations set forth in Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company, the Guarantors and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder, its directors, its officers or any Person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds the amount of any damages which such Holder has 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 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. SECTION 9. RULE 144A AND RULE 144 The Company and each Guarantor agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings 18 20 required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 10. MISCELLANEOUS (a) Remedies. The Company and the Guarantors acknowledge and agree that any failure by the Company and/or the Guarantors to comply with their respective obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's and the Guarantors' obligations under Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any Guarantor will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any Guarantor has previously entered into any agreement granting any current or future registration rights with respect to its securities to any Person, except the registration rights granted pursuant to the Warrant Agreement dated December 15, 1998, the Warrant Agreement dated August 15, 1996, the Registration Rights Agreement dated August 21, 1996, the Parent Pledge Agreement dated July 23, 1999 between Sterling Chemicals Holdings, Inc. and the CIT Group/Business Credit, Inc., as Administrative Agent and the Obligor Pledge Agreement dated July 23, 1999 among the Company, the Guarantors and the CIT Group/Business Credit, Inc., as Administrative Agent. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and the Guarantors' securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose Transfer Restricted Securities are being tendered pursuant to the Exchange Offer, and that does not affect directly or indirectly the rights of other Holders whose Transfer Restricted Securities are not being tendered pursuant to such Exchange Offer, may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. 19 21 (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company or the Guarantors, to: Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77002-4312 Telecopier No.: (713) 654-9507 Attention: David G. Elkins, Esq. With a copy to: Andrews & Kurth, L.L.P. 600 Travis, Suite 4200 Houston, Texas 77002-3090 Telecopier No.: (713) 220-4285 Attention: William Finnegan, Esq. All such notices and communications 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 receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. 20 22 (g) 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. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that 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. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 21 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. STERLING CHEMICALS, INC. ----------------------------------------- By: Name: Title: STERLING CHEMICALS ENERGY, INC. ----------------------------------------- By: Name: Title: STERLING CHEMICALS INTERNATIONAL, INC. ----------------------------------------- By: Name: Title: STERLING FIBERS, INC. ----------------------------------------- By: Name: Title: 22 24 STERLING CANADA, INC. ----------------------------------------- By: Name: Title: STERLING PULP CHEMICALS US, INC. ----------------------------------------- By: Name: Title: STERLING PULP CHEMICALS, INC. ----------------------------------------- By: Name: Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: ------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON CORPORATION By: ------------------------------- Name: Title: 23 25 SCHEDULE A Sterling Chemicals Energy, Inc. Sterling Chemicals International, Inc. Sterling Fibers, Inc. Sterling Canada, Inc. Sterling Pulp Chemicals US, Inc. Sterling Pulp Chemicals, Inc. 24 EX-4.17 18 SENIOR DEBT INTERCREDITOR AGREEMENT - 07/23/1999 1 EXHIBIT 4.17 SENIOR DEBT INTERCREDITOR AGREEMENT THIS SENIOR DEBT INTERCREDITOR AGREEMENT, dated as of July 23, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, this "Agreement"), between HARRIS TRUST COMPANY OF NEW YORK, as trustee (in such capacity, the "Trustee") on behalf of itself and the holders (collectively referred to as the "Holders") of the Senior Secured Notes (such capitalized term and all other capitalized terms not otherwise defined herein shall have the meanings set forth or incorporated in Article I) which are or may become Holders pursuant to the Senior Secured Note Indenture referred to below, and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent (in such capacity, the "Administrative Agent") on behalf of the Lenders party to the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, pursuant to the Revolving Credit Agreement, dated as of July 23, 1999 (as amended, supplemented, refinanced, amended and restated or otherwise modified from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals US, Inc., a Delaware corporation, Sterling Pulp Chemicals, Inc., a Georgia corporation, Sterling Fibers, Inc., a Delaware corporation, Sterling Chemicals Energy, Inc., a Delaware corporation, and Sterling Chemicals International, Inc., a Delaware corporation (the Company, together with each such Person, collectively, the "Borrowers", and each, individually, a "Borrower"), the various financial institutions as are or may become parties thereto (collectively, the "Lenders"), DLJ Capital Funding, Inc., as Syndication Agent for the Lenders, Credit Suisse First Boston, as Documentation Agent for the Lenders, and the Administrative Agent, the Lenders have extended commitments to make Credit Extensions thereunder; WHEREAS, certain of the Lenders have extended Fixed Assets Loan Commitments (the "Fixed Assets Lenders") pursuant to which Borrowings of Fixed Assets Loans will be made from time to time on and subsequent to the Closing Date but prior to the Fixed Assets Loan Commitment Termination Date; WHEREAS, pursuant to the Senior Secured Note Indenture, dated as of July 23, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Senior Secured Note Indenture"), between the Company and the Trustee, the Company will issue 12 3/8% Senior Secured Notes due 2006 (the "Senior Secured Notes") for gross cash proceeds of $295,000,000; WHEREAS, as security for the Fixed Assets Obligations, the Borrowers and Parent have each executed and delivered the relevant Fixed Assets Security Documents to which they are a party pursuant to which the Borrowers and Parent assigned and pledged to the Administrative Agent for its benefit and the ratable benefit of each of the Fixed Assets Lenders, and granted to the Administrative Agent for 2 its benefit and the ratable benefit of each of the Fixed Assets Lenders, a first-priority security interest in all of the Fixed Assets Collateral and the Parent Collateral; WHEREAS, as security for the Senior Notes Obligations, the Borrowers have each executed and delivered the Senior Notes Collateral Documents pursuant to which the Borrowers assigned and pledged to the Trustee for its benefit and the ratable benefit of each of the Holders, and granted to the Trustee for its benefit and the ratable benefit of each of the Holders, a first-priority security interest in all of the Senior Notes Collateral and a second-priority security interest in all of the Fixed Assets Collateral; WHEREAS, in order to perfect the security interests in the Collateral, each of the Administrative Agent (on behalf of itself and the Fixed Assets Lenders) and the Trustee (on behalf of itself and the Holders) will file financing statements under the U.C.C. (with the Fixed Assets Lenders making such filings prior to any filings of the Trustee on behalf of the Holders) and file certain mortgages, deeds of trust, security agreements and/or pledge agreements and take such other actions as each such Secured Parties' Representative may deem necessary or desirable to perfect the security interests granted to the applicable Secured Parties by the Borrowers pursuant to the applicable Collateral Documents; and WHEREAS, the Secured Parties desire to agree to the relative priority of their respective security interests in the Collateral, and certain other rights, priorities and interests as between themselves; NOW, THEREFORE, in consideration of the premises and other covenants set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I Definitions SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. "Agreement" is defined in the preamble. "Applicable Agreement" means, as the context requires, the Fixed Assets Security Documents, the Senior Notes Collateral Documents, the Credit Agreement and the Senior Secured Note Indenture. -2- 3 "Borrower" and "Borrowers" are defined in the first recital. "Collateral" means, collectively, the Fixed Assets Collateral, the Senior Notes Collateral and the Parent Collateral. "Collateral Documents" means, collectively, the Fixed Assets Security Documents and the Senior Notes Collateral Documents. "Company" is defined in the first recital. "Credit Agreement" is defined in the first recital. "Enforcement" means the taking by the Administrative Agent, on behalf of the Fixed Assets Lenders, of any action to repossess any of the Fixed Assets Collateral or to commence judicial or nonjudicial enforcement of any of their respective rights and remedies with respect to the Fixed Assets Collateral. "Fixed Assets Collateral" means all "Collateral" as such term is defined in each Fixed Assets Security Document including, without limitation, the real property, fixtures and equipment of the Borrowers and the pledge by certain Borrowers of the Capital Securities of certain Subsidiaries. "Fixed Assets Lenders" is defined in the second recital. "Fixed Assets Obligations" means all obligations of every kind and nature (including without limitation, principal, fees, interest (including interest which accrues after or would accrue but for the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrowers) expenses, indemnities and all other sums chargeable to the Borrowers) (monetary or otherwise, whether absolute or contingent, matured or unmatured) of the Borrowers and each other Obligor arising under or in connection with the Fixed Assets Loans, the Credit Agreement and each other Loan Document which secures or guarantees such obligations (including obligations under a Rate Protection Agreement where the counterparty is a Fixed Assets Lender (or its Affiliate)), in each case, to the extent such obligations are owed to any Fixed Assets Secured Party. "Fixed Assets Security Documents" means the Fixed Assets Security Agreement, the Obligor Pledge Agreement, the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of July 23, 1999, among Sterling Fibers, Inc. and The CIT Group/Business Credit, Inc. (with respect to Florida property), Leasehold Deed to Secure Debt, Assignment and Security Agreement, dated as of July 23, 1999, among Sterling Pulp Chemicals, Inc., The CIT Group/Business Credit, Inc. and U.S. Bank Trust National Association as Georgia co-agent (with respect to Georgia Property), and Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of July 23, 1999, among Sterling Chemicals, Inc. and The CIT Group/Business Credit, Inc. (with respect to Texas property), and each other agreement pursuant to which the Administrative Agent is -3- 4 granted a Lien to secure the Fixed Assets Obligations and each other agreement, certificate, document or instrument delivered in connection with any of the foregoing, whether or not specifically mentioned herein or therein. "Holders" is defined in the preamble. "Lenders" is defined in the first recital. "Liquidation Proceeds" means the net proceeds received or receivable in respect of any sale, exchange, transfer, liquidation, collection or other disposition of any Fixed Assets Collateral which is not made in the ordinary course of the Borrowers' business. "Obligations" means, collectively, the Fixed Assets Obligations and the Senior Notes Obligations. "Parent Collateral" means the "Collateral" as defined in the Parent Pledge Agreement, dated as of July 23, 1999, between the Parent and the Administrative Agent on behalf of the Fixed Assets Secured Parties, relating to the pledge by the Parent of 100% of the outstanding Capital Securities of the Company to secure the Fixed Assets Obligations. "Secured Parties" means, collectively or individually (as the case may be), the Fixed Assets Secured Parties and the Senior Notes Secured Parties. "Secured Parties' Representative" means, collectively or individually (as the case may be), the Administrative Agent and the Trustee. "Senior Notes Canadian Pledge Agreement" means the Senior Notes Canadian Pledge Agreement, dated as of July 23, 1999, between Sterling Canada, Inc. and the Trustee, relating to the pledge by Sterling Canada, Inc. of 65% of its ownership interests in Sterling Pulp Chemicals, Ltd., an Ontario company, and Sterling NRO, Ltd., an Ontario company, to secure the Senior Notes Obligations. "Senior Notes Collateral" means all "Collateral" as such term is defined in Senior Notes Canadian Pledge Agreement. "Senior Notes Collateral Documents" means the Stock Pledge and Security Agreement, dated as of July 23, 1999, among Sterling Chemicals, Inc., Sterling Canada, Inc., Sterling Pulp Chemicals, US, Inc., and Harris Trust Company of New York (with respect to US subsidiaries), Stock Pledge and Security Agreement, dated as of July 23, 1999, among Sterling Chemicals, Inc., Sterling Canada, Inc., and Harris Trust Company of New York (with respect to foreign subsidiaries), Security Agreement, dated as of July 23, 1999, among -4- 5 Sterling Chemicals, Inc., Sterling Pulp Canada, Inc., Sterling Pulp Chemicals, Sterling Pulp Chemicals, US, Inc., Sterling Fibers, Inc., Sterling Chemicals Energy, Inc., Sterling Chemicals International, Inc. and Harris Trust Company of New York, Second Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of July 23, 1999, among Sterling Fibers, Inc. and Harris Trust Company of New York (with respect to Florida property), Leasehold Deed to Secure Debt, Assignment and Security Agreement, dated as of July 23, 1999, among Sterling Pulp Chemicals, Inc., Harris Trust Company of New York and U.S. Bank Trust National Association as Georgia co-agent (with respect to Georgia Property), and Second Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of July 23, 1999, among Sterling Chemicals, Inc. and Harris Trust Company of New York (with respect to Texas property). "Senior Notes Documents" means the Senior Secured Note Indenture, the Senior Secured Notes or any Senior Notes Collateral Document. "Senior Notes Obligations" means all obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of the Company and its Subsidiaries arising under or in connection with any Senior Notes Documents. "Senior Notes Secured Parties" means, collectively, the Holders and the Trustee. "Senior Secured Note Indenture" is defined in the third recital. "Senior Secured Notes" is defined in the third recital. "Trustee" is defined in the preamble. SECTION 1.2. Other Defined Terms. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3. U.C.C. Terms. Terms not otherwise defined herein which are defined in, or used in, the U.C.C. shall, unless the context indicates otherwise, be used in this Agreement as defined or used in the U.C.C. ARTICLE II Interests in the Collateral SECTION 2.1. Priorities. Notwithstanding the date or manner of, or order of perfection of the Secured Parties' respective security interests in and liens on the Collateral, and notwithstanding any provisions of the U.C.C., any applicable law or decision, or any Applicable Agreement, or whether any Secured Party has possession of all or any part of the Collateral, the following, as between the Secured Parties, shall be the relative priority of the security interests and liens of the Secured Parties in the Collateral: (a) with respect to Fixed Assets Collateral, the Fixed Assets Secured Parties' security interests in and liens on such Fixed Assets Collateral shall be senior and prior to the Senior -5- 6 Notes Secured Parties' security interest in and liens on such Fixed Assets Collateral in all respects; (b) with respect to the Parent Collateral and the Current Assets, the Senior Notes Secured Parties shall have no right, title or interest of any kind whatsoever in any such Parent Collateral or Current Assets; and (c) with respect to Senior Notes Collateral, the Fixed Assets Secured Parties shall have no right, title or interest of any kind whatsoever in any such Senior Notes Collateral. SECTION 2.2. Subordination. Each of the Senior Notes Secured Parties agrees that its security interest in and liens on the Fixed Assets Collateral shall be subordinated and junior in all respects to the Fixed Assets Secured Parties' security interests in and liens on all such Fixed Assets Collateral. ARTICLE III Exercise of Remedies; Enforcement SECTION 3.1. Enforcement Rights. (a) The Administrative Agent shall have the sole and exclusive right to sell, transfer or otherwise dispose of the Fixed Assets Collateral in any manner deemed necessary or appropriate by it without regard to the security interest or liens of the Senior Notes Secured Parties and without the Senior Notes Secured Parties' consent. The Trustee will, immediately upon the sale, transfer or other disposition of all or any part of the Fixed Assets Collateral by the Administrative Agent (including pursuant to any disposition of any Fixed Assets Collateral permitted under the Credit Agreement), release or otherwise terminate the security interests or liens of the Senior Notes Secured Parties in all such Fixed Assets Collateral, and the Trustee will immediately deliver U.C.C. termination statements (Form U.C.C.-3) or such other instruments as may be suitable or appropriate in connection therewith. (b) The Senior Notes Secured Parties acknowledge and agree that, with respect to any Enforcement commenced by the Administrative Agent in compliance with the provisions hereof, (I) the Senior Notes Secured Parties shall have no right to direct or participate in any aspect of such Enforcement, (ii) the time, place and manner of any such Enforcement and the price at which any of the Fixed Assets Collateral which is the subject of such Enforcement is liquidated, as well as all other details of such Enforcement, shall be determined solely in the discretion of the Administrative Agent, and (iii) the Senior Notes Secured Parties shall have no claim or action against the Administrative Agent with respect to any such Enforcement or with respect to the amount of Liquidation Proceeds realized as a result of any such Enforcement; provided, that such Enforcement complies, in all material respects with applicable law and the terms of this Agreement and each of the Applicable Agreements. (c) Each of the Senior Notes Secured Parties agrees that it shall not contest or support any other Person in contesting in any proceeding (including, in any bankruptcy, moratorium, -6- 7 reorganization or other insolvency proceeding) the legality, validity, binding effect, priority, enforceability or effectiveness of the Administrative Agent's and the Fixed Assets Secured Parties' first-priority, perfected security interest in and liens on any of the Fixed Assets Collateral. (d) For the sole purpose of perfecting the Secured Parties' security interest in and liens on the Fixed Assets Collateral pledged to the Administrative Agent pursuant to the Obligor Pledge Agreement (the "Stock"), the Administrative Agent shall maintain sole possession and control of such Stock for the benefit of the Fixed Assets Secured Parties and as agent for the Senior Notes Secured Parties. Nothing herein shall impose upon the Administrative Agent any duty or liability to the Senior Notes Secured Parties other than the duties expressly described in this clause (d) and Section 3.2. Upon the payment in cash in full of the Fixed Assets Obligations and the permanent termination of the Fixed Assets Loan Commitment, the Administrative Agent will deliver possession of the Stock to the Trustee unless the Trustee has previously provided the Administrative Agent with written notice that the Senior Notes Obligations have been indefeasibly paid in full. In no event shall the Administrative Agent have any liability to any Senior Notes Secured Party except for liability finally determined by a court of competent jurisdiction to have resulted solely from the Administrative Agent's gross negligence or willful misconduct. (e) The Senior Notes Secured Parties understand and agree that, so long as any Fixed Assets Obligations shall not have been paid in cash in full and until all commitments to make Credit Extensions under the Credit Agreement and the related Loan Documents shall have been fully and permanently terminated, the Administrative Agent shall accept directions only from the Fixed Assets Secured Parties. SECTION 3.2. Allocation of Liquidation Proceeds from any Disposition of Collateral. (a) Liquidation Proceeds derived from a disposition or collection of Fixed Assets Collateral shall be paid to the Administrative Agent for application, (i) first, to the Fixed Assets Obligations until the Fixed Assets Obligations are paid in full in cash, (ii) second, if any Liquidation Proceeds remain, to the Senior Notes Obligations, until the Senior Notes Obligations are paid in full, and (iii) third, if any Liquidation Proceeds remain, to the Borrowers or to such other Person which is entitled to such Liquidation Proceeds pursuant to applicable law. (b) Each of the Senior Notes Secured Parties agrees that if it receives Liquidation Proceeds of Fixed Assets Collateral to which it is not entitled pursuant to the terms of this Agreement, then such Senior Notes Secured Party shall promptly remit such proceeds to the Administrative Agent for application in accordance with clause (a) of this Section 3.2. For purposes of this Section 3.2, Liquidation Proceeds of Fixed Assets Collateral shall include proceeds of Fixed Assets Collateral received by any party hereto from any source whatsoever, including by means of setoff. SECTION 3.3. Senior Notes Secured Parties' Remedies. Each Senior Notes Secured Party agrees that it will not pursue any of the remedies provided under applicable law for by the terms of any Senior Notes Document that arise as a result of a default or event of default under such Senior Notes Document, unless and until the Administrative Agent declares the Fixed Assets Obligations to be due and payable or the Lenders and the Administrative Agent exercise their remedies -7- 8 (including foreclosure) under the Fixed Assets Security Document with respect to the Fixed Assets Collateral. SECTION 3.4. Extensions, Modifications, etc. Either of the Secured Parties may, without affecting the validity of this Agreement, extend the times of payment of any Indebtedness of any Borrower to such Secured Parties or modify any of the terms and conditions of any Applicable Agreement or any other document evidencing, securing or executed in connection with the Indebtedness which is the subject of either the Credit Agreement or the Senior Secured Note Indenture, as applicable, in any case in accordance with the Applicable Agreements, without the consent of the other Secured Parties and without giving notice thereof to the other Secured Parties. SECTION 3.5. Reservation of Rights. Any failure on the part of either of the Secured Parties to promptly exercise any right hereby given or reserved or given or reserved in any other document to which such Secured Parties are party or beneficiary shall not prevent the exercise of any such right at any time thereafter. Subject to Sections 3.2 and 3.3, each of the Secured Parties may pursue and enforce any remedy or remedies accorded herein independently of, or in conjunction or concurrently with or subsequent to, its pursuit and enforcement of any remedy or remedies which it may otherwise have against any Borrower. ARTICLE IV Certain Restrictions and Agreements SECTION 4.1. Marshaling; Foreclosure on Collateral. (a) Each of the Senior Notes Secured Parties (i) acknowledges that the Fixed Assets Obligations are secured by collateral other than the Fixed Assets Collateral, and (ii) agrees that none of the Fixed Assets Secured Parties shall have any obligation to marshall the assets of any Borrower or any other Person in which it has a security interest, before enforcing its rights in any Fixed Assets Collateral, and the Senior Notes Secured Parties shall have no rights whatsoever hereunder to share or participate in any proceeds of such other collateral. (b) The Trustee agrees that it will not file any U.C.C. financing statements (Form U.C.C.-1) or other similar financing statements or record any mortgages or deed of trust with respect to any of the Fixed Assets Collateral until such time as the Administrative Agent has filed its U.C.C. financing statements (Form U.C.C.-1) or other similar financing statements and recorded its mortgages with respect to such Fixed Assets Collateral and has notified the Trustee of the completion of such filings and recordations. SECTION 4.2. Accountings. At any time and from time to time after the commencement of an Enforcement with respect to any Fixed Assets Collateral, the Administrative Agent and the Trustee agree to provide to each other, upon written request, information as to the outstanding amount of any of the Obligations, the amount and identity of Liquidation Proceeds received by the Administrative Agent in respect of any Fixed Assets Collateral from any third Person and the -8- 9 application thereof, and such other information relating to the Fixed Assets Collateral as such party may reasonably request. SECTION 4.3. Notices of Defaults. The Administrative Agent and the Trustee each agree to give the other copies of any notice of the occurrence or existence of a Default or Event of Default which the Administrative Agent or the Trustee, as the case may be, sends to the Company, simultaneously with the sending of such notice to the Company, but the failure to do so shall not affect the validity of such notice or create a cause of action against the party failing to give such notice or create any claim or right on behalf of any third party. The sending of such notice shall not give the recipient the obligation to cure such default. SECTION 4.4. Insurance; Condemnation Proceeds. Notwithstanding anything to the contrary herein, with respect to policies which insure the Fixed Assets Collateral, if, pursuant to the Applicable Agreements, the Borrowers are is required to obtain satisfactory loss payable endorsements naming the Fixed Assets Secured Parties and the Senior Notes Secured Parties, as their interests may appear, as loss payees, or with such other designation as the parties hereto may agree, the Administrative Agent shall, subject to the Administrative Agent's rights under the Applicable Agreements, have the sole exclusive right, as against the Senior Notes Secured Parties, to effect settlement of such insurance policy in the event of any loss to any Fixed Assets Collateral. All proceeds of such policy shall be paid to the Administrative Agent (for its own account and the account of the Fixed Assets Lenders). The Administrative Agent shall apply the proceeds of such policy in accordance with clause (a) of Section 3.2. SECTION 4.5. U.C.C. Notices. In the event the Administrative Agent shall be required by the U.C.C. or any other applicable law to give notice to the Trustee of an intended disposition of any portion of the Fixed Assets Collateral, such notice shall be given in accordance with Section 5.2, and five days' notice shall be deemed to be commercially reasonable. The execution of this Agreement by each of the Administrative Agent, on behalf of the Fixed Assets Secured Parties, and the Trustee, on behalf of the Senior Notes Secured Parties, shall be deemed to be each Secured Parties' notice to the other of a claim of an interest in the Fixed Assets Collateral for the purposes of Section 9-505 of the U.C.C. SECTION 4.6. Assignment of Agreement or Claim. The Trustee hereto agrees that it will not sell, transfer, assign or otherwise dispose of all or any part of the Senior Notes Obligations, or any notes, instruments or agreements evidencing such Senior Notes Obligations, or any of its interest in any of the foregoing, unless, prior to any such sale, transfer, assignment or other disposition, (i) such purchaser or transferee shall agree, in writing, to be bound by the terms of this Agreement and (ii) any document, instrument or agreement evidencing all or any part of the Senior Notes Obligations, is marked with the following legend: NOTICE: THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A CERTAIN INTERCREDITOR AGREEMENT, DATED AS OF JULY 23, 1999, BETWEEN HARRIS TRUST COMPANY OF NEW YORK, AS TRUSTEE AND HOLDERS REPRESENTATIVE ON BEHALF OF ITSELF AND CERTAIN OTHER HOLDERS OF -9- 10 THE SENIOR SECURED NOTES AND THE CIT GROUP/BUSINESS CREDIT, INC., AS ADMINISTRATIVE AGENT ON BEHALF OF ITSELF AND THE LENDERS. SECTION 4.7. Independent Credit Investigations. No party to this Agreement, nor any directors, officers, agents or employees of any party to this Agreement, shall be responsible to any other party to this Agreement or to any other Person, for the Company's or the other Borrowers' solvency, financial condition or ability to repay any of the Obligations, or any lien or security interests granted by the Borrowers or Parent to either of the Secured Parties in connection therewith. Each of the parties hereto has entered into its respective financing agreements with the Borrowers based upon its own independent investigation, and makes no warranty or representation to the others nor does it rely upon any representation of any other party hereto with respect to matters identified or referred to in this Section 4.7. SECTION 4.8. Representations and Warranties of the Parties to Each Other. Each party hereto warrants and represents to the other parties hereto that: (a) it has full right, power and authority to enter into this Agreement; (b) its execution and delivery of this Agreement does not and will not constitute a breach of or default under any provision contained in its certificate of incorporation, by-laws, certificate of formation and/or any similar arrangements applicable to any of such party's capital, or any agreement to which it is a party or by which it is bound; (c) this Agreement, when executed and delivered by such party, shall constitute the legal, valid and binding obligation of such party enforceable against it in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by principles of equity); and (d) its execution and delivery hereof and performance hereunder does not and will not violate any applicable law. ARTICLE V Miscellaneous SECTION 5.1. Loan Documents. This Agreement does not modify the respective duties and rights of the Administrative Agent and the Lenders to one another under the Credit Agreement and the other Loan Documents. SECTION 5.2. Notices. All notices, requests and other communications provided to any party hereto under this Agreement shall be in writing or by facsimile and addressed, delivered or transmitted -10- 11 (a) If to the Administrative Agent: The CIT Group/Business Credit, Inc. Two Lincoln Center 5420 LBJ Freeway, Suite 200 Dallas, Texas 75240 Attention: R. Grant Weiss Facsimile: 972-455-1690 (b) If to the Trustee: Harris Trust Company of New York Wall Street Plaza 19th Floor 88 Pine Street New York, New York 10005 Attention: Peter Morse Facsimile: (212) 701-7664 Any notice, if (i) (x) mailed and properly addressed with postage prepaid or (y) properly addressed and sent by pre-paid courier service, shall be deemed given when received, or (ii) transmitted by facsimile, shall be deemed given when transmitted (and telephonic confirmation of receipt thereof has been received). SECTION 5.3. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5.4. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original (whether such counterpart is originally executed or an electronic copy of an original and each party hereto expressly waives its rights to receive originally executed documents) and all of which shall constitute together but one and the same agreement. This Agreement shall become effective as of the date first above written when counterparts hereof executed on behalf of each of the parties hereto shall have been received by each of the parties hereto. SECTION 5.5. Successors and Assigns. This Agreement is a continuing agreement of subordination and the Fixed Assets Secured Lenders may, from time to time and without notice to the Senior Notes Secured Lenders, extend credit to or make other financial arrangements with the Borrowers in reliance hereon. This Agreement shall (a) remain in full force and effect until the Fixed Assets Obligations shall have been paid in cash in full and all commitments to make Credit Extensions thereunder have been permanently terminated, and notwithstanding the occurrence of any insolvency event (it being understood and agreed that the provisions of this Agreement shall continue in full force and effect after the filing of any bankruptcy case and during the pendency of -11- 12 any insolvency event), (b) be binding upon the Senior Notes Secured Parties, the Borrowers, and their respective successors, transferees and assigns, and (c) inure to the benefit of and be enforceable by the Administrative Agent and each Fixed Assets Secured Party and their respective successors, transferees and assigns. This Agreement shall be binding upon and shall inure to the benefit of each of the Secured Parties and their respective successors and assigns. To the extent the Credit Agreement is amended, supplemented, refinanced, amended and restated or otherwise modified at any time, and/or the Fixed Assets Obligations are refinanced, whether by the Administrative Agent, the Fixed Assets Lenders or any unrelated third party, such refinancing indebtedness shall be entitled to the benefits hereof and this Agreement shall continue in full force and effect and shall inure to the benefit of each holder of such refinancing indebtedness and each party serving in a representative or fiduciary capacity under the documentation governing such refinancing indebtedness as if such refinancing indebtedness were the Fixed Assets Obligations on the date hereof and the holders, representatives and fiduciaries were the Fixed Assets Secured Parties on the date hereof. To the extent that Senior Notes Obligations are refinanced, such refinancing indebtedness shall be entitled to the benefits hereof and this Agreement shall continue in full force and effect and shall inure to the benefit of and be binding upon each holder of such refinanced indebtedness and each party serving in a representative or fiduciary capacity under the documentation governing such refinancing indebtedness as if such refinancing indebtedness were the Senior Notes Obligations on the date hereof and such holders, representatives and fiduciaries were the Senior Notes Secured Parties on the date hereof. In the event that either the Fixed Assets Obligations or the Senior Notes Obligations are refinanced, each of the parties agrees to execute any amendment to this Agreement which is reasonably required in order to more accurately describe such refinancing indebtedness, the holders thereof or the representatives or fiduciaries thereunder or to otherwise give full effect to the purpose and intent of this Section 5.5. SECTION 5.6. Waivers, Amendment, etc. The provisions of this Agreement may from time to time be amended, modified, or waived, if such amendment, modification or waiver is in writing and consented to by each of the Administrative Agent and the Trustee. SECTION 5.7. Fees and Expenses. The Senior Notes Secured Parties agree to pay, upon demand, to the Fixed Assets Secured Parties, any and all reasonable costs and expenses, including reasonable attorneys' fees and disbursements, which the Fixed Assets Secured Parties may incur in connection with the exercise or enforcement of any of the rights or interest of the Fixed Assets Secured Parties under this Agreement, by reason of (a) any breach by the Senior Notes Secured Parties of any of its obligations or agreements hereunder, (b) the taking of any actions by the Senior Notes Secured Parties challenging any of the provisions hereof or which are inconsistent with the terms hereof and (c) the failure of the Senior Notes Secured Parties to take any action required to be taken by it or requested to be taken by it, in each case pursuant to the terms of this Agreement, and the Borrowers, jointly and severally, agree to pay, upon demand, to the Administrative Agent, any and all reasonable costs and expenses, including reasonable attorneys' fees and disbursements, which the Administrative Agent may incur in connection with the exercise or enforcement of rights or interest of the Administrative Agent hereunder. -12- 13 SECTION 5.8. Termination of Agreement. This Agreement shall be effective and may not be terminated or otherwise revoked by any of the Secured Parties or any of their respective successors and assigns until the Termination Date. SECTION 5.9. No Rights for Third Parties. THIS AGREEMENT CONSTITUTES AN AGREEMENT AMONG AND FOR THE BENEFIT OF THE SECURED PARTIES ONLY, AND NOTHING CONTAINED HEREIN SHALL CONFER OR BE DEEMED TO CREATE ANY RIGHTS OR BENEFITS FOR THE BENEFIT OF ANY OTHER PARTY, AND ANY AMENDMENT, MODIFICATION OR WAIVER MAY BE MADE TO THIS AGREEMENT WITHOUT CONSENT OF, OR NOTICE TO, ANY OTHER PARTY OTHER THAN THE SENIOR NOTES SECURED PARTIES AND THE COMPANY. NO PARTY IS (OR SHALL BE DEEMED TO BE) A THIRD PARTY BENEFICIARY UNDER THIS AGREEMENT. SECTION 5.10. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING THE LAW OF CONFLICTS BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. This Agreement constitutes the entire understanding among the parties hereto with respect to the subject matter hereof and supersedes any prior agreements, written or oral, with respect thereto. SECTION 5.11. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THE PARTIES HERETO THAT IS BROUGHT IN THE STATE OF NEW YORK SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY FIXED ASSETS COLLATERAL MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH FIXED ASSETS COLLATERAL MAY BE FOUND. SECTION 5.12. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER OF THE PARTIES HERETO. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE OTHER PARTY HERETO TO ENTER INTO THIS AGREEMENT. -13- 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. THE CIT GROUP/BUSINESS CREDIT, INC., as Administrative Agent for the Fixed Assets Secured Parties By: --------------------------------------- Printed Name: ----------------------------- Title: ------------------------------------ HARRIS TRUST COMPANY OF NEW YORK, as Trustee and on behalf of the Holders of the Senior Secured Notes By: --------------------------------------- Printed Name: ----------------------------- Title: ------------------------------------ ACKNOWLEDGED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN: STERLING CHEMICALS, INC., on behalf of itself and each other Borrower By: --------------------------------------- Printed Name: ----------------------------- Title: ------------------------------------ -14- EX-4.18 19 AMENDMENT OF INTERCREDITOR AGREEMENT - 07/23/1999 1 EXHIBIT 4.18 AMENDMENT OF INTERCREDITOR AGREEMENT THIS AMENDMENT OF INTERCREDITOR AGREEMENT (this "Amendment"), dated as of July 22, 1999, among CHASE BANK OF TEXAS, N.A. (formerly known as Texas Commerce Bank National Association), as Administrative Agent (the "Administrative Agent"), STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as Trustee (in such capacity, the "Trustee"). PRELIMINARY STATEMENTS A. The Company and Fleet National Bank, as Trustee, (the "Initial Trustee"), entered into that certain Indenture dated as of August 15, 1996 (as heretofore amended, the "Indenture") providing, among other things, for the issuance of the Company's 13 1/2% Senior Secured Discount Notes Due 2008 in the aggregate principal amount of $191,751,000 (the "Discount Notes"). Capitalized terms used but not defined herein shall have the meanings specified for such terms in the Indenture. B. The Trustee has prior to the date hereof replaced the Initial Trustee as the Trustee under the Indenture. C. On June 21, 1996, STX Chemicals Corp., a Delaware corporation and a wholly-owned subsidiary of the Company that is now known as Sterling Chemicals, Inc. ("Chemicals"), and certain of its Affiliates entered into that certain Credit Agreement (as heretofore amended, the "Credit Agreement") dated as of June 21, 1996 with the Administrative Agent, and the Lenders named therein, pursuant to which, among other things, the Lenders named therein committed to lend Chemicals an aggregate amount of up to $456,500,000. In connection with the Credit Agreement and the Indenture, the Administrative Agent and the Initial Trustee entered into that certain Intercreditor Agreement dated as of August 21, 1996 (the "Intercreditor Agreement"). D. The Company and its Restricted Subsidiaries plan to refinance the indebtedness outstanding under the Credit Agreement by, among other things, incurring indebtedness under a new Revolving Credit Agreement, dated as of July 23, 1999 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "New Credit Agreement"), to be entered into among Chemicals, certain other Wholly Owned Subsidiaries of the Company, the various financial institutions from time to time parties thereto (the "New Lenders"), the CIT Group/Business Credit, Inc., as the Administrative Agent (the "New Administrative Agent"), Credit Suisse First Boston, as the Documentation Agent, and DLJ Capital Funding, Inc., as the Syndication Agent, pursuant to which Chemicals or any such Wholly Owned Subsidiary could borrow, on a revolving credit basis, up to $155,000,000 under (A) an 2 $85,000,000 revolving credit facility secured by the accounts receivable and inventory of Chemicals and such Wholly Owned Subsidiaries (the "Working Capital Revolver") and (B) a $70,000,000 revolving credit facility which would be secured by a first priority pledge on the fixed assets and capital stock of Chemicals and such Wholly Owned Subsidiaries (the "Fixed Assets Revolver") and the Amendment is a condition precedent to the making of loans under, and the effectiveness of, the New Credit Agreement. E. Pursuant to Section 10.01 of the Indenture, the Company and the Trustee may amend or supplement the Intercreditor Agreement, without the consent of any Holder of a Discount Note, to, among other things, cure any ambiguity, omission, defect or inconsistency. F. The Company has determined that the Intercreditor Agreement contains certain ambiguities, omissions, defects and/or inconsistencies with respect to the ability of the Company to secure any refinancing of the Lender Liabilities (as defined in the Intercreditor Agreement) with a pledge of Collateral (as defined in the Intercreditor Agreement) having the same priority as the priority of the security interest in the Collateral held by the Lenders under the Credit Agreement. G. Pursuant to Section 10.01 of the Indenture, upon the request of the Company accompanied by a resolution of the Board of Directors authorizing the execution of an amendment of the Intercreditor Agreement, and upon receipt of certain documents by the Trustee, the Trustee is required to join in the execution of any amendment of the Intercreditor Agreement authorized or permitted by the terms of the Indenture. H. The Board of Directors of the Company has authorized the execution of this Amendment and, simultaneously with and as a condition to the execution of this Amendment by the Trustee, the Company is delivering to the Trustee resolutions of the Board of Directors authorizing the execution of this Amendment and an Officer's Certificate and Opinion of Counsel, each in the form required by the Indenture and satisfactory to the Trustee. I. All acts and things necessary to make the Intercreditor Agreement, as amended hereby, a valid, binding and legal agreement according to its terms have been done and performed. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company covenants and agrees with the Administrative Agent and the Trustee, for the equal and proportionate benefit of the respective Holders from time to time of the Discount Notes, as follows: -2- 3 ARTICLE I Amendment of Intercreditor Agreement Section 1.01. Amendments of Intercreditor Agreement. The Intercreditor Agreement is hereby amended so that: (a) each term contained in the Intercreditor Agreement (or incorporated therein by reference) which describes, defines or pertains or relates to any form of indebtedness or liability under the Credit Agreement or any other Loan Document (as defined in the Intercreditor Agreement) (including, but not limited to, the definitions of "Lender Liabilities" and "Commitments") shall, for all purposes of the Intercreditor Agreement, also include any indebtedness or liabilities of the Company and its Restricted Subsidiaries at any time and from time to time issued or incurred (i) to refinance, extend, renew, rearrange, refund, repay, redeem, defease, retire or replace the indebtedness or liabilities under the Credit Agreement or any other Loan Document (including any indebtedness or liabilities under the Fixed Assets Revolver) or (ii) in connection with any subsequent refinancing, extension, renewal, rearrangement, refunding, repayment, redemption, defeasance, retirement or replacement of any such indebtedness or liabilities referred to in clause (i) or this clause(ii) (the indebtedness and liabilities referred to clauses (i) and (ii) above, collectively, "Refinancing Debt"); provided that, in no event shall the aggregate indebtedness under any Refinancing Debt at any time outstanding exceed $456,500,000; (b) each term contained in the Intercreditor Agreement (or incorporated therein by reference) which describes, defines or pertains or relates to any document governing, evidencing or otherwise related to any indebtedness or liabilities under the Credit Agreement or any other Loan Document (including, but not limited to, the definitions of "Credit Agreement," "Loan Documents," Financing Documents" and "Lender Notes") shall, for all purposes of the Intercreditor Agreement, also include any document from time to time governing, evidencing or otherwise related to any Refinancing Debt (including the New Credit Agreement and the Parent Pledge Agreement, dated as of July 23, 1999 (the "Parent Pledge Agreement"), between the New Administrative Agent and the Company, as amended, supplemented, amended and restated or otherwise modified from time to time, to the extent that the same governs the Fixed Assets Revolver and the notes evidencing the indebtedness under the Fixed Assets Revolver); or (c) each term contained in the Intercreditor Agreement (or incorporated therein by reference) which describes, defines or pertains or relates to any person or entity from time to time serving in any capacity or holding any indebtedness or liabilities under the Credit Agreement or any Loan Document or holding any Collateral (as defined in the Intercreditor Agreement) (including, but not limited to, the definitions of "Administrative Agent," "Issuing Banks" and "Lenders") shall, for all purposes of the Intercreditor Agreement, also include any person or entity from time to time serving in any capacity or holding any indebtedness or liabilities under any document governing, evidencing or otherwise related -3- 4 to any Refinancing Debt (including the agents, issuers and lenders under the New Credit Agreement). Section 1.02. Effect of Amendments. Upon the effectiveness of this Amendment, (a) any and all indebtedness and liabilities under or pertaining to Refinancing Debt and any Collateral securing the same shall be entitled to the benefits, priorities and protection provided, or purported to be provided, by the Intercreditor Agreement to the same extent as if such indebtedness and liabilities were the original "Lender Liabilities" thereunder and the Collateral was Collateral for such original "Lender Liabilities", (b) any document governing, evidencing or otherwise related to any Refinancing Debt (including the New Credit Agreement to the extent that the same governs the Fixed Assets Revolver, the notes evidencing the indebtedness under the Fixed Assets Revolver and any security or pledge agreement granting or continuing any security interest in the Collateral to secure such indebtedness and any related liabilities) shall be entitled to the benefits, priorities and protection provided, or purported to be provided, by the Intercreditor Agreement to the same extent as if such documents were the original "Credit Agreement," "Loan Documents," "Financing Documents," "Lender Notes" and "Collateral" thereunder and (c) any person or entity serving in any capacity, holding any indebtedness under any document governing, evidencing or otherwise related to such Refinancing Debt or holding, directly or indirectly, any Collateral to secure such indebtedness (including the agents, issuers and lenders under the New Credit Agreement and the Parent Pledge Agreement) shall be entitled to the benefits, priorities and protection provided, or purported to be provided, by the Intercreditor Agreement to the same extent as if such persons and entities were the original "Administrative Agent," "Issuing Banks" and "Lenders" thereunder. Section 1.03. Effectiveness. This Amendment shall not be or become effective unless and until the parties hereto have executed and delivered this Agreement in the space provided below. Concurrently with the effectiveness of the New Credit Agreement, the Administrative Agent shall be directed to transfer the Collateral to the New Administrative Agent who shall hold such Collateral pursuant to the terms of the Intercreditor Agreement as amended. ARTICLE II The Trustee The Trustee hereby accepts the trusts declared and provided in this Amendment, upon the terms and conditions contained in the Indenture and Security Documents (including the Intercreditor Agreement) as supplemented. All of the provisions of the Indenture and the Intercreditor Agreement with respect to the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this Amendment as fully and with the same effect as if set forth herein in full. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Amendment, the authorization, or permissibility of this Amendment pursuant to the terms of the Indenture or the Intercreditor Agreement, the due execution hereof by the Company or for or in respect of the recitals or statements contained -4- 5 herein (other than the statements being made solely by the Company. The Trustee shall not be responsible in any manner to determine the correctness or provisions contained in this Amendment. ARTICLE III Effect of Execution and Delivery Hereof From time after and execution and delivery of this Amendment, (i) the Intercreditor Agreement shall be deemed to be modified as provided herein, (ii) this Amendment shall form a part of the Indenture and Security Documents (including the Intercreditor Agreement), (iii) except as modified by this Amendment, the Indenture and Security Documents (including the Intercreditor Agreement) shall continue in full force and effect, and (iv) every Holder of Discount Notes heretofore and hereafter authenticated and delivered under the Indenture shall be bound by this Amendment. ARTICLE IV Miscellaneous Provisions Section 4.01 Headings. The headings of the Articles and Sections of this Amendment have been inserted for convenience only, and shall not, for any reason, be deemed to be part of this Amendment and shall in no way modify or restrict any of the terms or provisions hereof. Section 4.02 Counterparts. This Amendment 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 in original form or by facsimile or other electronic means shall be an original, but all of which shall together constitute one and the same instrument. Section 4.03 Successors and Assigns. All agreements of the Company contained in this Amendment shall bind the Company and its successors. All agreements of the Trustee in this Amendment shall bind the Trustee and its successors. This Amendment shall be binding upon and inure to the benefit of and be enforceable by the Holders of any Discount Notes then Outstanding. Section 4.04 Governing Law. THIS AMENDMENT 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. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and first year above written. -5- 6 CHASE BANK OF TEXAS, N.A., as Administrative Agent [SEAL] By: Title ATTEST: By: Title: STERLING CHEMICALS HOLDINGS, INC. [SEAL] By: Title: ATTEST: By: Title: STATE STREET BANK AND TRUST COMPANY As Trustee [SEAL] By: Printed Name: Title: -6- EX-11.1 20 EARNINGS PER SHARE CALUCLATION 1 EXHIBIT 11.1 STERLING CHEMICALS HOLDINGS, INC. EARNINGS PER SHARE COMPUTATION (Amounts in thousands, except per share data)
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 1999 1998 1999 1998 ------------ ------------ ------------ ------------ BASIC EARNINGS PER SHARE Weighted average of common stock outstanding 12,516 12,185 12,469 12,007 Net Loss $ (16,415) $ (13,118) $ (54,335) $ (39,551) Less: Preferred dividend requirements and accretion (672) (607) (1,975) (1,826) Plus: Depreciation of value of Released Shares -- -- 1,048 505 ------------ ------------ ------------ ------------ Net loss used in basic loss per share $ (17,087) $ (13,725) $ (55,262) $ (40,872) ============ ============ ============ ============ BASIC LOSS PER SHARE $ (1.37) $ (1.13) $ (4.43) $ (3.40) ============ ============ ============ ============ DILUTED EARNINGS PER SHARE Weighted average of common stock outstanding 12,516 12,185 12,469 12,007 Total weighted average shares outstanding used in diluted loss per share computation (1) 12,516 12,185 12,469 12,007 Net loss $ (16,415) $ (13,118) $ (54,335) $ (39,551) Less: Preferred dividend requirements and accretion (672) (607) (1,975) (1,826) Plus: Depreciation of value of Released Shares -- -- 1,048 505 ------------ ------------ ------------ ------------ Net loss used in diluted earning per share $ (17,087) $ (13,725) $ (55,262) $ (40,872) ============ ============ ============ ============ DILUTED LOSS PER SHARE (1) $ (1.37) $ (1.13) $ (4.43) $ (3.40) ============ ============ ============ ============
(1) Due to losses resulting in anti-dilution, same as amount used in basic computation. EX-15.1 21 LETTER OF DELOITTE & TOUCHE LLP 1 Exhibit 15.1 Deloitte & Touche LLP 333 Clay Street Suite 2300 Houston, Texas 77002 August 10, 1999 Sterling Chemicals Holdings, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77094 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Sterling Chemicals Holdings, Inc. and subsidiaries for the three and nine month periods ended June 30, 1999 and 1998, as indicated in our report dated August 10, 1999; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is incorporated by reference in Registration Statement No. 333-30917 for Sterling Chemicals Holdings, Inc. on Form S-3 and in Registration Statement No. 333-52795 for Sterling Chemicals Holdings, Inc. on Form S-8. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP EX-27.1 22 FDS FOR STERLING CHEMICALS HOLDINGS, INC.
5 1,000 0000795662 STERLING CHEMICALS HOLDINGS, INC. 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 6,327 0 119,019 (1,341) 78,915 222,939 771,978 (339,151) 757,733 131,842 923,613 20,225 0 123 (398,516) 757,733 506,190 506,190 472,963 472,963 38,403 0 74,711 (79,887) (25,552) (54,335) 0 0 0 (54,335) (4.43) (4.43)
EX-27.2 23 FDS FOR STERLING CHEMICALS, INC.
5 0001014669 STERLING CHEMICALS, INC. 1,000 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 6,307 0 119,042 (1,341) 78,915 220,771 771,978 (339,151) 745,233 129,692 781,180 0 0 0 (258,516) 745,233 506,190 506,190 472,963 472,963 38,044 0 59,881 (64,698) (20,694) (44,004) 0 0 0 (44,004) 0.00 0.00
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