STX ACQUISITION CORP, S-1/A, 1996-07-03

STX ACQUISITION CORP
S-1/A, 1996-07-03
INDUSTRIAL ORGANIC CHEMICALS

Previous: WAXMAN USA INC, S-4/A, 1996-07-03

Next: OPTIKA IMAGING SYSTEMS INC, S-1/A, 1996-07-03

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996

REGISTRATION NO. 333-04343

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

----------------

STX ACQUISITION CORP. STX CHEMICALS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)

76-0500122 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 76-0502785

----------------

C/O THE STERLING GROUP, INC.
EIGHT GREENWAY PLAZA, SUITE 702
HOUSTON, TEXAS 77046
(713) 877-8257
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

FRANK J. HEVRDEJS
EIGHT GREENWAY PLAZA, SUITE 702
HOUSTON, TEXAS 77046
(713) 877-8257
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

----------------

COPIES TO:
DAVID J. GRAHAM EARL S. WELLSCHLAGER MORTON A. PIERCE
ANDREWS & KURTH L.L.P. PIPER & MARBURY L.L.P. DEWEY BALLANTINE
4200 TEXAS COMMERCE TOWER 36 SOUTH CHARLES STREET 1301 AVENUE OF THE
HOUSTON, TEXAS 77002 BALTIMORE, MARYLAND 21201 AMERICAS
(713) 220-4156 (410) 576-1747 NEW YORK, NEW YORK 10019
(212) 259-8000

----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

STX ACQUISITION CORP.
STX CHEMICALS CORP.

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-
1 REGISTRATION STATEMENT CAPTION OR LOCATION IN PROSPECTUS
---------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Prospectus Summary; Risk Factors; The
Company; Selected Historical Financial
Data; Pro Forma Consolidated Financial
Statements and Other Information
4. Use of Proceeds.............. Use of Proceeds
5. Determination of Offering
Price........................ Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution..................... Not Applicable
7. Selling Security Holders..... Not Applicable
8. Plan of Distribution......... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to
be Registered................ Prospectus Summary; Capitalization;
Description of the Notes; Description of
the Units
10. Interests of Named Experts
and Counsel.................. Not Applicable
11. Information with Respect to
the Registrant............... Outside Front and Inside Front Cover Pages
of Prospectus; Prospectus Summary; The
Company; Risk Factors; The Transaction;
Selected Historical Financial Data; Pro
Forma Consolidated Financial Statements and
Other Information; Capitalization;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business Management; Principal
Stockholders; Certain Transactions;
Description of the Notes; Description of
the Units; Description of the Credit
Facility; Legal Matters; Experts; Financial
Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JULY 3, 1996

Sterling Chemicals, Inc.

(a subsidiary of Sterling Chemicals Holdings, Inc.
and formerly STX Chemicals Corp.)
$275,000,000 % Senior Subordinated Notes Due 2006

Sterling Chemicals Holdings, Inc.
(the survivor of the merger of
Sterling Chemicals, Inc. and STX Acquisition Corp.)
Units consisting of
[LOGO $ % Senior Secured Discount Notes Due 2008
OF STERLING and
GROUP APPEARS Warrants to Acquire Shares of Common Stock
HERE]
--------

The Securities offered hereby will be issued upon consummation of the merger
("Merger") of STX Acquisition Corp. ("STX Acquisition") with and into
Sterling Chemicals, Inc. (the "Company"), which upon consummation of the
Merger will be renamed Sterling Chemicals Holdings, Inc. ("Holdings"). STX
Chemicals Corp. ("Chemicals"), to be renamed Sterling Chemicals, Inc. upon
consummation of the Merger, is offering (the "Notes Offering")
$275,000,000 in aggregate principal amount of % Senior Subordinated
Notes Due 2006 (the "Notes"), and STX Acquisition is offering (the
"Units Offering") Units consisting of $100,000,000 in initial
proceeds ($ million in aggregate principal amount at
maturity) of % Senior Secured Discount Notes Due 2008 (the
"Discount Notes") and Warrants (the "Warrants") to acquire an
aggregate of shares of common stock, par value $.01 per
share, of Holdings ("Holdings Common Stock"). The Notes and the
Units are collectively referred to herein as the "Securities"
and the Notes Offering and the Units Offering are
collectively referred to herein as the "Offerings."

The Notes are unsecured senior subordinated obligations of Chemicals ranking
subordinate in right of payment to all existing and future Senior Debt (as
defined) of Chemicals and will be effectively subordinated to all Debt
and other liabilities of the subsidiaries of Chemicals (including
trade obligations). Chemicals has not issued, and does not have any
firm arrangement to issue, any significant Debt that would be
subordinate to the Notes. As of March 31, 1996, on a pro forma
basis after giving effect to the Transaction (as defined),
the aggregate amount of Senior Debt of Chemicals would have
been approximately $347.9 million.

The Discount Notes will be senior secured obligations of Holdings ranking
pari passu with other Senior Debt of Holdings, and will be effectively
subordinated to all Debt and other liabilities of Chemicals and its
subsidiaries (including trade obligations). Holdings has not issued,
and does not have any firm arrangement to issue, any significant Debt
that would be subordinate to the Discount Notes. As of March 31,
1996, on a pro forma basis after giving effect to the
transaction, Holdings would have had no Debt other than the
Discount Notes, and the aggregate liabilities (consisting of
Debt and trade payables) of Chemicals and its subsidiaries
would have been approximately $685.2 million (including
the Notes and the Credit Facility). See
"Capitalization." The Discount Notes will be secured,
on a second priority basis, by a pledge of all of
the capital stock of Chemicals.

(continued on next page)

--------
FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE SECURITIES, SEE "RISK FACTORS" BEGINNING ON PAGE 16.

--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR AD- EQUACY OF THIS PROSPECTUS. ANY REP-
RESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Issuer(1)(2)
---------- ------------- ------------
<S> <C> <C> <C>
Per Note................................... % % %
Total...................................... $ $ $
Per Unit................................... $ $ $
Total...................................... $ $ $
</TABLE>
(1) Plus accrued interest on the Notes and accreted original discount on the
Discount Notes, if any, from , 1996.
(2) Before deducting expenses payable by Holdings and Chemicals, estimated at
$ .

--------
The Securities are being offered by the several Underwriters when, as and if
issued, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of
Securities will be made in book-entry form through the facilities of The
Depository Trust Company on or about , 1996 against payment in immediately
available funds.

CS First Boston Chase Securities Inc.

The date of this Prospectus is , 1996
<PAGE>

(continued from previous page)

STX Acquisition is a Delaware corporation formed in April 1996 by an
investor group led by The Sterling Group, Inc. ("TSG") and The Unicorn Group,
L.L.C. ("Unicorn") to effect the Merger. At the time of the Merger, Chemicals,
a Delaware corporation formed in May 1996 as a wholly owned subsidiary of STX
Acquisition, will become a wholly owned subsidiary of Holdings and will
acquire all of the operating assets of the Company. Upon completion of the
Merger, the Discount Notes will be obligations of Holdings and the Notes will
be obligations of Chemicals. The proceeds of the Offerings will be used to
partially finance the Merger. The sale of the Securities offered hereby is
subject to the consummation of the Merger, the closing of all financing
therefor and the acquisition by Chemicals of the operating assets of the
Company, all of which will occur concurrently.

Interest on the Notes is payable semiannually on and of each year,
commencing , 1997. Except as described below, the Notes are not redeemable
at the option of Chemicals prior to , 2001. Thereafter, the Notes will be
redeemable, in whole or in part, at the option of Chemicals, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. Up to 35% of the original principal amount of the
Notes will be redeemable on or prior to , 1999, at the option of Chemicals,
from the net proceeds of one or more Public Equity Offerings (as defined) at a
redemption price equal to % of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of redemption. Upon a Change
of Control (as defined), each holder of Notes may require Chemicals to
purchase all or a portion of such holder's Notes at 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. There can be no assurance that Chemicals will be able to raise
sufficient funds to meet this obligation should it arise. For a more complete
description of the Notes, see "Description of the Notes."

Each Unit consists of $1,000 principal amount at final maturity of Discount
Notes of Holdings and Warrants to acquire shares of Holdings Common
Stock. The Discount Notes and the Warrants will not become separately
transferable until the earlier of (i) 30 days following the closing of the
Units Offering and (ii) such date as the Underwriters may, in their
discretion, deem appropriate.

The Discount Notes are being offered at a substantial discount from their
principal amount at maturity. The initial issue amount of each Discount Note
will be $ per $1,000 principal amount at maturity assuming % of the
issue price of each Unit is allocated to the Discount Notes ( % of the
principal amount at maturity), representing a yield to maturity of %
(computed on a semiannual bond equivalent basis) calculated from , 1996.
Cash interest will not accrue on the Discount Notes prior to , 2001 at
which time cash interest will accrue on the Discount Notes at a rate of %
per annum. Interest on the Discount Notes is payable semiannually on and
of each year, commencing , 2002. BECAUSE THE DISCOUNT NOTES DO NOT
ACCRUE CASH INTEREST PRIOR TO , 2001, THE DISCOUNT NOTES ARE NOT SUITABLE
INVESTMENTS FOR INVESTORS SEEKING CURRENT INCOME. Except as described below,
the Discount Notes are not redeemable at the option of Holdings prior to ,
2001. Thereafter, the Discount Notes will be redeemable, in whole or in part,
at the option of Holdings, at the redemption prices set forth herein together
with accrued and unpaid interest, if any, to the date of redemption. Up to 35%
of the Accreted Value (as defined) of the Discount Notes will be redeemable on
or prior to , 1999, at the option of Holdings, from the net proceeds of one
or more Public Equity Offerings at a redemption price equal to % of the
Accreted Value thereof, together with accrued and unpaid interest, if any, to
the redemption date. Upon the occurrence of a Change of Control, each holder
of Discount Notes may require Holdings to purchase all or a portion of such
holder's Discount Notes at a purchase price in cash equal to 101% of the
Accreted Value thereof, together with accrued and unpaid interest, if any, to
the date of purchase. There can be no assurance that Holdings will be able to
raise sufficient funds to meet this obligation should it arise. For a more
complete description of the Discount Notes, see "Description of the Units."

Each Warrant will entitle the holder, commencing , 1997, to acquire
shares of Holdings Common Stock at an exercise price of $.01 per share. Upon
consummation of the Transaction, the Warrants will initially entitle the
holders thereof to acquire, in the aggregate, approximately % of
outstanding Holdings Common Stock on a fully diluted basis.

For information regarding the applicability of the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") following
the Transaction, see "Available Information."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR
ACCOUNTS OF OTHERS IN THE SECURITIES PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.

2
<PAGE>

Flow chart depicting feedstocks for the Company's products, intermediates (the
Company's products), downstream uses for the Company's products and key end
markets

<PAGE>

[PHOTOS]

FACILITY DETAIL

<TABLE>
<CAPTION>
1995
CURRENT -------------------------
OPERATING ANNUAL RATED UTILIZATION
UNIT/PRODUCT LOCATION CAPACITY(A) PRODUCTION(A) RATE(B)
- ------------ -------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
PETROCHEMICALS Texas City, Texas
Styrene(c) 1,700 1,433 96%
Acrylonitrile 740 711 96
Acetic Acid(d) 800 644 107
Methanol(e) 150 NA NA
Plasticizers 280 282 101
Tertiary Butylamine 21 13 62
Sodium Cyanide 100 59 59
PULP CHEMICALS
Sodium Chlorate Buckingham, Quebec 137 127 96%
Grande Prairie, Alberta 55 54 98
Thunder Bay, Ontario 57 50 94
Vancouver, British Columbia 101 101 101
Valdosta, Georgia(f) 110 NA NA
----- ----- ---
Total 460 332 97%
Sodium Chlorite Buckingham, Quebec 3.7 3.3 97%
</TABLE>
- --------
(a) Petrochemicals in millions of pounds and pulp chemicals in thousands of
tons, unless otherwise noted.
(b) Utilization rates based on 1995 rated capacities.
(c) Styrene capacity has increased from 1,500 million pounds in 1995 to 1,700
million pounds effective in 1996; the 1995 utilization rate is based on a
production capacity of 1,500 million pounds.
(d) Acetic acid capacity has increased from 600 million pounds in 1995 to
approximately 800 million pounds effective May 1996; the 1995 utilization
rate is based on a production capacity of 600 million pounds.

(e) Capacity in millions of gallons. The Company is constructing a methanol
facility scheduled to begin production by September 1996.
(f) The Valdosta, Georgia facility is scheduled to begin production by late
1996.

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. At the time of the Transaction, the
Company will change its name to Sterling Chemicals Holdings, Inc., Chemicals
will change its name to Sterling Chemicals, Inc. and the Company's operating
assets will be conveyed to Chemicals. See "The Transaction." As used herein,
the term "STX Acquisition" refers to STX Acquisition Corp. prior to the
consummation of the Transaction, and the term "Holdings" refers to the
surviving corporation in the Merger. The term "Company" refers both to Sterling
Chemicals, Inc. and its subsidiaries prior to the consummation of the
Transaction and, thereafter, to Holdings and its subsidiaries. The term
"Chemicals" refers to STX Chemicals Corp., which after the Transaction will be
a wholly owned subsidiary of Holdings known as Sterling Chemicals, Inc. Certain
operating and industry terms are defined in the Glossary included herein.

This Prospectus contains certain forward-looking statements with respect to
the business of the Company and the industry in which it operates. These
forward-looking statements are subject to certain risks and uncertainties which
may cause actual results to differ significantly from such forward-looking
statements. See "Risk Factors."

THE COMPANY

The Company is one of North America's leading producers of selected commodity
petrochemicals, used in the production of a wide array of consumer goods and
industrial products, and pulp chemicals used in paper manufacturing. The
Company ranks among the top three North American producers in terms of rated
production capacity for each of its primary products, including styrene,
acrylonitrile, acetic acid and sodium chlorate. Other products manufactured by
the Company include methanol, plasticizers, tertiary butylamine, sodium cyanide
and sodium chlorite. The Company manufactures all of its petrochemicals at a
single facility in Texas City, Texas (the "Texas City Plant"), and believes
that the large scale of this facility and its location on the U.S. Gulf Coast
provides it with certain cost advantages. The Company's pulp chemicals are
currently produced at four plants in Canada. A fifth plant, under construction
in Valdosta, Georgia, is scheduled to begin production in late 1996. The
Company believes that its pulp chemical plants benefit from their proximity to
key customers in the pulp industry and their access to competitively priced
electricity, which represents the most significant production cost in sodium
chlorate manufacturing.

In recent years, the Company has pursued a strategy of growth and product
diversification. In 1992, the Company acquired its pulp chemicals business
which has current sodium chlorate production capacity of 350,000 tons. In 1995,
the Company began a three-year, $200 million capacity expansion and upgrade
program, which is expected to be approximately 80% complete by the end of
fiscal 1996. Through this program, the Company will have expanded its total
petrochemical production capacity by approximately 1.4 billion pounds,
including capacity additions of 200 million pounds of styrene, 200 million
pounds of acetic acid and 150 million gallons (approximately 995 million
pounds) of methanol. In addition, the Company is expanding its sodium chlorate
production capacity by 110,000 tons, or 30%, by constructing a new facility in
Valdosta, Georgia. Through this strategy, the Company has sought to capitalize
on the continuing secular growth in global demand for its key products, while
reducing its sensitivity to the cyclicality of the markets for any particular
product. The following table sets forth the total revenues for the Company by
its primary products.

<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
---------------- ---------
1993 1994 1995 1995 1996
---- ---- ------ ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Petrochemicals:
Styrene............................................ $144 $288 $ 467 $256 $162
Acrylonitrile...................................... 124 138 251 129 75
Acetic acid........................................ 64 76 94 54 29
Other.............................................. 68 76 74 38 40
---- ---- ------ ---- ----
400 578 886 477 306
Pulp Chemicals....................................... 119 123 144 68 76
---- ---- ------ ---- ----
Total.............................................. $519 $701 $1,030 $545 $382
==== ==== ====== ==== ====
</TABLE>

4
<PAGE>

Styrene. The Company is the third largest North American producer of styrene
monomer, a chemical intermediate utilized in the production of plastic and
synthetic rubbers used in packaging, housewares, automotive components,
luggage, toys and building products. The Company's styrene unit is one of the
largest in the world and has an annual rated production capacity of 1.7 billion
pounds, following a recent debottlenecking, which represents approximately 12%
of total North American capacity. In fiscal 1995, the styrene unit operated at
an average utilization rate of 96% and generated revenues of $467 million,
which represented approximately 45% of the Company's total revenues.

Acrylonitrile. The Company is the second largest global producer of
acrylonitrile, the principal raw material for acrylic fibers used in textiles
and industrial applications. The Company's acrylonitrile unit has an annual
rated production capacity of 740 million pounds, which represents approximately
21% of total North American capacity. In fiscal 1995, the acrylonitrile unit
operated at an average utilization rate of 96% and generated revenues of $251
million, which represented approximately 24% of the Company's total revenues.

Acetic Acid. The Company is the third largest North American producer of
acetic acid, a product made from carbon monoxide and methanol. Acetic acid is
primarily used in the manufacture of intermediate products, such as vinyl
acetate monomer, which are used to produce various consumer products, including
adhesives, glue, cigarette filters and surface coatings. Following a 200
million pound capacity expansion completed in May 1996, the Company's acetic
acid unit has an annual rated production capacity of approximately 800 million
pounds, which represents approximately 17% of total North American capacity. In
fiscal 1995, the acetic acid unit operated at an average utilization rate of
107% and generated revenues of $94 million, which represented approximately 9%
of the Company's total revenues.

Sodium Chlorate. Upon completion of its Valdosta, Georgia plant, the Company
will be the second largest North American producer of sodium chlorate, which is
converted to chlorine dioxide for use in the pulp bleaching process. The
Company's four sodium chlorate plants have an aggregate annual rated production
capacity of 350,000 tons, and the Valdosta, Georgia plant, scheduled to begin
production in late 1996, will increase the Company's total annual capacity by
30% to nearly 460,000 tons. Following completion of the Valdosta plant, the
Company will account for approximately 22% of North American sodium chlorate
capacity. In addition, the Company's ERCO Systems Group is the worldwide leader
in the design, sale and technical service of large scale chlorine dioxide
generators, which are used to convert sodium chlorate to chlorine dioxide.
Since the mid-1980s, North American demand for sodium chlorate has grown at an
average annual rate of approximately 10%, as pulp manufacturers are
substituting chlorine dioxide for elemental chlorine in bleaching applications
in anticipation of environmental regulations that would eliminate the use of
elemental chlorine in pulp manufacturing. In fiscal 1995, the Company's sodium
chlorate plants operated at a weighted average utilization rate of 97% and its
pulp chemicals business generated revenues of $144 million, which represented
approximately 14% of the Company's total revenues.

5
<PAGE>

RECENT TRENDS

The primary markets in which the Company competes, especially styrene and
acrylonitrile, are cyclical and sensitive to changes in the balance between
supply and demand, the price of feedstocks and the level of general economic
activity. Historically, these markets have experienced alternating periods of
tight supply and rising prices and profit margins, followed by periods of large
capacity additions resulting in oversupply and declining prices and margins.

Global styrene and acrylonitrile markets experienced strong demand growth and
rising prices and profit margins from the end of fiscal 1994 through most of
fiscal 1995. During the fourth quarter of fiscal 1995 and into the first half
of fiscal 1996, styrene and acrylonitrile prices declined as a result of a
general slowdown in global economic growth, inventory drawdowns by customers
and reduced imports of petrochemicals and plastics by China, a major merchant
market purchaser. In recent months, however, prices for styrene and
acrylonitrile have increased from their recent lows in the first six months of
fiscal 1996 due to a general rebound in economic growth, inventory restocking
by customers, and increased demand in the Far East. As a result, the Company
anticipates that pricing and profitability for its styrene and acrylonitrile
products will be better in the second half of fiscal 1996 than they were in the
first half of the fiscal year. Thereafter, anticipated expansions in worldwide
production capacity of styrene in 1997 and 1998 are expected to affect pricing
of these products for a period until global demand increases sufficiently to
absorb such additional production capacity. The Company currently expects
acrylonitrile market conditions to remain relatively stable through fiscal
1997.

Sodium chlorate sales prices and profit margins strengthened throughout
fiscal 1995 and into fiscal 1996 as a result of strong demand growth. In recent
months, weakness in the pulp and paper markets has resulted in somewhat slower
demand growth for sodium chlorate. However, sodium chlorate demand in the
second half of fiscal 1996 and in fiscal 1997 is expected to benefit from the
anticipated promulgation of environmental regulations which would mandate the
elimination of elemental chlorine use in pulp bleaching applications by 1999.

The Company believes that it has developed an operating strategy to allow it
to compete effectively in periods of both rising and declining product prices.
During periods of peak demand, the experience and skill of its management has
allowed the Company to operate its petrochemical units at utilization rates
above its rated capacities, enhancing the Company's earnings generation during
favorable market conditions. During cyclical downturns, the Company believes
that the profitability of its operations is supported by its long-term sales
contracts and conversion agreements which accounted for approximately 53% of
its petrochemical sales volumes in fiscal 1995, as well as management's
emphasis on minimizing fixed costs such as selling, general and administrative
expenses.

BUSINESS STRATEGY

The Company's business strategy is to capitalize on its competitive market
position to take advantage of periods of tight supply and high prices and
margins for its primary products, which historically have occurred on a
cyclical basis, and to expand its production capacity to capture future growth
opportunities in the petrochemical and pulp chemical industries. Key elements
of the Company's business strategy are to: (i) maintain a competitive cost
position in petrochemicals by investing in new technology and equipment; (ii)
pursue low cost expansions in petrochemicals, such as its recent 30% expansion
of acetic acid capacity and construction of a world-scale 150 million gallon
methanol plant; (iii) pursue growth opportunities in pulp chemicals through the
current construction of additional capacity; (iv) continue to build strong
industry partnerships in petrochemicals through securing long-term supply
contracts with key customers; and (v) implement a focused acquisition strategy,
targeting chemical businesses and assets which would strengthen the Company's
existing market positions, provide upstream or downstream integration or
produce complementary chemical products.

6
<PAGE>

THE TRANSACTION

The proceeds of the Offerings will provide a portion of the funding required
for the acquisition by the stockholders of STX Acquisition, including an
investor group formed by TSG and Unicorn, of a controlling interest in the
Company. Pursuant to an Amended and Restated Agreement and Plan of Merger dated
as of April 24, 1996 (the "Merger Agreement") between STX Acquisition and the
Company, STX Acquisition will be merged with and into the Company (the
"Merger"). Current stockholders of the Company will have the option with
respect to each share of common stock, par value $.01 per share, of the Company
("Company Common Stock") to elect to receive $12.00 cash or to retain their
Company Common Stock ("Rollover Shares"). The aggregate number of Rollover
Shares is limited to 5.0 million, the maximum number of Rollover Shares.
Consequently, stockholders who elect to retain their shares of Company Common
Stock may be subject to proration. Certain stockholders of the Company executed
an Inducement Agreement with the Company (the "Inducement Agreement") which
provides that such stockholders will make elections to receive Rollover Shares
rather than cash (amounting to an aggregate of approximately 2.3 million
Rollover Shares, the minimum number of Rollover Shares). Consummation of the
Merger is subject to numerous conditions, including the consummation of the
Offerings and the other financing transactions described herein. The Merger and
the related financings are referred to herein as the "Transaction." See "The
Transaction."

The sale of the Securities offered hereby is subject to the consummation of
the Merger, the closing of a bank credit facility and a private placement of
equity and the conveyance to Chemicals of the operating assets of the Company,
all of which will occur concurrently.

Seven putative class action complaints have been filed relating to the
proposed Merger and the events leading up to the recommendation of the approval
thereof by the Board of Directors of the Company. The complaints generally
allege that the course of conduct taken by the directors in considering the
Company's strategic alternatives and in recommending the Merger was in
violation of their fiduciary duties to the Company's stockholders and seek
injunctive relief and unspecified damages. The Company believes that these
actions are without merit and has instructed legal counsel to vigorously defend
such actions. See "Business--Legal Proceedings--Shareholder Lawsuits."

Credit Facility. Upon consummation of the Merger, Chemicals will enter into a
bank credit facility (the "Credit Facility") with a syndicate of lenders led by
Texas Commerce Bank National Association, as administrative agent, and Credit
Suisse and Chase Securities Inc. as co-arrangers. The Credit Facility will
consist of (i) a six and one half year $100.0 million revolving credit facility
(the "Revolving Credit Facility"), (ii) a six and one half year $200.0 million
term loan and an eight year $150.0 million term loan (collectively, the "Term
Loans") and (iii) a four year $6.5 million term loan (the "ESOP Term Loan") to
fund a new Employee Stock Ownership Plan (the "New ESOP"). See "Management--
Compensation of Executive Officers" and "Description of the Credit Facility."

Equity Private Placement. Upon consummation of the Merger, STX Acquisition
will complete a private placement of shares of its Common Stock (the "Equity
Private Placement"), which will represent an equity contribution of
approximately $103.1 million, assuming the minimum number of Rollover Shares.
Purchasers of shares in the Equity Private Placement are expected to include an
investor group formed by TSG and Unicorn and the New ESOP. The New ESOP will
acquire its shares with the proceeds from a $6.5 million loan from Chemicals
(the "Chemicals ESOP Loan").

7
<PAGE>

The following table sets forth the estimated sources and uses of funds to
effect the Merger, as if the Merger had occurred on March 31, 1996.

<TABLE>
<CAPTION>
SOURCES OF FUNDS DOLLARS IN MILLIONS
---------------- -------------------
<S> <C>
Credit Facility (a)................................... $347.9
Notes offered hereby.................................. 275.0
Units offered hereby.................................. 100.0
Equity Private Placement (b).......................... 103.1
------
Total............................................... $826.0
======
<CAPTION>
USE OF FUNDS
------------
<S> <C>
Purchase of Company Common Stock (c).................. $640.7
Purchase of other equity interests (d)................ 14.6
Refinance outstanding debt............................ 124.2
Chemicals ESOP Loan (e)............................... 6.5
Estimated transaction expenses and fees (f)........... 40.0
------
Total............................................... $826.0
======
</TABLE>
- --------

8
<PAGE>

Organizational chart depicting Sterling Chemicals Holdings, Inc.; Sterling
Chemicals, Inc.; Sterling Canada Inc.; and Sterling Pulp Chemicals, Ltd.

<PAGE>

THE OFFERING

NOTES:

Issuer...................... Sterling Chemicals, Inc. (a subsidiary of
Sterling Chemicals Holdings, Inc. and formerly
STX Chemicals Corp.).

Securities Offered.......... $275,000,000 aggregate principal amount of %
Senior Subordinated Notes Due 2006.

Maturity Date............... , 2006.

Interest Payment Dates...... and of each year, commencing
, 1997.

Optional Redemption......... The Notes will be redeemable at the option of
Chemicals, in whole or in part, at any time on or
after , 2001 at the redemption prices set
forth herein, plus accrued interest to the date
of redemption. In addition, Chemicals may, at its
option, redeem prior to , 1999, up to 35% of
the original principal amount of the Notes at %
of the principal amount thereof, plus accrued
interest to the date of redemption, with the net
proceeds of one or more Public Equity Offerings.

Ranking.....................
The Notes will constitute unsecured senior
subordinated indebtedness of Chemicals and will
be subordinated in right of payment to all
present and future Senior Debt of Chemicals,
including borrowings under the Credit Facility.
Chemicals has not issued, and does not have any
firm arrangements to issue, any significant Debt
that would be subordinate to the Notes. As of
March 31, 1996, after giving pro forma effect to
the Transaction, Chemicals would have had
approximately $347.9 in Senior Debt. In addition,
the holders of the Notes will effectively rank
junior to all creditors of Chemicals'
subsidiaries, including trade creditors.

Change of Control...........
Upon a Change of Control (as defined herein),
Chemicals will be required to make an offer to
purchase the Notes at 101% of the principal
amount thereof, plus accrued interest to the date
of purchase. There can be no assurance that
Chemicals will be able to raise sufficient funds
to meet this obligation should it arise.

Certain Covenants........... The Notes Indenture (as defined herein) will
contain certain covenants that, among other
things, limit the ability of Chemicals to pay
dividends or make certain other restricted
payments, incur additional indebtedness, engage
in transactions with affiliates, incur liens and
engage in asset sales. The Notes Indenture will
also restrict Chemicals' ability to consolidate
or merge with, or transfer all or substantially
all of its assets to another person. See
"Description of the Notes--Certain Covenants."

Use of Proceeds............. The proceeds from the Notes Offering will be used
to fund, in part, the Merger.

10
<PAGE>

UNITS:

Issuer...................... Sterling Chemicals Holdings, Inc. (the survivor
of the merger of Sterling Chemicals, Inc. and STX
Acquisition Corp.)

Securities Offered.......... Units consisting of $100,000,000 in initial
proceeds and $ in aggregate principal amount at
maturity of Senior Secured Discount Notes Due
2008 and Warrants to acquire shares of
Holdings Common Stock.

Separability................ The Discount Notes and the Warrants will not
become separately transferable until the earlier
of (i) 30 days following the Closing Date and
(ii) such date as the Underwriters may, in their
discretion, deem appropriate.

Use of Proceeds............. The proceeds from the Units Offering will be used
to fund, in part, the Merger.

Discount Notes:

Discount Notes Offered...... $ million aggregate principal amount at
maturity of % Senior Secured Discount Notes Due
2008 ($ million aggregate initial Accreted
Value).

Maturity Date............... , 2008.

Interest Payment Dates......
The Discount Notes will be issued at a
substantial discount from their principal amount
at maturity, and there will not be any payment of
interest on the Discount Notes prior to ,
2002. From and after , 2001, the Discount
Notes will bear cash interest at the rate per
annum set forth on the cover page of this
Prospectus, payable semi-annually on each
and . For the six months ended March 31,
1996, on a pro forma basis after giving effect to
the Transaction, Holdings would have had a
deficiency of earnings to cover fixed charges of
$1.1 million. There can be no assurance that
Holdings will have adequate cash available at the
time of the scheduled interest payments.

Original Issue Discount..... For federal income tax purposes, the Discount
Notes will be issued with original issue
discount. Each holder of a Discount Note must
include in gross income for federal income tax
purposes a portion of such original issue
discount for each day during each taxable year on
which a Discount Note is held, even though cash
interest does not begin to accrue until ,
2001 and no cash interest will be payable until
, 2002. As a result, holders of Discount
Notes will accrue amounts in gross income before
receiving cash payments attributable to such
gross income. See "Certain United States Federal
Income Tax Consequences."

Optional Redemption......... The Discount Notes will be redeemable, at the
option of Holdings, in whole or in part, at any
time after , 2001 at the redemption prices
set forth herein, plus accrued interest to the
date of redemption. Up to 35% of the Accreted
Value of the Discount Notes will be redeemable on
or prior to , 1999 at the

11
<PAGE>

option of Holdings, from the net proceeds of one
or more Public Equity Offerings at a redemption
price equal to % of the Accreted Value thereof,
plus accrued interest.

Security.................... The Discount Notes will be secured, on a second
priority basis, by a pledge of all of the capital
stock of Chemicals. Lenders under the Credit
Facility will have a first priority lien on the
capital stock of Chemicals.

Ranking.....................
The Discount Notes will be senior secured
obligations of Holdings and will rank pari passu
in right of payment with all senior indebtedness
of Holdings and will be senior in right of
payment to any future subordinated indebtedness
of Holdings. Holdings has not issued, and does
not have any firm arrangement to issue, any
significant Debt that would be subordinate to the
Discount Notes. As a result of the holding
company structure after the Merger, the holders
of the Discount Notes will effectively rank
junior to all creditors of Chemicals and its
subsidiaries, including the lenders under the
Credit Facility, holders of the Notes and trade
creditors. As of March 31, 1996, on a pro forma
basis after giving effect to the Transaction, the
Discount Notes would have been effectively
subordinate to $685.2 million of aggregate
liabilities (consisting of Debt and trade
payables) of Chemicals and its subsidiaries. In
addition, in the event of a default or similar
occurrence there can be no assurance that the
second priority security interest in the capital
stock of Chemicals will be available or
sufficient to satisfy claims by holders of the
Discount Notes.

Change of Control...........
Upon a Change of Control (as defined), Holdings
will be required to make an offer to purchase the
Discount Notes at 101% of the Accreted Value
thereof, plus accrued interest, if any, to the
date of purchase. There can be no assurance that
Holdings will be able to raise sufficient funds
to meet this obligation should it arise.

Certain Covenants........... The Discount Notes Indenture (as defined herein)
will contain certain covenants that, among other
things, limit the ability of Holdings to pay
dividends or make certain other restricted
payments, incur additional indebtedness, engage
in transactions with affiliates, incur liens,
engage in asset sales and engage in sale and
leaseback transactions. The Discount Notes
Indenture will also restrict Holdings' ability to
consolidate or merge with, or transfer all or
substantially all of its assets to another
person. See "Description of the Units--
Description of Discount Notes--Certain
Covenants."

Warrants:

Exercise Price.............. $.01 per share of Holdings Common Stock.

Expiration.................. The Warrants are exercisable beginning on the
first anniversary of the Closing Date and at any
time thereafter prior to , 2008.

Anti-Dilution............... The number of shares of Holdings Common Stock to
be acquired upon exercise of each Warrant will be
adjusted upon, among other things, certain
dividends or other distributions of Holdings
Common Stock and a combination or
reclassification of Holdings.

Voting Rights............... Warrant holders will have no voting rights.

12
<PAGE>

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION

The summary consolidated financial information set forth below has been
derived from previously published consolidated financial statements of the
Company, certain of which appear elsewhere in this Prospectus, and should be
read in conjunction with, and is qualified in its entirety by reference to,
such consolidated financial statements and their accompanying notes. The
consolidated financial information set forth below (i) as of year end and for
each of the years in the five-year period ended September 30, 1995 has been
derived from audited consolidated financial statements of the Company and (ii)
as of March 31, 1996 and March 31, 1995 and for the six-month periods then
ended has been derived from unaudited consolidated financial statements of the
Company, which, in the opinion of management, have been prepared on a basis
consistent with the audited consolidated financial statements of the Company
and contain all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the interim financial position and results
of operations.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $542.7 $430.5 $518.8 $700.8 $1,030.2 $544.6 $382.4
Cost of goods sold...... 472.4 402.6 477.9 606.9 758.6 402.7 323.6
------ ------ ------ ------ -------- ------ ------
Gross profit.......... 70.3 27.9 40.9 93.9 271.6 141.9 58.8
Selling, general and
administrative
expenses............... 9.7 10.3 25.5 24.4 31.7 16.0 16.1
SAR program expense
(benefit).............. -- -- -- 21.8 (2.8) 0.5 6.7
------ ------ ------ ------ -------- ------ ------
Income from
operations............ 60.6 17.6 15.4 47.7 242.7 125.4 36.0
Interest and debt
related expenses, net
of interest income..... 6.1 8.4 22.4 22.1 14.6 9.7 3.2
Other (income) expense.. -- -- -- (2.6) -- -- 3.6
------ ------ ------ ------ -------- ------ ------
Income (loss) before
taxes and
extraordinary item... 54.5 9.2 (7.0) 28.2 228.1 115.7 29.2
Provision (benefit) for
income taxes........... 17.7 4.7 (1.6) 9.1 75.0 37.4 10.0
------ ------ ------ ------ -------- ------ ------
Income (loss) before
extraordinary item
and change in
accounting principle. 36.8 4.5 (5.4) 19.1 153.1 78.3 19.2
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions............... -- (10.4) -- -- -- -- --
Extraordinary item, loss
on early extinguishment
of debt, net of tax.... -- -- -- -- (3.1) -- --
------ ------ ------ ------ -------- ------ ------
Net income (loss)..... $ 36.8 $ (5.9) $ (5.4) $ 19.1 $ 150.0 $ 78.3 $ 19.2
====== ====== ====== ====== ======== ====== ======
OTHER DATA:
EBITDA (a).............. $ 78.5 $ 41.0 $ 52.5 $108.6 $ 281.4 $146.7 $ 63.5
Depreciation and
amortization (b)....... 17.9 23.4 37.1 39.1 41.5 20.8 20.8
Capital expenditures.... 34.4 16.0 12.2 12.3 54.0 15.8 49.0
OPERATING DATA:
Revenues:
Styrene................ $ 257 $ 151 $ 144 $ 288 $ 467 $ 256 $ 162
Acrylonitrile.......... 155 137 124 138 251 129 75
Acetic acid............ 69 66 64 76 94 54 29
Sodium chlorate........ -- 9 81 83 102 49 56
Annual capacity at
period end (MM lbs):
Styrene................ 1,500 1,500 1,500 1,500 1,500 1,500 1,700
Acrylonitrile.......... 700 700 700 700 740 740 740
Acetic acid............ 600 600 600 600 600 600 600
Sodium chlorate (000
tons)................. -- 340 340 340 350 340 350
Sales volume (MM lbs):
Styrene................ 1,495 1,213 1,191 1,460 1,433 773 832
Acrylontrile........... 663 573 528 668 739 401 271
Acetic acid............ 557 620 578 599 635 305 182
Sodium chlorate (000
tons)................. -- 26 248 294 336 170 167
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 28.6 $ 56.8 $ 31.0 $ 20.8 $ 74.6 $ 69.2 $ 69.0
Net property, plant and
equipment.................... 230.6 343.8 314.3 291.1 309.1 285.6 336.4
Total assets.................. 362.5 608.5 546.8 580.9 609.9 595.5 614.5
Total long-term debt
(including current portion).. 72.6 300.2 263.9 192.6 103.6 151.4 124.2
Stockholders' equity.......... 112.2 87.3 70.3 89.7 239.3 163.3 257.1
</TABLE>
- --------
(a) EBITDA represents income from operations before taking into consideration
depreciation, amortization and the impact of accruals for the Company's
stock appreciation rights ("SAR") program. The SAR program will not be
continued after the Transaction. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to incur and service
debt. EBITDA should not be considered by an investor as an alternative to
net income or income from operations, as an indicator of the operating
performance of the Company or as an alternative to cash flows as a measure
of liquidity.
(b) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in interest
expense.

14
<PAGE>

SUMMARY PRO FORMA FINANCIAL DATA

The pro forma statement of operations presented below for the year ended
September 30, 1995 and the six months ended March 31, 1996 have been derived
from the unaudited pro forma financial statements included elsewhere herein,
and give effect to the Transaction as if it had occurred on October 1, 1994.
The pro forma consolidated balance sheet data at March 31, 1996 presented below
has been derived from the unaudited pro forma consolidated balance sheet of
Chemicals and Holdings included elsewhere herein and give effect to the
Transaction as if it had occurred on March 31, 1996.

The summary pro forma financial data do not necessarily represent what
Chemicals' or Holdings' financial position and results of operations would have
been if the Transaction had actually been completed as of the dates indicated
and are not intended to project Chemicals' and Holdings' financial position or
results of operations for any future period. The summary pro forma financial
data should be read in conjunction with the historical consolidated financial
statements of the Company, the pro forma financial statements of Chemicals and
Holdings, "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein.

The pro forma adjustments were applied to the respective historical financial
statements to reflect and account for the Transaction as a recapitalization.
Accordingly, the historical basis of the Company's assets and liabilities has
not been impacted by the Transaction.

<TABLE>
<CAPTION>
CHEMICALS HOLDINGS
----------------------- -----------------------
SIX SIX
MONTHS MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31,
1995 1996 1995 1996
------------- --------- ------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $1,030.2 $382.4 $1,030.2 $382.4
Cost of goods sold............. 759.0 323.8 759.0 323.8
-------- ------ -------- ------
Gross profit................... 271.2 58.6 271.2 58.6
Selling, general and
administrative expenses....... 31.7 16.1 31.7 16.1
-------- ------ -------- ------
Income from operations........ 239.5 42.5 239.5 42.5
Interest expense, net.......... 64.7 31.8 78.4 38.7
Other (income) expense......... -- 3.6 -- 3.6
-------- ------ -------- ------
Income from continuing
operations before income
taxes........................ 174.8 7.1 161.1 0.2
Provision (benefit) for income
taxes......................... 56.3 2.3 51.5 (0.1)
-------- ------ -------- ------
Income from continuing
operations.................. $ 118.5 $ 4.8 $ 109.6 $ 0.3
======== ====== ======== ======
Earnings per share from
continuing operations......... $ 10.59 $ 0.03
OTHER DATA:
EBITDA......................... $ 281.4 $ 63.5 $ 281.4 $ 63.5
Depreciation and amortization.. 41.9 21.0 41.9 21.0
Cash interest expense, net..... 60.2 29.5 60.2 29.5
Ratio of EBITDA to interest
expense, net.................. 4.3x 2.0x 3.6x 1.6x
Ratio of EBITDA to cash
interest expense, net......... 4.7x 2.2x 4.7x 2.2x
Ratio of earnings to fixed
charges....................... 3.5x 1.2x 2.9x --
Deficiency of earnings to cover
fixed charges................. -- -- -- $ 1.1
BALANCE SHEET DATA:
Working capital................ $ 85.3 $ 85.3
Net property, plant and
equipment..................... 336.4 336.4
Total assets................... 646.7 649.7
Total long-term debt (including
current portion).............. 622.9 722.9
Total stockholders' equity..... (194.9) (291.9)
</TABLE>

15
<PAGE>

RISK FACTORS

Prospective purchasers of the Securities offered hereby should consider the
specific risk factors set forth below, as well as the other information set
forth in this Prospectus.

FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE

When used in this Prospectus, the words "anticipate," "estimate," "project"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially
from those anticipated, estimated or projected.

Among the key factors that have a direct bearing on the Company's results of
operations and the industry in which it operates are the availability and
prices of raw materials for production of the Company's products, the cyclical
nature of the markets for the Company's products, global economic conditions,
competition from other petrochemical companies, the availability of attractive
acquisition opportunities, demand for the Company's products and risks
inherent in foreign operations. These and other factors are discussed below
and elsewhere in this Prospectus.

HIGH FINANCIAL LEVERAGE

If the closing of the Transaction had occurred at March 31, 1996, Holdings,
on a consolidated basis, would have had indebtedness of $722.9 million and
stockholders' equity of $(291.9) million, and Chemicals would have had
indebtedness of $622.9 million and stockholders' equity of $(194.9) million.
In addition, on a pro forma basis for the six months ended March 31, 1996,
Holdings would have had a deficiency of earnings to cover fixed charges of
$1.1 million. Holdings will not be required to make cash interest payments on
the Discount Notes prior to , 2002, but there can be no assurance that
Holdings will have adequate cash available at that time and thereafter to make
the scheduled semi-annual interest payments. The high degree of leverage of
Holdings and Chemicals will have important consequences to holders of the
Units and the Notes, including the following: (i) the ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes, if needed, may be
impaired; (ii) a substantial portion of cash flow from operations will be
dedicated to the payment of interest, principal and other repayment
obligations, thereby reducing the funds available for operations and any
future business opportunities; and (iii) the degree of leverage may make the
Company more vulnerable to a downturn in its business or the economy
generally. See "Pro Forma Consolidated Financial Statements and Other
Information" and "Description of the Credit Facility." Any inability of
Holdings or Chemicals to service their respective obligations could have a
significant adverse effect on the market value and marketability of the
Securities.

SUBSTANTIAL RESTRICTIONS AND COVENANTS

The Credit Agreement and the Notes Indenture and the Discount Notes
Indenture (collectively, the "Indentures") contain numerous financial and
operating covenants, including, but not limited to, restrictions on Holdings'
and Chemicals' ability to incur indebtedness, pay dividends, create liens,
sell assets, engage in certain mergers and acquisitions and refinance existing
indebtedness. These covenants may limit the Company's ability to pursue its
planned acquisition strategy. See "--Ability to Complete Acquisitions." In the
event of a Change of Control, Holdings and Chemicals will be required, subject
to certain conditions, to offer to purchase all outstanding Discount Notes and
Notes, respectively, at a price equal to 101% of the Accreted Value, with
respect to the Discount Notes, and 101% of the principal amount thereof, with
respect to the Notes, plus accrued interest. There can be no assurance that
Holdings or Chemicals will be able to raise sufficient funds to meet their
respective obligations in connection with a Change of Control Offer. The
ability of Holdings and Chemicals to comply with the covenants and other terms
of the Credit Agreement and the Indentures, to make cash payments with respect
to the Discount Notes and the Notes and to satisfy its other debt obligations
will depend on the future performance of the Company. In the event the Company
fails to comply with the various covenants contained in the Credit Agreement
or the Indentures, it would be in default thereunder, and in any such case the

16
<PAGE>

maturity of substantially all of its long-term debt could be accelerated. A
default under either Indenture is an event of default under the Credit
Agreement. The Credit Agreement will prohibit the repayment, purchase,
redemption, defeasance or other payment of any of the principal of the
Discount Notes and the Notes at any time prior to their stated maturity. See
"Description of the Credit Facility," "Description of the Notes" and
"Description of the Units."

HOLDING COMPANY STRUCTURE

Holdings will be a holding company whose only material asset will be the
capital stock of Chemicals. The Discount Notes will be an obligation of
Holdings and the holders of Discount Notes will have no direct recourse to the
assets of Chemicals. Holdings will conduct no business and will be dependent
on distributions from Chemicals in order to meet its debt service obligations,
including any obligations with respect to the Discount Notes. In addition, due
to the conveyance of assets and liabilities from Holdings to Chemicals
immediately after the Merger, Holdings will not have any material assets other
than the stock of Chemicals but will remain obligated under many of its
contracts as the assignor of such interests. Because of the substantial
leverage of both Holdings and Chemicals, and the dependence by Holdings upon
the operating performance of Chemicals to generate distributions to Holdings,
there can be no assurance that any such distributions will be adequate to fund
Holdings' obligations when due. In addition, the Credit Facility, the Notes
Indenture and applicable state law will impose restrictions on the payment of
dividends and the making of loans by Chemicals to Holdings. For a further
description of the contractual restrictions on Chemicals, see "Description of
the Credit Facility" and "Description of the Notes." As a result of the
foregoing restrictions, Holdings may be unable to gain access to the cash flow
or assets of Chemicals in amounts sufficient to pay interest on the Discount
Notes when interest thereon first becomes payable in cash on , 2002 and
principal of the Discount Notes when due or in the event of a Change of
Control or other required principal payment. In that event, Holdings may be
required to (i) refinance the Discount Notes, (ii) seek additional debt
financing or additional equity financing, (iii) refinance all or a portion of
the indebtedness of Chemicals with indebtedness containing covenants allowing
Holdings to gain access to such cash flow or assets, (iv) obtain modifications
of the covenants restricting access to cash flow or assets contained in the
then existing indebtedness of Chemicals, (v) merge Chemicals with Holdings,
which merger would be subject to compliance with applicable debt covenants or
obtaining necessary lender consents or (vi) pursue a combination of the
foregoing actions. The measures Holdings may undertake to gain access to
sufficient cash flow to meet its future debt service requirements on the
Discount Notes will depend on general economic and financial market
conditions, as well as the financial condition of Holdings and Chemicals and
other relevant factors existing at the time. No assurance can be given that
any of the foregoing measures can be accomplished.

SUBORDINATION; RANKING

The Notes will be general unsecured obligations of Chemicals and will be
subordinated in right of payment to all Senior Debt, including all
indebtedness of Chemicals under the Credit Facility. As of March 31, 1996,
after giving pro forma effect to the Transaction, approximately $347.9 million
of Senior Debt would have been outstanding. The Notes Indenture permits
Chemicals to incur additional Senior Debt, provided certain conditions are
met, and Chemicals expects from time to time to incur additional Senior Debt.
In addition, the Notes Indenture permits Senior Debt to be secured. By reason
of the subordination provisions of the Notes Indenture, in the event of the
insolvency, liquidation, reorganization, dissolution or other winding-up of
Chemicals, holders of Senior Debt must be paid in full before the holders of
the Notes may be paid. In addition, no payment may be made with respect to the
Notes during the continuance of a payment default under any Designated Senior
Debt (as defined). Accordingly, there may be insufficient assets remaining
after such payments to pay amounts due on the Notes. Furthermore, if certain
non-payment defaults exist with respect to Designated Senior Debt, the holders
of such Designated Senior Debt will be able to prevent payments on the Notes
for certain periods of time. See "Description of the Notes--Ranking."

The Discount Notes will be senior secured obligations of Holdings and will
rank pari passu in right of payment with all Senior Debt of Holdings and
senior in right of payment to any future subordinated indebtedness of
Holdings. As a result of the Company's holding company structure, the holders
of the Discount Notes will

17
<PAGE>

effectively rank junior to all creditors of Chemicals and its subsidiaries,
including the lenders under the Credit Facility, holders of the Notes and
trade creditors. In the event of the dissolution, bankruptcy, liquidation or
reorganization of Holdings or Chemicals, the holders of the Discount Notes may
not receive any amounts with respect to the Discount Notes until after the
payment in full of all claims of the creditors of Chemicals and its
subsidiaries. At March 31, 1996, after giving pro forma effect to the
Transaction, Holdings would have had no indebtedness other than the Discount
Notes, and the indebtedness of Chemicals would have been $622.9 million. See
"Capitalization." In addition, although the Discount Notes are secured on a
second priority basis by a pledge of the capital stock of Chemicals, the
lenders under the Credit Facility will have a first priority lien on such
capital stock and, therefore, there can be no assurance that the security will
be available or sufficient to satisfy any claims by holders of the Discount
Notes.

RAW MATERIAL PRICES AND AVAILABILITY

For each of the Company's products, the cost of raw materials and utilities
is far greater than all other costs of production combined. Therefore, an
adequate supply of raw materials at reasonable prices is critical to the
success of the Company's business. The Company does not produce many of its
major raw materials (benzene, ethylene, propylene, ammonia and methanol),
although the Company has a methanol plant under construction at the Texas City
Plant which is expected to begin production in July 1996. These materials are
all commodity petrochemicals and the price for each can fluctuate widely for a
variety of reasons, including changes in the availability of these products
because of major capacity additions or significant plant operating problems. A
number of the Company's raw material suppliers provide the Company with a
significant amount of its raw materials, and if one significant supplier or a
number of significant suppliers were unable to meet their obligations under
present supply arrangements, or if such arrangements could not be renewed upon
expiration, the Company could be required to incur increased costs for its raw
materials. The ability to pass on increases in raw material prices to the
Company's customers is, to a large extent, dependent on market conditions.
There may be periods of time in which increases in feedstock prices are not
recovered by the Company due to an inability to increase the selling prices of
its products because of weakness in demand for, or oversupply of, such
products, and therefore, certain increases in raw materials prices may have a
material adverse effect on the results of operations of the Company.

CYCLICAL MARKETS FOR PRODUCTS; DEPENDENCE ON KEY PRODUCTS

The Company's business consists of the production and sale of styrene
monomer, acrylonitrile, acetic acid and other petrochemicals, as well as
certain pulp chemicals. The Company's two primary petrochemical products are
styrene and acrylonitrile, which accounted for 45% and 24% of the Company's
1995 revenues, respectively. See "Business--Products." Historically, the
prices of the Company's petrochemical and pulp chemicals products have been
cyclical and sensitive to overall supply relative to demand, the level of
general business activity and the availability and price of feedstocks. In the
past, the Company's products have experienced market tightness accompanied by
higher prices and periods of oversupply accompanied by lower prices. Certain
styrene monomer producers have announced plans to add significant production
capacity over the next several years, particularly in the Far East. Current
global production capacity for styrene is estimated to be approximately 40
billion pounds and the Company believes that approximately 7.2 billion pounds
of capacity will be added by competitors in the next two years, including an
estimated 3.5 billion pounds in 1997 and 3.7 billion pounds in 1998. Although
less than 5% of such additional capacity is expected to be added on the U.S.
Gulf Coast, where the Company operates, the Company expects that prices for
styrene will decline from current levels until global demand for styrene
increases sufficiently to absorb such additional production capacity, and such
declines could adversely affect the Company's results of operations. In
addition, the Company expects competitors to increase production capacity of
acrylonitrile during the next two years, and such increases could adversely
affect prices for acrylonitrile. In any event, the prices for the Company's
products are expected to fluctuate in the future, and any prolonged or severe
softness in the market for any of its principal products will adversely affect
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

18
<PAGE>

HIGHLY COMPETITIVE INDUSTRY

The industry in which the Company operates is highly competitive. Many of
the Company's competitors, particularly in the petrochemical industry, are
larger and have substantially greater financial resources than the Company.
Among the Company's competitors are some of the world's largest chemical
companies that have their own raw material resources. In addition, a
significant portion of the Company's business is based upon widely available
technology. The entrance of new competitors into the industry and the addition
by existing competitors of new capacity may reduce the Company's ability to
maintain profit margins or its ability to preserve its market share, or both.
Such developments could have a negative impact on the Company's ability to
obtain higher profit margins, even during periods of increased demand for the
Company's products. See "--Cyclical Markets for Products; Dependence on Key
Products."

DEPENDENCE ON TEXAS CITY PLANT

All of the Company's petrochemicals, including all of its styrene and
acrylonitrile, are produced at the Texas City Plant. Significant unscheduled
downtime at the Texas City Plant due to equipment breakdowns, interruptions in
the supply of raw materials or natural gas, power failures, natural forces or
any other cause, including the normal hazards associated with the production
of petrochemicals, could materially adversely affect the Company. Although the
Company maintains insurance, including business interruption insurance, that
it considers to be adequate under the circumstances, there can be no assurance
that a significant interruption in the operation of a facility would not have
a material adverse effect on the Company's financial condition and results of
operations. See "Business--Insurance."

ABILITY TO COMPLETE ACQUISITIONS

A significant element of the Company's business strategy is to pursue
strategic acquisitions that either expand or complement the Company's products
or markets. The financing for such acquisitions will likely affect the
Company's debt or equity capitalization. There can be no assurance that the
Company will be able to identify and make acquisitions on terms favorable to
it or that the Company will be able to obtain financing for such acquisitions
on terms the Company finds acceptable. In addition, the Indentures and the
Credit Facility will limit the Company's ability to incur additional debt to
finance such acquisitions. See "Description of the Notes" and "Description of
the Units."

ENVIRONMENT AND SAFETY

The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are subject to
extensive federal, state and local regulatory requirements relating to
environmental affairs, waste management, health and safety and chemical
products. Operating permits are or may be required for the operation of some
of the Company's operating units and chemical waste disposal operations, and
these permits are subject to revocation, modification and renewal.
Governmental authorities have the power to enforce compliance with these
regulations and permits, and violators are subject to fines, injunctions or
both. Third parties may also have the right to sue to enforce compliance.
Management believes that the Company's operations are in compliance in all
material respects with applicable environmental laws. However, the operations
of a chemical manufacturing facility entail some risk of environmental damage,
and there can be no assurance that material costs or liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict requirements of environmental laws and enforcement
policies, could bring into question the handling, manufacture, use, emission
or disposal of substances or pollutants by the Company. There can be no
assurance that past or future operations will not result in exposure to injury
or claims of injury by employees or the public due to toxic or hazardous
materials. In addition, a catastrophic event at the Company's facilities could
result in liabilities to the Company substantially in excess of its insurance
coverages. See "Business--Insurance."

19
<PAGE>

elemental chlorine in the pulp bleaching process. Certain environmental groups
are encouraging passage of regulations which restrict the amount of Absorbable
Organic Halides ("AOX") or chlorine derivatives in bleach plant effluent.
Increased substitution of chlorine dioxide for elemental chlorine in the pulp
bleaching process significantly reduces the amount of AOX and chlorine
derivatives in bleach plant effluent. As long as there is no outright ban on
chlorine containing compounds, regulation restricting AOX or chlorine
derivatives in bleach plant effluent should favor the use of chlorine dioxide,
thus sodium chlorate. However, any significant ban on chlorine containing
compounds could have a material adverse effect on the Company's financial
condition and results of operations.

For further information on environmental and safety matters, see "Business--
Environmental and Safety Matters."

LONG-TERM CONTRACTS AND SIGNIFICANT CUSTOMERS

The Company sells substantial portions of its styrene and acrylonitrile
production under long-term contracts, and sells all of its acetic acid,
plasticizers, tertiary butylamine ("TBA") and sodium cyanide production under
long-term contracts with single customers. These contracts are intended to
provide some stability if demand for or prices of the Company's products
decline significantly, but also limit the Company's ability to take full
advantage of attractive market conditions during periods of higher prices for
these products. During fiscal 1995 a significant portion of the Company's
production from the Texas City Plant was dedicated to multi-year contracts
with Monsanto Company ("Monsanto"), subsidiaries of The British Petroleum
Company P.L.C. ("BP"), BASF Corporation ("BASF"), Mitsubishi International
Corporation ("Mitsubishi"), Flexsys America L.P. (a joint venture between
Monsanto and Akzo Nobel NV) ("Flexsys") and E.I. du Pont de Nemours and
Company ("DuPont"). Revenues from BP and Mitsubishi accounted for
approximately 16% and 13%, respectively, of the Company's fiscal 1995
revenues. Under certain market conditions, the loss of one or more of these
customers or a material reduction in the amount of product purchased by one or
more of them could have a material adverse effect on the Company. See
"Business--Sales and Marketing" and "--Contracts."

FOREIGN OPERATIONS, COUNTRY RISKS AND EXCHANGE RATE FLUCTUATIONS

Over 14% of the Company's revenues are derived from its Canadian operations
and 52% are derived from export sales. International operations and exports to
foreign markets are subject to a number of special risks, including currency
exchange rate fluctuations, trade barriers, exchange controls, national and
regional labor strikes, political risks and risks of increases in duties,
taxes and governmental royalties, as well as changes in laws and policies
governing operations of foreign-based companies. In addition, earnings of
foreign subsidiaries and intercompany payments are subject to foreign income
tax rules that may reduce cash flow available to meet required debt service
and other obligations of the Company.

Since the Company derives most of its pulp chemicals revenues from
production and sales by subsidiaries within Canada, the Company has organized
its subsidiary structure and its operations in part based on certain
assumptions about various Canadian tax (including, among others, income tax
and withholding tax) laws, currency exchange and capital repatriation laws and
other relevant laws. While the Company believes that such assumptions are
correct, there can be no assurance that Canadian taxing or other authorities
will reach the same conclusion. If such assumptions are incorrect, or if
Canada were to change or modify such laws or the current interpretation
thereof, the Company may suffer adverse tax and financial consequences.

A portion of the Company's expenses and sales are denominated in foreign
currencies, and accordingly, the Company's revenues, cash flows and earnings
may be affected by fluctuations in certain foreign exchange rates, principally
between the United States dollar and the Canadian dollar, which may also have
adverse tax effects. In addition, because a portion of the Company's sales,
cost of goods sold and other expenses are denominated in Canadian dollars, the
Company has a translation exposure to fluctuations in the Canadian dollar
against the U.S. dollar. These currency fluctuations could have a material
impact on the Company as increases in the value of the Canadian dollar have
the effect of increasing the U.S. dollar equivalent of cost of goods sold and
other expenses

20
<PAGE>

with respect to the Company's Canadian production facilities. The Company
enters into forward foreign exchange contracts to hedge such exposure for
periods consistent with its committed exposure, but does not engage in
currency speculation.

FRAUDULENT CONVEYANCE RISKS

The incurrence by Holdings of the indebtedness evidenced by the Discount
Notes and by Chemicals of the indebtedness evidenced by the Notes is subject
to review under relevant federal and state fraudulent conveyance statutes
("Fraudulent Conveyance Statutes") in a bankruptcy case or a lawsuit by or on
behalf of creditors of Holdings or Chemicals. Under these statutes, if at the
time the Discount Notes and Notes were issued and the obligations due
thereunder incurred, (i) Holdings issued the Discount Notes or Chemicals
issued the Notes with actual intent to hinder, delay or defraud creditors or
(ii) Holdings or Chemicals received less than a reasonably equivalent value in
exchange for the obligations incurred under the Discount Notes or Notes,
respectively, and if at the time such obligations were incurred, Holdings or
Chemicals (a) was insolvent or rendered insolvent by reason of such
transactions, (b) was engaged or was about to engage in a business or
transaction for which its assets were unreasonably small in relation to such
business or transaction or its remaining assets constituted unreasonably small
capital or (c) intended to incur, or believed or reasonably should have
believed that it would incur, debts beyond its ability to pay as they matured
(as the foregoing terms are defined in or interpreted under the Fraudulent
Conveyance Statutes), such court could subordinate all or a part of the
Discount Notes or Notes to existing and future indebtedness of Holdings or
Chemicals, recover any payments made on the Discount Notes or Notes or take
other action detrimental to the holders of the Discount Notes or Notes,
including, under certain circumstances, invalidating the Discount Notes or
Notes.

Based upon financial and other information currently available to it, STX
Acquisition and Chemicals believe that the indebtedness evidenced by the
Discount Notes and Notes will be incurred and the proceeds of the Discount
Notes and Notes will be used for proper purposes and in good faith. Certain
courts have held, however, that a company's purchase of its own capital stock
does not constitute reasonably equivalent value or fair consideration for
incurring indebtedness. Each of STX Acquisition and Chemicals believes that,
at the time of, and after giving effect to, the incurrence of the indebtedness
evidenced by the Discount Notes and Notes, it will be solvent and will have
sufficient capital to carry on its business and that it will be able to pay
its debts as they mature. No assurance can be given, however, that a court
would concur with such beliefs and positions.

Depending upon the law of the jurisdiction being applied, a company may be
considered insolvent for these purposes if the company is generally not paying
its debts as they become due, or if the sum of the company's debts is greater
than all of the company's property at a fair valuation. It is impossible to
predict which jurisdiction would govern any bankruptcy case by or on behalf of
Holdings or Chemicals.

DEFERRED CASH INTEREST PAYMENTS ON DISCOUNT NOTES AND CERTAIN FEDERAL INCOME
TAX CONSEQUENCES

The Discount Notes will be issued at a substantial discount from their
stated principal amount payable on the Discount Notes at final maturity.
Consequently, although cash interest will not accrue on the Discount Notes
prior to , 2001 and there will be no periodic payments of cash
interest on the Discount Notes prior to , 2002, original issue
discount will be includable in the gross income of a holder of Discount Notes,
for federal income tax purposes, in advance of the receipt of cash payments on
the Discount Notes. Since a portion of the issue price of the Units will be
allocated, for federal income tax purposes, to the Warrants, the amount of
original issue discount will be greater than the difference between the
principal amount at final maturity of the Discount Notes and the purchase
price of the Units. See "Certain Federal Income Tax Consequences" for a more
detailed discussion of the federal income tax consequences to the holders of
the Discount Notes regarding the purchase, ownership and disposition of the
Discount Notes.

If a bankruptcy case is commenced by or against Holdings under the United
States Bankruptcy Code after the issuance of the Discount Notes, the claim of
a holder of Discount Notes with respect to the principal amount

21
<PAGE>

thereof may be limited to an amount equal to the sum of (i) the portion of the
initial issue price of the Units allocated, for federal income tax purposes,
to the Discount Notes and (ii) that portion of the original issue discount
which is not deemed to constitute "unmatured interest" for purposes of the
United States Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would constitute "unmatured
interest."

CONTROL BY CERTAIN STOCKHOLDERS

Upon consummation of the Transaction, the investors in the Equity Private
Placement, including principals of TSG and Unicorn, and certain principal
stockholders of the Company will control the Company through the ownership of
at least approximately 75% of the outstanding shares of Holdings Common Stock,
assuming the maximum number of Rollover Shares. See "Principal Stockholders."
In addition, such investors and stockholders will enter into a Stockholders
Agreement, the effect of which will be to restrict transfers of shares outside
of the control group. See "Description of Capital Stock--Transfer
Restrictions." Accordingly, such stockholders collectively will have the
ability to exercise control over the business and affairs of the Company,
including the ability to elect all of the Board of Directors, the power to
determine the management of the business and the power to determine the
outcome of corporate actions requiring stockholders' approval. TSG and
Unicorn, affiliates of which will be principal stockholders of the Company,
will receive consulting fees in connection with the Transaction. See "Certain
Transactions."

ABSENCE OF A PUBLIC MARKET FOR THE SECURITIES

The Securities are new securities for which there currently is no trading
market and there can be no assurance as to the liquidity of any market for any
of the Securities that may develop, the ability of holders of the Securities
to sell their Securities, or the prices at which holders of the Securities
would be able to sell their Securities. If such markets were to exist, the
Securities could trade at prices higher or lower than their initial purchase
prices depending on many factors, including prevailing interest rates, the
Company's operating results and the market for similar securities. Although
the Underwriters have informed the Company and STX Acquisition that the
Underwriters currently intend to make a market in the Securities, such
Underwriters are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Discount
Notes, the Warrants or the Notes. Holdings does not intend to apply for
listing of the Securities on any securities exchange or for quotation on the
Nasdaq National Market, and plans to withdraw the Common Stock from listing on
the New York Stock Exchange upon consummation of the Transaction.

RISKS ASSOCIATED WITH THE WARRANTS

The warrants are not exercisable until the first anniversary of the Closing
Date. Nevertheless, certain risks associated with the ownership of Common
Stock may be relevant to purchases of Units, particularly upon the exercise of
Warrants. For example, it is expected that the liquidity of Holdings Common
Stock will be significantly limited after consummation of the Merger. In
addition, the high degree of financial leverage of Holdings will result in
negative stockholders' equity upon completion of the Transaction. See "Pro
Forma Consolidated Financial Statements and Other Information." Finally, the
terms of the Indentures and the Credit Facility will restrict the Company's
ability to pay dividends on the Holdings Common Stock, and it is not expected
that Holdings will pay such dividends for the forseeable future. Also, see "--
Control by Certain Stockholders," "--Absence of Public Market for the
Securities" and Description of Capital Stock--Transfer Restrictions."

22
<PAGE>

THE TRANSACTION

THE MERGER

The following summary of the material provisions of the Merger Agreement is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Merger Agreement. The Merger Agreement is filed as an
exhibit to the Registration Statement of which this Prospectus is a part and
is available for inspection as described under "Available Information."
Capitalized terms used but not defined herein shall have the meanings set
forth in the Merger Agreement, and such defined terms are incorporated herein
by reference.

Pursuant to the Merger Agreement, at such time as the certificate of merger
is filed with the Secretary of State of the State of Delaware (the "Effective
Time"), STX Acquisition will merge with and into the Company, with the Company
as the surviving corporation. It is anticipated that the Effective Time will
occur as soon as practicable following the special meeting of the stockholders
of the Company called for the purpose of approving and adopting the Merger
Agreement (the "Special Meeting"). In the Merger, (a) each share of Company
Common Stock owned by the Company, any wholly owned subsidiary of the Company
or STX Acquisition will be canceled without any consideration being delivered
in exchange therefor; and (b) each other share of Company Common Stock, other
than shares held by stockholders exercising dissenters' rights, will either be
(i) retained by the holder thereof as Rollover Shares or (ii) converted into
the right to receive $12.00 in cash. The aggregate number of Rollover Shares
is limited to 5.0 million, consequently, stockholders electing to retain their
shares of Company Common Stock may be subject to proration. At the Effective
Time, each share of STX Acquisition Common Stock will be converted into shares
of Company Common Stock. Certain stockholders of the Company executed the
Inducement Agreement pursuant to which such stockholders have agreed to make
elections to receive Rollover Shares rather than cash with respect to all or a
portion of the Company Common Stock held by them.

In connection with the execution of the Merger Agreement, certain
stockholders of the Company have executed irrevocable proxies pursuant to
which each such stockholder appoints officers of STX Acquisition as his proxy
for the purpose of taking the actions necessary to approve the Merger
Agreement. Such irrevocable proxies represent approximately 18% of the
outstanding Company Common Stock.

The obligations of the Company and STX Acquisition to consummate the Merger
are subject to the satisfaction of certain conditions, including (a) approval
and adoption of the Merger Agreement by the stockholders of the Company at the
Special Meeting; (b) the absence of any action by any court, government or
governmental agency preventing the consummation of the Merger; (c) the
expiration or termination of the waiting period applicable to the consummation
of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder; (d) the effectiveness
under the Securities Act of 1933, as amended (the "Securities Act"), of each
registration statement required to be filed with the Securities and Exchange
Commission (the "SEC") in order to consummate the transactions contemplated by
the Merger Agreement; and (e) the receipt of all governmental consents, orders
and approvals required to consummate the Merger.

The obligations of the Company to consummate the Merger are subject to
additional conditions, including (a) the accuracy of all representations and
warranties of STX Acquisition and the compliance, in all material respects, by
STX Acquisition with all conditions and all material obligations, agreements
and covenants on the part of STX Acquisition contained in the Merger
Agreement; (b) the execution by the stockholders of STX Acquisition of a Tag-
Along Agreement that provides that if any of such stockholders propose to
transfer, sell or otherwise dispose of (a "transfer") in the aggregate 51% or
more of the Holdings Common Stock then issued and outstanding, all other
holders of Holdings Common Stock will have the right to participate in such
transfer on a pro rata basis and on the same terms and conditions; (c) the
receipt of customary legal opinions; and (d) certain other conditions. The
obligations of STX Acquisition to consummate the Merger are also subject to
additional conditions, including (i) the accuracy of all representations and
warranties of the Company and the compliance, in all material respects, by the
Company with all conditions and all material obligations, agreements

23
<PAGE>

and covenants on the part of the Company contained in the Merger Agreement;
(ii) the absence of any changes or events (including litigation developments)
that constitute a material adverse change in the business or prospects of the
Company; (iii) the obtaining by STX Acquisition of the related financings
described under "--Financing Arrangements;" (iv) the cancellation of all stock
options, SARs and phantom shares relating to Company Common Stock; (v) the
receipt of customary accountants' comfort letters and legal opinions; and (vi)
certain other conditions. Either the Company or STX Acquisition may extend the
time for performance of any of the obligations of the other or, to the extent
permissible, waive compliance with those obligations at its discretion.

Under the Merger Agreement, (i) each option, warrant or other right to
acquire equity interests in the Company and each security convertible into or
exchangeable for such equity interests or obligating the Company to enter into
any such option, warrant or other right will be automatically canceled as of
the Effective Time, with no consideration exchanged therefor, (ii) each SAR
will be converted as of the Effective Time into the right to receive a cash
payment in an amount equal to the excess, if any, of $12.00 over the base
price provided for in such SAR (unless the holder of any SAR, the Company and
STX Acquisition agree otherwise in writing), (iii) each share of outstanding
phantom stock relating to the Company will be automatically converted as of
the Effective Time into the right to receive a cash payment in the amount of
$12.00 and (iv) all outstanding shares of restricted stock will be immediately
and fully vested. Except as otherwise agreed to by the Company and STX
Acquisition, each arrangement providing for the issuance or grant of any
equity interest in the Company or any of its subsidiaries, including any stock
purchase plan, will terminate as of the Effective Time. See "Management--
Compensation of Executive Officers--After the Transaction."

ASSET TRANSFER

Pursuant to the terms of the Merger Agreement, at the Effective Time, the
Company will convey all of the assets and properties of the Company to
Chemicals. In connection with, and as partial consideration for, such
conveyance, Chemicals will expressly assume and agree to pay, perform and
discharge when due any and all liabilities of the Company related to such
assets and properties. If the conveyance of any particular asset or property
(i) would be ineffective as between the Company and Chemicals without the
consent of any third party, (ii) would cause the impairment or loss of
ownership of such asset or property, (iii) would result in any material
penalty or other detriment to the Company or Chemicals or (iv) is prohibited
by law or any judgment, order or decree of any government or governmental
agency, then such asset or property will not be conveyed until such time as
such consent has been obtained or such circumstance has been rectified.

FINANCING ARRANGEMENTS

Pursuant to the terms of the Merger Agreement, STX Acquisition and Chemicals
are required to consummate certain related financings simultaneously with the
closing of the Merger. The Company may terminate the Merger Agreement if STX
Acquisition has not arranged the required financing and satisfied the
applicable funding obligations by August 31, 1996. The financing for the
Merger will be provided through the Offerings made hereby, together with
borrowings pursuant to the Credit Facility and the proceeds from the Equity
Private Placement. All of such financings will be consummated simultaneously
with the closing of the Merger.

Pursuant to the Merger Agreement, Chemicals is required to negotiate and
enter into definitive loan documents for a bank credit facility with Texas
Commerce Bank National Association, as administrative agent, and Credit Suisse
and Chase Securities Inc. as co-arrangers. It is currently anticipated that
the Credit Facility will consist of (i) a six and one half year $100.0 million
revolving credit facility, (ii) a six and one half year $200.0 million term
loan, (iii) an eight year $150.0 million term loan and (iv) a four year $6.5
million ESOP Term Loan. See "Description of the Credit Facility." The terms of
the Credit Facility cannot be modified or amended in any material respect
without prior consultation with the Company.

Equity financing for the Transaction is to be provided pursuant to
commitments from a group of investors to purchase a maximum of $103.1 million
of Common Stock of STX Acquisition in the Equity Private

24
<PAGE>

Placement. Purchasers of shares in the Equity Private Placement are expected
to include an investor group formed by TSG and Unicorn and the New ESOP. It is
anticipated that upon consummation of the Transaction, the investors in the
Equity Private Placement, including principals of TSG and Unicorn and certain
principal stockholders of the Company will own at least approximately 75% of
Holdings Common Stock, assuming the maximum number of Rollover Shares. The New
ESOP will acquire its shares with the proceeds of the Chemicals ESOP Loan. The
commitments to purchase in the Equity Private Placement may not be amended or
modified in any material respect without prior consultation with the Company.
In connection with the Equity Private Placement, affiliates (collectively, the
"Clipper Group") of Clipper Capital Partners, L.P. will purchase up to $25
million of equity in the Equity Private Placement. See "Underwriting."

TRANSACTION SPONSORS

TSG is a Texas-based private financial organization engaged in the
acquisition and ownership of operating businesses. Since its formation in
1982, TSG has completed 32 acquisitions for a total consideration of
approximately $5 billion. Eleven of such acquisitions, representing
approximately $3.5 billion in total consideration, have involved companies in
various segments of the chemical industry. TSG promotes employee ownership
through the use of employee stock ownership plans, direct equity ownership by
management and key employees as well as profit sharing plans which typically
include all full-time employees. Unicorn is a New Jersey-based private
financial organization engaged in the acquisition of businesses. Since its
formation in 1984, Unicorn has originated investments in over 40
entrepreneurial companies primarily in chemicals and related industries. Frank
Diassi, the current Managing General Partner of Unicorn, will be the Chairman
of the Board of both Holdings and Chemicals, and Frank Hevrdejs, the President
and a principal of TSG, and Hunter Nelson, a principal of TSG, will both be
directors of Holdings and Chemicals following the consummation of the
Transaction. See "Certain Transactions."

25
<PAGE>

USE OF PROCEEDS

The net proceeds from the Offerings are estimated to be $ million, after
deducting original issue discount, underwriting discounts and commissions and
estimated offering expenses payable by the Company. Net proceeds from the
Offerings constitutes a portion of the financing required to effect the
Merger.

The following table sets forth the estimated sources and uses of funds to
effect the Merger, as if the Merger occurred on March 31, 1996.

<TABLE>
<CAPTION>
SOURCE OF FUNDS DOLLARS IN MILLIONS
--------------- -------------------
<S> <C>
Credit Facility (a)................................... $347.9
Notes offered hereby.................................. 275.0
Units offered hereby.................................. 100.0
Equity Private Placement (b).......................... 103.1
------
Total............................................... $826.0
======
<CAPTION>
USE OF FUNDS
------------
<S> <C>
Purchase of Company Common Stock (c).................. $640.7
Purchase of other equity interests (d)................ 14.6
Refinance outstanding debt (e)........................ 124.2
Chemicals ESOP Loan (f)............................... 6.5
Estimated transaction expenses and fees (g)........... 40.0
------
Total............................................... $826.0
======
</TABLE>
- --------

(a) Consists of amounts under the Term Loans, the Revolving Credit Facility
and the ESOP Term Loan. See "Description of the Credit Facility."
(b) Represents proceeds from the sale of STX Acquisition Common Stock to
investors in the Equity Private Placement, assuming the minimum number of
Rollover Shares. The amount of cash provided through the Equity Private
Placement may be reduced to $70.7 million if the maximum number of
Rollover Shares is retained by existing stockholders.
(c) Represents the funding of the purchase of Company Common Stock, at $12.00
per share, from stockholders who elect to receive cash in the Merger,
assuming the minimum number of Rollover Shares. The amount of funding
required to purchase the Company Common Stock may be reduced to $608.3
million if the maximum number of Rollover Shares is retained by existing
stockholders.
(d) Pursuant to the terms of the Merger Agreement, SARs, phantom stock and
restricted stock will be converted at the time of consummation of the
Merger into rights to receive cash. See "The Transaction--The Merger."
(e) Consists of $107.2 million outstanding under the Company's current credit
facility, on which the Company paid interest of 7.35% as of March 31,
1996. Such borrowings were incurred in 1995 to refinance existing
indebtedness. Also includes $17.0 million outstanding under a credit
facility associated with the Company's Valdosta, Georgia sodium chlorate
plant, on which the Company paid interest of 6.2% as of March 31, 1996.
Such borrowings were incurred in 1995 in connection with the construction
of such plant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Historical" and Notes to Consolidated Financial Statements.
(f) For a description of the Chemicals ESOP Loan, see "Management--
Compensation of Executive Officers."
(g) Estimated expenses and fees include Underwriters' discounts, advisory
fees, bank fees, legal and accounting fees, printing costs and other
transaction expenses.

26
<PAGE>

CAPITALIZATION

The following table sets forth (i) the unaudited consolidated historical
capitalization of the Company, (ii) the unaudited consolidated pro forma
capitalization of Chemicals as adjusted to give effect to the Transaction, and
(iii) the unaudited consolidated pro forma capitalization of Holdings as
adjusted to give effect to the Transaction. See "Pro Forma Consolidated
Financial Statements and Other Information" and the Company's consolidated
financial statements and their accompanying notes included elsewhere herein.

<TABLE>
<CAPTION>
MARCH 31, 1996(A)
------------------------------
(DOLLARS IN MILLIONS)
ACTUAL AS ADJUSTED
----------- ------------------
THE COMPANY CHEMICALS HOLDINGS
----------- --------- --------
<S> <C> <C> <C>
Long-term debt:
Existing credit facility..................... $107.2 $ -- $ --
Construction loan facility................... 17.0 -- --
Credit Facility.............................. -- 347.9 347.9
Notes........................................ -- 275.0 275.0
Discount Notes............................... -- -- 100.0
------ ------ ------
Total long-term debt (b)....................... 124.2 622.9 722.9(c)
Common stock held by New ESOP.................. -- -- 6.5
Less: Unearned compensation.................. -- -- (6.5)
Stockholders' equity:
Common stock (d)............................. 0.6 0.1 0.1
Warrants (e)................................. -- -- --
Additional paid-in capital (deficit) (f)..... 33.2 (191.7) (562.5)
Retained earnings (deficit).................. 294.3 (3.3) 291.0
Pension adjustment........................... (1.6) -- (1.6)
Accumulated translation adjustment........... (18.9) -- (18.9)
Deferred compensation (g).................... (0.1) -- --
Treasury stock (h)........................... (50.4) -- --
------ ------ ------
Total stockholders' equity................. 257.1 (194.9) (291.9)
------ ------ ------
Total capitalization........................... $381.3 $428.0 $431.0
====== ====== ======
</TABLE>
- --------
(a) The Merger will be accounted for as a recapitalization due to the number
of Rollover Shares to be retained by existing stockholders. Consequently,
the Merger will have no impact on the historical basis of the Company's
assets and liabilities. In addition to the adjustments reflected in the
capitalization table, there will be adjustments to reduce current and
long-term accrued liabilities to reflect payments to employees and
directors of the Company for obligations under the Company's incentive
plans.
(b) Includes pro forma current maturities of approximately $5.8 million.

(c) Upon consummation of the Transaction, Chemicals will make a subordinated
loan to Holdings of approximately $448.7 million, representing the net
proceeds of the Notes Offering and amounts initially borrowed under the
Term Loans after repayment of existing indebtedness, purchase of certain
equity interests and payment of Transaction expenses. Such loan is
reflected in additional paid-in capital of Chemicals and eliminated in
consolidation.

(d) Represents the net effect of the Transaction on the 60.327 million shares
issued at $.01 par value per share. There will be 10.891 million shares
issued subsequent to the Transaction.
(e) Warrants to be issued in connection with the Units Offering, which will be
valued upon determination of the terms of the Units Offering, have not
been valued in the table above.
(f) Reflects the consideration to be paid to the stockholders in the Merger
plus the canceled treasury stock and fees and expenses of the Transaction
which are allocated to equity accounts. Netted against these items are the
additional paid-in capital contributed by STX Acquisition, amounts
allocated to par value of Holdings Common Stock as a result of the Merger
and the historical amount of additional paid-in capital.
(g) Eliminates the unvested portion of the restricted stock which was issued
under the Company's Omnibus Stock and Incentive Plan.
(h) Treasury stock of the Company is eliminated in connection with the
Transaction.

27
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

The selected consolidated financial information set forth below has been
derived from previously published consolidated financial statements of the
Company, certain of which appear elsewhere in this Prospectus, and should be
read in conjunction with, and is qualified in its entirety by reference to,
such consolidated financial statements and their accompanying notes. The
consolidated financial information set forth below (i) as of year end and for
each of the years in the five-year period ended September 30, 1995 has been
derived from audited consolidated financial statements of the Company and (ii)
as of March 31, 1995 and March 31, 1996 and for the six-month periods then
ended has been derived from unaudited consolidated financial statements of the
Company, which, in the opinion of management, have been prepared on a basis
consistent with the audited consolidated financial statements of the Company
and contain all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the interim financial
position and results of operations. The interim period results of operations
presented are not necessarily indicative of the results to be expected for the
full year.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $542.7 $430.5 $518.8 $700.8 $1,030.2 $544.6 $382.4
Cost of goods sold...... 472.4 402.6 477.9 606.9 758.6 402.7 323.6
------ ------ ------ ------ -------- ------ ------
Gross profit.......... 70.3 27.9 40.9 93.9 271.6 141.9 58.8
Selling, general and
administrative
expenses............... 9.7 10.3 25.5 24.4 31.7 16.0 16.1
SAR program expenses
(benefit).............. -- -- -- 21.8 (2.8) 0.5 6.7
------ ------ ------ ------ -------- ------ ------
Income from
operations........... 60.6 17.6 15.4 47.7 242.7 125.4 36.0
Interest and debt
related expenses, net
of interest income..... 6.1 8.4 22.4 22.1 14.6 9.7 3.2
Other (income) expense.. -- -- -- (2.6) -- -- 3.6
------ ------ ------ ------ -------- ------ ------
Income (loss) before
taxes and
extraordinary item... 54.5 9.2 (7.0) 28.2 228.1 115.7 29.2
Provision (benefit) for
income taxes........... 17.7 4.7 (1.6) 9.1 75.0 37.4 10.0
------ ------ ------ ------ -------- ------ ------
Income (loss) before
extraordinary item
and change in
accounting principle. 36.8 4.5 (5.4) 19.1 153.1 78.3 19.2
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions............... -- (10.4) -- -- -- -- --
Extraordinary item, loss
on early extinguishment
of debt, net of tax.... -- -- -- -- (3.1) -- --
------ ------ ------ ------ -------- ------ ------
Net income (loss)..... $ 36.8 $ (5.9) $ (5.4) $ 19.1 $ 150.0 $ 78.3 $ 19.2
====== ====== ====== ====== ======== ====== ======
Per share data:
Income (loss) before
extraordinary item and
change in accounting
principle............. $ 0.67 $ 0.08 $(0.10) $ 0.34 $ 2.76 $ 1.41 $ 0.35
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions.............. -- (0.19) -- -- -- -- --
Extraordinary item..... -- -- -- -- (0.06) -- --
------ ------ ------ ------ -------- ------ ------
Net income (loss) per
share................. $ 0.67 $(0.11) $(0.10) $ 0.34 $ 2.70 $ 1.41 $ 0.35
====== ====== ====== ====== ======== ====== ======
OTHER DATA:
EBITDA (a).............. $ 78.5 $ 41.0 $ 52.5 $108.6 $ 281.4 $146.7 $ 63.5
Depreciation and
amortization(b)........ 17.9 23.4 37.1 39.1 41.5 20.8 20.8
Capital expenditures.... 34.4 16.0 12.2 12.3 54.0 15.8 49.0
Ratio of earnings to
fixed charges(c)....... 7.1x 1.8x -- 2.1x 11.9x 9.5x 5.2x
Deficiency of earnings
to cover fixed charges. -- -- $ 7.3 -- -- -- --
OPERATING DATA:
Revenues:
Styrene................ $ 257 $ 151 $ 144 $ 288 $ 467 $ 256 $ 162
Acrylonitrile.......... 155 137 124 138 251 129 75
Acetic acid............ 69 66 64 76 94 54 29
Sodium chlorate........ -- 9 81 83 102 49 56
Annual capacity at
period end (MM lbs):
Styrene................ 1,500 1,500 1,500 1,500 1,500 1,500 1,700
Acrylonitrile.......... 700 700 700 700 740 740 740
Acetic acid............ 600 600 600 600 600 600 600
Sodium chlorate (000
tons)................. -- 340 340 340 350 340 350
Sales volume (MM lbs):
Styrene................ 1,495 1,213 1,191 1,460 1,433 773 832
Acrylontrile........... 663 573 528 668 739 401 271
Acetic acid............ 557 620 578 599 635 305 182
Sodium chlorate (000
tons)................. -- 26 248 294 336 170 167
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 28.6 $ 56.8 $ 31.0 $ 20.8 $ 74.6 $ 69.2 $ 69.0
Net property, plant and
equipment.................... 230.6 343.8 314.3 291.1 309.1 285.6 336.4
Total assets.................. 362.5 608.5 546.8 580.9 609.9 595.5 614.5
Total long-term debt
(including current portion).. 72.6 300.2 263.9 192.6 103.6 151.4 124.2
Stockholders' equity.......... 112.2 87.3 70.3 89.7 239.3 163.3 257.1
</TABLE>
- --------
(a) EBITDA represents income from operations before taking into consideration
depreciation, amortization and the impact of accruals for the Company's
SAR program. The SAR program will not be continued after the Transaction.
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to incur and service debt. EBITDA should not be
considered by an investor as an alternative to net income or income from
operations, as an indicator of the operating performance of the Company or
as an alternative to cash flows as a measure of liquidity.
(b) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in
interest expense.
(c) For purposes of computing these ratios, earnings consist of income from
continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense on debt,
amortization of financing costs, capitalized interest and the portion
(approximately one-third) of rental expense that management believes is
representative of the interest component of rental expense.

29
<PAGE>

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION

The pro forma statements of operations presented below for the year ended
September 30, 1995, and the six months ended March 31, 1996, have been derived
from the financial statements included elsewhere herein and give effect to the
Transaction as if it had occurred on October 1, 1994. The pro forma
consolidated balance sheet at March 31, 1996, presented below has been derived
from the unaudited consolidated balance sheet included elsewhere herein and
gives effect to the Transaction as if it had occurred on March 31, 1996. The
summary pro forma consolidated financial data do not necessarily represent
what such entities' financial position or results of operations would have
been if the Transaction had actually been completed as of the dates indicated
and are not intended to project such entities' financial position or results
of operations for any future period or as of any date. The information
presented below should be read in conjunction with the historical Consolidated
Financial Statements of Sterling Chemicals, Inc. and its subsidiaries and the
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.

The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Transaction as a
recapitalization. Accordingly, the historical basis of Sterling Chemicals,
Inc.'s assets and liabilities has not been impacted by the Transaction.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THE HOLDINGS
COMPANY PRO FORMA CHEMICALS PRO FORMA PRO
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $1,030.2 $1,030.2 $1,030.2
Cost of goods sold...... 758.6 0.4 (a) 759.0 759.0
-------- ------ -------- ----- --------
Gross Profit.......... 271.6 (0.4) 271.2 271.2
Selling, general and
administrative
expenses............... 28.9 2.8 (b) 31.7 31.7
-------- ------ -------- ----- --------
Income from
operations........... 242.7 (3.2) 239.5 239.5
Interest expense, net... 14.6 50.1 (c) 64.7 13.7 (c) 78.4
-------- ------ -------- ----- --------
Income from continuing
operations before
income taxes......... 228.1 (53.3) 174.8 (13.7) 161.1
Provision (benefit) for
income taxes 75.0 (18.7)(d) 56.3 (4.8)(d) 51.5
-------- ------ -------- ----- --------
Income from continuing
operations........... $ 153.1 $(34.6) $ 118.5 $(8.9) $ 109.6
======== ====== ======== ===== ========
Income per share from
continuing operations.. $ 2.76 $ 10.59
Weighted average common
shares outstanding..... 55.674 10.349(e)
OTHER DATA:
EBITDA (f).............. $ 281.4 $ 281.4 $ 281.4
Depreciation and
amortization(g)........ 41.5 41.9 41.9
Cash interest expense,
net.................... 12.6 60.2 60.2
Ratio of EBITDA to
interest expense, net.. 19.3x 4.3x 3.6x
Ratio of EBITDA to cash
interest expense, net.. 22.3x 4.7x 4.7x
Ratio of earnings to
fixed charges (h)...... 11.9x 3.5x 2.9x
</TABLE>

See accompanying Notes to Pro Forma Consolidated Financial Statements

30
<PAGE>

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

FOR SIX MONTHS ENDED MARCH 31, 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THE HOLDINGS
COMPANY PRO FORMA CHEMICALS PRO FORMA PRO
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $382.4 $382.4 $382.4
Cost of goods sold...... 323.6 0.2 (a) 323.8 323.8
------ ------ ------ ----- ------
Gross Profit.......... 58.8 (0.2) 58.6 58.6
Selling, general and
administrative
expenses............... 22.8 (6.7)(b) 16.1 16.1
------ ------ ------ ----- ------
Income from
operations........... 36.0 6.5 42.5 42.5
Interest expense, net... 3.2 28.6(c) 31.8 6.9(c) 38.7
Other (income) expense.. 3.6 3.6 3.6
------ ------ ------ ----- ------
Income (loss) from
continuing operations
before income taxes.. 29.2 (22.1) 7.1 (6.9) 0.2
Provision (benefit) for
income taxes........... 10.0 (7.7)(d) 2.3 (2.4)(d) (0.1)
------ ------ ------ ----- ------
Income (loss) from
continuing
operations........... $ 19.2 $(14.4) $ 4.8 $(4.5) $ 0.3
====== ====== ====== ===== ======
Income per share from
continuing operations.. $ 0.35 $ 0.03
Weighted average common
shares outstanding..... 55.682 10.349 (e)
OTHER DATA:
EBITDA (f).............. $ 63.5 $ 63.5 $ 63.5
Depreciation and
amortization(g)........ 20.8 21.0 21.0
Cash interest expense,
net.................... 2.6 29.5 29.5
Ratio of EBITDA to
interest expense, net.. 19.8x 2.0x 1.6x
Ratio of EBITDA to cash
interest expense, net.. 24.4x 2.2x 2.2x
Ratio of earnings to
fixed charges (h)...... 5.2x 1.2x --
Deficiency of earnings
to cover fixed charges.. -- -- $ 1.1
</TABLE>

See accompanying Notes to Pro Forma Consolidated Financial Statements

31
<PAGE>

PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)

<TABLE>
<CAPTION>
THE HOLDINGS
COMPANY PRO FORMA CHEMICALS PRO FORMA PRO
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 1.3 $ -- $ 1.3 $ -- $ 1.3
Accounts receivable... 123.9 123.9 123.9
Inventories........... 58.8 58.8 58.8
Prepaid expenses...... 4.8 4.8 4.8
Deferred income taxes. 6.7 6.7 6.7
------ ------ ------ ------ ------
Total current
assets............. 195.5 -- 195.5 -- 195.5
Property, plant and
equipment, net......... 336.4 336.4 336.4
Other assets............ 82.6 32.2 (i) 114.8 3.0 (i) 117.8
------ ------ ------ ------ ------
Total............... $614.5 $ 32.2 $646.7 $ 3.0 $649.7
====== ====== ====== ====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 62.3 $ -- $ 62.3 $ -- $ 62.3
Accrued expenses...... 50.8 (2.9)(j) 47.9 47.9
Current portion of
long-term debt....... 13.4 (13.4)(k) -- --
------ ------ ------ ------ ------
Total current
liabilities........ 126.5 (16.3) 110.2 -- 110.2
Long-term debt.......... 110.8 512.1 (k) 622.9 100.0 (k) 722.9
Deferred income taxes... 43.6 (5.5)(l) 38.1 38.1
Deferred credits and
other liabilities...... 76.5 (6.1)(j) 70.4 70.4
Common stock held by New
ESOP................... -- -- 6.5 (q) 6.5
Less: Unearned
compensation......... -- -- (6.5)(r) (6.5)
Stockholders' equity:
Common stock.......... 0.6 (0.5)(m) 0.1 0.1
Warrants.............. -- -- -- (s) --
Additional paid-in
capital (deficit).... 33.2 (224.9)(n) (191.7) (370.8)(t) (562.5)
Retained earnings
(deficit)............ 294.3 (297.6)(o) (3.3) 294.3 (u) 291.0
Pension adjustment.... (1.6) 1.6 (n) -- (1.6)(v) (1.6)
Accumulated
translation
adjustment........... (18.9) 18.9 (n) -- (18.9)(v) (18.9)
Deferred compensation. (0.1) 0.1 (j) -- --
------ ------ ------ ------ ------
307.5 (502.4) (194.9) (97.0) (291.9)
Treasury stock........ (50.4) 50.4 (p) -- --
------ ------ ------ ------ ------
Stockholders' equity.. 257.1 (452.0) (194.9) (97.0) (291.9)
------ ------ ------ ------ ------
Total............... $614.5 $ 32.2 $646.7 $ 3.0 $649.7
====== ====== ====== ====== ======
</TABLE>

See accompanying Notes to Pro Forma Consolidated Financial Statements

32
<PAGE>

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND AS OF AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)

The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
periods noted. The Merger has been accounted for as a recapitalization which
will have no impact on the historical basis of assets and liabilities. The pro
forma financial data assume there are no dissenting shareholders to the
Merger.

(a) Represents the amortization of organization cost pursuant to the
Merger.

(b) Represents the elimination of compensation benefit (expense)
associated with the Company's SAR plan, which will be terminated in
connection with the Merger. The adjustment amounts represent the SAR plan
compensation benefit (expense) recorded in the Company's historical
financial statements.

(c) Represents the elimination of interest expense related to the
historical debt outstanding and the incurrence of interest expense related
to the issuance of the Credit Facility, the Notes, and the Discount Notes
as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
1995 1996
------------- ----------
<S> <C> <C>
Holdings
Discount Notes (i)............................ $ 13.5 $ 6.8
Amortization of deferred financing costs...... 0.2 0.1
------ -----
Total Holdings.............................. $ 13.7 $ 6.9
====== =====
Chemicals
Interest expense on the Company's historical
debt......................................... $(14.8) $(4.4)
Amortization of historical deferred financing
costs........................................ (2.0) (0.6)
Interest expense on the Credit Facility (ii).. 29.6 14.8
Interest expense on the Notes (iii)........... 32.3 16.2
Amortization of deferred financing costs...... 4.5 2.3
Commitment Fee................................ 0.5 0.3
------ -----
Total Chemicals............................. $ 50.1 $28.6
====== =====
</TABLE>
--------
(i) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 13.5%. A 1% change
in the interest rate payable on the outstanding balance under the
Discount Notes would change annual interest expense and cash interest
expense by $1.0 million and $0, respectively, before the effect of
income taxes.

(ii) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 8.5%. A 1% change in
the interest rate payable on the outstanding balance under the Credit
Facility would change each of annual interest expense and cash interest
expense by $3.5 million before the effect of income taxes.

(iii) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 11.75%. A 1% change
in the interest rate payable on the outstanding balance under the Notes
would change each of annual interest expense and cash interest expense
by $2.8 million before the effect of income taxes.

(d) Represents the tax effect of the pro forma adjustments at a 35%
statutory rate.

33
<PAGE>

(e) Weighted average shares outstanding after giving effect to the
Transaction represents the 10.891 million shares of Holdings Common Stock
issued less the 0.542 million shares of Holdings Common Stock held by the
New ESOP, which are not considered outstanding for earnings per share
calculations until they are allocated to New ESOP plan participants.

(f) EBITDA represents income from operations before taking into
consideration depreciation and amortization and historical SARs benefit of
$2.8 million for the year ended September 30, 1995 and SARs expense of $6.7
million for the six months ended March 31, 1996. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. EBITDA should not be considered by an investor
as an alternative to net income or income from operations, as an indicator
of the operating performance of the Company or as an alternative to cash
flows as a measure of liquidity.

(g) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in interest
expense.

(h) For purposes of computing these ratios, earnings consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense on debt,
amortization of financing costs, capitalized interest and the portion
(approximately one-third) of rental expense that management believes is
representative of the interest component of rental expense.

(i) Represents the capitalization of organization and deferred financing
costs related to the Merger, net of expensing the historical deferred
financing costs as follows:

<TABLE>
<S> <C>
Chemicals
Organization and debt financing costs........................ $35.4
Historical debt financing costs.............................. (3.2)
-----
Total Chemicals............................................ $32.2
=====
Holdings
Debt financing costs......................................... $ 3.0
=====
</TABLE>

(j) Represents the settlement of obligations pursuant to the Company's
SARs, phantom stock and restricted stock, which will be terminated in
connection with the Merger.

(k) Represents the repayment of the Company's historical debt outstanding
and the incurrence of debt relating to the Credit Facility, the issuance of
the Notes, and the issuance of the Discount Notes as follows:

<TABLE>
<S> <C>
Holdings
Discount Notes................................................ $ 100.0
Warrants (s).................................................. --
-------
Total Holdings.............................................. $ 100.0
=======
Chemicals
Repayment of historical Debt outstanding...................... $(124.2)
Credit Facility............................................... 347.9
Notes......................................................... 275.0
-------
Total Chemicals............................................. $ 498.7
=======
</TABLE>

Subject to the borrowing base (as defined), the unused portion of the
$100 million Revolving Credit Facility will be available for working
capital and general corporate purposes, including funding $5.8 million of
current maturities on the Term Loans.

(l) Represents the deferred tax impact of expensing historical deferred
financing costs and settlement of obligations pursuant to the Company's
SARs, phantom stock and restricted stock.

34
<PAGE>

(m) Represents the net effect of the Transaction on the 60.327 million
shares issued at $.01 par value per share. There will be 10.891 million
shares issued subsequent to the Transaction.

(n) Represents (i) the contribution to Chemicals of the Company's net
assets, except for $0.1 million attributable to common stock; net of (ii)
cash advanced to Holdings, comprising the new debt proceeds, net of debt
issue and organization costs, repayment of historical Debt and settlement
of obligations pursuant to the Company's SARs, phantom stock and restricted
stock.

(o) Represents the contribution of the Company's net assets to Chemicals,
net of the write-off of historical deferred financing costs and settlement
of obligations pursuant to the Company's SARs, phantom stock and restricted
stock, after tax effects.

(p) Represents the cancellation of the 4.64 million shares of treasury
stock.

(q) Represents the proceeds from the purchase of 0.542 million shares of
Common Stock by the New ESOP in connection with the Transaction. Common
stock held by the New ESOP has been classified outside of permanent equity
because, under certain conditions, participants can require Chemicals to
purchase for cash common stock distributed to them by the New ESOP.

(r) Represents unearned compensation expense related to Common Stock held
by the New ESOP.

(s) The Warrants to be issued in connection with the Units Offering,
which will be valued upon determination of the terms of the Units Offering,
have not been valued in the pro forma financial statements.

(t) Represents amounts distributed to convert to cash 53.389 million
shares of the Company's common stock for total consideration of $640.7
million; net of the issuance of 8.048 million shares in the Equity Private
Placement for total consideration of $96.6 million; plus $1.6 million in
equity financing costs as a result of the Transaction; plus historical
amounts of retained earnings, pension adjustment and accumulated
translation adjustment; net of the cash advanced to Holdings per note (n).
The pro forma consolidated financial statements have been prepared under
the assumption that all outstanding shares of common stock are converted to
cash, except for the 2.301 million Rollover Shares, the minimum number of
Rollover Shares.

(u) Represents the Company's historical retained earnings.

(v) Represents reinstatement of historical amounts of pension adjustment
and accumulated translation adjustment.

35
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

The primary markets in which the Company competes, especially styrene and
acrylonitrile, are cyclical and are sensitive to changes in the balance
between supply and demand, the price of feedstocks, and the level of general
economic activity. Historically, these markets have experienced alternating
periods of tight supply and rising prices and profit margins, followed by
periods of large capacity additions resulting in oversupply and declining
prices and margins. However, the secular growth trend for major petrochemical
products globally has been, and is projected to continue to be, 1.3 to 2.0
times the gross domestic product growth rate. These growth rates are driven by
new applications and the substitution of petrochemical-based plastics and
fibers for materials such as metals, paper, glass, wood and cotton. In
addition, growth of petrochemicals and plastics consumption in the developing
regions of the world has been tied to increasing per capita usage of such
products, which historically has lagged behind that in the U.S. Demand from
the Far East, particularly China, tends to have a disproportionate impact on
the global markets for the Company's primary petrochemical products, due to
both volume and volatility of the region's demand. Although the Company's
direct sales to China average less than 3% of total revenues, much of the
Company's Far Eastern petrochemical product demand is ultimately driven by
Chinese demand for downstream products.

The Company sells its products primarily pursuant to multi-year contracts
and spot transactions in both the domestic and export markets. This long-term,
high volume focus allows the Company to maintain relatively low selling,
general and administrative expenses relating to products marketing. Prices for
the Company's commodity chemicals are determined by global market factors,
including changes in the cost of raw materials, that are largely beyond the
Company's control, and, except with respect to certain of its multi-year
contracts, the Company generally sells its products at prevailing market
prices.

During the past five years, the Company's results of operations have varied
significantly from year to year primarily as a result of cyclical changes in
the markets for its primary products. The Company has attempted to stabilize
these fluctuations by manufacturing two product groups, petrochemicals and
pulp chemicals, which are subject to different market dynamics, including
timing differences in their respective cyclical upturns and downturns.
However, as prices for the Company's products are expected to continue to
fluctuate in the future, any prolonged or severe softness in the market for
any of its principal products, particularly styrene and acrylonitrile, will
adversely affect the Company. In addition, in petrochemicals, the Company
markets substantial volumes (approximately 60.0%, 50.5% and 53.7% of total
sales volumes in fiscal 1993, 1994 and 1995, respectively) and generates
substantial revenues (approximately 36.4%, 32.1% and 30.2% of total revenues
in fiscal 1993, 1994 and 1995, respectively) under conversion agreements
whereby the customer furnishes raw materials which the Company processes in
exchange for a fee designed to cover its fixed and variable costs of
production. These conversion agreements allow the Company to maintain lower
levels of working capital and, in some cases, to gain access to certain
improvements in manufacturing process technology. The Company believes its
conversion agreements help insulate the Company to some extent from the
effects of declining markets and changes in raw material prices while allowing
it to share in the benefits of favorable market conditions for most of the
products sold under these arrangements.

In recent years, the Company has pursued a strategy of growth and product
diversification. In 1992, the Company acquired its pulp chemicals business
which has current sodium chlorate production capacity of 350,000 tons. In
1995, the Company began a three-year, $200 million capacity expansion and
upgrade program. Approximately 80% of the capital expenditures are expected to
be completed by the end of fiscal 1996, and the balance will be completed in
fiscal 1997. Expenditures incurred after the Transaction are expected to be
funded from operating cash flow and borrowings under the Revolving Credit
Facility. Through this program, the Company will have expanded its total
petrochemical production capacity by approximately 1.4 billion pounds,
including capacity additions of 200 million pounds of styrene, 200 million
pounds of acetic acid and 150 million gallons (approximately 995 million
pounds) of methanol. In addition, the Company is expanding its sodium chlorate
production capacity by 110,000 tons, or 30%, by constructing a new facility in
Valdosta,

36
<PAGE>

Georgia. Through this strategy, the Company has sought to capitalize on the
continuing secular growth in global demand for its key products, while
reducing its sensitivity to the cyclicality of the markets for any particular
product.

The Company believes that announced global capacity additions in styrene,
particularly in the Far East, will result in overcapacity for this market
during 1997-1998. However, the Company also believes that demand for styrene
will continue to grow at historical rates and that, over time, such potential
overcapacity will diminish. Notwithstanding the anticipated weakness in the
styrene markets, and despite the substantial interest payments payable on the
indebtedness incurred to finance the Transaction, the Company believes that
cash flow from operations, together with funds available under the Revolving
Credit Facility, will be adequate to make required payments of principal and
interest on the indebtedness that will be outstanding upon consummation of the
Transaction. See "Risk Factors--High Financial Leverage," "Risk Factors--
Cyclical Markets for Products; Dependence on Key Products" and "--Liquidity
and Capital Resources."

PETROCHEMICALS

Styrene

From 1991 to 1993, styrene's profitability was depressed because of industry
overcapacity and global recessionary pressures. However, the market for
styrene and its derivatives experienced strong growth in 1994 based primarily
on global economic growth. The U.S. economy and the economies of most Asian
countries expanded during fiscal 1994 while Europe's economy began to recover.
The strength of the U.S. automotive, housing and packaging markets also
contributed to the increased demand for styrene. By the spring of 1994,
increased demand for styrene had absorbed much of the excess capacity. In
addition, some competitors' styrene plants experienced operating difficulties
and scheduled shutdowns during the year which further tightened the market.
Most styrene plants were operating near full capacity during the last half of
fiscal 1994.

Global growth in demand for styrene and its derivatives, particularly in the
Far East, continued into fiscal 1995. Most styrene producers again operated
their plants at or near full capacity for most of fiscal 1995. A series of
significant price increases kept margins increasing into the third quarter of
fiscal 1995. During the fourth quarter of the year, however, average styrene
prices decreased 45% and average margins decreased approximately 75% from
their third quarter levels. The Company believes that demand began to weaken
in the third quarter as a result of a general slowdown in the worldwide
economic growth rate, prompting customers to begin utilizing their available
inventories and decreasing purchases of additional product, and due to
significantly decreased purchases of styrene and styrene derivatives by China.

From the fourth quarter of fiscal 1995 and continuing through the first
quarter of fiscal 1996, market conditions for styrene weakened largely as a
result of changes in China's enforcement of economic and tax policies and
monetary constraints that negatively affected its imports of styrene and its
derivatives. While it is impossible to predict when China's chemical imports
will return to previous levels, the Company believes that demand in the Far
East generally is beginning to improve. In recent months, styrene prices have
increased from the recent lows in the first six months of fiscal 1996. The
Company anticipates that styrene pricing and profitability will be better the
second half of fiscal 1996 than in the first half of the fiscal year, although
the Company does not anticipate an impending return of prices and margins to
1995 levels.

Acrylonitrile

The Company enjoyed strong demand for acrylonitrile during fiscal 1994
because of favorable economic conditions worldwide, including strong demand
for acrylic fiber in China and in most other Asian countries. In

37
<PAGE>

addition, poor cotton crops in parts of the world contributed to increased
demand for all synthetic fibers, including acrylic fiber. By the end of fiscal
1994, most acrylonitrile producers were operating at or near full capacity. As
a result of this tight supply, acrylonitrile profitability began increasing in
the fourth quarter of fiscal 1994 and continued through the third quarter of
fiscal 1995 as sales prices increased ahead of escalating raw material prices.
The improvement in market conditions for acrylonitrile into fiscal 1995 was
primarily due to continued improved demand, particularly in China, for acrylic
fiber and ABS resins, the largest derivatives of acrylonitrile.

Acrylonitrile demand began to weaken after the third quarter of fiscal 1995
for the same reasons that caused the significant negative changes in the
styrene market. Demand for acrylonitrile from export customers decreased
significantly in the fourth quarter of fiscal 1995, although export prices and
margins did not decrease significantly until the first quarter of fiscal 1996.
Market conditions for acrylonitrile weakened significantly in the first half
of fiscal 1996 primarily due to the changes in demand from China as described
above. In recent months, however, acrylonitrile prices have increased from
their recent lows in the first six months of fiscal 1996. The Company
anticipates that acrylonitrile pricing and profitability will be better in the
second half of 1996 than in the first half of the fiscal year, although the
Company does not anticipate a return to prices and volumes experienced in
fiscal 1995.

PULP CHEMICALS

Historically, sodium chlorate has experienced cycles in capacity
utilization, selling prices and profit margins. Since the mid-1980s, North
American demand for sodium chlorate has grown at an average annual rate of 10%
as pulp mills have accelerated substitution of sodium chlorate-based chlorine
dioxide for elemental chlorine in bleaching applications. However, from 1990
through mid-1994, in industry operated well below rated capacity, resulting in
declining product prices, due to oversupply created by significant capacity
expansions from 1990 to 1992.

From mid-1994, sodium chlorate supply tightened considerably as sales
volumes increased because of (i) increased substitution of chlorine dioxide
for elemental chlorine in the bleaching process, in anticipation of
environmental regulations that would eliminate the use of elemental chlorine
in pulp manufacturing, and (ii) general improvement in pulp and paper market
conditions. As a result, during the fourth quarter of fiscal 1994, the Company
realized its first sodium chlorate price increase since acquiring the business
in 1992. Beginning in fiscal 1994, royalty revenues also increased because of
higher chlorine dioxide generator operating rates and new start-ups. Eight new
Company generators commenced operation in fiscal 1994, including the first
such generator in China. The Company also was awarded 10 new generator
contracts in fiscal 1994. Improved market conditions continued through fiscal
1995 and into fiscal 1996, resulting in higher revenues from sales of both
sodium chlorate and chlorine dioxide generators and from royalties. However,
sales volume and revenues decreased in the second quarter of fiscal 1996 from
the first quarter, primarily as a result of weakened pulp demand.
Nevertheless, the Company expects that revenues and operating profits from its
pulp chemicals operations for fiscal 1996 will exceed fiscal 1995 levels.

38
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth revenues, gross profit and operating income
for the Company's primary product groups for the years ended September 30,
1993, 1994 and 1995 and the six months ended March 31, 1995 and 1996.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
--------------------- -------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Petrochemicals:
Styrene.................................. $ 144 $ 288 $ 467 $ 256 $ 162
Acrylonitrile............................ 124 138 251 129 75
Acetic Acid.............................. 64 76 94 54 29
Other.................................... 68 76 74 38 40
Pulp Chemicals............................ 119 123 144 68 76
------ ------ ------ ------ ------
$ 519 $ 701 $1,030 $ 545 $ 382
====== ====== ====== ====== ======
GROSS PROFIT:
Petrochemicals............................ $ 7 $ 58 $ 225 $ 121 $ 30
Pulp Chemicals............................ 34 36 47 21 29
------ ------ ------ ------ ------
$ 41 $ 94 $ 272 $ 142 $ 59
====== ====== ====== ====== ======
OPERATING INCOME:
Petrochemicals............................ $ (4) $ 37 $ 212 $ 113 $ 15
Pulp Chemicals............................ 19 11 31 12 18
------ ------ ------ ------ ------
$ 15 $ 48 $ 243 $ 125 $ 33
====== ====== ====== ====== ======
SALES VOLUME:
Petrochemicals (MMlbs.):
Styrene.................................. 1,191 1,460 1,433 773 832
Acrylonitrile............................ 528 668 739 401 271
Acetic Acid.............................. 578 599 635 305 182
Sodium Chlorate (000 tons)................ 248 294 336 170 167
</TABLE>

COMPARISON OF SIX MONTHS ENDED MARCH 31, 1996 TO SIX MONTHS ENDED MARCH 31,
1995

Revenues

Revenues for the first six months of fiscal 1996 were $382 million compared
to revenues of $545 million for the first six months of fiscal 1995, a
decrease of 30%. The decrease in revenues was primarily in the Company's
petrochemical business due to lower sales prices for styrene and
acrylonitrile, which was partially offset by increased revenues in the pulp
chemical business due to higher sodium chlorate sales prices.

Petrochemicals

For the first six months of fiscal 1996, the Company's revenues from its
petrochemical business decreased 36% to $306 million when compared to the
first six months of fiscal 1995 primarily due to decreases in styrene and
acrylonitrile average sales prices and lower acrylonitrile and acetic acid
sales volumes.

Styrene. Styrene revenues in the first six months of fiscal 1996 decreased
approximately 37% to $162 million compared to the same period of fiscal 1995
due to lower styrene sales prices because of weak market conditions, partially
offset by higher sales volumes. Average sales prices for the first half of
fiscal 1996 decreased by approximately 42%, although sales prices began to
increase in March. Sales volumes in the first half of fiscal

39
<PAGE>

1996 increased by approximately 8% over the same period in fiscal 1995 when a
shutdown for scheduled maintenance and catalyst replacement restricted
production. The Company's styrene unit operated at approximately 112% of its
1995 rated capacity of 1.5 billion pounds for the first six months of fiscal
1996, compared to approximately 100% for the corresponding period in fiscal
1995. Debottlenecking completed in December 1995 increased the Company's
styrene annual production capacity to 1.7 billion pounds.

The prices of styrene's major raw materials, benzene and ethylene, were
substantially lower during the first half of fiscal 1996 compared to the same
period in fiscal 1995. Benzene prices were approximately 26% lower while
ethylene prices were approximately 32% lower. These decreases helped to offset
some of the decrease in selling prices discussed above, but styrene margins
still declined substantially.

Acrylonitrile. Acrylonitrile revenues in the first six months of fiscal 1996
decreased approximately 42% to $75 million compared to the corresponding
period in fiscal 1995 primarily due to decreases of approximately 30% in
average sales prices and 32% in sales volumes. Reduced imports of
acrylonitrile derivatives by the Far East market (primarily acrylic fiber and
ABS) resulted in lower acrylonitrile sales volumes and prices.

The Company's acrylonitrile unit operated at approximately 72% of rated
capacity during the first six months of fiscal 1996 compared to approximately
98% for the corresponding period of fiscal 1995. This reduction in operating
rate was attributable to an extended shutdown for most of March 1996 for
scheduled maintenance and installation of the first phase of a state-of-the-
art distributive control system. These operations were performed during a
period of reduced demand for acrylonitrile. As a result, profits decreased
because of higher fixed cost per pound produced. The shutdown has been
completed and should result in increased efficiencies and stronger operating
fundamentals in the future.

The prices of propylene and ammonia, which are the major raw materials used
to make acrylonitrile, were approximately 22% and 19% lower, respectively, in
the first six months of fiscal 1996 than in the corresponding period in fiscal
1995. These decreases helped to offset some of the lower selling prices
discussed above, but margins still declined substantially.

Acetic Acid. Acetic acid revenues in the first six months of fiscal 1996
decreased approximately 46% to $29 million compared to the same period of
fiscal 1995 primarily due to a 40% decrease in sales volume related to a
shutdown of the acetic acid unit for expansion by 200 million pounds annual
capacity and for installation of a distributive control system. While the
expansion of the acetic acid unit is substantially complete, the additional
capacity will not be fully utilized until the completion of the partial
oxidation plant under construction by Praxair, Inc. at the Texas City Plant
during the third quarter of fiscal 1996. The partial oxidation plant will
supply raw materials to the Company's acetic acid unit.

Other Petrochemical Products. Revenues during the first six months of fiscal
1996 from the Company's other petrochemical products increased approximately
5% to $40 million, primarily due to increases in revenues from plasticizers.

Pulp Chemicals

Revenues from the Company's pulp chemical business for the first six months
of fiscal 1996 increased by approximately 12% to $76 million compared to the
first six months of fiscal 1995 primarily due to an increase in sodium
chlorate average sales prices of approximately 14%, partially offset by a 2%
decrease in sales volumes. Sodium chlorate has experienced higher sales prices
as a result of improved demand due to increased chlorine dioxide utilization
in pulp bleaching. Royalty revenues in the first six months of fiscal 1996
from installed generator technology increased approximately 8% over the first
six months of fiscal 1995 as a result of higher customer operating rates and
increased capacity.

The Company's sodium chlorate plants operated at approximately 92% of rated
capacity during the second quarter and for the first six months of fiscal 1996
compared to nearly 100% for the 1995 period. The lower operating rate resulted
from recent weakness in paper demand.

40
<PAGE>

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses for the first six
months of fiscal 1996 increased to $22.8 million compared to $16.5 million in
the first six months of fiscal 1995 primarily due to an increase in expenses
related to the Company's SAR program of $6.2 million.

Income from Operations

Income from operations for the first six months of fiscal 1996 was $36.0
million, consisting of $18.2 million from petrochemical operations and $17.8
million from pulp chemical operations. This amount represented a 71% decrease
from the same period of fiscal 1995, primarily due to weakness in the markets
for styrene and acrylonitrile discussed above, which resulted in significantly
lower margins during the first six months of fiscal 1996 compared to the 1995
period. This weakness was partially offset by higher operating income from
pulp chemicals and other petrochemicals. In addition, the Company incurred
approximately $3.7 million in start-up expenses during the first six months of
fiscal 1996 in connection with the construction of the methanol plant.

Interest and Debt Related Expenses

Interest expense for the first six months of fiscal 1996 decreased $6.5
million compared to the 1995 period primarily due to lower outstanding debt in
fiscal 1996. The Company's average interest rates decreased to 7.2% per annum
on March 31, 1996, from 8.8% per annum on March 31, 1995, primarily due to
refinancing of debt completed in April 1996.

Provision for Income Taxes

Provision for income taxes for the first six months of fiscal 1996 was $10.0
million, with an effective tax rate of 34%, compared to $37.4 million, with an
effective tax rate of 32%, for the same period of fiscal 1995. The decrease
was primarily the result of the significant decrease in the Company's taxable
income of $29.2 million for the first six months of fiscal 1996 from $115.7
million in the corresponding period of fiscal 1995.

Net Income

Due to the factors described above as well as a $3.6 million pre-tax charge
against earnings relating to the write-off of the Company's lactic acid plant
assets, net income for the first six months of fiscal 1996 was $19.2 million
compared to $78.3 million ;for the same period of fiscal 1995.

COMPARISON OF FISCAL 1995 TO FISCAL 1994

Revenues

The Company's revenues for fiscal 1995 were $1.03 billion, an increase of
$329 million from fiscal 1994. Fiscal 1995 revenues were the highest in
Company history, achieved primarily through higher sales prices and volumes
for styrene and acrylonitrile due to improving conditions in the commodity
chemical markets in 1994 and 1995. The Company's pulp chemical business also
experienced record revenues in 1995 primarily due to increased sales prices
and volumes of sodium chlorate.

Petrochemicals

The financial performance of the Company's petrochemical business was
significantly better during fiscal 1995 than in fiscal 1994. Petrochemical
revenues increased 53% to $886 million from fiscal 1994, primarily as a result
of increased average styrene and acrylonitrile sales prices and higher
acrylonitrile sales volumes.

Styrene. Styrene revenues increased 62% to $467 million in fiscal 1995
compared to fiscal 1994 primarily because of a 64% increase in average sales
prices. The styrene unit operated at approximately 96% of its 1.5

41
<PAGE>

billion pound capacity in fiscal 1995, slightly higher than in fiscal 1994, in
spite of two planned shutdowns for maintenance and catalyst replacement during
fiscal 1995 compared to no shut downs in the prior year. The second planned
shutdown, which occurred in the fourth quarter 1995, also included
modernization of the styrene unit's control instrumentation with state-of-the-
art distributive control systems.

During fiscal 1995, approximately 46% of the Company's styrene production,
representing approximately 61% of styrene revenues, was sold in the export
market. The average prices for styrene's primary raw materials, benzene and
ethylene, increased 5% and 40%, respectively, in fiscal 1995 compared to
fiscal 1994. However, the Company was able to increase styrene selling prices
and thereby margins through most of the fiscal year until the dramatic fall in
prices and margins in the fourth quarter of fiscal 1995.

Acrylonitrile. Acrylonitrile revenues for fiscal 1995 totaled $251 million,
an increase of 82% from fiscal 1994. The increased revenues primarily resulted
from an increase of 70% in average sales prices, peaking at unprecedented
levels in the third quarter of fiscal 1995, and an 11% increase in sales
volumes.

The Company's acrylonitrile unit operated at approximately 96% of capacity
during fiscal 1995, in spite of a planned shutdown for maintenance in the
first quarter and an approximately two-week unscheduled shutdown in the fourth
quarter of fiscal 1995 to correct a mechanical problem. During fiscal 1995,
most acrylonitrile producers, including the Company, were operating their
plants at or near full capacity in response to strong demand.

Acrylonitrile revenues from export sales constituted 93% of the Company's
total acrylonitrile revenues and 81% of its acrylonitrile production for 1995.
Almost all of the Company's domestic acrylonitrile revenues are from
conversion agreements. Average export acrylonitrile prices and margins were
significantly higher in fiscal 1995 than in fiscal 1994 as a result of the
strong demand during most of the year.

The average prices of acrylonitrile's primary raw materials, propylene and
ammonia, increased substantially in fiscal 1995 compared to fiscal 1994.
Average propylene prices were approximately 70% higher and average ammonia
prices increased by approximately 35%. However, the Company was able to
substantially improve margins for acrylonitrile during most of the year due to
increases in acrylonitrile sales prices, until the downturn in the fourth
quarter that negatively affected sales prices and margins.

Acetic Acid. Acetic acid revenues for fiscal 1995 totaled $94 million, an
increase of approximately 24% from fiscal 1994. The increase in revenues was
related to an increase in passed through raw material costs, specifically
methanol, during the period.

Other Petrochemical Products. Revenues in fiscal 1995 from plasticizers,
lactic acid, tertiary butylamine and sodium cyanide were approximately $74
million, a decrease of approximately 3% compared to fiscal 1994. The decline
was primarily attributable to lower lactic acid revenues.

Pulp Chemicals

Revenues from the Company's pulp chemical business increased by
approximately 17% to $144 million in fiscal 1995. The increase in revenues
resulted primarily from (i) a 14% increase in sodium chlorate sales volumes,
due to the substitution of sodium chlorate for elemental chlorine in the
bleaching process, and (ii) an 7% increase in average selling prices. Royalty
revenues from installed generator technology increased by 15% to $19 million
in fiscal 1995 as a result of higher customer operating rates and additional
installed capacity. Sales of generator technology were approximately the same
in 1995 as the previous year.

The increased sodium chlorate sales volumes in fiscal 1995 resulted in
increased capacity utilization, which contributed to lower per unit cost and
increased margins. The Company's sodium chlorate facilities operated at
approximately 97% of capacity in fiscal 1995, compared to 86% during fiscal
1994.

42
<PAGE>

Selling, General and Administrative Expenses

The Company's SG&A in fiscal 1995 were $29 million compared to $46 million
in fiscal 1994. A $25 million decrease in the expense related to the SAR
program, resulting from a 50% decrease in the number of SARs outstanding and a
decrease in the Company's stock price at the end of fiscal 1995 compared to
the end of fiscal 1994, was partially offset by a $4 million increase in
employee profit sharing, which was directly related to the Company's improved
earnings in fiscal 1995.

Income from Operations

Income from operations for fiscal 1995 was $242.7 million, consisting of
$211.8 million from petrochemical operations and $31 million from pulp
chemical operations. This amount represented a 409% increase from fiscal 1994.
The increase was primarily the result of strength in the markets for styrene
and acrylonitrile discussed above, which resulted in significantly higher
margins and volumes during fiscal 1995 compared to fiscal 1994.

Interest and Debt Related Expenses

Interest expense decreased $7.5 million in fiscal 1995 primarily due to the
Company's repayment of $105 million of debt during the year. The Company's
average interest rates decreased to 7% per annum on September 30, 1995 from 8%
per annum on September 30, 1994 primarily due to the refinancing in April
1995.

Provision for Income Taxes

Provision for income taxes for fiscal 1995 was $75.0 million, with an
effective tax rate of 33%, compared to $9.1 million, with an effective tax
rate of 32% for fiscal 1994. The increase was primarily due to the significant
increase in the Company's taxable income of $228.1 million for fiscal 1995
from $28.2 million in fiscal 1994, which was largely the result of higher
earnings from the pulp chemicals business.

Accounting Changes

Beginning in fiscal 1995, the Company adopted Financial Accounting Standards
Board Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts" ("FIN 39"). That standard requires, among other things, that
insured liabilities of the Company be recorded separately as a liability and a
claim receivable. The Company previously recorded these items on a net basis.
The adoption of FIN 39 did not have a material effect on the Company's
financial position, results of operations or liquidity.

The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which the Company is required to adopt by fiscal 1997. The
Company does not anticipate that the adoption of this Statement will have a
material adverse effect on the Company's financial position, results of
operations or liquidity.

Net Income

Due to the factors described above, net income for fiscal 1995 was $150.0
million compared to $19.1 million for fiscal 1994.

COMPARISON OF FISCAL 1994 TO FISCAL 1993

Revenues

Revenues for fiscal 1994 totaled $701 million, an increase of $182 million
from fiscal 1993. The higher revenues resulted primarily from an increase in
styrene and acrylonitrile sales volumes and higher average styrene sales
prices. The pulp chemical business contributed $123 million to the Company's
revenues in fiscal 1994, an increase of $4 million over fiscal 1993.

43
<PAGE>

Petrochemicals

Petrochemical revenues in fiscal 1994 increased 45% to $578 million compared
to fiscal 1993 primarily due to increases in styrene sales volumes and prices.

Styrene. Styrene revenues increased 100% to $288 million in fiscal 1994
compared to fiscal 1993 because of a 63% increase in average sales prices, a
23% increase in sales volumes and a shift to more direct sales from conversion
sales. Approximately one-third of the Company's styrene was previously
marketed under one of its conversion agreements that expired late in 1993. In
fiscal 1994, this volume was successfully marketed under various sales
agreements and spot sales. Revenues recognized from a direct sale are
significantly greater than revenues recognized from an equivalent conversion
sale since in a direct sale, the Company supplies the raw materials and sells
the finished product at a price which includes the value of the raw materials.

The styrene unit operated at approximately 98% of its 1.5 billion pound
capacity in fiscal 1994 compared to about 75% of capacity in fiscal 1993. In
addition to increased demand, two planned shutdowns for maintenance and
installation of new and improved catalyst during fiscal 1993, compared to no
shutdowns in 1994, contributed to the increase in operating rates.

During fiscal 1994, approximately 55% of the Company's styrene production,
representing approximately 62% of styrene revenues, was sold in the export
market, which is typically more volatile than the domestic market. While the
prices for styrene's raw materials, benzene and ethylene, increased
significantly during the second half of the fiscal year, their average prices
for the year increased only slightly.

Acrylonitrile. Acrylonitrile revenues for fiscal 1994 totaled $138 million,
an increase of 11% from fiscal 1993, as a result of a 27% increase in sales
volumes which was partially offset by a 12% decrease in average sales prices.
Although average sales prices were lower in fiscal 1994 than in 1993,
acrylonitrile prices and margins increased significantly during the last half
of fiscal 1994. Acrylonitrile's profitability did not significantly improve
until the fourth fiscal quarter, however, because of increasing raw material
costs.

The Company's acrylonitrile unit operated at 96% capacity during fiscal 1994
compared to approximately two-thirds capacity in fiscal 1993. Average export
acrylonitrile prices were lower in fiscal 1994 than fiscal 1993, and the
average price of acrylonitrile's primary raw material, propylene, was slightly
higher. Acrylonitrile's performance benefited from lower per unit fixed costs
because of higher operating rates in fiscal 1994 compared to the prior year.
Export sales of acrylonitrile increased in 1994 and constituted the great
majority of revenues in fiscal years 1994 and 1993.

Acetic Acid. Acetic acid revenues totaled $76 million for fiscal 1994, a 19%
increase over fiscal 1993 due to higher sales volumes.

Other Petrochemical Products. Revenues from the Company's other
petrochemical products were $76 million in fiscal 1994, primarily due to
higher sales volumes of plasticizers.

Pulp Chemicals

Revenues from the Company's pulp chemical business increased 3% to $123
million, primarily because of increased sales volumes of sodium chlorate and
higher royalty revenues. Revenues from sodium chlorate increased 5% from
fiscal 1993 as higher sales volumes were partially offset by lower average
sales prices. The increased sales volumes resulted in increased capacity
utilization, which contributed to lower per unit cost and increased margins. A
3% decrease in the average cost of electricity, the predominant cost in the
manufacturing of sodium chlorate, also contributed to lower costs. The
Company's sodium chlorate facilities operated at approximately 86% of capacity
in fiscal 1994, compared to 75% during fiscal 1993.

44
<PAGE>

Selling, General and Administrative Expenses

The Company's SG&A increased solely because of expenses related to the SAR
program. The Company recognized expense of $21.8 million related to the SAR
program in fiscal 1994 because of the increase in the Company's stock price.
Prior to this accrual, SG&A was $1.1 million lower in fiscal 1994 compared to
1993, despite employee profit sharing expense of $1.7 million in fiscal 1994
compared to none in fiscal 1993. There were no expenses associated with the
SARs in fiscal 1993.

Income from Operations

Income from operations for fiscal 1994 was $47.7 million, consisting of
$36.9 million from petrochemical operations and $10.8 million from pulp
chemical operations. This amount represented a 210% increase from fiscal 1993.
The increase was primarily the result of strength in the markets for styrene
discussed above, which resulted in significantly higher volumes and margins
during fiscal 1994 compared to fiscal 1993.

Provision (Benefit) for Income Taxes

Provision for income taxes for fiscal 1994 was $9.1 million, with an
estimated effective tax rate of 32%, compared to a benefit of $(1.6) million,
with an estimated effective tax rate of 22%, for the same period of fiscal
1993. The increase was primarily the result of the significant increase in the
Company's taxable income of $28.2 million during fiscal 1994 from a loss
before taxes of $(7.0) million in fiscal 1993, as well as $2.6 million of
income from a gain on the sale of assets.

Net Income (Loss)

Due to the factors described above, net income for fiscal 1994 was $19.1
million compared to a loss of ($5.4) million for fiscal 1993.

LIQUIDITY AND CAPITAL RESOURCES

Historical

Net cash provided by operations decreased to $16.2 million during the first
half of fiscal 1996 compared to $52.5 million for the 1995 period primarily
due to decreased earnings partially offset by lower payments for interest and
income taxes. The Company's long-term debt increased by approximately $7
million, net of repayments, during the first six months of fiscal 1996 due to
borrowings of $17 million to finance the construction of the Valdosta, Georgia
sodium chlorate plant. In addition, approximately $33 million was disbursed
over the first six months of fiscal 1996 for the capital spending program in
the petrochemical business as discussed below.

Net cash provided by operations increased to $192 million for fiscal 1995
from $75 million in fiscal 1994. This increase resulted primarily from
increased earnings during fiscal 1995, partially offset by a change in working
capital. The Company utilized the increased cash from operations to reduce
long-term debt by $105 million during the year, and for capital expenditures
of approximately $54 million for various projects as a part of its three-year
capital program.

Net cash used in investing activities for the year ended September 30, 1995
was approximately $54.0 million, compared to $9.7 million in the prior year.
For the six months ended March 31, 1996, net cash used in investing activities
was $49.0 million, compared to $15.8 million in the prior period. The net cash
used in investing activities in all of such periods was used for capital
expenditures as described below in "--Capital Expenditures." Net cash used in
financing activities for the year ended September 30, 1995 was approximately
$109.0 million, compared to $64.9 million in the prior year. For the six
months ended March 31, 1996, net cash provided by financing activities was
$3.3 million, primarily from proceeds from long-term debt incurred in such
period, compared to net cash used in financing activities of $38.6 million in
the prior period, primarily for repayment of long-term debt.

45
<PAGE>

Historically, the Company has funded its working capital needs with cash
from operations and borrowings under its credit facilities. Working capital
was $69 million at March 31, 1996, down slightly from $75 million at September
30, 1995. Higher styrene sales volumes in March 1996 compared to September
1995 resulted in a $12 million increase in accounts receivable. The high
styrene sales volume as well as the acrylonitrile shutdown in March 1995 were
the primary reasons for an $9 million decrease in inventory. Cash and cash
equivalents decreased $30 million primarily as a result of expenditures in the
first half of fiscal 1996 in connection with the Company's three-year $200
million capital program.

In April 1995, the Company entered into a credit facility consisting of a
revolving credit facility of $150 million and a term loan of $125 million. The
Company used the proceeds from such facility to refinance its existing debt.
Also in 1995, Sterling Pulp entered into a Cdn. $20 million revolving credit
facility, the proceeds of which were utilized to refinance the revolving debt
associated with such subsidiary, and a $60 million credit facility in
connection with the construction of its sodium chlorate plant in Valdosta,
Georgia. At March 31, 1996, the Company had indebtedness of $107 million under
the term loan and $17 million under the Valdosta credit facility. Upon
consummation of the Transaction, all of the outstanding borrowings under the
term loan, the Canadian revolver and the Valdosta credit facility will be
repaid.

Pro Forma for the Transaction

As a result of the Transaction, the Company will have significantly
increased cash requirements for debt service relating to the Credit Facility
and the Notes. If the Merger had occurred on March 31, 1996, the Company
estimates that, in addition to the proceeds from the Offerings, it would have
borrowed $341.4 million under the Credit Facility and $6.5 million under the
ESOP Term Loan with $100.0 million available for borrowings under the
Revolving Credit Facility, after giving effect to the borrowing base
limitations. On a pro forma basis for the year ended September 30, 1995, cash
interest expense related to the Credit Facility and the Notes would have
totalled approximately $60.2 million. After the Transaction, the Company will
rely on internally generated funds and, to the extent necessary, on borrowings
under the Revolving Credit Facility to meet cash requirements. The Company's
ability to incur additional debt is limited by terms of the Credit Facility
and the limitations in the Indentures. See "Description of Credit Facility,"
"Description of Notes" and "Description of Units."

Capital Expenditures

In fiscal 1995, the Company initiated a three-year capital spending program
of approximately $200 million. The program includes modernization of the Texas
City Plant, the new methanol plant at Texas City, the acetic acid expansion,
the new sodium chlorate plant at Valdosta, Georgia, debottlenecking projects
at its existing sodium chlorate facilities and various other projects.

Capital expenditures for fiscal 1995 were $54 million compared to $12
million in fiscal 1994. The fiscal 1995 capital expenditures were primarily
for plant instrumentation modernization and process improvements, the acetic
acid expansion, the new methanol plant and the new sodium chlorate plant. The
Company funded its fiscal 1995 capital expenditures from operating cash flow.
Capital expenditures for the first six months of fiscal 1996 were $49 million
compared to $16 million in the same period last year. The capital expenditures
in the first half of fiscal 1996 were primarily for the expansion of the
acetic acid unit and the ongoing construction of the methanol plant and the
Valdosta, Georgia sodium chlorate plant. As of March 31, 1996, the Company has
spent approximately half of its three-year $200 million capital plan. During
the remainder of fiscal 1996, the Company expects to spend an additional $50
million to $60 million on capital expenditures. The remaining fiscal 1996
expenditures will primarily be for the methanol plant and for a portion of the
new sodium chlorate plant which will be completed by late 1996. The Company
expects to fund its remaining fiscal 1996 capital expenditures after the
Transaction from operating cash flow and its Revolving Credit Facility, as
needed.

Capital expenditures for fiscal 1996 are expected to be approximately $110
million, with about $60 million dedicated to the petrochemical business
primarily for the completion of the acetic acid expansion, construction of the
methanol plant and modernization of the plant instrumentation. The remainder
will be invested in the pulp

46
<PAGE>

chemical business primarily for construction of the Georgia sodium chlorate
plant. Capital expenditures for fiscal 1997 are expected to be approximately
$43 million, including approximately $29 million for replacement and
environmental compliance expenditures.

Environmental

As part of the capital spending program described above, the Company
anticipates capital expenditures of approximately $25 million over the next
five years for environmentally-related prevention, containment, process
improvements and remediation at the Texas City Plant. Specific classifications
of these expenditures are difficult to project, since an expenditure may be
made for more than one purpose. The Company's capital expenditures for
environmentally-related prevention, containment and process improvements were
$3 million and $2 million for fiscal years 1995 and 1994, respectively. During
both fiscal years, the Company did not incur any material expenditures to
remediate previously contaminated sites. The Company did not incur any other
infrequent or non-recurring material environmental expenditures which were
required under existing environmental regulations in fiscal years 1995 or
1994. See "Business--Environmental and Safety Matters."

Foreign Exchange

The Company does not engage in currency speculation. However, the Company
enters into forward foreign exchange contracts to reduce risk due to Canadian
dollar exchange rate movements. The forward foreign exchange contracts have
varying maturities with none exceeding 18 months. The Company makes net
settlements of U.S. dollars for Canadian dollars at rates agreed to at
inception of the contracts. The Company had a notional amount of approximately
$26 million and $20 million of forward foreign exchange contracts outstanding
to buy Canadian dollars at September 30, 1995 and 1994, respectively. The
deferred gain on these forward foreign exchange contracts at September 30,
1995 and 1994 was immaterial.

47
<PAGE>

BUSINESS

GENERAL

The Company is one of North America's leading producers of selected
commodity petrochemicals, used in the production of a wide array of consumer
goods and industrial products, and pulp chemicals used in paper manufacturing.
The Company ranks among the top three North American producers in terms of
rated production capacity for each of its primary products, including styrene,
acrylonitrile, acetic acid and sodium chlorate. Other products manufactured by
the Company include methanol, plasticizers, tertiary butylamine, sodium
cyanide and sodium chlorite. The Company manufactures all of its
petrochemicals at its Texas City Plant, and believes that the large scale of
this facility and its location on the U.S. Gulf Coast provides it with certain
cost advantages. The Company's pulp chemicals are currently produced at four
plants in Canada. A fifth plant, under construction in Valdosta, Georgia, is
scheduled to begin production in late 1996. The Company believes that its pulp
chemical plants benefit from their proximity to key customers in the paper
industry and their access to competitively priced electricity, which
represents the most significant production cost in sodium chlorate
manufacturing.

In recent years, the Company has pursued a strategy of growth and product
diversification. In 1992, the Company acquired its pulp chemicals business
which has current sodium chlorate production capacity of 350,000 tons. In
1995, the Company began a three-year, $200 million capacity expansion and
upgrade program, which is expected to be approximately 80% complete by the end
of fiscal 1996. Through this program, the Company will have expanded its total
petrochemical production capacity by approximately 1.4 billion pounds,
including capacity additions of 200 million pounds of acetic acid and 150
million gallons (approximately 995 million pounds) of methanol. In addition,
the Company is expanding its sodium chlorate production capacity by 110,000
tons, or 30%, by constructing a new facility in Valdosta, Georgia. Through
this growth, the Company has sought to capitalize on the continuing secular
growth in global demand for its key products, while reducing its sensitivity
to the cyclicality of the markets for any particular product. The following
table sets forth the total revenues and sales volumes for the Company by its
primary products.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
-------------------- -------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE
Petrochemicals:
Styrene............................. $ 144 $ 288 $ 467 $ 256 $ 162
Acrylonitrile....................... 124 138 251 129 75
Acetic Acid......................... 64 76 94 54 29
Other............................... 68 76 74 38 40
------ ------ ------ ------ ------
400 578 886 477 306
Pulp Chemicals........................ 119 123 144 68 76
------ ------ ------ ------ ------
Total................................. $ 519 $ 701 $1,030 $ 545 $ 382
====== ====== ====== ====== ======
SALES VOLUMES
Petrochemicals (MM lbs.):
Styrene............................. 1,191 1,460 1,433 773 832
Acrylonitrile....................... 528 668 739 401 271
Acetic Acid......................... 578 599 635 305 182
Sodium Chlorate (000 tons)............ 248 294 336 170 167
</TABLE>

BUSINESS STRATEGY

The Company's strategy is to capitalize on its competitive market position
to take advantage of periods of tight supply and high prices and margins for
its primary products, which historically have occurred on a cyclical

48
<PAGE>

basis, and to expand its production capacity to capture future growth
opportunities in the petrochemical and pulp chemical industries. The expansion
strategy includes pursuing both internal growth opportunities, through
capacity additions and debottleneckings, as well as strategic acquisitions of
chemical businesses. Key elements of the Company's business strategy are as
follows:

Maintain Competitive Cost Position in Petrochemicals. The Company is
currently upgrading and modernizing the Texas City Plant as part of its
strategy of increasing its competitiveness by investing in new technology and
equipment. The plant modernization effort at Texas City includes a significant
capital commitment for replacing the older control technology in the styrene,
acrylonitrile and acetic acid units with state-of-the-art distributive control
systems, which should result in increased efficiencies and stronger operating
fundamentals. The Company believes that the Texas City Plant enjoys certain
cost advantages due to economies of scale and its proximity to sources of its
principal raw materials.

Pursue Low Cost Expansions in Petrochemicals. The Company is finalizing
significant capacity expansions in its petrochemicals business, including the
expansion of its acetic acid unit and construction of a new methanol plant.
The acetic acid expansion was completed in May 1996 and increased capacity by
more than 30% to nearly 800 million pounds per year. In conjunction with this
expansion, the Company is constructing a world-scale 150 million gallon
methanol facility scheduled to begin production in September 1996. Capital
investment will be shared equally by the Company and BP. The Company will be
entitled to 60% of the methanol production and BP will be entitled to the
remaining 40% of production. Approximately one-half of the total methanol
production will be used as a raw material in the Company's acetic acid unit,
replacing methanol currently purchased from third parties. The Company
believes that both its acetic acid expansion and new methanol plant
construction will be completed for significantly less than the typical capital
cost of a new plant.

Pursue Growth Opportunities in Pulp Chemicals. The Company's strategy in
pulp chemicals is to capture a significant portion of the growing North
American demand for sodium chlorate derivatives in pulp bleaching
applications. To this end, the Company is constructing a new 110,000 ton per
year sodium chlorate plant in Valdosta, Georgia, scheduled to begin production
in late 1996. The new facility will increase the Company's total annual sodium
chlorate capacity by 30% to nearly 460,000 tons. The plant site was selected
because of its proximity to existing customers (currently being supplied by
the Company's Canadian plants) and its access to competitively priced
electricity, which represents the most significant variable production cost in
sodium chlorate manufacturing. In addition to the Valdosta plant, the Company
has recently debottlenecked each of its four Canadian sodium chlorate plants
to add incremental production capacity.

Continue to Build Strong Industry Partnerships in Petrochemicals. The
Company plans to build on its strategy of securing long-term supply contracts
with key customers. The Company believes that it must provide high quality
products and superior customer service to maintain these long-term
relationships and has implemented management practices to insure continuous
improvement in these areas. Approximately 25% of the Company's styrene and 40%
of its acrylonitrile are manufactured under long-term conversion agreements
and 100% of its acetic acid, plasticizers and tertiary butylamine are sold
under long-term contracts which provide for production cost reimbursement plus
profit sharing. The Company believes such agreements help insulate its
operating performance, to some extent, from the effects of declining markets
and changes in raw material prices, while allowing it to share in the benefits
of favorable market conditions. In addition, the Company's long-term, high
volume focus allows it to maintain relatively low selling, general and
administrative expenses.

Implement a Focused Acquisition Strategy. The Company plans to pursue a
disciplined acquisition strategy focusing on chemical businesses and assets
which produce either:

. The same products as the Company presently manufactures, further
strengthening the Company's market position and providing cost
efficiencies in its base businesses;

. Products which provide upstream or downstream integration from the
Company's base businesses, enhancing the Company's manufacturing position
within a product chain; or

. Products which are complementary to the Company's base businesses,
further diversifying the Company's product and market positions and
reducing its overall sensitivity to economic cycles and pricing
fluctuations.

49
<PAGE>

PRODUCT SUMMARY

The Company's principal products and their primary end uses and raw
materials are set forth below.

<TABLE>
<CAPTION>
INTERMEDIATE
COMPANY PRODUCT PRODUCTS PRIMARY END PRODUCTS RAW MATERIALS
- --------------- ------------ -------------------- -------------
<S> <C> <C> <C>
PETROCHEMICALS
Styrene Polystyrene Building products, boat and Ethylene and Benzene
ABS/SAN resins automotive components,
Styrene butadiene rubber disposable cups and trays,
Styrene butadiene latex packaging and containers,
Polyester resins housewares, tires, audio and
video cassettes, luggage,
childrens' toys, paper
coating, appliance parts and
carpet backing
Acrylonitrile Acrylic fibers Apparel, furnishings, Ammonia, Air and Propylene
ABS/SAN resins upholstery, household
appliances, carpets;
plastics for automotive
parts and ABS and SAN
polymers
Acetic Acid Vinyl acetate monomer Adhesives, cigarette filters Methanol and Carbon
and surface coatings Monoxide
Methanol Acetic acid Adhesives, cigarette filters Natural Gas
MTBE and surface coatings;
Formaldehyde plywood; gasoline oxygenate
and octane enhancer
Plasticizers Polyvinyl chloride (PVC) Flexible plastics such as Alpha-Olefins, Carbon
shower curtains and liners, Monoxide,
floor coverings, cable Hydrogen, Orthoxylene and
insulation, upholstery and Air
plastic molding
TBA NA Pesticides, solvents, Isobutylene and the
pharmaceuticals and acrylonitrile
synthetic rubber co-product Hydrogen
Cyanide ("HCN")
Sodium Cyanide NA Electroplating and precious Sodium Hydroxide and co-
metals recovery product HCN
PULP CHEMICALS
Sodium Chlorate Chlorine dioxide Bleaching agent for pulp Salt, Water, Electricity
production; Downstream
products include high
quality office and coated
papers
Sodium Chlorite Chlorine dioxide Antimicrobial agent for Sodium Chlorate and
municipal water treatment, Hydrochloric Acid
disinfectant for fresh
produce
Chlorine Dioxide NA Chlorine Dioxide for use in NA
Generators the bleaching of pulp
</TABLE>

During the year ended September 30, 1995, the Company's styrene,
acrylonitrile, acetic acid and other petrochemicals represented approximately
45%, 24%, 9% and 7%, respectively, of the Company's revenues and pulp
chemicals represented approximately 14% of the Company's revenues.

INDUSTRY OVERVIEW

General

50
<PAGE>

Global styrene and acrylonitrile markets experienced strong demand growth
and rising prices and profit margins from the end of fiscal 1994 through most
of fiscal 1995. During the fourth quarter of fiscal 1995 and into the first
half of fiscal 1996, styrene and acrylonitrile prices declined as a result of
a general slowdown in global economic growth, inventory drawdowns by customers
and reduced import of petrochemicals and plastics by China, a major merchant
market purchaser. In recent months, however, prices for styrene and
acrylonitrile have increased from their recent lows in the first six months of
fiscal 1996 due to a general rebound in economic growth, inventory restocking
by customers, and increased demand in the Far East. As a result, the Company
anticipates that pricing and profitability for its styrene and acrylonitrile
products will be better in the second half of fiscal 1996 than they were in
the first half of the fiscal year. Thereafter, anticipated expansions in
worldwide production capacity of styrene in 1997 and 1998 are expected to
affect pricing of these products for a period until global demand increases
sufficiently to absorb such additional production capacity. The Company
currently expects acrylonitrile market conditions to remain relatively stable
through fiscal 1997.

Sodium chlorate sales prices and profit margins strengthened throughout
fiscal 1995 and into fiscal 1996 as a result of strong demand growth. In
recent months, weakness in the pulp and paper markets has resulted in somewhat
slower demand growth for sodium chlorate. However, sodium chlorate demand in
the second half of fiscal 1996 and in fiscal 1997 is expected to benefit from
the anticipated promulgation of environmental regulations rules which would
mandate the elimination of elemental chlorine use in pulp bleaching
applications by 1999.

The Company believes that it has developed an operating strategy to allow it
to compete effectively in periods of both rising and declining product prices.
During periods of peak demand, the experience and skill of its operating
management has allowed the Company to operate at utilization rates above its
rated capacities for several key products, enhancing the Company's earnings
generation during favorable market conditions. During cyclical downturns, the
Company believes that the profitability of its operations is supported by
having long-term sales contracts and conversion agreements, which accounted
for approximately 53% of its petrochemical sales volumes in fiscal 1995, as
well as management's emphasis on minimizing fixed costs such as selling,
general and administrative expenses.

Styrene

From 1991 to 1993, styrene's profitability was depressed because of both
industry overcapacity and global recessionary pressures. By the spring of
1994, however, demand growth resulting from economic expansion had absorbed
much of the excess capacity. As a result, styrene prices and margins increased
substantially in fiscal 1994 and through most of fiscal 1995, and average
industry utilization rates exceeded rated capacity by the third quarter of
fiscal 1995. Shortly thereafter, styrene prices started decreasing as demand
weakened as a result of a general slowdown in the worldwide economic growth
rate, prompting customers to begin utilizing their available inventories and
decreasing purchases of additional product. The weakening market conditions
were accelerated in the fourth fiscal quarter of 1995 by significantly
decreased purchases of styrene and styrene derivatives by China, primarily as
a result of changes in China's enforcement of economic and tax policies and
monetary constraints that negatively affected its imports. China accounts for
a significant portion of global purchases of styrene and styrene derivatives.
Styrene prices reached a low in the first quarter of fiscal 1996, however, and
have since rebounded as a result of the general acceleration in economic
growth, inventory re-stocking by customers, and the reemergence of Chinese
purchases. While the industry cannot predict when China's chemical imports
will return to previous levels, the Company believes that demand in the Far
East has improved in recent months. According to CMAI, spot prices for styrene
averaged approximately 19.4 cents per pound in the first quarter of fiscal
1996, but increased to approximately 30.0 cents per pound by April 1996.

According to CMAI, the North American styrene industry operated at
approximately a 97.8% utilization rate in fiscal 1995, and approximately 93.7%
in the first half of fiscal 1996. Certain styrene producers have announced
plans to add significant production capacity over the next several years,
particularly in the Far East. Current global production capacity for styrene
is estimated to be approximately 40 billion pounds and the Company believes
that approximately 7.2 billion pounds of capacity will be added by competitors
in the next two years, including an estimated 3.5 billion pounds in fiscal
1997 and 3.7 billion pounds in fiscal 1998. Although less than 5% of such
additional capacity is expected to be added on the U.S. Gulf Coast, where the
Company operates, the Company expects that prices for styrene will decline
from current levels until global demand for styrene increases sufficiently to
absorb such additional production capacity.

51
<PAGE>

The chart below details the average selling prices and capacity utilization
rates for the North American styrene industry during the period 1985 through
March 31, 1996.

NORTH AMERICAN STYRENE PRICES AND CAPACITY UTILIZATION

[Bar chart describing average selling prices and capacity obligation rates for
the North American styrene industry from 1995 through 1996 appears here.]

Source: CMAI.

Acrylonitrile

The acrylonitrile market exhibits characteristics in capacity utilization,
selling prices and profit margins similar to those of styrene. Moreover, as a
result of the Company's high percentage of export acrylonitrile sales, demand
for the Company's acrylonitrile is most significantly influenced by export
customers, particularly those that supply acrylic fiber to China. In recent
years the acrylic fiber market has been subject to volatility because of
fluctuations in demand from the Chinese market. During most of fiscal 1995,
strong demand for acrylic fiber and ABS, particularly in China, increased
demand for acrylonitrile. However, the Company believes that acrylonitrile
demand began to weaken in the third quarter of fiscal 1995 for the same
reasons that caused the deterioration in the styrene market. Demand for
acrylonitrile from export customers decreased significantly in the fourth
quarter of fiscal 1995 as a result of these developments, although export
prices and margins did not decrease significantly until the first quarter of
fiscal 1996. While the industry cannot predict when China's chemical imports
will return to previous levels, the Company believes that demand in the Far
East has improved in recent months. According to CMAI, spot prices for
acrylonitrile have increased from $0.35/lb. in the second quarter of fiscal
1996 to $0.38/lb. in April 1996.

According to CMAI, the North American acrylonitrile industry operated at
approximately a 96.9% utilization rate in fiscal 1995, and approximately
100.1% in the first half of fiscal 1996. The Company believes that during
fiscal 1997 and 1998, global industry capacity will increase by approximately
940 million pounds or

52
<PAGE>

9%. Although the Company believes demand growth will match capacity in 1997,
production capacity anticipated to be added in 1998 may result in lower
utilization rates, prices and margins for acrylonitrile in 1998.

The chart below details the average selling prices and capacity utilization
rates for the North American acrylonitrile industry from the period 1985
through March 31, 1996.

NORTH AMERICAN ACRYLONITRILE PRICES AND CAPACITY UTILIZATION

[Bar chart describing average selling prices and capacity utilization rates for
the North American acrylonitrile industry from 1995 through 1996 appears here.]

Source: CMAI.

Sodium Chlorate

Historically, sodium chlorate has experienced cycles in capacity
utilization, selling prices and profit margins. From 1990 to 1994, the
industry had been operating well below rated capacity, resulting in declining
product prices, due to oversupply created by significant capacity expansion in
the period from 1990 to 1992. Since the mid-1980s, however, North America
demand for sodium chlorate has grown at an average annual rate of 10% as pulp
mills have accelerated substitution of sodium chlorate-based chlorine dioxide
for elemental chlorine in bleaching applications. Chlorine dioxide is a
powerful and highly selective oxidizing agent suitable for pulp bleaching with
the ability to substantially reduce hazardous substances, including dioxins
and furans, in bleach plant effluent as well as produce high-brightness pulp
with little or no damage to the cellulose fiber.

Substitution of chlorine dioxide for elemental chlorine is driven by
environmental concerns. Through the end of 1995, approximately 80% to 85% of
Canadian plant capacity and approximately 60% to 65% of U.S. plant capacity
has been converted to chlorine dioxide. The Company believes that the
Environmental Protection Agency will promulgate "Cluster Rules," which are
likely to mandate the elimination of elemental chlorine usage in bleaching
applications, resulting in complete substitution to chlorine dioxide by the
North American pulp industry.

53
<PAGE>

PRODUCTS

The Company ranks among the top three North American producers in terms of
rated production capacity for each of its primary products: styrene,
acrylonitrile, acetic acid and sodium chlorate. Other products manufactured by
the Company include methanol, plasticizers, TBA, sodium cyanide and sodium
chlorite. The Company manufactures all of its petrochemicals at its Texas City
Plant. The Company's pulp chemicals are produced at four plants in Canada. A
fifth plant under construction in Valdosta, Georgia, is scheduled to begin
production in late 1996. The Company also designs and provides technology for
large-scale chlorine dioxide generators for the pulp and paper industry.

PETROCHEMICALS

Styrene. The Company manufactures styrene from ethylene and benzene. Styrene
is principally used in the manufacture of intermediate products such as
polystyrene, ABS/SAN resins, synthetic rubbers, SBLatex and unsaturated
polyester resins. These intermediate products are used to produce various
consumer products, including building products, boat and automotive
components, disposable cups and trays, packaging and containers, housewares,
tires, audio and video cassettes, luggage, children's toys, paper coatings,
appliance parts and carpet backing.

The Company is the third largest North American producer of styrene monomer.
The Company's styrene unit is one of the largest in the world and has an
annual rated production capacity of 1.7 billion pounds, following a recent
debottlenecking, which represents approximately 12% of total North American
capacity. The Company sells approximately 25% of its styrene pursuant to long-
term conversion contracts. Approximately 46% of the Company's styrene was
exported in fiscal 1995, principally to the Far East, either directly or
pursuant to arrangements with large international trading companies. In fiscal
1995, the styrene unit operated at an average utilization rate of 96% and
generated revenues of $467 million, which represented 45% of the Company's
total revenues.

Acrylonitrile. The Company manufactures acrylonitrile from propylene and
ammonia. Acrylonitrile is used primarily in the manufacture of intermediate
products such as acrylic fiber and ABS/SAN resins. The principal end uses for
acrylonitrile include apparel, furnishings, upholstery, household appliances,
carpets and plastics for automotive parts.

The Company is the second largest global producer of acrylonitrile. The
Company's acrylonitrile unit has an annual rated production capacity of 740
million pounds, which represents approximately 21% of total North American
capacity. The Company sells approximately 40% of its acrylonitrile pursuant to
long-term conversion agreements. Approximately 80% of the Company's
acrylonitrile production in fiscal 1995 was exported, principally to the Far
East, either directly or pursuant to arrangements with large international
trading companies. In fiscal 1995, the acrylonitrile unit operated at an
average utilization rate of 96% and generated revenues of $251 million, which
represented 24% of the Company's total revenues.

Hydrogen cyanide is a by-product of acrylonitrile manufacturing and is used
by the Company as a raw material for the production of TBA and sodium cyanide.

Acetic Acid. The Company produces acetic acid from carbon monoxide and
methanol. Acetic acid is primarily used in the manufacture of intermediate
products such as vinyl acetate monomer. These intermediate products are used
to produce various consumer products, including pharmaceuticals, adhesives,
glue, cigarette filters and surface coatings.

The Company is the third largest North American producer of acetic acid.
Following a 200 million pound capacity expansion completed in May 1996, the
Company's acetic acid unit has an annual rated production capacity of
approximately 800 million pounds, which represents approximately 17% of total
North American capacity. All of the Company's production is sold to BP
pursuant to a long-term contract through 2016. In fiscal 1995, the acetic acid
unit operated at an average utilization rate of 107% and generated revenues of
$94 million, which represented 9% of the Company's total revenues.

54
<PAGE>

Methanol. The Company is constructing a world-scale, 150 million gallon per
year methanol plant at the Texas City Plant. The plant is expected to be
operational by September 1996. Capital investment in the plant and production
capacity will be shared equally by the Company and BP. The Company will be
entitled to 60% of methanol production and BP will be entitled to the
remaining 40% of production. Approximately one-half of the total methanol
production will be used as a raw material in the Company's acetic acid plant,
replacing methanol that is currently being purchased. The plant will be
constructed at significantly less than normal replacement cost because
available equipment already at the Texas City Plant is being refurbished and
used in the project. The plant will use highly efficient state-of-the-art
catalyst technology. The lower capital investment coupled with modern
operating technology should result in a methanol plant with significant
competitive advantages.

In a project related to the new methanol plant, Praxair, Inc. ("Praxair")
has constructed a new partial oxidation unit at the Company's Texas City Plant
that will supply carbon monoxide and hydrogen to the Company for use in the
production of acetic acid and plasticizers. The partial oxidation unit began
production in June 1996. The Company's synthesis gas reformer, which currently
is being used to produce carbon monoxide and hydrogen at the Texas City Plant,
will be available for use in the methanol plant. Refurbishing the existing
reformer, rather than building a new one, will enable the Company to construct
the methanol plant at significantly less than the normal capital cost of a new
plant.

Plasticizers. The Company manufactures plasticizers employing a series of
processes using alpha-olefins and orthoxylene as the primary raw materials.
Major end-uses for plasticizers include flexible plastics used in shower
curtains and liners, floor coverings, cable insulation, upholstery and plastic
molding. The Company has an agreement with BASF pursuant to which the Company
sells all of its plasticizer production to BASF through the end of the decade.
The Company's plasticizer capacity is 280 million pounds per year.

TBA. TBA is produced by the addition of hydrogen cyanide to isobutylene in
an acid catalyst reaction. The Company uses a portion of its by-product
hydrogen cyanide from acrylonitrile production in this process. Major end uses
for TBA include pesticides, solvents and synthetic rubber. The Company sells
all of its TBA production to Flexsys pursuant to a long-term conversion
agreement. The Company's capacity for TBA is currently 21 million pounds per
year.

Sodium Cyanide. The Company operates a sodium cyanide plant at the Texas
City Plant which is owned by DuPont. The Company and DuPont have an agreement
whereby the Company receives a fee for operating the facility through 2004.
The facility uses hydrogen cyanide by-product produced by the Company as a raw
material. The capacity of this plant is 100 million pounds per year.

PULP CHEMICALS

Sodium Chlorate. Sodium chlorate is used in the production of chlorine
dioxide and is sold primarily to pulp manufacturers for use as a bleaching
chemical primarily in the pulp manufacturing process. Bleached pulp is used to
make uncoated paper for commercial printing and for office copiers and
printers, and coated paper for magazines, catalogues, promotional printed
products, packing, tissue and other products and as a raw material to produce
sodium chlorite.

Sodium chlorate is manufactured by passing an electric current through an
undivided cell containing a solution of sodium chloride (salt). Electric power
costs typically represent approximately 70% of the variable cost of production
of sodium chlorate. Electric power is purchased by each of the Company's
facilities pursuant to contracts with local electric utilities. Consequently,
the rates charged by local electric utilities are an important competitive
factor among sodium chlorate producers. The Company's electrical power costs
are believed to be competitive with other producers in the areas in which it
operates.

Upon completion of the Valdosta, Georgia plant, the Company will be the
second largest producer of sodium chlorate. The Company's four sodium chlorate
plants have an aggregate annual rated production capacity

55
<PAGE>

of 350,000 tons. The Valdosta plant, scheduled to begin production in late
1996, will increase the Company's total annual capacity by 30% to nearly
460,000 tons. Following completion of the plant, the Company will account for
approximately 22% of North American sodium chlorate capacity. Valdosta,
Georgia was selected because of its proximity to existing customers, currently
being supplied from the Company's Canadian plants, and to reliable,
competitively priced electricity. The new facility is intended to meet the
growing market demand from the pulp and paper industry in the southeastern
U.S. In fiscal 1995, the Company's sodium chlorate plants operated at a
weighted average utilization rate of 97% and its pulp chemicals business
generated revenues of $144 million, which represented 14% of the Company's
total revenues.

Chlorine Dioxide Generators. Through its ERCO Systems Group ("ERCO"), the
Company is the largest worldwide supplier of patented technology for the
generators which certain pulp mills use to convert sodium chlorate into
chlorine dioxide. Each mill that uses chlorine dioxide requires at least one
generator. The Company receives revenue when a generator is sold to a mill and
also receives royalties from the mill after start-up, generally over the next
ten-year period, based on the amount of chlorine dioxide produced by the
generator. Historically, the Company has supplied approximately two-thirds of
all pulp mill generators worldwide.

The research and development group of Sterling Pulp works to develop new and
more efficient generators. When pulp mills move to higher levels of
substitution of chlorine dioxide for elemental chlorine, they are usually
required to upgrade generator capacity or purchase new generator technology.
Mills may also convert to a newer generator to take advantage of efficiency
advances and technological improvements. Each upgrade or conversion results in
a licensing agreement which generally provides for payment of an additional
ten-year royalty.

The Company has a representative office in Beijing, China. This office
focuses on the development of opportunities for future sales of sodium
chlorate and chlorine dioxide generators as well as for the licensing and
construction of sodium chlorate plants in that region. The first generator in
China to convert sodium chlorate to chlorine dioxide was sold by ERCO and
commenced operation in fiscal 1994, and since then several more generators
have been sold by ERCO for use in China.

Sodium Chlorite. The Company manufactures sodium chlorite at its Buckingham,
Quebec facility. Sodium chlorite is a specialty product used primarily to
produce chlorine dioxide for water treatment and as a disinfectant for fresh
produce. The Company has a rated annual capacity of approximately 3,500 tons,
which represents approximately 40% of total North American capacity.

SALES AND MARKETING

The Company sells its products primarily pursuant to multi-year contracts
and spot transactions in both the domestic and export markets through its
commercial organization and sales force. This long-term, high volume focus
allows the Company to maintain relatively low selling, general and
administrative expenses related to the marketing of its products. The Company
competes primarily on the basis of product price, quality and deliverability.
Prices for the Company's commodity chemicals are determined by market factors
that are largely beyond the Company's control, and, except with respect to a
number of its multi-year contracts, the Company generally sells its products
at prevailing market prices. The Company emphasizes the importance of
delivering products to its customers on time and within specifications. In its
effort to insure that its products are of consistently high quality, the
Company uses a statistical quality control program.

Some of the Company's multi-year contracts for its petrochemical products
are structured as conversion agreements, pursuant to which the customer
furnishes raw materials which the Company processes. In exchange, the Company
receives a fee typically designed to cover its fixed and variable costs of
production and to generally provide an element of profit dependent in amount
on the then existing market conditions for the product. These conversion
agreements allow the Company to lower working capital requirements and, in
some cases, to gain access to certain improvements in manufacturing process
technology. The Company believes its conversion agreements help insulate the
Company to some extent from the effects of declining markets and changes in
raw

56
<PAGE>

material prices while allowing it to share in the benefits of favorable market
conditions for most of the products sold under these arrangements. The balance
of the Company's products are sold by its direct sales force, which
concentrates on the styrene, acrylonitrile and pulp chemical markets. Revenues
from BP and Mitsubishi accounted for approximately 16% and 13%, respectively,
of the Company's revenues.

The Company sells sodium chlorate primarily in Canada and the U.S. generally
under one to five year supply contracts, most of which provide for minimum and
maximum volumes or a percentage of requirements at market prices. In addition,
most sales contracts contain certain "meet or release" pricing clauses and
some contain restrictions on the amount of future price increases. Certain
contracts are evergreen and require advance notice before termination. There
were no individual customers of the Company's pulp chemical business which
accounted for more than 10% of the Company's revenues.

CONTRACTS

The Company's key multi-year contracts and conversion agreements, which
collectively accounted for 28% of the Company's 1995 revenues, are detailed
below:

Styrene-Bayer

The Company and Bayer Corporation ("Bayer"), a subsidiary of Bayer AG, are
currently operating under a conversion agreement effective through December
31, 2000. Under these agreements the Company provides Bayer, subject to a
specified minimum and maximum, a major portion of Bayer's styrene requirements
for its manufacture of styrene-containing polymers. The agreement permits
Bayer to terminate its obligations upon twelve months' notice to the Company
should Bayer sell its business that uses styrene or to assign the agreement,
subject to the Company's consent, to a third party that may purchase the
business. During fiscal 1995, the Company delivered approximately 13% of its
styrene production pursuant to the predecessor agreement.

Styrene-BP Chemicals

Effective April 1, 1994 the Company and BP entered into a styrene sales and
purchase agreement. The term of the agreement initially expires in December
1996. The Company and BP are currently negotiating an extension of this
agreement. Although the likelihood and terms of any extension are impossible
to predict, at this time management has no reason to believe that the
agreement will not be extended. During fiscal 1995, the Company delivered
approximately 13% of its styrene production to BP pursuant to this agreement.

Acrylonitrile-Monsanto

The Company and Monsanto entered into a multi-year conversion agreement
effective January 1, 1994 which superceded a prior agreement that had been in
place since 1986. The initial term of this agreement will expire at the end of
1998, at which time the agreement will convert to an "evergreen" contract with
successive two year terms if not terminated. During fiscal 1995, the Company
delivered approximately 25% of its acrylonitrile production to Monsanto
pursuant to this agreement.

Acrylonitrile-BP Chemicals

In 1988, the Company entered into a long-term conversion agreement with BP,
under which BP contributed the majority of the capital expenditures required
for starting the third acrylonitrile reactor train at the Texas City Plant and
has the option to take up to approximately one-sixth of the Company's total
acrylonitrile capacity. BP furnishes the necessary raw materials and pays the
Company a conversion fee for the amount of acrylonitrile it takes. During
fiscal 1995, the Company delivered approximately 21% of its acrylonitrile
production to BP pursuant to this agreement. This agreement has an initial
term of ten years, with BP having the option to extend the agreement for two
additional five-year terms. One of the Company's three acrylonitrile reactors
incorporates certain BP technological improvements under a separate license
agreement from BP, and the Company has the right to incorporate these and any
future improvements into its other existing acrylonitrile facilities. BP has a
first security interest in and lien on the third reactor and related equipment
and in the first acrylonitrile produced

57
<PAGE>

in the three reactor units and the proceeds generated from the sales thereof
to the extent of the acrylonitrile which BP is entitled to purchase under the
production agreement. These rights are only to be exercised upon an event of
default by the Company.

Acetic Acid-BP Chemicals

The Company has had an agreement in effect since August 1986 with BP which,
as now amended, gives BP the exclusive right to purchase all of the Company's
acetic acid production until August 2016. In exchange for that exclusive
right, BP is obligated to make certain unconditional monthly payments to the
Company until August 2006. BP provides methanol and reimburses the Company on
the basis designed to provide the Company with full cost recovery. In
addition, the Company is entitled to receive annually a portion of the profits
earned by BP from the sale of acetic acid produced by the Company. The acetic
acid unit is subject to certain security arrangements (taking the form of a
sale-leaseback transaction) which provide that, until August 1996, under
certain limited circumstances generally under the Company's control, BP can
take physical possession of and operate the acetic acid unit. In August 1996,
title to the acetic acid unit will revert to the Company.

Plasticizers-BASF

The Company has a product sales agreement with BASF that initially extends
through the end of the decade, pursuant to which the Company sells all of its
plasticizer production to BASF. BASF provides certain raw materials to the
Company and markets the plasticizers produced by the Company. BASF pays fees
to the Company on a formula basis designed to reimburse the Company's direct
and allocated costs. In addition, the Company is entitled to a share of
profits earned by BASF attributable to the plasticizers supplied by the
Company. BASF retains title to and has a security interest in the raw
materials furnished by it and in the finished inventory of plasticizers
produced by the Company for delivery to BASF.

TBA-Flexsys

The Company sells all of its TBA production to Flexsys pursuant to a long-
term conversion agreement which expires on December 31, 1996, but continues
thereafter unless terminated by either party with 24 months prior written
notification, as of December 31 of any calendar year. The Company has not
received any such notice.

Sodium Cyanide-DuPont

The Company operates a sodium cyanide facility owned by DuPont which was
constructed in 1989 on land owned by the Company at the Texas City Plant. The
Company and DuPont have an agreement whereby the Company receives a fee for
operating the facility for up to 30 years. The facility utilizes as a raw
material hydrogen cyanide, a by-product of the Company's acrylonitrile
production process. The Company is compensated by DuPont for the raw material
value of the hydrogen cyanide as well as for the Company's allocated and
incremental out-of-pocket costs for operating the facility. Either party may
terminate this agreement by giving 36 months' written notice. Termination by
the Company prior to the 15th anniversary of the agreement (2004) would
require various remedies to be made by the Company to DuPont, including
penalties and cost of removal of the facility from the Company's plant site.
Termination by DuPont prior to 2004 would require DuPont to pay for the cost
of removal of the facility and reimbursement of the Company's fixed costs for
12 months. Assignability of the agreement is limited, and if the Company
assigns the agreement under certain circumstances, it must deliver to DuPont a
lease for the land on which the facility is situated and permit DuPont to
operate the facility. DuPont also may operate the sodium cyanide facility in
the event of certain defaults.

COMPETITION

58
<PAGE>

their own raw material resources. In addition, a significant portion of the
Company's business is based upon widely available technology. The entrance of
new competitors into the industry and the addition by existing competitors of
new capacity may reduce the Company's ability to maintain profit margins or
its ability to preserve its market share, or both. Such developments could
have a negative impact on the Company's ability to obtain higher profit
margins, even during periods of increased demand for the Company's products.

The Company's primary domestic competitors by product are set forth below:

Styrene The Dow Chemical Company, ARCO Chemical Company, Amoco
Chemical Company (a subsidiary of Amoco Corporation),
Chevron Chemical Company (a subsidiary of Chevron
Corporation), Cos-Mar (a joint venture of General Electric
Company and FINA Inc.) and Huntsman Chemical Corporation

Acrylonitrile The British Petroleum Company P.L.C., Cytec Industries
Inc., E.I. du Pont de Nemours and Company and Monsanto
Company

Acetic Acid Hoechst Celanese Corporation, Eastman Chemical Company and
Hanson PLC

Plasticizers Exxon Corporation, Aristech Chemicals and Eastman Chemical
Company

TBA BASF AG and Nitto Chemical Industry Co., Ltd.

Sodium Chlorate Akzo Nobel NV, CXY Chemicals Ltd. and Kerr-McGee
Corporation

Sodium Chlorite Vulcan Chemicals (a subsidiary of Vulcan Materials Co.)

Historically, petrochemical industry profitability has been affected by
vigorous price competition, which may intensify due to, among other things,
new domestic and foreign industry capacity. The Company's businesses are
subject to changes in the world economy, including changes in currency
exchange rates. In general, weak economic conditions either in the United
States or in the world tend to reduce demand and put pressure on margins.
Operations outside the United States are subject to the economic and political
risks inherent in the countries in which they operate. Additionally, the
export and domestic markets can be affected significantly by import laws and
regulations. During 1995, the Company's export sales were approximately 52% of
total revenues. It is not possible to predict accurately how changes in raw
material costs, market conditions or other factors will affect petrochemical
industry margins in the future.

RAW MATERIALS AND ENERGY RESOURCES

For each of the Company's products, the combined cost of raw materials and
utilities is far greater than all other production costs combined. Thus, an
adequate supply of these materials at reasonable prices is critical to the
success of the Company's business. The Company does not currently produce any
of its major raw materials, benzene, ethylene, propylene, ammonia and
methanol, at the Texas City Plant, or electricity at its pulp chemical
facilities, although the Company's methanol plant is expected to commence
production in July 1996. The Company believes that its primary raw materials
will, for the foreseeable future, remain in adequate supply to meet demand.
The Company obtains certain of its raw materials pursuant to conversion
agreements as described below:

Styrene. The Company manufactures styrene from ethylene and benzene. The
Company's styrene conversion agreements require that other parties furnish to
the Company the ethylene and/or benzene necessary to fulfill its conversion
obligations. Approximately 30% and 20% of the Company's fiscal 1995 benzene
and ethylene requirements, respectively, were furnished by customers pursuant
to conversion arrangements. The Company purchases benzene and ethylene for use
in the remainder of its production of styrene for sale to others. Benzene and
ethylene are both commodity petrochemicals and the price for each can
fluctuate widely due to significant changes in the availability of these
products, such as major capacity additions or significant plant operating
problems, and due to variations in the economy and commodity chemical markets
in general. The Company has multi-year arrangements with several ethylene
suppliers that provide for its estimated requirements for purchased ethylene
at generally prevailing and competitive market prices.

59
<PAGE>

Acrylonitrile. The Company produces acrylonitrile by reacting propylene and
ammonia over a solid-fluidized catalyst at low pressure. The Company's
conversion agreements require that other parties furnish to the Company the
propylene and/or ammonia necessary to fulfill its conversion obligations.
Approximately 40% of the Company's fiscal 1995 propylene and ammonia
requirements were furnished by customers pursuant to conversion arrangements.
The Company purchases propylene and ammonia for use in the remainder of its
production of acrylonitrile for sale to others. Propylene and ammonia are both
commodity petrochemicals and the price for each can fluctuate widely due to
significant changes in the availability of these products, such as major
capacity additions or significant plant operating problems, and due to
variations in the economy and commodity chemical markets in general.

TECHNOLOGY AND LICENSING

Petrochemicals

In 1986, Monsanto granted the Company a nonexclusive, irrevocable and
perpetual right and license to use Monsanto's technology at the Texas City
Plant and other technology Monsanto acquired through third party licenses in
effect at the time of the acquisition of the plant from Monsanto for the
purpose of continuing the production of the chemicals which were then produced
at the Texas City Plant. During fiscal 1991, BP purchased the acetic acid
technology from Monsanto (subject to the above licenses). The Company believes
that these licenses are material to the operation of the Texas City Plant.

BP has granted to the Company a non-exclusive, perpetual, royalty free
license (except in the case of a breach of the related production agreement)
to use BP's acrylonitrile technology at the Texas City Plant as part of the
acrylonitrile expansion project. The Company and BP have agreed to cross-
license any technology or improvements relating to the manufacture of
acrylonitrile in the Company's facility.

Management believes that the manufacturing processes that the Company
utilizes at the Texas City Plant are cost effective and competitive. Although
the Company does not engage in alternative process research with respect to
its U.S. operations, it does monitor new technology developments, and when the
Company believes it is appropriate the Company will seek to obtain licenses
for process improvements.

Pulp Chemicals

The Company produces sodium chlorate using state-of-the-art metal cell
technology.

The principal business of ERCO is the design, sale and technical service of
custom-built patented chlorine dioxide generators. Sterling Pulp's engineering
group is involved in the technical support of the Company's sales and
marketing group through joint calling efforts and defines the scope of a
project and produces technical schedules and cost estimates. The Company
performs detailed design of chlorine dioxide generators which are then
constructed by customers. Plant and instrumentation testing and generator
start-up are handled by a joint engineering/technical service team of the
Company. The Company was involved in a number of patent disputes with Akzo
Nobel regarding chlorine dioxide technology. The parties reached a settlement
of such disputes that allows licensees of both the Company and Akzo Nobel to
operate their chlorine dioxide generators within the broadest range of
operating conditions, subject to payment of royalties in certain
circumstances.

The Company's pulp chemical research and development activities are carried
out at its Toronto, Ontario laboratories. Activities include the development
of new or improved chlorine dioxide generation processes and research in new
technologies focusing on electrochemical and membrane technology related to
chorine dioxide, including improvement of quality and reduction of quantity of
pulp mill effluents and treatment of municipal water supplies.

ENVIRONMENTAL AND SAFETY MATTERS

60
<PAGE>

New laws or permit requirements and conditions may affect the Company's
operations, products or waste disposal. Past or future operations may result
in claims, regulatory action or liabilities. Expenditures could be required to
upgrade wastewater collection, pretreatment, disposal systems or other
matters. Some risk of environmental costs and liabilities is inherent in
particular operations and products of the Company, as it is with other
companies engaged in similar businesses.

The Company conducts environmental management programs to maintain
compliance with applicable environmental laws. As part of these programs, the
Company conducts or commissions reviews of its environmental performance and
addresses issues identified. The Company routinely conducts inspection and
surveillance programs to detect and respond to any leaks or spills of
regulated hazardous substances and to correct any identified regulatory
deficiency. To reduce the risk of offsite consequences from any unanticipated
event, the Company acquired a greenbelt buffer zone adjacent to the Texas City
Plant in 1991. The Company also participates in a regional air monitoring
network to monitor ambient air quality in the Texas City community. This
program is part of the Company's commitment to Responsible Care initiatives of
the Chemical Manufacturers Association and Canadian Chemical Producers
Association.

The Company has recently been recognized as a 33/50 Environmental Champion
by the EPA for surpassing the emission reduction goals of the 33/50 program at
the Texas City Plant faster than the EPA's timetable. The voluntary 33/50
program targeted 17 high priority chemicals included in the EPA's Toxic
Release Inventory. Six of the 17 chemicals are present at the Company's Texas
City Plant. The goal of the program was a 33% reduction in air emissions of
these compounds by 1992, compared to 1987 levels, and a 50% reduction by 1995.
For the 1994 reporting year, the Company achieved a 74% reduction in the
targeted chemicals including a 99% reduction in chromium and nickel compounds,
a 96% reduction in hydrogen cyanide emissions by converting this byproduct
into sodium cyanide and an 87% reduction in benzene emissions primarily by
constructing a major new waste water treatment facility. In addition to these
improvements, the Company has voluntarily initiated a complete review of the
overall environmental condition at its Texas City Plant and will initiate
appropriate actions or preventative projects necessary to insure that the
facility continues to operate in a safe and environmentally responsible
manner, including appropriate responses to previously identified elevated
concentrations of certain chemicals in the soil and groundwater. The Company
is presently unable to determine what remediation or other action, if any, may
need to be taken regarding these conditions. No assurances can be given that
the Company will not incur material environmental expenditures associated with
its facilities, operations or products.

Changing and increasingly strict environmental laws and regulations might
affect the manufacture, handling, processing, distribution or use of chemical
products and the release, treatment, storage or disposal of wastes by the
Company. For example, at both the state and federal level, the trend towards
regulation of discharges on a sectoral, geographic or multimedia basis may
directly or indirectly affect producers of specific chemicals. Such actions
may be expected to exert pressure on companies in the commodity chemical
industry to enhance their wastewater recycling and on-site treatment systems
to reflect the government's evolving views. Accordingly, the Company could be
required from time to time to make expenditures to upgrade its wastewater
collection, pretreatment or disposal systems at the Texas City Plant.

Production of chemical products involves the use, storage, transportation
and disposal of materials that may be classified as hazardous or toxic under
applicable laws. Management believes that the Company's procedures for the
use, storage, transportation and disposal of these materials are consistent
with industry standards and applicable laws and that it takes precautions to
protect its employees and others from harmful exposure to such materials.
However, there can be no assurance that past or future operations will not
result in exposure or injury or to claims of injury by employees or the public
due to the use, storage, transportation or disposal of these materials.

61
<PAGE>

Under the Assets Purchase Agreement for the Company's acquisition of the
Texas City Plant from Monsanto, Monsanto agreed to be liable and to indemnify
the Company for certain environmental liabilities. The contractual indemnity
expires upon a change of control of the Company, including the Transaction.
Accordingly, any future claims the Company may have against Monsanto would
necessarily be based upon statutory laws or common law principles, although
there can be no assurance that the Company would prevail against Monsanto with
respect to any such claim.

In connection with the Company's purchase of the pulp chemical business in
1992, the seller, Tenneco Canada, Inc., contractually retained liability for
costs, damages, fines, penalties and other losses under claims by third
parties (including employees and authorities) arising from the ownership or
operation of the facilities and businesses prior to the acquisition. The
Company is also indemnified against the breach of environmental remediation
covenants. These covenants oblige the indemnifying party to do specific
remedial work (including decommissioning the old section of the Vancouver
facility, which is underway) at the facilities within set time periods, and to
do any investigation, monitoring or remedial work required by present or
future legislation governing environmental conditions predating the
acquisition. The indemnity also protects the Company against losses arising
from the remediation of pre-acquisition environmental conditions or from pre-
acquisition violations of environmental laws. With the exception of any third
party claims, the losses against which the Company is indemnified do not
include consequential damages or lost profits. The Company has agreed to an
assignment of the Tenneco Canada, Inc. obligations to Albright & Wilson UK
Limited.

Groundwater data obtained in the course of the acquisition of the pulp
chemical business indicated elevated concentrations of certain chemicals in
the soil and groundwater at the four Canadian sites. The Company conducted a
focused baseline sampling of groundwater conditions beneath its Canadian
facilities in connection with Tenneco Canada's indemnification of the Company
for preclosing conditions which confirmed the previous data. The Company from
time to time has encountered elevated concentrations of chemicals in soils or
groundwater at its Canadian plants which it has addressed or is addressing.

During the course of the acquisition of the pulp chemical facilities by the
Company, air emissions sources were reviewed, and any available dustfall and
vegetation stress studies were considered. This review indicated emission
excursion episodes at specific locations in the scrubber systems at the
Thunder Bay, Buckingham and Vancouver facilities. The conditions at Thunder
Bay and Vancouver have been addressed and satisfactorily resolved and the
conditions at Buckingham are being addressed. The Company believes that it is
otherwise in compliance in all material respects with permit requirements
under applicable provincial law for operating emissions sources.

The Company's pulp chemical business is sensitive to potential environmental
regulation. In general, environmental regulations support substitution of
chlorine dioxide, which is produced from sodium chlorate, for elemental
chlorine in the pulp bleaching process. Certain environmental groups are
encouraging passage of regulations which restrict the amount of AOX or
chlorine derivatives in bleach plant effluent. Increased substitution of
chlorine dioxide for elemental chlorine in the pulp bleaching process
significantly reduces the amount of AOX and chlorine derivatives in bleach
plant effluent. As long as there is not an outright ban on chlorine containing
compounds, regulation restricting AOX or chlorine derivatives in bleach plant
effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any
significant ban on all chlorine containing compounds could have a material
adverse effect on the Company's financial condition and results of operations.

There are currently efforts in some jurisdictions to ban all chlorine and
chlorine-containing products, including chlorine dioxide, from the pulp
bleaching process. British Columbia has a regulation in place that would
effectively eliminate the use of chlorine dioxide in the bleaching process by
the year 2002. The pulp and paper industry is working to change this
regulation and believes that a ban of chlorine dioxide in the bleaching
process will yield no measurable environmental or public health benefit. In
the event such regulations were implemented, the Company would seek to sell
its products to customers in other markets. The Company is not aware of any
other laws or regulations currently in place which would restrict the use of
the product.

62
<PAGE>

Emissions into the air from the Texas City Plant are subject to certain
permit requirements and self-implementing emission limitations and standards
under state and federal law. The Texas City Plant is located in an area that
is classified by the EPA as not having attained the ambient air quality
standards for ozone, which is controlled by direct regulation of volatile
organic compounds ("VOCs") and nitrogen oxide ("NOx"). Additional requirements
were issued in fiscal 1992 and modified in fiscal 1994 by the Texas Natural
Resource Conservation Commission in order to achieve ambient air quality
standards for ozone. These measures may substantially increase the Company's
VOCs and NOx control costs in the future, although the cost and full impact,
if any, cannot be determined at this time.

Additionally, the Clean Air Act Amendments of 1990 contain new federal
permit requirements and provisions governing toxic air emissions. The Company
has incurred and will incur additional costs to comply with this law and with
requirements issued by the State of Texas to control VOCs and NOx, as will all
other similarly situated organic chemical manufacturing facilities.

The Company routinely incurs expenses associated with managing hazardous
substances and pollution in ongoing operations. These operating expenses
include items such as depreciation on its waste treatment facilities, outside
waste management, fuel, electricity and salaries. The amounts of these
operating expenses were approximately $45 million and $44 million for fiscal
years 1995 and 1994, respectively. The Company does not anticipate a material
increase in these types of expenses during fiscal 1996. The Company considers
these types of environmental expenditures normal operating expenses and
includes them in cost of goods sold.

Management believes that the Company is in compliance in all material
respects with applicable environmental law. However, there can be no assurance
that past practices or future operations will not result in material claims or
regulatory action.

EMPLOYEES

As of March 31, 1996, the Company had approximately 1,200 employees,
including approximately 300 at its facilities in Canada. Approximately 60% of
the employees at the Company's manufacturing facilities are covered by union
agreements. The primary union agreement is with the Texas City, Texas Metal
Trades Council, AFL-CIO, of Galveston County, Texas and covers all hourly
employees at the Texas City Plant. The Company signed a new labor agreement in
early May 1996 which is subject to renegotiation in April 1999. The new
agreement increases the flexibility of work rules which the Company believes
will increase the overall efficiency of the Texas City Plant. Employees at the
Vancouver plant are represented by the Pulp, Paper and Woodworkers Union. The
Vancouver agreement was renegotiated in November 1994 and is subject to
further renegotiation in November 1997. Employees at the Buckingham plant are
represented by either the Energy and Chemicals Workers Union or an office and
professional workers union. Both agreements were negotiated in November 1994
and are subject to renegotiation in November 1997. The Company believes its
relationship with its employees is good.

INSURANCE

The Company currently maintains $500 million of coverage for property damage
to its Texas City Plant and resulting business interruption. Although the
Company carries such insurance, it has only one styrene manufacturing facility
and one acrylonitrile manufacturing facility; thus, a significant interruption
in the operation of either facility could have a material adverse affect on
the Company's financial condition, results of operations or cash flows. The
Company maintains $338 million of combined coverage for property damage and
resulting business interruption for its pulp chemical operations. The Company
also maintains other insurance coverages for various risks associated with its
business. There is no assurance that the Company will not incur losses beyond
the limits of, or outside the coverage of, its insurance. From time to time
various types of insurance for companies in the chemical industry have been
very expensive or, in some cases, unavailable. There is no assurance that in
the future the Company will be able to maintain its existing coverage or that
the premiums will not increase substantially.

63
<PAGE>

PROPERTIES

The principal executive offices of the Company are located in Houston, Texas
and are subleased through Citicorp, N.A.

The Texas City Plant is located approximately 45 miles south of Houston in
Texas City, Texas, on a 290-acre site on Galveston Bay near many other
chemical manufacturing complexes and refineries. The Company has facilities to
load its products in drums, containers, trucks, railcars, barges and ocean-
going tankers for shipment to customers. The site offers room for future
expansion and includes a greenbelt around the northern edge of the plant site.

The Texas City Plant comprises seven basic operating units which can be
divided into three groups based on the chemistry involved. One group of
operating units involves synthesis gas chemistry (carbon monoxide and
hydrogen), and its facilities include the synthesis gas complex, the acetic
acid unit and three plasticizer units (oxo-alcohol, phthalic anhydride and
linear phthalate esters). Carbon monoxide and hydrogen are utilized as
feedstocks in the oxo-alcohol manufacturing process, and carbon monoxide is a
feedstock to produce acetic acid. A new partial oxidation unit is being
constructed by Praxair at the Texas City Plant to supply carbon monoxide and
hydrogen to the Company. See "--Raw Materials and Energy Resources--
Petrochemicals--Acetic Acid." The synthesis gas reformer will then be
available for use in the new methanol unit also under construction at the
Texas City Plant. A second group of operating units involves acrylonitrile and
hydrogen cyanide chemistry, and its facilities include the acrylonitrile unit,
the TBA unit and the sodium cyanide unit. Ammonia and propylene are used as
feedstocks in the acrylonitrile process, and hydrogen cyanide, a by-product of
that process, is used as a feedstock for the other units in this second group
and is also burned as fuel. The third operating group is based on ethylene and
benzene chemistry, and its facilities comprise the ethylbenzene and styrene
units. Although the styrene unit is independent of the rest of the facility
from a feedstock and by-product standpoint, it is the cornerstone of the
Company's energy balance, as it uses large quantities of by-product steam
generated by the acrylonitrile and phthalic anhydride units, thus reducing the
demands on the Company's steam generating facility. In this way, the Company's
utilities system links the three operating groups together in an effort to
minimize utility costs. This integration results in cost efficiencies without
significantly compromising the operating flexibility of the individual product
units.

The Company owns all of the facilities and equipment located at the Texas
City Plant other than the sodium cyanide unit owned by DuPont, a cogeneration
facility owned by a joint venture between the Company and Praxair, the new
partial oxidation unit currently under construction at the site by Praxair and
the acetic acid unit and related facilities which are operated under a ten-
year sale leaseback arrangement with BP ending in August 1996. Upon expiration
of such ten-year period, title to the acetic acid unit will revert to the
Company. The Company also owns storage facilities, approximately 200 rail cars
and an acetic acid barge. In addition, the Company subleases approximately
20,000 square feet of office space in Houston, Texas for its corporate
headquarters, owns a 50,000 square foot office building in Toronto and leases
several storage facilities in the U.S. and Asia.

Information regarding the Company's plants is presented below:

<TABLE>
<CAPTION>
PLANT LOCATION ACREAGE OWNED/LEASED
-------------- ------- ------------
<S> <C> <C>
PETROCHEMICALS:
Texas City, Texas.................................. 290 acres Owned/Leased
PULP CHEMICALS:
Buckingham, Quebec................................. 20 acres Owned
Vancouver, British Columbia........................ 20 acres Owned
Thunder Bay, Ontario............................... 20 acres Leased
Grande Prairie, Alberta............................ 15 acres Leased
Valdosta, Georgia.................................. 18 acres Leased
</TABLE>

64
<PAGE>

LEGAL PROCEEDINGS

SHAREHOLDER LAWSUITS

In April and May, 1996, six putative class action complaints relating to the
proposed Merger and the events leading up to the recommendation of the
approval thereof by the Board of Directors of the Company were filed in the
Court of Chancery for New Castle County, Delaware. By order dated May 22,
1996, the Court consolidated the six actions. The complaints name the Company
and each of its directors as defendants. One of the complaints names TSG,
Unicorn, and STX Acquisition as defendants as well. The complaints generally
allege that the course of conduct taken by the directors in considering the
Company's strategic alternatives and in recommending the Merger has been in
violation of their fiduciary duties to the Company's stockholders and seek
injunctive relief and unspecified damages. These lawsuits are styled: (i) Kurt
Kopf et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al; Civil Action
No. 14960; (ii) Ernest Hack v. Sterling Chemicals, Inc., Gordon A. Cain et al;
Civil Action No. 14962; (iii) Salim Shiry, et al. v. Sterling Chemicals, Inc.,
Gordon A. Cain et al; Civil Action No. 14963; (iv) Olga Fried, et al. v.
Sterling Chemicals, Inc., Gordon A. Cain; et al; Civil Action No. 14969; (v)
Maria Lerman, et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al, Civil
Action No. 14972; and (vi) Alm R. Kahn v. Sterling Chemicals, Inc., The
Sterling Group, Inc., The Unicorn Group, Inc., STX Acquisition Corp., Gordon
A. Cain, et al, Civil Action No. 14981. In addition, a seventh putative class
action complaint relating to the same matters was filed in the District Court
of Harris County, Texas in May 1996, styled Sigmund Balaban v. Gordon A. Cain,
et. al, Case No. 96-26271. The Company believes that these actions are without
merit and has instructed legal counsel to vigorously defend each action. While
lawsuits are in the early stages, at this time they are not anticipated to
have a material adverse effect on the financial position, results of
operations or cash flows of the Company.

PETROCHEMICALS

On January 30, 1995, the Company filed a lawsuit against Huntsman Chemical
Corporation and certain affiliates seeking a declaratory judgment in
connection with an alleged agreement arising from discussions, previously
suspended by the Company relating to possible future capacity rights for a
significant portion of the Company's styrene monomer unit at its Texas City
Plant. In the lawsuit, the Company is requesting a judicial determination
that, among other things, there was no enforceable agreement between the
Company and any of the defendants. In response, the defendants filed a
counterclaim demanding a jury trial and asserting that a contractual agreement
existed, that the Company breached the alleged agreement, and that as a result
the defendants incurred an unspecified amount of "massive damages."
Subsequently, the Company filed a motion for summary judgment. On November 30,
1995, the court granted the Company's motion for summary judgment in Sterling
Chemicals, Inc. v Huntsman Chemical Corporation; Huntsman Styrene Corporation
and Huntsman Corporation; Cause No. 95-005256; In the 61st Judicial District
Court of Harris County, Texas. The summary judgment confirms that, as a matter
of law, no enforceable contract or agreement ever existed between the Company
and the defendants. The court's order, which includes recovery of legal fees,
also moots the defendants' counterclaim against the Company for damages
resulting from breach of the alleged contract. The defendants have appealed
this decision. The Company believes a loss with respect to this matter is not
probable and is unable to quantify a reasonably possible loss estimate at this
time.

On June 19, 1995, a lawsuit styled George Allemand and Willie Allemand vs.
Sterling Chemical, Inc., et al.; Cause No. A-152,286; In the 58th Judicial
District Court of Jefferson County, Texas, was filed against the Company and
several other corporate defendants asserting personal injury and mental
anguish resulting from an incident occurring on June 16, 1995 in which a hose
being used to unload a barge of sulfuric acid at the Company's Texas City
Plant ruptured, spraying sulfuric acid on an employee of Marine Fueling
Service, Inc. The plaintiffs seek an unspecified amount of damages. The
incident is under investigation and discovery is ongoing.

On May 8, 1994, an ammonia release occurred at the Company's Texas City
Plant while a reactor in the acrylonitrile unit was being restarted after a
shutdown for routine maintenance. The Company estimated that

65
<PAGE>

approximately three thousand pounds of ammonia were emitted into the
atmosphere. Approximately nine thousand individuals have filed claims directly
with the Company alleging personal injury and/or property damage as a result
of exposure to the ammonia. The Company and its insurance carriers are in the
process of evaluating these claims. Approximately two thousand of these claims
have been settled and three thousand have been denied. Settlements, costs and
expenses to date have totaled approximately $3,000,000. All amounts above the
Company's $1,000,000 deductible (which has been charged against earnings) have
been paid by its insurance carriers. Numerous lawsuits involving approximately
4,700 plaintiffs have been filed against the Company seeking unspecified
damages for personal injuries and property damage as a result of the release.

On April 27, 1994, approximately one thousand two hundred plaintiffs filed a
lawsuit styled Angela Smith, et al. vs. Amoco Chemical Company, et al.; Cause
No. 95CV0509; In the 212th Judicial District Court of Galveston County, Texas,
suing the Company and eighteen other corporate defendants in the Texas City,
Texas area. The plaintiffs seek an unspecified amount of damages for personal
injury and property damages arising from alleged chemical releases. Discovery
is proceeding and the Company is vigorously defending this lawsuit.

On May 9, 1991, a lawsuit styled Moranda Allen, et al. vs. Sterling
Chemical, Inc., et al.; Cause No. 91-019786; In the 127th Judicial District
Court of Harris County, Texas, was filed against the Company and several other
petrochemical companies operating in the Texas City, Texas area. The
plaintiffs in the lawsuit assert personal injury and property damage claims
arising from alleged chemical releases. The plaintiffs seek an unspecified
amount of damages. Although the court dismissed a number of the plaintiffs for
failure to comply with discovery, over three hundred plaintiffs remain. The
Company is vigorously defending this lawsuit.

PULP CHEMICALS

The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel
(formerly Eka Nobel) and its affiliates. The Company was previously engaged
with Akzo Nobel in numerous patent disputes throughout the world in which the
Company and Akzo Nobel were challenging certain patents of the other and
attempting to restrict the other's operating range. The Company and Akzo Nobel
have reached an out-of-court settlement resolving all such disputes. The
settlement allows licensees of both the Company and Akzo Nobel to operate
their chlorine dioxide generators within the broadest range of operating
conditions, subject to payment of royalties in certain circumstances. The
settlement did not have a material adverse effect on the Company's financial
position or results of operations.

On January 8, 1996, Repap New Brunswick, Inc. (formerly Miramichi Pulp and
Paper, Inc.) filed a lawsuit styled Repap New Brunswick, Inc. v. Sterling Pulp
Chemicals, Ltd; In the Court of Queen's Bench of New Brunswick, Trial
Division, Judicial District of Miramichi. The plaintiff asserts property
damage, business interruption and lost profits claims resulting from the
December 17, 1992 explosion of plaintiff's chlorine dioxide generator. The
plaintiff seeks an unspecified total amount of damages. The Company is
vigorously defending this lawsuit. Based on management's review of the
available information and advice of outside legal counsel, the Company
believes that final resolution of this matter will not have a material adverse
effect on its financial position, results of operations or cash flow.

The Company is subject to various other claims and legal actions that arise
in the ordinary course of business.

66
<PAGE>

MANAGEMENT

PRESENT DIRECTORS AND EXECUTIVE OFFICERS

Frank J. Hevrdejs is currently the President and sole director and Hunter
Nelson and John D. Hawkins are currently Vice Presidents of STX Acquisition
and Chemicals.

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the directors
and executive officers of both Holdings and Chemicals following the
consummation of the Transaction.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Frank P. Diassi......... 62 Chairman of the Board of Directors
Robert W. Roten......... 62 President, Chief Executive Officer and Director
Jim P. Wise............. 52 Vice President--Finance and Chief Financial Officer
Richard K. Crump........ 50 Vice President--Commercial
Robert N. Bannon........ 51 Vice President--Operations, President Sterling Pulp Chemicals,
Ltd.
F. Maxwell Evans........ 51 Vice President, General Counsel and Secretary
Robert O. McAlister..... 56 Vice President--Human Resources and Administration
Stewart H. Yonts........ 50 Treasurer
J. Virgil Waggoner...... 68 Director (Vice Chairman)
Frank J. Hevrdejs....... 50 Director
Hunter Nelson........... 43 Director
</TABLE>

Frank P. Diassi. Mr. Diassi is currently Managing General Partner of
Unicorn, a private financial organization. He organized Unicorn in 1984 and
has originated investments in over 40 entrepreneurial companies. Prior to
forming Unicorn, Mr. Diassi organized and operated several businesses ranging
from chemical distribution to the manufacturing of organic chemicals and
detergent products. In addition, he had a number of years of executive
experience with the petrochemical department of Continental Oil Company. He
has been Chairman of the Board of Hawkeye Chemical Company and was a founding
director of Arcadian Corporation, the largest nitrogen fertilizer company in
the Western hemisphere. Mr. Diassi currently serves as Chairman of the Board
of Software Plus, Inc. In addition, he serves on the Board of Mail-Well, Inc.
and several private companies. In 1991, Unicorn Ventures, Ltd. and Unicorn
Ventures II, L.P. (the "Ventures"), small business investment companies acting
under license of the Small Business Administration (the "SBA"), and of which
Unicorn was the managing general partner, filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. The Ventures were successfully
reorganized in 1995 pursuant to a plan which included full payment of general
creditors and a restructuring of the secured debt held by the SBA.

Robert W. Roten. Mr. Roten spent the first 25 years of his career with
Monsanto Company and served as Vice President for sales and marketing for El
Paso Products Company from 1981 to 1983. Mr. Roten was President of Materials
Exchange, Inc., a Houston-based petrochemical and plastics marketing firm,
from 1983 until 1986. He served as Vice President--Commercial of the Company
from August 1986 until September 1991, when he became Vice President--
Corporate Development. Mr. Roten became Executive Vice President and Chief
Operating Officer of the Company in April 1993.

Jim P. Wise. Mr. Wise was employed by Transco Energy Company as Executive
Vice President, Chief Financial Officer and a member of the Board of Directors
from November 1982 until September 1991. From September 1991 to July 1994, he
was Chairman and Chief Executive Officer of Neostar Group, Inc., a private
investment banking and financial advisory firm. From July 1994 to September
1994, he was Senior Vice President and Chief Financial Officer of U.S.
Delivery Systems, Inc. Mr. Wise joined the Company on September 26, 1994 as
Vice President--Finance and Chief Financial Officer.

67
<PAGE>

Richard K. Crump. Mr. Crump was Vice President of Materials Management for
El Paso Products Company from 1976 through 1983 and Vice President of Sales
for Rammhorn Marketing from 1984 to August 1986. He served as Director--
Commercial of the Company from August 1986 until October 1991, when he became
Vice President--Commercial.

Robert N. Bannon. Mr. Bannon was employed by Monsanto Company for 15 years,
most recently as Manager, Strategic Operations--Sales. He became a Director in
the Company's Commercial Department in August 1986. He became the Director of
Manufacturing for the Company in October 1989, and served in that capacity
until he became Vice President--Operations in October 1991. Mr. Bannon has
been the President of Sterling Pulp Chemicals, Ltd. since August 1992 and is a
Director of Mainland Bank in Texas City, Texas.

F. Maxwell Evans. Mr. Evans joined the law firm of Bracewell & Patterson of
Houston, Texas in 1973 and was a partner in the firm from 1979 through
December 1991. He received an L.L.M. in Environmental Law in August 1992. He
became General Counsel and Secretary of the Company on September 1, 1992 and
was promoted to Vice President, General Counsel and Secretary on July 26,
1995.

Robert O. McAlister. Mr. McAlister was employed by Champlin Petroleum
Company, a subsidiary of Union Pacific Corporation from 1974 to 1987 where he
held a variety of positions in Human Resources, Marketing and Strategic
Planning. In 1987, he joined Champlin Refining and Chemicals, Inc., a joint
venture between Champlin Petroleum and PDVSA, the national oil company of
Venezuela, as Vice President of Human Resources. He joined the Company in 1991
as Director of Human Resources and was promoted to Vice President--Human
Resources and Administration on July 26, 1995.

Stewart H. Yonts. Mr. Yonts was employed by Tenneco, Inc. from 1976 to 1980,
last serving as Tax Counsel. Mr. Yonts was Tax Manager of Home Petroleum
Corporation from 1980 to 1982 and Director of Taxes of MCO Resources, Inc., a
natural resources company, from 1982 to 1986. He joined the Company as Tax
Manager in August 1986 and served as Manager of Taxes and Benefits Accounting
from November 1989 until he became the Treasurer on October 1, 1994.

J. Virgil Waggoner. Mr. Waggoner has served as President of the Company
since 1986. From 1950 to 1980 Mr. Waggoner was employed by Monsanto Company,
last serving as Group Vice President and Managing Director of Monsanto's
Plastics and Resins Company. Mr. Waggoner was President of El Paso Products
Company (now a subsidiary of Rexene Corporation), a commodity chemicals and
plastics company, from 1980 to 1983 and was a self-employed industry
consultant from 1983 to 1986. Mr. Waggoner has been on the Boards of Directors
of Kirby Corporation and Mail-Well, Inc. since July 1993 and February 1994,
respectively.

Frank J. Hevrdejs. Mr. Hevrdejs is a principal and President of TSG, which
he co-founded in 1982. Mr. Hevrdejs has actively participated in acquisitions
of over 40 businesses in the past 15 years. He is Chairman of First Sterling
Ventures Corp., an investment company, Enduro Holdings, Inc., a structural and
electrical manufacturing company, and Fibreglass Holdings, Inc., a truck
accessory manufacturer. He is also a board member of Mail-Well, Inc., an
envelope manufacturer and commercial printer, Purina Mills, Inc., an animal
feed producer, and Eagle U.S.A., an air-freight company.

Hunter Nelson. Mr. Nelson is currently a principal with TSG. Prior to
joining TSG in 1989, he served as vice president of administration and general
counsel of Fiber Industries, Inc., a producer of polyester fibers. Mr. Nelson
was previously a partner in the law firm of Andrews & Kurth L.L.P.
specializing in general corporate and securities law. Mr. Nelson serves on the
board of Sterling Diagnostic Imaging, Inc. and several other private
companies.

In addition to the above named directors, the following individuals are
expected to become directors as a result of significant purchases of STX
Acquisition Common Stock in the Equity Private Placement by entities with
which they are affiliated.

68
<PAGE>

George B. Gregory. Age 33. Mr. Gregory is a Managing Director in the Koch
Equities group of Koch Industries, Inc. where he is responsible for leading
the chemical investment and acquisitions effort. Prior to joining Koch
Equities, Mr. Gregory worked as a consultant for Monitor Company and as a
chemist for E.I. duPont de Nemours & Company.

Robert B. Calhoun. Age 53. Mr. Calhoun has been President of Clipper Asset
Management Corporation, the sole general partner of The Clipper Group, L.P., a
private investment firm, since 1991, and of Clipper Capital Corporation, the
sole general partner of Clipper Capital Partners, L.P., an affiliated private
investment firm, since 1993. From 1975 to 1991, Mr. Calhoun was a Managing
Director of CS First Boston Corporation. Mr. Calhoun is also a director of
HighwayMaster Communications, Inc., Avondale Incorporated and Interstate
Bakeries Corporation.

COMPENSATION OF DIRECTORS

Following the Transaction, members of the Board of Directors of Holdings,
other than those directors who are employees of Holdings or Chemicals, will
receive a fee of $ per year and an attendance fee of $ for each
meeting of the Board or a Committee thereof. Members of the Board of Directors
who are employees of Holdings or Chemicals will not receive a fee for their
services as directors. All directors will be reimbursed for travel expenses
for their services as directors.

69
<PAGE>

COMPENSATION OF EXECUTIVE OFFICERS

HISTORICAL INFORMATION

Set forth below is information regarding compensation arrangements and
benefits paid or made available to the five most highly compensated executive
officers of the Company (the "named executive officers") for the three fiscal
years ended September 30, 1995. Compensation during such fiscal years included
participation in certain stock option, stock appreciation and other benefit
plans sponsored by the Company or its subsidiaries, in which the named
executive officers will no longer be eligible to participate after the
Transaction. For information regarding cash compensation arrangements and
benefit plans to be implemented by the Company, see the information set forth
below under the caption "--After the Transaction."

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------
ANNUAL
COMPENSATION(3) AWARDS PAYOUTS
----------------- ----------------------- ------------
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS STOCK UNDERLYING COMPENSATION
POSITION YEAR ($)(1) ($)(2) AWARD(S) OPTIONS/SARS ($)(4)
- ------------------ ---- -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. Virgil Waggoner...... 1995 $325,000 $506,851 $ -0- -0- $ 9,675
President and Chief 1994 279,166 134,987 -0- -0- 1,916
Executive Officer 1993 275,000 -0- -0- -0- 11,452
Robert W. Roten......... 1995 205,000 266,394 -0- 20,000/-0- 9,364
Executive Vice
President and 1994 177,500 71,579 -0- -0- 8,817
Chief Operating Officer 1993 175,000 -0- -0- -0- 9,450
Robert N. Bannon........ 1995 180,000 233,906 -0- 15,000/-0- 9,045
President-Sterling Pulp 1994 152,500 61,353 -0- -0- 7,561
Chemicals, Ltd. 1993 150,000 -0- -0- -0-/262,500 8,100
Richard K. Crump........ 1995 180,000 233,906 -0- 15,000/-0- 9,045
Vice President-- 1994 152,500 61,353 -0- -0- 7,561
Commercial 1993 150,000 -0- -0- -0- 8,100
Jim P. Wise............. 1995 180,000 413,906(5) 186,975 12,500 -0- 1,620
Vice President--Finance
and 1994 3,409 -0- -0- -0- 31
Chief Financial Officer 1993 -0- -0- -0- -0- -0-
</TABLE>
- --------
(1) Includes amounts deferred under the Company's 401(K) Savings and
Investment Plan.
(2) Paid pursuant to the Company's Profit Sharing Plan.
(3) No named executive officer received any perquisites and other personal
benefits the aggregate amount of which exceeded the lesser of either
$50,000 or 10% of the total annual salary and bonus reported for 1995 in
the Summary Compensation Table.
(4) For fiscal year 1995, All Other Compensation includes matching
contributions paid by the Company pursuant to the Company's 401(k) Savings
and Investment Plan, as follows: Mr. Waggoner, $6,750, Mr. Roten, $7,519,
Mr. Bannon, $7,425, Mr. Crump, $7,425 and Mr. Wise, $0; and premiums for
group term life insurance paid by the Company as follows: Mr. Waggoner,
$2,925, Mr. Roten, $1,845, Mr. Bannon, $1,620, Mr. Crump, $1,620 and Mr.
Wise, $1,620.
(5) In addition to payments pursuant to the Company's profit sharing plan,
this amount includes an additional $90,000 in cash and the value of 12,000
shares of Common Stock awarded to Mr. Wise. On the date of the award, the
fair market value of the Common Stock was $7.50 per share.

70
<PAGE>

Option Grants in Last Fiscal Year. The following sets forth certain options
granted in fiscal 1995 to purchase Company Common Stock.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK
NUMBER OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE(1) EXPIRATION -----------------
NAME GRANTED (#) FISCAL YEAR (PER SHARE) DATE(3) 5% 10%
- ---- ----------- ------------ ----------- --------------- -- --------
<S> <C> <C> <C> <C> <C> <C>
J. Virgil Waggoner...... -0- -0- -- -- $ -0- $ -0-
Robert W. Roten......... 20,000 24% $13.375 October 1, 2004 169,802 430,310
Robert N. Bannon........ 15,000 18% 13.375 October 1, 2004 127,351 322,733
Richard K. Crump........ 15,000 18% 13.375 October 1, 2004 127,351 322,733
Jim P. Wise............. 12,500 15% 13.375 October 1, 2004 106,126 268,944
</TABLE>
- --------
(1) Options were granted at 100% of fair market value on the date of grant.
(2) The dollar amounts set forth under these columns are the result of
calculations of assumed annual rates of stock price appreciation from
October 1, 1994 (the date of grant of the options awarded) to October 1,
2004 (the date of expiration of such options) of 0%, 5% and 10%. Based on
these assumed annual rates of stock price appreciation of 0%, 5% and 10%,
respectively, the Company's stock price at October 1, 2004 is projected to
be $13.50, $21.99 and $35.02, respectively. These assumptions are not
intended to forecast future appreciation of the Company's stock price. The
Company's stock price may increase or decrease in value over the time
period set forth above. Optionees will not realize value under their
option grants without stock price appreciation which will benefit all
stockholders. The potential realizable value computation does not take
into account federal or state income tax consequences of option exercises
or sales of appreciated stock.
(3) The options granted on October 1, 1994 are exercisable from the third
through the tenth anniversaries of the date of grant. However, upon
consummation of the Merger, each outstanding option to acquire Company
Common Stock will be canceled. See "The Transaction."

Aggregate SAR Exercises in Fiscal 1995 and Year-end Option/SAR Values. The
following table provides information on SAR exercises in fiscal 1995 by the
named executive officers and the value of such officers' unexercised options
and SARs at September 30, 1995.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT AT SEPTEMBER 30, 1995
SEPTEMBER 30, 1995 (#)(1) ($)(3)
SHARES ACQUIRED VALUE -------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Virgil Waggoner...... -0- $ -0- -0- -0-/-0- $-0- $ -0-/-0-
Robert W. Roten......... -0- -0- -0- 20,000/-0- -0- -0-/-0-
Robert N. Bannon........ -0- 1,004,883 -0- 15,000/131,250(2) -0- -0-/557,813
Richard K. Crump........ -0- -0- -0- 15,000/-0- -0- -0-/-0-
Jim P. Wise............. -0- -0- -0- 12,500/-0- -0- -0-/-0-
</TABLE>
- --------
(1) Upon consummation of the Merger, each outstanding option to acquire
Company Common Stock will be canceled. See "The Transaction."
(2) In September 1992, the Company initiated a Stock Appreciation Rights
Program (the "Program") pursuant to the Omnibus Stock and Incentive Plan,
to provide additional compensation to certain Executive Officers and other
employees of the Company. Under the Program, the Company offered each
participant the right to purchase a specified number of shares of the
Company's Common Stock and granted 20 SARs for each share purchased. In
fiscal 1993, Mr. Bannon purchased 13,125 shares and was granted 262,500
SARs. During fiscal 1995, the participants unanimously agreed, at the
Company's request, to amend the Program to, among other things, limit the
potential value of the SARs by placing a ceiling on the amounts that the
Company may be required to pay upon exercise of the SARs. Under the
amended Program, Mr. Bannon exercised 25% of his SARs on October 10, 1994
and an additional 25% of his SARs on September 1, 1995 for the fixed
amount payable to him of $9.00 and $6.31 per SAR, respectively, and is
permitted to exercise up to 50% and 100% of his remaining SARs on
September 1, 1996, and September 1, 1997, respectively,

71
<PAGE>

limited by the maximum amount payable on such dates of $10.00 per SAR and
$11.00 per SAR, respectively, provided he is still employed by the Company
on such date. However, upon consummation of the Merger, each such SAR will
be converted into the right to receive a cash payment equal to the excess,
if any, of $12.00 over the base price provided for in such SAR. See "The
Transaction." The amounts indicated in the column entitled "Value Realized
($)" represent the amount paid to the holder of the SARs upon exercise
thereof.
(3) An "In-the-Money" option or SAR is an option or SAR for which the market
price on the date the option or SAR was granted is less than the market
price of Company Common Stock at September 30, 1995. All of the value
shown reflects stock price appreciation since the granting of the option
or SAR, as the case may be.

The Company has maintained the Sterling Chemicals, Inc. Amended and Restated
Stock Appreciation Rights Plan for Non-Employee Directors (the "SAR Plan") for
the benefit of certain non-employee members of the Board of Directors.
Pursuant to the SAR Plan, other than Gordon A. Cain and J. Virgil Waggoner,
each member of the Board of Directors at the time of the adoption of the SAR
Plan (a "Participant") was awarded 40,000 SARs on January 27, 1993 at a grant
price of $4.00 per SAR. The aggregate number of SARs that were awarded to all
Participants under the SAR Plan is 200,000. The SAR Plan was amended in
October 1994 to limit the potential value of the SARs by placing a ceiling on
the amounts that the Company may be required to pay upon the exercise of the
SARs. Participants were given greater flexibility with respect to the dates on
which they may exercise their SARs. Under the amended SAR Plan, each
Participant exercised 25% of his SARs on October 10, 1994 and an additional
25% of his SARs on September 1, 1995 for the fixed amount payable to him of
$9.00 and $6.31 per SAR, respectively, and is permitted to exercise up to 50%,
and 100% of his remaining SARS on September 1, 1996, and September 1, 1997,
respectively, limited by the maximum amount payable on such dates of $10.00
per SAR and $11.00 per SAR, respectively, provided the Participant is a member
of the Board of Directors on each such date. All unexercised SARs terminate at
12:01 a.m. on September 2, 1997.

Upon consummation of the Merger, each SAR relating to the Company will be
converted into the right to receive a cash payment equal to the excess, if
any, of $12.00 over the grant price provided for in such SAR, and the SAR Plan
will terminate. See "The Transaction."

Pension Plans. The Company has maintained a defined benefit Salaried
Employees' Pension Plan (the "Pension Plan") covering substantially all
salaried employees, including the named executive officers. Pension costs are
borne solely by the Company and determined annually on an actuarial basis with
contributions made accordingly. The pension benefits payable under the Pension
Plan for individuals hired by Monsanto (from which the Company acquired its
Texas City Plant) prior to April 1, 1986 are based on such individual's vested
percentage times years of service multiplied by 1.4% of Average Earnings (as
defined). Individuals hired by Monsanto on or after April 1, 1986 and other
individuals hired by the Company receive a pension payable under the Pension
Plan based on such individual's vested percentage times years of service
multiplied by 1.2% of Average Earnings. Average Earnings excludes, among other
things, amounts received under the Company's Profit Sharing Plan and is
generally defined as the greater of (i) average compensation received during
the highest three of the final five calendar years of employment or (ii)
average compensation received during the final 36 months of employment.

For those Company employees who were (i) employed by the Company prior to
October 1, 1986, (ii) previously employed by Monsanto and (iii) accruing a
Monsanto pension plan benefit, the Company recognizes Monsanto pension plan
years of service offset by any vested benefit under the Monsanto pension plan.
For those Company employees as of August 21, 1992 who were (i) previously
employed by Albright & Wilson based in the United States and (ii) participants
in the Tenneco Canada, Inc. Retirement Plan, the Company recognizes Tenneco
Canada, Inc. Retirement Plan years of service offset by any vested benefit
under that plan. A participant will become vested only after five years of
service, except that Canadian participants will become vested after two years
of service.

72
<PAGE>

The following table illustrates the aggregate of the annual normal
retirement benefits payable under the Pension Plan, Equalization Plan and
Supplemental Plan (as defined) based on 1.4% of Average Earnings, without
reduction for any offset amounts.

<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
AVERAGE EARNINGS 10 20 30 40
- ---------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 50,000........................................ $ 7,000 $14,000 $21,000 $28,000
100,000........................................ 14,000 28,000 42,000 56,000
150,000........................................ 21,000 42,000 63,000 84,000
200,000........................................ 21,000 42,000 63,000 84,000
250,000........................................ 21,000 42,000 63,000 84,000
300,000........................................ 21,000 42,000 63,000 84,000
350,000........................................ 21,000 42,000 63,000 84,000
400,000........................................ 21,000 42,000 63,000 84,000
</TABLE>

The following table illustrates the annual normal retirement benefits
payable under the Pension Plan based on 1.2% of Average Earnings, without
reduction for any offset amounts. Such benefit levels assume retirement at age
65, the years of service shown, continued existence of the Pension Plan,
Equalization Plan and Supplemental Plan without substantial change and payment
in the form of a single life annuity.

<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
AVERAGE EARNINGS 10 20 30 40
- ---------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 50,000........................................ $ 6,000 $12,000 $18,000 $24,000
100,000........................................ 12,000 24,000 36,000 48,000
150,000........................................ 18,000 36,000 54,000 72,000
200,000........................................ 18,000 36,000 54,000 72,000
250,000........................................ 18,000 36,000 54,000 72,000
300,000........................................ 18,000 36,000 54,000 72,000
350,000........................................ 18,000 36,000 54,000 72,000
400,000........................................ 18,000 36,000 54,000 72,000
</TABLE>

The benefits under the Pension Plan are computed by multiplying Average
Earnings by credited years of service times the respective percentages
referred to above. The benefits payable under the Pension Plan are not reduced
by any benefits payable under Social Security or other offset amounts. The
benefits payable to Table A participants are reduced by the amount of pension
benefits which participants may be entitled to under Monsanto's pension plan.
The number of credited years of service of each of the named executive
officers are as follows: J. Virgil Waggoner--39 years; Robert W. Roten--34
years; Richard K. Crump--9 years; Robert N. Bannon--24 years; and Jim P.
Wise--1 year.

Pension Benefit Equalization Plan. The Company has maintained the Sterling
Chemicals, Inc. Pension Benefit Equalization Plan (the "Equalization Plan").
The Equalization Plan provides additional benefits to employees whose
retirement benefits under the Pension Plan are reduced, curtailed or otherwise
limited as a result of certain limitations under the Internal Revenue Code of
1986, as amended (the "Code"). The additional benefits provided by the
Equalization Plan are in an amount equal to the benefits under the Pension
Plan which are reduced, curtailed or limited by reason of the application of
such limitations. All employees who participate in the Pension Plan are
eligible to participate in the Equalization Plan. Benefits have been paid to
participants under the Equalization Plan and such benefits are generally
payable at the time, and in the manner, benefits are payable under the Pension
Plan.

Supplemental Employee Retirement Plan. The Company has maintained the
Sterling Chemicals, Inc. Supplemental Employee Retirement Plan (the
"Supplemental Plan"). The Supplemental Plan also provides additional benefits
to certain employees whose retirement benefits under the Pension Plan are
reduced, curtailed or otherwise limited because such employee's annual
compensation is in excess of $150,000 or because certain

73
<PAGE>

Social Security integration benefits were removed from the Pension Plan. The
additional benefits provided by the Supplemental Plan are in an amount equal
to the benefits under the Pension Plan which are reduced, curtailed or limited
by reason of the applications of such limitations. Only those employees who
are a part of management or are "highly compensated" and are subject to
limitations on Pension Plan benefits imposed by the Code may participate in
the Supplemental Plan. No benefits have been paid to participants under the
Supplemental Plan and such benefits are generally payable at the time, and in
the manner, benefits are payable under the Pension Plan.

Assuming retirement at age 65, or their current age, if older, and the
continuation of their current levels of base salary until such retirement, as
of September 30, 1995, total retirement benefits under the Equalization Plan
and/or the Supplemental Plan payable to Messrs. Waggoner, Roten, Crump,
Bannon, and Wise will be $122,003, $86,098, $53,616, $85,389, and $30,847 per
year, respectively, reduced by the value of the benefits payable under the
Pension Plan, which are $71,761, $62,148, $44,680, $69,105, and $25,706 per
year, respectively.

Termination Pay Plan. On April 24, 1996, the Company adopted a Consolidated
Termination Pay Plan for All Salaried Employees of the Company and its
Subsidiaries (the "Consolidated Plan"), which supercedes and replaces all
prior termination pay plans (collectively, the "Prior Plans").

The Consolidated Plan provides that if, within the 24-month period following
a "change of control," the employment of any full time salaried employee of
Sterling Chemicals, Inc. (or any wholly owned direct or indirect subsidiary
thereof, or any successor thereto) is terminated for any reason (other than
the employee's death or disability, resignation or retirement or termination
for cause), or such employee is requested to accept a new job which is less
than equivalent to his or her job immediately prior to the change of control
in terms of compensation, job level, job responsibilities or credits, such
employee shall be entitled to receive termination pay. Such an event giving
rise to termination pay under the plan is defined as a "Triggering Event."

The termination pay payable to any eligible employee following a Triggering
Event is equal to 36 months' pay (for certain members of senior management),
or 24 months' pay (for all other salaried employees) (the relevant period
being referred to as such employee's "Termination Pay Period") at the
employee's base pay rate in effect at the time of the change of control, and
is payable as and when such base salary would otherwise have been payable to
such employee if such employee had not been terminated. An affected employee
is to receive continued health benefits for the Termination Pay Period, and an
amount equal to the projected amount of profit sharing that would have been
received by the affected employee under the Company's Amended and Restated
Salaried Employees' Profit Sharing Plan during the Termination Pay Period.

Other amounts payable upon a Triggering Event include benefits accrued under
the Company's ESOP, the Company's Amended and Restated Savings and Investment
Plan (the "Savings Plan"), the Pension Plan, the Supplemental Plan or the
Equalization Plan, or any similar plan in effect for Canadian employees, which
would be forfeited by the employee due to the Triggering Event.

The Consolidated Plan also provides for outplacement services and gross-up
payments for any excise tax imposed by Section 4999 of the Code or any
interest or penalty thereon.

For purposes of the Consolidated Plan, a "change of control" means (i) the
acquisition of or the ownership of 50% or more of the total voting stock of
the Company then issued and outstanding, by any person or group of affiliated
persons, or entities not affiliated with the Company as of April 24, 1996,
either with or without the consent of the Company, or (ii) individuals who
were members of the Board of the Company immediately prior to a meeting of the
stockholders of the Company involving a contest for the election of directors
do not constitute a majority of the Board immediately following such election
unless the election of such new directors was recommended to the stockholders
by management of the Company, or (iii) in addition to (i) and (ii) above, with
respect to employees of Sterling Pulp Chemicals, Ltd. and Sterling Pulp
Chemicals US, Inc., only, the acquisition of or the ownership of 50% or more
of the total voting stock of Sterling Pulp Chemicals, Ltd. or Sterling Canada,
Inc. The Transaction will constitute a "change of control" under the
Consolidated Plan. However, as there are currently no plans to terminate any
employees covered under the Consolidated Plan, no payments are expected to be
made under such plan in connection with the Transaction.

74
<PAGE>

After the Transaction

Pension Plans. The Pension Plan, the Equalization Plan and the Supplemental
Plan will remain in place following the Transaction.

Employee Stock Ownership Plan. In connection with the Transaction, the New
ESOP will be established which will cover substantially all eligible
employees. The New ESOP, which will invest primarily in shares of Holdings
Common Stock, will borrow $6.5 million from Chemicals pursuant to the
Chemicals ESOP Loan to purchase shares of STX Acquisition Common Stock at the
closing of the Transaction ("Closing") which will be converted into 541,662
shares of Holdings Common Stock. The Chemicals ESOP Loan bears interest at
interest rates based on the Base Rate (as defined in the Credit Agreement)
plus a margin or the Eurodollar Rate (as defined) plus a margin. The
outstanding principal of the Chemicals ESOP Loan is payable in 16 equal
quarterly installments during the period beginning December 31, 1996 and
ending September 30, 2000. The shares of STX Acquisition Common Stock to be
purchased by the New ESOP will be pledged as security for the Chemicals ESOP
Loan (the "ESOP Pledge"), and such shares will be released and allocated to
New ESOP participants' accounts as the Chemicals ESOP Loan is discharged. It
is anticipated that employer contributions to the New ESOP will be in amounts
sufficient to enable the New ESOP to discharge its indebtedness under the
Chemicals ESOP Loan. Shares released under the ESOP Pledge will be allocated
to each participant based on his or her compensation relative to all
compensation for all New ESOP participants. Until the Chemicals ESOP Loan is
paid in full, contributions will be used to pay the outstanding principal and
interest on the Chemicals ESOP Loan. Distributions from the New ESOP are made
in cash or Holdings Common Stock upon a participant's retirement, death,
disability or termination of employment. If Holdings Common Stock is
distributed to a participant, the participant may, within two 60-day periods,
require Chemicals to purchase all or a portion of such Holdings Common Stock
at its fair market value as determined by an independent appraiser as of an
annual valuation date (the "Put Options"). The first 60-day period commences
on the date the participant receives a distribution of Holdings Common Stock
and the second 60-day period commences a year from such date. Pursuant to an
Employee Stockholders Agreement to be entered into by each participant, if a
participant fails to exercise either of the two Put Options, the participant
may transfer the shares of Holdings Common Stock only upon receipt of a bona
fide third party offer and only after first offering the shares to the New
ESOP, then to Holdings and then to other employee stockholders party to such
agreement. Employees of Chemicals will own approximately 5% of the outstanding
Holdings Common Stock through the New ESOP after the Transaction.

Savings Plan. The Savings Plan covers substantially all employees, including
executive officers, and will be amended and continued after the Transaction.
The Savings Plan is designed to qualify under Section 401(k) of the Code. Each
participant has the option to defer taxation of a portion of his or her
earnings by directing the Company to contribute a percentage of such earnings
to the Savings Plan. A participant may direct up to a maximum of 15% of
eligible earnings to the Savings Plan, subject to certain limitations set
forth in the Code for certain "highly compensated" participants, as defined in
Section 414(q) of the Code. A participant's contributions become distributable
upon the termination of his or her employment for any reason.

Stock Option Plan. Holdings expects to adopt a stock option plan (the
"Option Plan") before the Transaction. The Option Plan will be administered by
the Compensation Committee of the Board of Directors (the "Committee"). Option
grants under the Option Plan may be made to directors and key employees
selected by the Committee. The total number of shares of Holdings Common Stock
subject to options granted under the Option Plan may not exceed approximately
% of the Holdings Common Stock on a fully diluted basis. Subject to the
approval of the Option Plan by the holders of a majority of the Holdings
Common Stock, the Committee may grant "incentive stock options" within the
meaning of Section 422 of the Code. The Committee also may grant "nonstatutory
options," which are not intended to conform to Section 422 of the Code. The
Option Plan will provide for the discretionary grant of options to purchase
shares of Holdings Common Stock. The exercise price of incentive stock options
must not be less than the fair market value of a share of Holdings Common
Stock on the date of grant, and the exercise price of nonstatutory options
must be at a price not greater than the fair market value of a share of
Holdings Common Stock on the date of grant as determined by the Committee in
its sole discretion. The Committee may provide that the options will vest
immediately or in increments over a

75
<PAGE>

period of time. No option will be transferable by a grantee other than upon
death. Upon the death or disability of any grantee, any unvested options will
expire, but the vested options may be exercised during the next succeeding
three months, unless a longer period of time is determined by the Committee.
Upon the termination of employment of any grantee for any other reason, all
vested and unvested options will expire, unless otherwise determined by the
Committee. The Option Plan will terminate no later than 10 years after its
adoption; however, any options outstanding upon termination of the Option Plan
will remain in effect until exercised or terminated pursuant to the terms of
the agreement under which they were granted. A participant in the Option Plan
may, upon receiving approval from the Committee in its sole discretion,
relinquish all or a portion of his or her options for an amount in cash equal
to the difference between the fair market value of the Holdings Common Stock
corresponding to the options being relinquished on the day of relinquishment,
less the total option price for such corresponding shares.

Profit Sharing Plan. Chemicals expects to establish a Profit Sharing Plan
covering all full time employees, including executive officers. The Profit
Sharing Plan will be administered by the Committee. Amounts paid under the
Profit Sharing Plan will constitute taxable income in the year received and
will be based on Chemicals' financial performance over a period of time to be
determined. The Committee will determine a percentage of the amount by which
the Company's earnings before depreciation, amortization, interest and taxes
(and before profit sharing) exceed a minimum level. If earnings exceed this
minimum level, Chemicals may make distributions to employees. The Committee
may change the amount set aside for profit sharing and the proportion of such
amount allocated to an individual employee or group of employees. The Profit
Sharing Plan will not be qualified under Section 401(a) of the Code.

76
<PAGE>

PRINCIPAL STOCKHOLDERS

HISTORICAL

The following table sets forth certain information regarding the beneficial
ownership of Company Common Stock as of May 14, 1996, by (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock, (ii) each director and nominee for director of the
Company, (iii) each named executive officer of the Company, and (iv) all of
the directors and executive officers as a group. In addition, employees of the
Company, including the Company's executive officers, own 6,010,518 shares of
Company Common Stock through the Sterling Chemicals, Inc. Employee Stock
Ownership Plan (the "Current ESOP"), which represents 10.8% of the outstanding
shares of Company Common Stock. These shares are held of record by Merrill
Lynch & Co. Incorporated ("Merrill Lynch"), as trustee of the Current ESOP,
who disclaims beneficial ownership of the shares. The Current ESOP shares are
allocated to the account of each employee who has sole voting power of their
respective Current ESOP shares. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned. The information is based upon information furnished to the
Company by each individual or entity named below.

<TABLE>
<CAPTION>
COMPANY COMMON
STOCK
---------------------------
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT
- --------------------------------------- ---------- -------
<S> <C> <C>
Gordon A. Cain..................................... 6,632,850(2) 11.9%
J. Virgil Waggoner................................. 4,113,033(3) 7.4
William A. McMinn.................................. 84,579 *
James J. Kerley.................................... 144,579 *
Gilbert M. A. Portal............................... ---- *
Frank J. Pizzitola................................. 10,000 *
Raymond R. Knowland................................ 2,500 *
Robert W. Roten.................................... 997,232(4) 1.8
Robert N. Bannon................................... 163,085(5) *
Richard K. Crump................................... 476,533(6) *
Jim P. Wise........................................ 26,269(7) *
All executive officers and directors of the Company
as a group (14 persons)............................ 12,807,638(2)(3)(8) 23.0
</TABLE>
- --------
* Less than 1%
(1) The mailing address of each such beneficial owner is 1200 Smith Street,
Suite 1900, Houston, Texas 77002-4312.
(2) Includes 375,000 shares held in Mr. Cain's Keogh Plan, over which Mr. Cain
has sole voting power and includes 2,100,000 shares with respect to which
Mr. Cain disclaims beneficial ownership, held by a private family
foundation for which Mr. Cain serves as the Chairman of the Board of
Trustees and has shared voting and disposition powers.
(3) Includes 50,602 shares held by Mr. Waggoner's wife, with respect to which
Mr. Waggoner disclaims beneficial ownership. Includes 77,311 shares over
which Mr. Waggoner has sole voting power held by Merrill Lynch, as Trustee
of the Current ESOP as of May 14, 1996 and allocated to Mr. Waggoner's
account.
(4) Includes 49,084 shares over which Mr. Roten has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of May 14, 1996 and
allocated to Mr. Roten's account.
(5) Includes 28,937 shares over which Mr. Bannon has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of May 14, 1996 and
allocated to Mr. Bannon's account.
(6) Includes 37,391 shares over which Mr. Crump has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of May 14, 1996 and
allocated to Mr. Crump's account.
(7) Includes 419 shares over which Mr. Wise has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of May 14, 1996 and
allocated to Mr. Wise's account.
(8) Includes 216,581 shares held by Merrill Lynch, as Trustee of the Current
ESOP and allocated through May 14, 1996 to the accounts of such officers.

77
<PAGE>

AFTER THE TRANSACTION

As described in "The Transaction," the Equity Private Placement will be
consummated simultaneously with the Merger and shares of STX Acquisition
Common Stock purchased in the Equity Private Placement will be converted into
a certain number of shares of Holdings Common Stock. In connection with the
Equity Private Placement, the purchasers therein and certain other
stockholders of the Company have agreed to enter into a Stockholders Agreement
which restricts transfer of shares of Holdings Common Stock held by such
stockholders (with certain exceptions) unless such shares are first offered to
the New ESOP, Holdings and finally to the other stockholders party to the
agreement. In addition, the agreement restricts the ability of any stockholder
who is a party to the agreement to initiate a disposition of a control
position in Holdings without first complying with the right of first refusal
provisions. See "Description of Capital Stock--Transfer Restrictions." It is
anticipated that upon consummation of the Transaction, investors in the Equity
Private Placement including affiliates of TSG and Unicorn and certain
stockholders of the Company will own at least approximately 75% of Holdings
Common Stock, assuming the maximum number of Rollover Shares.

As of the date hereof, it is expected that upon consummation of the
Transaction each of (i) various funds and accounts advised by the Clipper
Group, (ii) Koch Equities, Inc., (iii) Fayez Sarofim & Co., (iv) Olympus
Growth Fund II, L.P., (v) Frank J. Hevrdejs and (vi) Frank P. Diassi will
beneficially own 5% or greater of the outstanding capital stock of Holdings. A
Voting Agreement among TSG, Koch Equities and the Clipper Group will provide
for each of such parties to vote their shares of Holdings Common Stock in
favor of a nominee to the Board of Directors of Holdings to be selected by
each of Koch Equities and The Clipper Group. The rights of Koch Equities and
The Clipper Group to select a nominee under such Voting Agreement are
terminated in the event their ownership of Holdings Common Stock represents
less than 5% of the total outstanding shares of Holdings Common Stock. In
addition, persons who will acquire 10% or more of the Holdings Common Stock
pursuant to the Equity Private Placement and certain other stockholders will
be parties to a Registration Rights Agreement providing certain piggyback and
demand registration rights to such stockholders.

CERTAIN TRANSACTIONS

TSG and Unicorn have entered into an agreement with STX Acquisition pursuant
to which such firms have provided to STX Acquisition and its subsidiaries
consulting and advisory services with respect to the organization of STX
Acquisition and its subsidiaries, structuring and financing of the
Transaction, arrangements for outside consulting services, advice with respect
to employee benefit and compensation arrangements and other matters. The
agreement also provides that STX Acquisition will utilize the consulting
services of TSG in any future acquisitions or securities offerings within the
succeeding 24 months on terms to be negotiated and that STX Acquisition will
indemnify TSG and Unicorn against liabilities relating to their services. Upon
consummation of the Merger, Holdings will pay TSG and Unicorn one-time
transaction fees of approximately $8 million and $4 million, respectively, for
these services and reimburse TSG and Unicorn for their expenses. Since its
formation in 1982, TSG has completed 32 acquisitions for a total consideration
of approximately $5 billion. TSG has provided similar consulting and advisory
services in other transactions in which TSG has been involved. STX Acquisition
believes these fees are reasonable and customary in transactions of this type.

In addition, STX Acquisition has agreed that if Holdings or any of its
subsidiaries determines within 24 months to dispose of or acquire any assets
or businesses or to offer its securities for sale or to raise any debt or
equity financing, Holdings or its subsidiary will retain TSG as a consultant
with respect to the transaction, provided that TSG's fees are competitive and
Holdings and TSG mutually agree on the terms of the engagement.

STX Acquisition and Chemicals were formed by an investor group led by TSG
and Unicorn for the purpose of effecting the Transaction. After the
Transaction, Mr. Diassi, Managing General Partner of Unicorn, will be Chairman
of the Board of Holdings and Chemical and Mr. Hevrdejs, a principal and
director of TSG and Mr. Nelson is a principal of TSG, will be directors of
Holdings and Chemicals. See "Management." Messrs. Hevrdejs, Diassi and Nelson,
together with other officers, employees and affiliates of TSG and Unicorn and
officers, directors and employees of the Company, are expected to purchase STX
Acquisition Common Stock in the Equity Private Placement.

78
<PAGE>

As a matter of policy, all future transactions between Holdings or Chemicals
and their respective directors, officers and affiliates are expected to be on
terms no less favorable to Holdings or Chemicals than those available from
unaffiliated third parties. Under the Indentures, all future transactions that
involve consideration to TSG or Unicorn in excess of $ million will be
approved by a majority of the disinterested members of the Board of Directors
of Holdings or Chemicals, as the case may be. The Notes Indenture will
restrict transactions between Chemicals and its affiliates and the Discount
Notes Indenture will restrict transactions between Holdings and its
affiliates. See "Description of the Units--Description of the Discount Notes--
Certain Covenants--Limitation on Transactions with Affiliates" and
"Description of the Notes--Certain Covenants--Limitation on Transactions with
Affiliates."

As described in "Principal Stockholders--After the Transaction," it is
currently anticipated that upon consummation of the Transaction, Koch
Equities, Inc., a division of Koch Industries, Inc., ("Koch Industries") will
own at least 5% of the outstanding capital stock of Holdings. The Company and
Koch Industries have ongoing commercial relationships, including, from time to
time, supply of raw materials or sales of petrochemicals, but Koch Industries
is not a significant customer or supplier of the Company.

In addition to the employee benefits that will continue after the Merger as
described under "Management--Compensation of Executive Officers--After the
Transaction," prospective investors should also consider the matters described
below.

Relationships with TSG. TSG was founded in 1982 by Messrs. Gordon A. Cain
and Frank J. Hevrdejs. In 1992, Mr. Cain made a decision to reduce his level
of business activity. By December 1993, Mr. Cain had sold all of his stock in
TSG and resigned as an officer and director. Since that time, Mr. Cain has had
no equity or other financial interest in TSG, although at TSG's invitation he
has invested in three transactions organized by TSG. For marketing purposes,
Mr. Cain was described as Chairman Emeritus of TSG until November 1995, but
since December 1992 has had no role in TSG's ongoing operations. TSG is
currently controlled by Messrs. Hevrdejs and William C. Oehmig, the husband of
Mr. Cain's stepdaughter. Messrs. Cain and William A. McMinn assist TSG as
senior advisors on selected transactions. Although Mr. McMinn has received
certain advisory fees for such services, Mr. Cain has not. Neither Mr. Cain
nor Mr. McMinn participated in any such capacity in connection with the
Merger. TSG and Mr. McMinn recently assisted Mr. Cain with the acquisition of
a company in a transaction unrelated to the Merger. Messrs. Cain, Waggoner and
McMinn, along with principals of TSG, invested in such transaction, and
Messrs. Cain and McMinn are members of the Board of Directors of the surviving
corporation in such transaction. Messrs. Cain and McMinn also sublease office
space from TSG, either directly or through companies with which they are
affiliated. Messrs. Cain and McMinn, along with Mr. J. Virgil Waggoner, Robert
W. Roten, the Company's Executive Vice-President, and Richard K. Crump, a
Vice-President in the Company, have previously co-invested with principals of
TSG in several transactions. Approximately 10 years ago, the Company's Texas
City petrochemical facility was purchased by the Company from Monsanto Company
in a leveraged buyout led by Mr. Cain (at which time he was a director and
principal stockholder of TSG) and Mr. Waggoner. Principals of TSG currently
own 897,000 shares of Common Stock of the Company, representing approximately
1.6% of the outstanding shares. As of the date of the Merger Agreement
principals of TSG owned 100% of the common stock of STX Acquisition.

Continuing Equity Interest of Certain Persons. Certain directors and
executive officers of the Company and others will have continuing equity
interests in Holdings following the Merger. Messrs. Frank J. Hevrdejs and
William C. Oehmig (stockholders of the Company and principals of TSG) and
Messrs. Gordon A. Cain, J. Virgil Waggoner, and Robert W. Roten, each executed
an Inducement Agreement. Pursuant to the Inducement Agreement, Messrs. Cain,
Waggoner and Roten each agreed to make Rollover Elections as to a portion of
their shares of Company Common Stock (an aggregate of 1,404,254 Rollover
Shares), subject to pro rata reduction with Rollover Elections made by other
stockholders of the Company if Rollover Elections exceed the maximum number of
Rollover Shares. Messrs. Hevrdejs and Oehmig agreed to make Rollover Elections
as to 100% of their Company Common Stock (an aggregate of 897,000 Rollover
Shares) provided that their Rollover Shares will not be subject to pro rata
reduction. Unless Rollover Elections exceed the maximum number of Rollover
Shares, following the Merger, Messrs. Cain, Waggoner and Roten would
collectively own approximately 12.9% of the outstanding shares of Holdings
Common Stock and Messrs. Hevredjs and Oehmig would collectively own a minimum
of approximately 8.2% of such outstanding shares.

79
<PAGE>

DESCRIPTION OF THE NOTES

The Notes are to be issued pursuant to the Indenture, dated as of
, 1996, (the "Notes Indenture") between Chemicals and Fleet
National Bank, as trustee (the "Trustee"). Following is a summary of material
provisions of the Notes Indenture. This summary does not purport to be
complete and is subject to and is qualified in its entirety by reference to
all provisions of the Notes and the Notes Indenture (including provisions made
part of the Notes Indenture by reference to the Trust Indenture Act of 1939,
as amended), including the definitions therein of terms not defined herein.
Certain terms used herein are defined below under "Certain Definitions". A
copy of the Notes Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

GENERAL

The Notes will be senior subordinated unsecured obligations of Chemicals,
will be limited to $275,000,000 aggregate principal amount and will mature on
, 2006. The Notes will bear interest at the rate per annum shown
on the front cover of this Prospectus from , 1996 or from the most
recent date to which interest has been paid as provided for, payable semi-
annually on and of each year, commencing
, 1997 to each Person in whose name a Note is registered at the
close of business on the preceding or , as the case
may be. The Notes will bear interest on overdue principal and premium, if any,
and, to the extent permitted by law, overdue interest at the rate per annum
shown on the front cover of this Prospectus plus 1%. Principal of and premium,
if any, and interest on the Notes will be payable, and the transfer of Notes
will be registrable, at the office or the agency maintained by Chemicals in
the City of New York. In addition, payment of interest may, at the option of
Chemicals, be made by check mailed to the address of the person entitled
thereto as it appears in the Note Register. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any multiple thereof. No service charge will be
made for any registration of transfer or exchange of Notes, but Chemicals may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.

OPTIONAL REDEMPTION

Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of Chemicals prior to , 2001. Thereafter,
the Notes will be redeemable, at Chemicals' option, in whole or in part from
time to time, upon not less than 30 or nor more than 60 days' notice mailed to
each Holder of Notes to be redeemed at the Holder's address appearing in the
Note Register, at the following redemption prices (expressed as percentages of
principal amount), plus accrued interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period beginning of the years set forth below:

<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2001........................................................... %
2002...........................................................
2003...........................................................
2004........................................................... 100.00%
</TABLE>

In addition, at any time and from time to time prior to , 1999,
Chemicals may redeem in the aggregate up to 35% of the original principal
amount of the Notes with the proceeds of one or more Public Equity Offerings
following which there is a Public Market, at a redemption price (expressed as
a percentage of principal amount) of % plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least $ aggregate principal amount of the
Notes must remain outstanding after each such redemption.

80
<PAGE>

In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.

RANKING

The indebtedness evidenced by the Notes will constitute senior subordinated
unsecured obligations of Chemicals. The payment of the principal of and
premium, if any, and interest on the Notes will be subordinate in right of
payment, as set forth in the Notes Indenture, to the prior payment in full in
cash or cash equivalents of all existing and future Senior Debt of Chemicals,
including Chemicals' obligations under the Credit Agreement, and will rank
pari passu in right of payment with all existing and future senior
subordinated indebtedness of Chemicals. The Notes will be senior in all
respects to any subordinated indebtedness of Chemicals. At March 31, 1996,
after giving effect to the Transaction, the aggregate principal amount of
outstanding Senior Debt of Chemicals would have been approximately $347.9
million and Chemicals would have had no subordinated indebtedness. Although
the Notes Indenture contains limitations on the amount of additional Debt that
Chemicals may incur, under certain circumstances the amount of such Debt could
be substantial and, in any case, such Debt may be Senior Debt. Chemicals has
agreed in the Notes Indenture that it will not incur, directly or indirectly,
any Debt that is subordinate or junior in ranking in right of payment to its
Senior Debt unless such Debt is Senior Subordinated Debt or is expressly
subordinated in right of payment to Senior Subordinated Debt. See "--Certain
Covenants--Limitation on Debt".

A portion of the operations of Chemicals are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding debt and guarantees issued
by such subsidiaries, and claims of preferred stockholders (if any) of such
subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Chemicals,
including holders of the Notes, even though such obligations will not
constitute Senior Debt. The Notes, therefore, will be effectively subordinated
to creditors (including trade creditors) and preferred stockholders (if any)
of subsidiaries of Chemicals. At March 31, 1996, after giving effect to the
Transaction, the aggregate liabilities (consisting of Debt and trade payables)
of Chemicals' subsidiaries would have been approximately $6.5 million.
Although the Notes Indenture limits the incurrence of Debt and preferred stock
of certain of Chemicals' subsidiaries, such limitation is subject to a number
of significant qualifications. Moreover, the Notes Indenture does not impose
any limitation on the incurrence by such subsidiaries of liabilities that are
not considered Debt under the Notes Indenture. See "--Certain Covenants--
Limitation on Debt" and "--Limitation on Restrictions on Distributions from
Subsidiaries; Limitation on Preferred Stock of Subsidiaries."

Chemicals may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if (i) any Designated Senior Debt is not
paid when due or (ii) any other default on Designated Senior Debt occurs and
the maturity of such Designated Senior Debt is accelerated in accordance with
its terms unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Designated Senior Debt has been
paid in full. However, Chemicals may pay the Notes without regard to the
foregoing if Chemicals and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Debt with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the
second preceding sentence) with respect to any Designated Senior Debt pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, Chemicals may not pay the
Notes for a period (a "Payment Blockage Period") commencing upon the receipt
by the Trustee (with a copy to Chemicals) of written notice (a "Blockage
Notice") of such default

81
<PAGE>

from the Representative of the holders of such Designated Senior Debt
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and Chemicals from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise to such
Blockage Notice is no longer continuing or (iii) because such Designated
Senior Debt has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the holders of such Designated
Senior Debt or the Representative of such holders have accelerated the
maturity of such Designated Senior Debt, Chemicals may resume payments on the
Notes after the end of such Payment Blockage Period. The Notes shall not be
subject to more than one Payment Blockage Period in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated
Senior Debt during such period.

Upon any payment or distribution of the assets of Chemicals upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to Chemicals or its property, the holders of Senior Debt will be
entitled to receive payment in full of such Senior Debt before the Holders are
entitled to receive any payment, and until the Senior Debt is paid in full,
any payment or distribution to which Holders would be entitled but for the
subordination provisions of the Notes Indenture will be made to holders of
such Senior Debt as their interests may appear. If a distribution is made to
Holders that, due to the subordination provisions, should not have been made
to them, such Holders are required to hold it in trust for the holders of
Senior Debt and pay it over to them as their interests may appear.

If payment of the Notes is accelerated because of an Event of Default,
Chemicals or the Trustee shall promptly notify the holders of Designated
Senior Debt or the Representative of such holders of the acceleration.

By reason of the subordination provisions contained in the Notes Indenture,
in the event of insolvency, creditors of Chemicals who are holders of Senior
Debt may recover more, ratably, than the Holders, and creditors of Chemicals
who are not holders of Senior Debt may recover less, ratably, than holders of
Senior Debt and may recover more, ratably, than the Holders.

The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance".

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each Holder shall have the right
to require Chemicals to repurchase such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest (if any) to the date of repurchase (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).

The occurrence of any of the following events will constitute a "Change of
Control" under the Notes Indenture:

(i) prior to the first public offering of common stock of Holdings, the
Permitted Holders cease to be the "beneficial owners" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority of the total voting power of the Voting Stock of Holdings, whether
as a result of issuance of securities of Holdings, any merger,
consolidation, liquidation or dissolution of Holdings, any direct or
indirect transfer of securities by Holdings or otherwise (for purposes of
this clause (i) and clause (ii) below, the Permitted Holders shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "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);

82
<PAGE>

(ii) on or after the first public offering of common stock of Holdings
referred to in clause (i) above, (A) any "Person" (as such 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
clause (i) above except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 30% of the total voting power
of the Voting Stock of Holdings; and (B) the Permitted Holders
"beneficially own" (as defined in clause (i) 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 (ii), such other Person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other Person "beneficially owns" (as defined in
this clause (ii)), directly or indirectly, more than 30% of the voting
power of the Voting Stock of such parent corporation and the Permitted
Holders "beneficially own" (as defined in clause (i) 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);

(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holdings or
Chemicals (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Holdings
or Chemicals, as the case may be, was approved by 66-2/3% of the directors
of Holdings or Chemicals, as the case may be, then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Holdings or Chemicals,
as the case may be, then in office;

(iv) the merger or consolidation of Holdings or Chemicals with or into
another Person or the merger of another Person with or into Holdings or
Chemicals, or the sale or transfer in one or a series of transactions of
all or substantially all the assets of Holdings or Chemicals to another
Person and, in the case only of any such merger or consolidation, the
securities of Holdings that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of Holdings are changed into or exchanged for cash, securities
or property, unless pursuant to such transaction such securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent immediately after
such transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation; or

(v) Holdings shall hold less than 100% of the Capital Stock of Chemicals.

Within 30 days following any Change of Control, Chemicals will mail a notice
to each Holder with a copy to the Trustee stating (i) that a Change of Control
has occurred and that such Holder has the right to require Chemicals to
purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest (if any) to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date); (ii) the
circumstances and relevant facts regarding such Change of Control (including,
but not limited to, information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control);
(iii) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and (iv) the instructions,
determined by Chemicals consistent with the Notes Indenture, that a Holder
must follow in order to have its Notes repurchased.

Chemicals 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 covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
Chemicals shall comply with the applicable securities laws

83
<PAGE>

and regulations and shall not be deemed to have breached its obligations under
the covenant described hereunder by virtue thereof. Neither the Board of
Directors nor the Trustee may waive compliance by the Company with its
obligation to repurchase Notes upon a Change of Control.

The Change of Control purchase feature is a result of negotiations between
Chemicals and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that
Chemicals would decide to do so in the future. The provisions of the Notes
Indenture relating to a Change of Control may not afford Holders protection in
the event of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction (including, in certain circumstances, a
transaction involving Chemicals' management or its affiliates) that may
adversely affect Holders, if such transaction does not constitute a Change of
Control, as defined above. Any such transaction will result in a Change of
Control only if it is the type of transaction specified by such definition.

The Credit Agreement generally will prohibit Chemicals from purchasing any
Notes, and will also provide that the occurrence of certain change of control
events with respect to Chemicals would constitute a default thereunder. In the
event a Change of Control occurs at a time when Chemicals is prohibited from
purchasing Notes, Chemicals could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If Chemicals does not obtain such a consent or repay such
borrowings, Chemicals will remain prohibited from purchasing Notes. In such
case, Chemicals' failure to purchase tendered Notes would constitute an Event
of Default under the Notes Indenture which would, in turn, constitute a
default under the Credit Agreement. In such circumstances, the subordination
provisions in the Notes Indenture would likely restrict payment to the Holders
of Notes.

Upon consummation of the Transaction, Chemicals will not have any Debt that
is pari passu with the Notes that contains any change of control provisions.
Future indebtedness of Chemicals may contain prohibitions on the occurrence of
certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the
exercise by the holders of their right to require Chemicals to repurchase the
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on
Chemicals. Finally, Chemicals' ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by Chemicals'
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases.

The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of Chemicals, and,
thus, removal of incumbent management.

CERTAIN COVENANTS

The Notes Indenture will contain certain covenants, including the ones
summarized below, which covenants will be applicable (unless waived or
amended) so long as any of the Notes are outstanding.

Limitation on Debt. (a) Chemicals shall not Incur, and shall not permit any
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) Notwithstanding the foregoing paragraph (a), Chemicals and its
subsidiaries may Incur the following Debt: (1) Debt Incurred pursuant to the
Revolving Credit Provisions of the Credit Agreement; provided, however, that,
Debt issued pursuant to the Revolving Credit Provisions of the Credit
Agreement shall not exceed the greater of $100 million and the sum of (i)
% of the gross book value of the inventory of Chemicals and the
Subsidiaries, and (ii) % of the gross book value of the accounts
receivable of Chemicals and its Subsidiaries; (2) Debt Incurred pursuant to
the Term Loan Provisions of the Credit Agreement in an aggregate principal
amount not to exceed $350 million outstanding at any one time less the
aggregate amount of all principal repayments of any such Debt actually made
after the Issue Date (other than any such principal repayments made

84
<PAGE>

as a result of the Refinancing of any such Debt); (3) Debt Incurred pursuant
to the ESOP Loan Provisions of the Credit Agreement in an aggregate principal
amount not to exceed $6.5 million outstanding at any one time less the
aggregate amount of all principal repayments of any such Debt actually made
after the Issue Date (other than any such principal repayments made as a
result of the Refinancing of any such Debt); (4) Debt of Chemicals 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 Chemicals; (5) Debt of a Subsidiary
incurred and outstanding on or prior to the date on which such Subsidiary
became a Subsidiary or was acquired by Chemicals (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 Subsidiary became a Subsidiary or was acquired
by Chemicals; (6) the Notes; (7) Debt outstanding on the Issue Date (other
than Debt described in clause (1), (2), (3), (4), (5) or (6); (8) Refinancing
Debt in respect of Debt Incurred pursuant to paragraph (a) or pursuant to
clause (6) or (7) or this clause (8); (9) Hedging Obligations consisting of
Interest Rate Agreements directly related to Debt permitted to be incurred by
Chemicals pursuant to the Notes Indenture; and (10) Debt in an aggregate
principal amount which, together with all other Debt of Chemicals and the
Subsidiaries then outstanding (other than Debt permitted by clauses (1)
through (9) of this paragraph (b) or paragraph (a) above) does not exceed
$ million.

(c) Notwithstanding paragraphs (a) and (b) above, Chemicals shall not Incur
any Debt if the proceeds thereof are used, directly or indirectly, to repay,
prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations unless such Debt shall be subordinated to the Notes to at least
the same extent as such Subordinated Obligations.

(d) Notwithstanding paragraphs (a) and (b) above, (i) Chemicals shall not
Incur any Debt if such Debt is subordinated or junior in ranking to any Senior
Debt, unless such Debt is Senior Subordinated Debt or is expressly
subordinated in right of payment to Senior Subordinated Debt and (ii)
Chemicals shall not issue any Secured Debt which is not Senior Debt unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with such Secured Debt for so long as such Secured Debt is
secured by a Lien.

Limitation on Restricted Payments. (a) Chemicals shall not, and shall not
permit any Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation
involving Chemicals) or similar payment to the direct or indirect holders of
its Capital Stock (except dividends or distributions payable solely in its
Non-Convertible Capital Stock or in options, warrants or other rights to
purchase its Non-Convertible Capital Stock and except dividends or
distributions payable to Chemicals or a Subsidiary), (ii) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of Chemicals, any
direct or indirect parent of Chemicals or a Subsidiary (other than such
Capital Stock owned by Chemicals or any Wholly Owned Subsidiary), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition), (iv) make any
Investment in any Person (other than a Permitted Investment), or (v) make any
loan, advance or payment to Holdings or the ESOP (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement, Investment, loan, advance or payment being herein referred to as a
"Restricted Payment"), if at the time Chemicals or such Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); or (2) Chemicals would not be permitted (or after
giving pro forma effect to such Restricted Payment would not be permitted) to
Incur an additional $1.00 of Debt pursuant to clause (a) under "Limitation on
Debt"; or (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of
the Consolidated Net Income accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter during which the
Notes were originally issued to the end of the most recent fiscal quarter
ending at least 45 days

85
<PAGE>

prior to the date of such Restricted Payment (or, in case such Consolidated
Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate
Net Cash Proceeds received by Chemicals from the issue or sale of its Capital
Stock (other than Redeemable Stock or Exchangeable Stock) subsequent to the
Issue Date (other than an issuance or sale to a Subsidiary or an employee
stock ownership plan or similar trust); (C) the aggregate Net Cash Proceeds
received by Chemicals 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 date on which the Notes were originally issued; 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 Chemicals 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; and (D) the amount by which Debt
of Chemicals is reduced on Chemicals' balance sheet upon the conversion or
exchange (other than by a Subsidiary) subsequent to the Issue Date, of any
Debt of Chemicals convertible or exchangeable for Capital Stock (other than
Redeemable Stock or Exchangeable Stock) of Chemicals (less the amount of any
cash, or other property, distributed by Chemicals upon such conversion or
exchange).

(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of
Chemicals made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of Chemicals (other than Redeemable Stock or
Exchangeable Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan); provided, however, that (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 paragraph (a); (ii) any purchase or
redemption of Subordinated Obligations of Chemicals made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Debt of Chemicals
which is permitted to be Incurred pursuant to the covenant described under
"Limitation on Debt" above; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from
Net Available Cash to the extent permitted under "Limitation on Sales of
Assets and Subsidiary Stock" below; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this provision; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or would
result therefrom); and provided further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (v) the
declaration or payment of any dividend on shares of Chemicals' Common Stock so
long as (x) Chemicals would be permitted immediately preceding such
declaration or payment and after giving pro forma effect to such declaration
or payment to Incur an additional $1.00 of Debt pursuant to clause (a) under
"Limitation on Debt", (y) 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 (z) the full amount of such payment is applied by Holdings on such
date as payment of such cash interest on the Discount Notes; provided that
such dividend shall be included in the calculation of the amount of Restricted
Payments; (vi) a payment to Holdings for the purpose of contributions by
Holdings to the ESOP on behalf of the employees of Holdings or its
Subsidiaries that do not exceed, during any fiscal year, % 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 that such contributions for any year may not exceed the principal and
interest due for such year from the ESOP under the ESOP Loan; (vii) a payment
to Holdings to pay its operating and administrative expenses including,
without limitation, directors fees, legal and audit expenses, SEC compliance
expenses, ESOP administrative expenses and corporate franchise and other
taxes, in an amount not to exceed $1.0 million per year; (viii) a payment to
Holdings to be used to repurchase common stock of Holdings distributed to
participants and beneficiaries of the ESOP in accordance with the ESOP and
Section 409(h)(1)(B) of the Code and the regulations thereunder and (ix) a
payment to Holdings pursuant to a tax sharing agreement as the same may be
amended from time to time in a manner not materially adverse to Chemicals.

Limitation on Restrictions on Distributions from Subsidiaries; Limitation on
Preferred Stock of Subsidiaries. Chemicals shall not, and shall not permit any
Subsidiary to, create or permit to exist or become effective any

86
<PAGE>

consensual encumbrance or restriction on the ability of any Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or pay any
Debt or other obligation owed to Chemicals, (ii) make any loans or advances to
Chemicals or (iii) transfer any of its property or assets to Chemicals,
except: (a) any encumbrance or restriction pursuant to an agreement in effect
on the Issue Date or pursuant to the issuance of the Notes; (b) any
encumbrance or restriction with respect to a Subsidiary pursuant to an
agreement relating to any Debt Incurred by such Subsidiary on or prior to the
date on which such Subsidiary was acquired by Chemicals (other than Debt
Incurred as consideration in, or to provide all or any portion of the funds
utilized to consummate, the transaction or series of related transactions
pursuant to which such Subsidiary became a Subsidiary or was acquired by
Chemicals) 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) or contained in any amendment to
an agreement referred to in clause (a) or (b); provided, however, that the
encumbrances and restrictions contained in any of such refinancing agreement
or amendment are no less favorable to the Holders than encumbrances and
restrictions contained in such agreements; (d) any such encumbrance or
restriction consisting of customary nonassignment provisions in leases
governing leasehold interests to the extent such provisions restrict the
transfer of the lease; and (e) in the case of clause (iii) above, restrictions
contained in security agreements securing Debt of a Subsidiary to the extent
such restrictions restrict the transfer of the property subject to such
security agreements.

Chemicals shall not permit any Subsidiary to issue, directly or indirectly,
any Preferred Stock, other than to Chemicals or any Wholly-Owned Subsidiary.

Limitation on Sales of Assets and Subsidiary Stock. (a) Chemicals shall not,
and shall not permit any Subsidiary to, directly or indirectly, consummate any
Asset Disposition unless (i) Chemicals or such Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors (including
as to the value of all non-cash consideration), of the shares and assets
subject to such Asset Disposition and at least 85% of the consideration
thereof received by Chemicals or such Subsidiary is in the form of cash or
cash equivalents, and (ii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by Chemicals (or such Subsidiary, as
the case may be) (A) first, to the extent Chemicals elects (or is required by
the terms of any Senior Debt), to prepay, repay or purchase Senior Debt or
Debt (other than any Redeemable Stock) of a Wholly Owned Subsidiary (in each
case other than Debt owed to Chemicals or an Affiliate of Chemicals or
Holdings) within 60 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 Chemicals' election to the investment by Chemicals or any Wholly Owned
Subsidiary in assets to replace the assets that were the subject of such Asset
Disposition or an asset that (as determined by the Board of Directors) will be
used in the business of Chemicals and the Wholly Owned Subsidiaries 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 Subordinated Debt of Chemicals designated by Chemicals)
pursuant to and subject to the conditions contained in the Notes 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 Chemicals or any Wholly Owned Subsidiary of Tangible Property
or (y) the prepayment, repayment or purchase of Debt (other than any
Redeemable Stock) of Chemicals or Debt of any Subsidiary (in either case other
than Debt owed to Chemicals or an Affiliate of Chemicals), 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 (b) below is consummated; provided, however,
that in connection with any prepayment, repayment or purchase of Debt pursuant
to clause (A), (C) or (D) above, Chemicals 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, Chemicals and its 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 $10 million. Pending application of Net Available Cash pursuant to
this paragraph, such Net Available Cash shall be invested in Permitted
Investments.

87
<PAGE>

For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Debt of Chemicals or any Subsidiary
and the release of Chemicals or such Subsidiary from all liability on such
Debt in connection with such Asset Disposition and (y) securities received by
Chemicals or any Subsidiary from the transferee that are promptly converted by
Chemicals or such Subsidiary into cash.

(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Debt) pursuant to clause (a)(ii)(C)
above, Chemicals will be required to purchase Notes tendered pursuant to an
offer by Chemicals for the Notes (and other Senior Subordinated Debt) at a
purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Debt, such lesser price, if any, as may be provided for by the terms of such
Senior Subordinated Debt) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Notes Indenture.
If the aggregate purchase price of Notes (and any other Senior Subordinated
Debt) tendered pursuant to such offer is less than the Net Available Cash
allotted to the purchase thereof, Chemicals will be required to apply the
remaining Net Available Cash in accordance with clause (a)(ii)(D) above.
Chemicals shall not be required to make such an offer to purchase Notes (and
other Senior Subordinated Debt) pursuant to this covenant if the Net Available
Cash available therefor is less than $10 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to any subsequent Asset Disposition).

(c) Chemicals 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
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Chemicals shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.

Limitation on Transactions with Affiliates. Chemicals shall not, and shall
not permit any Subsidiary to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of Holdings or Chemicals unless (i) the terms of such business,
transaction or series of transactions are (A) set forth in writing and (B) as
favorable to Chemicals or such Subsidiary as terms that would be obtainable at
the time for a comparable transaction or series of similar transactions in
arms-length dealings with an unrelated third Person, (ii) the disinterested
members of the Board of Directors have, by resolution, determined in good
faith that such business or transaction or series of transactions meets the
criteria set forth in (i)(B) above; and (iii) if such business, transaction or
series of transactions involves an amount in excess of $5 million, determined
by a nationally recognized investment banking firm to be fair from a financial
standpoint to Chemicals and its Subsidiaries.

(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "Limitation on Restricted Payments," (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors and by a majority of disinterested
(as to such transactions) directors of Chemicals, (iii) loans or advances to
employees in the ordinary course of business in accordance with the past
practices of Chemicals or its Subsidiaries and their predecessors, but in any
event not to exceed $1 million in the aggregate outstanding at any one time,
(iv) the payment of reasonable and customary fees to directors of Chemicals
and its Subsidiaries who are not employees of Chemicals or its Subsidiaries,
(v) any transaction between Chemicals and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries and (vi) one-time fees payable to Sterling and
Unicorn in connection with the Transaction in an aggregate amount not to
exceed $8 million and $4 million, respectively.

SEC Reports. Notwithstanding that Chemicals may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, Chemicals shall file with the SEC and provide the Trustee and Holders
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.

88
<PAGE>

MERGER AND CONSOLIDATION

Chemicals shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person unless: (i) the resulting,
surviving or transferee Person (the "Successor Company") 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 Chemicals) expressly
assumes by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of Chemicals under the
Notes Indenture and the Notes; (ii) 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; (iii)
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)
under "--Limitation on Debt"; (iv) 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 Chemicals immediately
prior to such transaction; (v) Chemicals 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 the
Notes Indenture.

The Successor Company shall be the successor to Chemicals and shall succeed
to, and be substituted for, and may exercise every right and power of,
Chemicals under the Notes Indenture, but the predecessor Company in the case
of a conveyance, transfer or lease shall not be released from the obligation
to pay the principal of and interest on the Notes.

DEFAULTS

An "Event of Default" is defined in the Notes Indenture as (a) 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; (b) 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; (c) the failure by Chemicals to comply with its obligations
under "--Merger and Consolidation"; (d) the failure by Chemicals to comply for
30 days after notice with any of its obligations in the covenants described
above under "--Change of Control" (other than a failure to purchase Notes), or
under "--Certain Covenants" under "--Limitation on Debt", "--Limitation on
Restricted Payments", "--Limitation on Restrictions on Distributions from
Restricted Subsidiaries; Limitation on Preferred Stock of Subsidiaries", "--
Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to
purchase Notes), "--Limitation on Transactions with Affiliates", or "--SEC
Reports"; (e) the failure by Chemicals to comply with any of its agreements in
the Notes or the Notes Indenture (other than those referred to in (a), (b),
(c) or (d) above) and such failure continues for 60 days after the notice
specified below; (f) 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 Chemicals or any of its Subsidiaries (or the
payment of which is Guaranteed by Chemicals or any of its Subsidiaries)
whether such Debt or Guarantee now exists, or is created after the date of the
Notes Indenture, which default (i) 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 (ii) 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 $3
million or more; (g) certain events of bankruptcy or insolvency of Chemicals
or any Significant Subsidiary; or (h) any judgment or decree for the payment
of money in excess of $3 million is rendered against Chemicals or a
Significant Subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree or
(B) there is a period of 60 days following such judgment during which such
judgment or decree is not discharged, waived or the execution thereof stayed.
A Default under clause (d) or (e) is not an Event of Default until the Trustee
or the Holders of at least 25% in principal amount of the Notes notify
Chemicals of the Default and Chemicals does not cure such Default within the
time specified after receipt of such notice.

89
<PAGE>

If an Event of Default (other than certain events of bankruptcy, insolvency
or reorganization of Chemicals) occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes may
declare the principal of and accrued but unpaid interest on all the Notes to
be due and payable. Upon such a declaration, such principal and interest shall
be due and payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of Chemicals or a
Significant Subsidiary occurs and is continuing, the principal of and interest
on all the Notes will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holders
of the Notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences.

Subject to the provisions of the Notes Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Notes Indenture at the request or direction of any of the holders of the Notes
unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right
to receive payment of principal, premium (if any) or interest when due, no
holder of a Note may pursue any remedy with respect to the Notes Indenture or
the Notes unless (i) such holder has previously given the Trustee notice that
an Event of Default is continuing; (ii) holders of at least 25% in principal
amount of the outstanding Notes have requested the Trustee to pursue the
remedy; (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense; (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the 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.

The Notes Indenture provides that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days (or such shorter period as may be required by
applicable law) after it occurs. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any Note, the Trustee
may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is in the interest of the holders of the
Notes. In addition, Chemicals is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether
the signers thereof know of any Default that occurred during the previous
year. Chemicals also is required to deliver to the Trustee, within 30 days
after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action Chemicals is taking
or proposes to take in respect thereof.

AMENDMENTS AND WAIVERS

Subject to certain exceptions, the Notes Indenture may be amended or
supplemented with the consent of the holders of a majority in principal amount
of the Notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding. However, without the consent
of each holder of an outstanding Note, no amendment may, among other things,
(i) reduce the amount of Notes whose holders must consent to an amendment;
(ii) reduce the rate of or extend the time for payment of interest on any
Note; (iii) reduce the principal of or extend the Stated Maturity of any Note;
(iv) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may or shall be redeemed; (v) make any Note payable in
money other than that stated in the Note; (vi) 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; (vii)
make any change in the amendment provisions which requires each holder's
consent or in the waiver provisions; or (viii) make any change to the
subordination provisions of the Notes Indenture that would adversely affect
the Holders.

Without the consent of any holder of the Notes, Chemicals and the Trustee
may amend or supplement the Notes Indenture to cure any ambiguity, omission,
defect or inconsistency, to provide for the assumption by a

90
<PAGE>

successor corporation of the obligations of Chemicals under the Notes
Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code), to add Guarantees with respect to the Notes, to add to the
covenants of Chemicals and its Subsidiaries for the benefit of the Holders or
to surrender any right or power conferred upon Chemicals, to make any change
that does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Notes
Indenture under the Trust Indenture Act of 1939.

The consent of the Holders is not necessary under the Notes Indenture to
approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.

After an amendment under the Notes Indenture becomes effective, Chemicals is
required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect
therein, will not impair or affect the validity of the amendment.

TRANSFER

The Notes will be issued in registered form and will be transferred only
upon the surrender of the Notes being transferred for registration of
transfer. Chemicals may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.

DEFEASANCE

Chemicals at any time may terminate all its obligations under the Notes and
the Notes Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligation to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. Chemicals at any time may terminate its obligations under the covenants
described under "--Certain Covenants" and "--Change of Control" ("covenant
defeasance").

Chemicals may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Chemicals exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If Chemicals exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (d) under "--Defaults" above or the
failure of Chemicals to comply with "--Change of Control" above.

In order to exercise either defeasance option, Chemicals must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivering to the Trustee an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or a change in applicable Federal income tax
law).

CONCERNING THE TRUSTEE

is to be the Trustee under the Notes Indenture and has been
appointed by Chemicals as Registrar and Paying Agent with regard to the Notes.

The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject

91
<PAGE>

to certain exceptions. The Notes Indenture provides that if an Event of
Default occurs (and is not cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Notes
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense and then only to the extent required by the terms
of the Notes Indenture.

GOVERNING LAW

The Notes Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.

CERTAIN DEFINITIONS

"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 described under "--Certain
Covenants--Limitation on Restricted Payments", "--Certain Covenants--
Limitation on Affiliate Transactions" and "--Certain Covenants--Limitations on
Sales of Assets and Subsidiary Stock" 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 5% or more of the total voting power of the
Voting Stock (on a fully diluted basis) of Chemicals 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.

"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 Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition") by Chemicals or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than (i) a disposition by a Subsidiary to Chemicals or by Chemicals or a
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or
assets (other than shares of Capital Stock of a Subsidiary and which do not
constitute all or substantially all of the assets of any division or line of
business of Chemicals or any Subsidiary) at fair market value in the ordinary
course of business and (iii) for purposes of the covenant described under "--
Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments".

"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 (i) the sum of the
products of numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount
of such payment by (ii) the sum of all such payments.

"Board of Directors" means the Board of Directors of Chemicals or any
committee thereof duly authorized to act on behalf of such Board.

92
<PAGE>

"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 generally accepted accounting principles; 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, participations or other equivalents of or
interests in (however designated), including any Preferred Stock, but
excluding any debt securities convertible into or exchangeable for such
equity.

"Code" means the Internal Revenue Code of 1986, as amended.

"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if Chemicals or any Subsidiary
has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated EBITDA Coverage Ratio is an Incurrence of Debt, or both, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Debt as if such Debt had been
Incurred on the first day of such period and the discharge of any other Debt
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Debt as if such discharge had occurred on the first day of such
period, (2) if since the beginning of such period Chemicals or any Subsidiary
shall have made any Asset Disposition, the EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive) directly attributable
to the assets which are the subject of such Asset Disposition for such period,
or increased by an amount equal to the EBITDA (if negative), directly
attributable thereto for such period, and Consolidated Interest Expense for
such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Debt of Chemicals or any Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to
Chemicals and its continuing Subsidiaries in connection with such Asset
Dispositions for such period (or, if the Capital Stock of any Subsidiary is
sold, the Consolidated Interest Expense for such period directly attributable
to the Debt of such Subsidiary to the extent Chemicals and its continuing
Subsidiaries are no longer liable for such Debt after such sale), (3) if since
the beginning of such period Chemicals or any Subsidiary (by merger or
otherwise) shall have made an Investment in any Subsidiary (or any person
which becomes a Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or substantially all
of an operating unit of a business, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Debt) as if such Investment or acquisition
occurred on the first day of such period, and (4) if since the beginning of
such period any Person (that subsequently became a Subsidiary or was merged
with or into Chemicals or any Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment that would have
required an adjustment pursuant to clause (2) or (3) above if made by
Chemicals or a 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 Chemicals. If any Debt bears a floating rate of interest and is
being given pro forma effect, the interest of such Debt shall be calculated as
if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Debt if such Interest Rate Agreement has a remaining term
in excess of 12 months).

93
<PAGE>

"Consolidated Interest Expense" means, for any period, the total interest
expense of Chemicals and its consolidated Subsidiaries, plus, to the extent
not included in such interest expense, (i) interest expense attributable to
capital leases, (ii) amortization of debt discount and debt issuance cost,
(iii) capitalized interest, (iv) non-cash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing, (vi) net costs under Interest Rate
Agreements (including amortization of fees), (vii) Preferred Stock dividends
in respect of all Preferred Stock held by Persons other than Chemicals or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with
Investments in discontinued operations; (ix) interest actually paid by
Chemicals or any of its consolidated Subsidiaries under any Guarantee of Debt
or other obligation of any other Person and (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than Chemicals) in connection with Debt Incurred by such plan or
trust.

"Consolidated Net Income" means, for any period, the net income of Chemicals
and its consolidated Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income (i) any net income of any Person if
such Person is not a Subsidiary, except that (A) subject to the exclusion
contained in clause (iv) below, Chemicals' 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 Chemicals or a Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Subsidiary, to
the limitations contained in clause (iii) below) and (B) Chemicals' equity in
a net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any Person
acquired by Chemicals or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income of
any Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Subsidiary, directly or indirectly, to Chemicals, except that (A) subject to
the exclusion contained in clause (iv) below, Chemicals' equity in the net
income of any such Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Subsidiary during such period to Chemicals or another
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another Subsidiary, to the limitation
contained in this clause) and (B) Chemicals' equity in a net loss of any such
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of Chemicals 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 (but
not loss) realized upon the sale or other disposition of any Capital Stock of
any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect
of a change in accounting principles. Notwithstanding the foregoing, for the
purposes of the covenant described under "Certain Covenants--Limitation on
Restricted Payments" only, there shall be excluded from Consolidated Net
Income any dividends, repayments of loans or advances or other transfers of
assets from a Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.

"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 (i) the par or stated value of all outstanding Capital Stock of such
Person plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit, (B) any amounts attributable to Redeemable Stock and (C)
any amounts attributable to Exchangeable Stock.

"Credit Agreement" means the agreement dated , 1996 among
Chemicals, Texas Commerce Bank National Association, as administrative agent,
and the other lenders party thereto, and their respective successors and
assigns, as the same may be amended, supplemented, waived and otherwise
modified, or refinanced from time to time in accordance with the terms
thereof.

94
<PAGE>

"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.

"Debt" of any Person means, without duplication, (i) the principal of and
premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit); (v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but excluding
any accrued dividends); (vi) all Hedging Obligations of such Person; (vii) all
obligations of the type referred to in clauses (i) through (v) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee; and
(viii) all obligations of the type referred to in clauses (i) through (vi) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured. The amount of Debt of any
Person at any date shall be the outstanding balance of such date of all
unconditional obligations as described above and the maximum liability upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date; provided, however, that the amount
outstanding at any time of any Debt Incurred with original issue discount is
the face amount of such Debt less the remaining unamortized portion of the
original issue discount of such Debt at such time as determined in conformity
with GAAP.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"Designated Senior Debt" means the Debt under the Credit Agreement.

"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: (a) all income tax expense of
Chemicals, (b) depreciation expense and (c) amortization expense, in each case
for such period. Notwithstanding the foregoing, the provision for taxes based
on the income or profits of, and the depreciation and amortization of, a
Subsidiary of Chemicals 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 to Chemicals by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.

"ESOP Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make ESOP loans available to
Chemicals.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of Chemicals which
is neither Exchangeable Stock nor Redeemable Stock).

95
<PAGE>

"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such
other statements by such other entity as approved by a significant segment of
the accounting profession, and (iv) the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.

"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any Person
and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Debt or other obligation
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business. 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 or Currency Agreement.

"Holder" means the Person in whose name a Note is registered on the
Registrar's books.

"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.

"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect Chemicals or any Subsidiary against fluctuations in interest rates.

"Investment" in any Person means any loan or advance to, any acquisition of
Capital Stock, equity interest, obligation or other security of, or capital
contribution or other investment in, or any other credit extension to
(including by way of Guarantee of any Debt of), such Person.

"Issue Date" means the date on which the Notes are originally issued.

"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).

"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to
such properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP, as a consequence of such
Asset Disposition, (ii) all payments made on any Debt which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect

96
<PAGE>

to such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the sellers as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by Chemicals or any Subsidiary
after such Asset Disposition.

"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.

"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of
such corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.

"Permitted Holders" means Sterling and Unicorn and their respective
Affiliates.

"Permitted Investment" means an Investment by Chemicals or any Subsidiary in
(i) a Wholly Owned Subsidiary or a Person that will, upon the making of such
Investment, become a Wholly Owned Subsidiary; (ii) Temporary Cash Investments;
(iii) receivables owing to Chemicals or any Subsidiary if created or acquired
in the ordinary course of business and payable or dischargeable in accordance
with customary trade terms; (iv) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to
Chemicals or any Subsidiary or in satisfaction of judgments; and (v) any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock".

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.

"Preferred Stock", 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.

"Public Equity Offerings" means an underwritten primary public offering of
common stock of the Holdings pursuant to an effective registration statement
under the Securities Act.

"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Holdings has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.

"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time on or prior to the first anniversary of the Stated Maturity of the
Notes.

"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 indebtedness. "Refinanced" and "Refinancing"
shall have correlative meanings.

97
<PAGE>

"Refinancing Debt" means Debt that Refinances any Debt of Chemicals or any
Subsidiary existing on the Issue Date or Incurred in compliance with the Notes
Indenture including Debt that Refinances Refinancing Debt; provided, however,
that (i) such Refinancing Debt has a Stated Maturity no earlier than the
Stated Maturity of the Debt being Refinanced, (ii) such Refinancing Debt has
an Average Life at the time such Refinancing Debt is Incurred that is equal to
or greater than the Average Life of the Debt being Refinanced, (iii) such
Refinancing Debt has an aggregate principal amount (or if Incurred with
original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding or committed (plus
fees and expenses, including any premium and defeasance costs) under the Debt
being Refinanced and (iv) with respect to any Refinancing Debt of Debt other
than Senior Debt, such Refinancing Debt shall rank no more senior, and shall
be at least as subordinated, in right of payment to the Notes as the Debt
being so extended, renewed, refunded or refinanced; provided further, however,
that Refinancing Debt shall not include (x) Debt of a Subsidiary that
Refinances Debt of Chemicals or (y) Debt of Chemicals or a Subsidiary that
Refinances Debt of a Subsidiary.

"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Debt of Chemicals.

"Revolving Credit Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make available to
Chemicals a revolving credit facility.

"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Chemicals or a Subsidiary transfers such
property to a Person and Chemicals or a Subsidiary leases it from such Person.

"SEC" means the Securities and Exchange Commission.

"Secured Debt" means any Debt of Chemicals secured by a Lien.

"Senior Debt" means (i) Debt of Chemicals, whether outstanding on the Issue
Date or thereafter Incurred and (ii) accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Chemicals to the extent post-filing interest is
allowed in such proceeding) in respect of (A) indebtedness of Chemicals for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which Chemicals is responsible or
liable unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are
subordinate in right of payment to the Notes; provided, however, that Senior
Debt shall not include (1) any obligation of Chemicals to Holdings or any
subsidiary of Holdings, (2) any liability for Federal, state, local or other
taxes owed or owing by Chemicals, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any Debt
of Chemicals (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Debt or other obligation of
Chemicals, (5) that portion of any Debt which at the time of Incurrence is
Incurred in violation of the Notes Indenture, (6) Debt owed, due, or
guaranteed on behalf of, any director, officer or employee of Chemicals or any
Subsidiary (including without limitation amounts owed for compensation), and
(7) Debt which when Incurred and without respect to any election under Section
1111(b) of Title 11 United States Code, is without recourse to Chemicals.

"Senior Subordinated Debt" means the Notes and any other Debt of Chemicals
that specifically provides that such Debt is to rank pari passu with the Notes
in right of payment and is not subordinated by its terms in right of payment
to any Debt or other obligation of Chemicals which is not Senior Debt.

"Significant Subsidiary" means (i) any domestic Subsidiary of Chemicals
which at the time of determination either (A) had assets which, as of the date
of Chemicals' most recent quarterly consolidated balance sheet, constituted at
least 3% of Chemicals' total assets on a consolidated basis as of such date,
(B) had revenues for the 12-month period ending on the date of Chemicals' most
recent quarterly consolidated statement

98
<PAGE>

of income which constituted at least 3% of Chemicals' total revenues on a
consolidated basis for such period, (ii) any foreign Subsidiary of Chemicals
which at the time of determination either (A) had assets which, as of the date
of Chemicals' most recent quarterly consolidated balance sheet, constituted at
least 5% of Chemicals' total assets on a consolidated basis as of such date,
in each case determined in accordance with GAAP, or (B) had revenues for the
12-month period ending on the date of Chemicals' most recent quarterly
consolidated statement of income which constituted at least 5% of Chemicals'
total revenues on a consolidated basis for such period, or (iii) any
Subsidiary of Chemicals which, if merged with all Defaulting Subsidiaries of
Chemicals, would at the time of determination either (A) have had assets
which, as of the date of Chemicals' most recent quarterly consolidated balance
sheet, would have constituted at least 10% of Chemicals' total assets on a
consolidated basis as of such date or (B) have had revenues for the 12-month
period ending on the date of Chemicals' most recent quarterly consolidated
statement of income which would have constituted at least 10% of Chemicals'
total revenues on a consolidated basis for such period (each such
determination being made in accordance with GAAP). "Defaulting Subsidiary"
means any Subsidiary of Chemicals with respect to which a Default has
occurred.

"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).

"Subordinated Obligation" means any Debt of Chemicals (whether outstanding
on 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 more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) Chemicals, (ii) Chemicals and one or more
Subsidiaries or (iii) one or more Subsidiaries.

"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance
sheet of Chemicals prepared in accordance with generally accepted accounting
principles, excluding (i) all such tangible property located outside the
United States of America, (ii) all rights, contracts and other intangible
assets of any nature whatsoever and (iii) all inventories and other current
assets.

"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other
than an Affiliate of Chemicals 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 Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group, and (v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully

99
<PAGE>

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 Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc.

"Term Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make term loans available to
Chemicals.

"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date of this Notes Indenture.

"Trustee" means the party named as such in the Notes Indenture until a
successor replaces it and, thereafter, means the successor.

"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.

"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 Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by Chemicals or another
Wholly Owned Subsidiary.

100
<PAGE>

DESCRIPTION OF THE UNITS

Each Unit consists of $1,000 principal amount of Discount Notes and Warrants
to purchase shares of Holdings Common Stock. The Discount Notes and the
Warrants will not be separately transferable until the earlier of (i) 30 days
from the Closing Date and (ii) such date as the Underwriters may, in their
discretion, deem appropriate (the "Separation Date").

DESCRIPTION OF THE DISCOUNT NOTES

The Discount Notes are to be issued pursuant to the Indenture, dated as of
, 1996 (the "Discount Notes Indenture"), between Holdings and
Fleet National Bank, as Trustee (the "Trustee"). Following is a summary of
material provisions of the Discount Notes Indenture. This summary does not
purport to be complete and is subject to and is qualified in its entirety by
reference to all the provisions of the Discount Notes and the Discount Notes
Indenture (including provisions made part of the Discount Notes Indenture by
reference to the Trust Indenture Act of 1939, as amended), including the
definitions therein of terms not defined herein. Certain terms used herein are
defined below under "--Certain Definitions". A copy of the form of the
Discount Notes Indenture is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.

GENERAL

The Discount Notes will be senior secured obligations of Holdings, will be
limited to $ million aggregate principal amount at maturity ($ million
aggregate initial Accreted Value) and will mature on , 2008. The
Discount Notes will accrete at the rate per annum shown on the front cover of
this Prospectus, compounded semi-annually, to an aggregate principal amount of
$ million by , 2001. The Discount Notes are being offered at a
substantial discount from their principal amount at maturity. Although for
federal income tax purposes a significant amount of original issue discount,
taxable as ordinary income, will be recognized by a Holder as such discount
accrues from the Issue Date, no interest will be payable on the Discount Notes
prior to , 2002. From and after , 2001, the Discount
Notes will bear interest at the rate per annum shown on the front cover of
this Prospectus from , 2001 or from the most recent date to which
interest has been paid or provided for, payable semi-annually on
and of each year, commencing , 2002 to each
Person in whose name a Discount Note is registered at the close of business on
the preceding or , as the case may be. The Discount
Notes will bear interest on overdue principal and premium, if any, and, to the
extent permitted by law, overdue interest at the rate per annum shown on the
front cover of this Prospectus plus 1%. Principal of and premium, if any, and
interest on the Discount Notes will be payable, and the transfer of Discount
Notes will be registrable, at the office or agency maintained by Holdings in
the City of New York. In addition, payment of interest may, at the option of
Holdings, be made by check mailed to the address of the person entitled
thereto as it appears in the Discount Note Register. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.

The Discount Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any multiple of $1,000. No service
charge will be made for any registration of transfer or exchange of Discount
Notes, but Holdings may require payment of a sum sufficient to cover any
transfer tax or other governmental charge payable in connection therewith.

OPTIONAL REDEMPTION

Except as set forth in the following paragraph, the Discount Notes will not
be redeemable at the option of Holdings prior to , 2001.
Thereafter, the Discount Notes will be redeemable, at Holdings' option, in
whole or in part from time to time, upon not less than 30 nor more than 60
days' prior notice mailed to each Holder of Discount Notes to be redeemed at
the Holder's address appearing in the Discount Note Register, at the following
redemption prices (expressed in percentages of principal amount at maturity),
plus accrued interest to

101
<PAGE>

the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period beginning of the years set
forth below:

In addition, at any time and from time to time prior to ,
1999, Holdings may redeem in the aggregate up to 35% of the Accreted Value of
the Discount Notes with the net proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of Accreted Value on the redemption date) of %
plus accrued interest to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least $ million
aggregate principal amount at maturity of the Discount Notes must remain
outstanding after each such redemption.

In the case of any partial redemption, selection of the Discount Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Discount Note of $1,000 in principal amount at
maturity or less shall be redeemed in part. If any Discount Note is to be
redeemed in part only, the notice of redemption relating to such Discount Note
shall state the portion of the principal amount at maturity thereof to be
redeemed. A new Discount Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Discount Note.

RANKING

The indebtedness evidenced by the Discount Notes will constitute senior
obligations of Holdings, will rank pari passu in right of payment with all
existing and future senior indebtedness of Holdings and will be senior in
right of payments to all future subordinated indebtedness of Holdings. At
March 31, 1996, on a pro forma basis after giving effect to the Transaction,
Holdings would have had no debt other than the Discount Notes. See
"Capitalization."

Substantially all of the operations of Holdings are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Holdings,
including holders of the Discount Notes. The Discount Notes, therefore, will
be effectively subordinated to creditors (including trade creditors) and
preferred stockholders (if any) of subsidiaries of Holdings. At March 31,
1996, after giving effect to the Transaction, the aggregate liabilities
(consisting of Debt and trade payables) of Holdings' subsidiaries would have
been approximately $685.2 million, including the Notes. Although the Discount
Notes Indenture limits the incurrence of Debt and preferred stock of Holdings'
subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Discount Notes Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Debt under the Discount Notes Indenture. See "--Certain Covenants--
Limitation on Debt" and "--Limitation on Restrictions on Distributions from
Subsidiaries; Limitation on Preferred Stock of Subsidiaries".

102
<PAGE>

SECURITY

The Discount Notes will be secured by a second priority lien on all the
Capital Stock of Chemicals, subject to a first priority lien in favor of the
lenders under the Credit Agreement. In the event of a default or similar
occurrence there can be no assurance that such second priority security
interest will be available or sufficient to satisfy claims by Holders of the
Discount Notes.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each Holder shall have the right
to require Holdings to repurchase such Holder's Discount Notes at a purchase
price in cash equal to 101% of the Accreted Value thereof plus accrued and
unpaid interest (if any) to the date of repurchase (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date).

The occurrence of any of the following events will constitute a "Change of
Control" under the Discount Notes Indenture:

(i) prior to the first public offering of common stock of Holdings, the
Permitted Holders cease to be the "beneficial owners" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
Holdings, whether as a result of issuance of securities of Holdings, any
merger, consolidation, liquidation or dissolution of Holdings, any direct
or indirect transfer of securities by Holdings or otherwise (for purposes
of this clause (i) and clause (ii) below, the Permitted Holders shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of the parent corporation);

(ii) on or after the first public offering of common stock of Holdings
referred to on clause (i) above, any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in clause
(i) above, except that for purposes of this clause (ii) such person shall
be deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 30%
of the total voting power of the Voting Stock of Holdings; provided,
however, that the Permitted Holders beneficially own (as defined in clause
(i) 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 (ii), such other
person shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly,
of more than 30% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders beneficially own (as defined in
clause (i) 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);

(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holdings
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of Holdings was
approved by a vote of 66-2/3% of the directors of Holdings then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of Holdings
then in office;

(iv) the merger or consolidation of Holdings with or into another Person
or the merger of another Person with or into Holdings, or the sale or
transfer in one or a series of transactions of all or substantially all the
assets of Holdings or Chemicals to another Person, and, in the case only of
any such merger or

103
<PAGE>

consolidation, the securities of Holdings that are outstanding immediately
prior to such transaction and which represent 100% of the aggregate voting
power of the Voting Stock of Holdings are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving corporation; or

(v) Holdings shall hold less than 100% of the Capital Stock of Chemicals.

Within 30 days following any Change of Control, Holdings 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 Holdings to
purchase such Holder's Discount Notes at a purchase price in cash equal to
101% of the Accreted Value thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment
date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization, each after giving effect to such Change of
Control); (3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed in the event of a
Change of Control); and (4) the instructions determined by Holdings,
consistent with the covenant described hereunder, that a Holder must follow in
order to have its Discount Notes purchased.

Holdings 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 Discount Notes pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described above, Holdings shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under such covenant by virtue thereof.
Neither the Board of Directors nor the Trustee may waive compliance by
Holdings with its obligation to repurchase Discount Notes upon a Change of
Control.

The Change of Control purchase feature is a result of negotiations between
Holdings and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that
Holdings would decide to do so in the future. The provisions of the Discount
Notes Indenture relating to a Change of Control may not afford Holders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction (including, in certain
circumstances, a transaction involving Holdings' management or its affiliates)
that may adversely affect Holders, if such transaction does not constitute a
Change of Control, as defined above. Any such transaction will result in a
Change of Control only if it is the type of transaction specified by such
definition.

The Credit Agreement generally will prohibit Holdings from purchasing any
Discount Notes, and will also provide that the occurrence of certain change of
control events with respect to Holdings would constitute a default thereunder.
In the event a Change of Control occurs at a time when Holdings is prohibited
from purchasing Discount Notes, Holdings could seek the consent of its lenders
to the purchase of Discount Notes or could attempt to refinance the borrowings
that contain such prohibition. If Holdings does not obtain such a consent or
repay such borrowings, Holdings will remain prohibited from purchasing
Discount Notes. In such case, Holdings' failure to purchase tendered Discount
Notes would constitute an Event of Default under the Discount Notes Indenture
which would, in turn, constitute a default under the Credit Agreement.

Upon consummation of the Transaction, Holdings will not have any Debt that
is pari passu with the Discount Notes that contains any change of control
provisions. Future indebtedness of Holdings may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require Holdings to
repurchase the Discount Notes could cause a default under such indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on Holdings. Finally, Holdings' ability to pay cash to the
holders of Discount Notes following the occurrence of a Change of Control may
be

104
<PAGE>

limited by Holdings' then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases.

The Change of Control purchase feature of the Discount Notes may in certain
circumstances make more difficult or discourage a takeover of Holdings, and,
thus, removal of incumbent management.

CERTAIN COVENANTS

The Discount Notes Indenture will contain certain covenants, including the
ones summarized below, which covenants will be applicable (unless waived or
amended) so long as any of the Discount Notes are outstanding.

Limitation on Debt. (a) Holdings shall not Incur, and shall not permit any
Subsidiary to Incur, directly or indirectly, any Debt unless, on the date of
such Incurrence, the Consolidated EBITDA Coverage Ratio exceeds 2.0 to 1.0.

(b) Notwithstanding the foregoing paragraph (a), Holdings and its
Subsidiaries may Incur the following Debt: Debt Incurred by Chemicals pursuant
to the Revolving Credit Provisions of the Credit Agreement; provided, however,
that Debt Incurred pursuant to the Revolving Credit Provisions of the Credit
Agreement shall not exceed the greater of $100 million and the sum of (i)
% of the gross book value of the inventory of Chemicals and its
Subsidiaries and (ii) % of the gross book value of the accounts receivable
of Chemicals and its Subsidiaries; (2) Debt Incurred by Chemicals pursuant to
the Term Loan Provisions of the Credit Agreement in an aggregate principal
amount not to exceed $350 million outstanding at any one time less the
aggregate amount of all principal repayments of any such Debt actually made
after the Issue Date (other than any such principal repayments made as a
result of the Refinancing of any such Debt); (3) Debt Incurred by Chemicals
pursuant to the ESOP Loan Provisions of the Credit Agreement in an aggregate
principal amount not to exceed $6.5 million outstanding at any one time less
the aggregate amount of all principal repayments of any such Debt actually
made after the Issue Date (other than any such principal repayments made as a
result of the Refinancing of any such Debt); (4) Debt of Holdings owed to and
held by a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which 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 Incurrence of such Debt by Holdings; (5) Debt of a
Subsidiary Incurred and outstanding on or prior to the date on which such
Subsidiary became a Subsidiary or was acquired by Holdings (other than Debt
Incurred 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 Subsidiary became a Subsidiary or was
acquired by Holdings); (6) the Discount Notes and the Notes; (7) Debt
outstanding on the Issue Date (other than Debt described in clause (1), (2),
(3), (4), (5) or (6)); (8) Refinancing Debt in respect of Debt Incurred
pursuant to paragraph (a) or pursuant to clause (6) or (7) or this clause (8);
(9) Hedging Obligations consisting of Interest Rate Agreements directly
related to Debt permitted to be Incurred by Holdings pursuant to the Discount
Notes Indenture; and (10) Debt in an aggregate principal amount which,
together with all other Debt of Holdings and the Subsidiaries then outstanding
(other than Debt permitted by clauses (1) through (9) above or paragraph (a))
does not exceed $ million.

(c) Notwithstanding the foregoing, Holdings shall not Incur any Debt
pursuant to the foregoing paragraph (b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Debt shall be subordinated to the Discount Notes to at least the same extent
as such Subordinated Obligations.

Limitation on Restricted Payments. (a) Holdings shall not, and shall not
permit any Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation
involving Holdings) or similar payment to the direct or indirect holders of
its Capital Stock (except dividends or distributions payable solely in its
Non-Convertible Capital Stock or in options, warrants or other rights to
purchase its Non-Convertible Capital Stock and except dividends or
distributions payable to Holdings or a Subsidiary), (ii) purchase, redeem or
otherwise

105
<PAGE>

acquire or retire for value any Capital Stock of Holdings, any direct or
indirect parent of Holdings, or a Subsidiary (other than such Capital Stock
owned by Holdings or any Wholly Owned Subsidiary), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the 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), (iv) make any
Investment in any Person (other than a Permitted Investment) or (v) make any
loan, advance or payment to the ESOP (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement,
Investment, loan, advance or payment or being herein referred to as a
"Restricted Payment"), if at the time Holdings or such Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); or (2) Holdings would not be permitted (or after
giving pro forma effect to such Restricted Payment would not be permitted) to
Incur an additional $1.00 of Debt pursuant to clause (a) under "--Limitation
on Debt"; or (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of
the Consolidated Net Income accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter during which the
Discount Notes were originally issued to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit); (B) the aggregate Net Cash Proceeds received by Holdings from
the issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) subsequent to the Issue Date (other than an issuance or
sale to a Subsidiary or an employee stock ownership plan or similar trust);
(C) the aggregate Net Cash Proceeds received by Holdings 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 Holdings 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; and (D) the amount by which Debt
of Holdings is reduced on Holdings's balance sheet upon the conversion or
exchange (other than by a Subsidiary) subsequent to the Issue Date, of any
Debt of Holdings convertible or exchangeable for Capital Stock (other than
Redeemable Stock or Exchangeable Stock) of Holdings (less the amount of any
cash, or other property, distributed by Holdings upon such conversion or
exchange).

(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of
Holdings made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of Holdings (other than Redeemable Stock or
Exchangeable Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan); provided, however, that (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 paragraph (a); (ii) any purchase or
redemption of Subordinated Obligations of Holdings made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Debt of Holdings
which is permitted to be Incurred pursuant to the covenant described under "--
Limitation on Debt" above; provided, however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations of Holdings from
Net Available Cash to the extent permitted under "--Limitation on Sales of
Assets and Subsidiary Stock" below; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this provision; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or would
result therefrom); and provided further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (v)
contributions by Holdings to the ESOP on behalf of the employees of Holdings
or its Subsidiaries that do not exceed, during any fiscal year, % 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, that such contributions for any year may not exceed the
principal and interest due for such year from the ESOP under the ESOP Loan;
(vi) repurchases of

106
<PAGE>

common stock of Holdings distributed to participants and beneficiaries of the
ESOP in accordance with the ESOP and Section 409(h)(1)(B) of the Code and the
regulations thereunder.

Limitation on Restrictions on Distributions from Subsidiaries; Limitation on
Preferred Stock of Subsidiaries. Holdings shall not, and shall not permit any
Subsidiary to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary to (i) pay
dividends or make any other distributions on its Capital Stock or pay any Debt
or other obligation owed to Holdings, (ii) make any loans or advances to
Holdings or (iii) transfer any of its property or assets to Holdings, except:
(a) any encumbrance or restriction pursuant to an agreement in effect on the
Issue Date or pursuant to the issuance of the Discount Notes or the Notes; (b)
any encumbrance or restriction with respect to a Subsidiary pursuant to an
agreement relating to any Debt Incurred by such Subsidiary on or prior to the
date on which such Subsidiary was acquired by Holdings (other than Debt
Incurred as consideration in, or to provide all or any portion of the funds
utilized to consummate, the transaction or series of related transactions
pursuant to which such Subsidiary became a Subsidiary or was acquired by
Holdings) 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) or contained in any amendment to
an agreement referred to in clause (a) or (b); provided, however, that the
encumbrances and restrictions contained in any of such refinancing agreement
or amendment are no less favorable to the Holders than encumbrances and
restrictions contained in such agreements; (d) any such encumbrance or
restriction consisting of customary nonassignment provisions in leases
governing leasehold interests to the extent such provisions restrict the
transfer of the lease; and (e) in the case of clause (iii) above, restrictions
contained in security agreements securing Debt of a Subsidiary to the extent
such restrictions restrict the transfer of the property subject to such
security agreements.

Holdings shall not permit any Subsidiary to Incur, directly or indirectly,
any Preferred Stock, other than to Holdings or any other Subsidiary.

Limitation on Sales of Assets and Subsidiary Stock. (a) Holdings shall not,
and shall not permit any Subsidiary to, directly or indirectly, consummate any
Asset Disposition unless (i) Holdings or such Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors (including
as to the value of all non-cash consideration), of the shares and assets
subject to such Asset Disposition and at least 85% of the consideration
thereof received by Holdings or such Subsidiary is in the form of cash or cash
equivalents, and (ii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by Holdings (or such Subsidiary, as the case
may be) (A) first, to the extent Holdings elects (or is required by the terms
of any Senior Debt), to prepay, repay or purchase Senior Debt or Debt (other
than any Redeemable Stock) of a Wholly Owned Subsidiary (in each case other
than Debt owed to Holdings or an Affiliate of Holdings) within 60 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 Holdings's election
to the investment by Holdings or any Wholly Owned Subsidiary in assets to
replace the assets that were the subject of such Asset Disposition or an asset
that (as determined by the Board of Directors) will be used in the business of
Holdings and the Wholly Owned Subsidiaries existing on the Issue Date 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 Discount Notes (and any other Senior Debt designated by
Holdings) pursuant to and subject to the conditions contained in the Discount
Notes 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 Holdings or any Wholly Owned Subsidiary of Tangible
Property or (y) the prepayment, repayment or purchase of Debt (other than any
Redeemable Stock) of Holdings or Debt of any Subsidiary (other than Debt owed
to Holdings or an Affiliate of Holdings), in each case within one year from
the later of the receipt of such Net Available Cash and the date the offer
described in paragraph (b) below is consummated; provided, however, that in
connection with any prepayment, repayment or purchase of Debt pursuant to
clause (A), (C) or (D) above, Holdings shall cause the related loan commitment
(if any) to be

107
<PAGE>

permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this
paragraph, Holdings and its 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 $10 million. Pending
application of Net Available Cash pursuant to this paragraph, such Net
Available Cash shall be invested in Permitted Investments.

For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Debt of Holdings or any Subsidiary and
the release of Holdings or such Subsidiary from all liability on such Debt in
connection with such Asset Disposition and (y) securities received by Holdings
or any Subsidiary from the transferee that are promptly converted by Holdings
or such Subsidiary into cash.

(b) In the event of an Asset Disposition that requires the purchase of the
Discount Notes (and other Senior Debt) pursuant to clause (a)(ii)(C) above,
Holdings will be required to purchase Discount Notes tendered pursuant to an
offer by Holdings for the Discount Notes (and other Senior Debt) at a purchase
price of 100% of the Accreted Value of each Discount Note on the date of such
offer (without premium) plus accrued but unpaid interest (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 the Discount Notes
Indenture. If the aggregate purchase price of Discount Notes (and any other
Senior Debt) tendered pursuant to such offer is less than the Net Available
Cash allotted to the purchase thereof, Holdings will be required to apply the
remaining Net Available Cash in accordance with clause (a)(ii)(D) above.
Holdings shall not be required to make such an offer to purchase Discount
Notes (and other Senior Debt) pursuant to this covenant if the Net Available
Cash available therefor is less than $10 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to any subsequent Asset Disposition).

(c) Holdings 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 Discount Notes pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Holdings shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.

Limitation on Transactions with Affiliates. (a) Holdings shall not, and
shall not permit any Subsidiary to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of Holdings unless (i) the terms of such business, transaction or
series of transactions are (A) set forth in writing and (B) as favorable to
Holdings or such Subsidiary as terms that would be obtainable at the time for
a comparable transaction or series of similar transactions in arms-length
dealings with an unrelated third Person, (ii) the disinterested members of the
Board of Directors have, by resolution, determined in good faith that such
business or transaction or series of transactions meets the criteria set forth
in (i)(B) above and (iii) if such business, transaction or series of
transactions involves an amount in excess of $5 million, determined by a
nationally recognized investment banking firm to be fair from a financial
standpoint to Holdings and its Subsidiaries.

(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments", (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors and by a majority of the
disinterested (as to such transactions) directors of Holdings, (iii) loans or
advances to employees in the ordinary course of business in accordance with
the past practices of Holdings or its Subsidiaries and their predecessors, but
in any event not to exceed $1 million in the aggregate outstanding at any one
time, (iv) the payment of reasonable and customary fees to directors of
Holdings and its Subsidiaries who are not employees of Holdings or its
Subsidiaries, (v) any transaction between Holdings and a Wholly Owned
Subsidiary or

108
<PAGE>

between Wholly Owned Subsidiaries and (vi) one-time fees payable to Sterling
and Unicorn in connection with the Transaction in an aggregate amount not to
exceed $8 million and $4 million, respectively.

Limitation on Liens. Holdings shall not, and shall not permit any Subsidiary
to, directly or indirectly, Incur or permit to exist any Lien of any nature
whatsoever on any of its properties (including Capital Stock of a Subsidiary),
whether owned at the Issue Date or thereafter acquired, other than Permitted
Liens, without effectively providing that the Discount Notes shall be secured
equally and ratably with (or prior to) the obligations so secured for so long
as such obligations are so secured; provided, however, that Holdings may Incur
other Liens to secure Debt as long as the amount of outstanding Debt secured
by Liens Incurred pursuant to this proviso does not exceed 5% of Consolidated
Net Tangible Assets, as determined based on the consolidated balance sheet of
Holdings as of the end of the most recent fiscal quarter ending at least 45
days prior thereto.

Limitation on Sale/Leaseback Transactions. Holdings shall not, and shall not
permit any Subsidiary to, enter into any Sale/Leaseback Transaction with
respect to any property unless (i) Holdings or such Subsidiary would be
entitled to (A) Incur Debt in an amount equal to the Attributable Debt with
respect to such Sale/Leaseback Transaction pursuant to the covenant described
under "--Limitation on Debt" and (B) create a Lien on such property securing
such Attributable Debt without equally and ratably securing the Discount Notes
pursuant to the covenant described under "--Limitation on Liens", (ii) the net
proceeds received by Holdings or any Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair value (as determined
by the Board of Directors) of such property and (iii) Holdings applies the
proceeds of such transaction in compliance with the covenant described under
"--Limitation on Sale of Assets and Subsidiary Stock".

Impairment of Security Interest. Holdings shall not, and Holdings shall not
permit any of its Subsidiaries to, take or knowingly or negligently omit to
take, any action which action or omission might or would have the result of
impairing or adversely affecting the security interest with respect to the
Collateral for the benefit of the Trustee and the holders of the Discount
Notes, and Holdings shall not, and shall not permit any of its Subsidiaries
to, grant to any Person other than the Collateral Agent, for the benefit of
the Trustee and the holders of the Discount Notes and other beneficiaries
described in the Pledge Agreement, any interest whatsoever in any of the
Collateral.

Amendments to Pledge Agreement. Holdings shall not, and Holdings shall not
permit any of its Subsidiaries to, amend, modify or supplement, or permit or
consent to any amendment, modification or supplement of, the Pledge Agreement
in any way that would be adverse to the holders of the Discount Notes.

SEC Reports. Notwithstanding that Holdings may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, Holdings shall file with the SEC and provide the Trustee and Holders with
such annual reports and such information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.

MERGER AND CONSOLIDATION

Holdings shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless: (i) the resulting,
surviving or transferee Person (the "Successor Company") shall be a Person
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor Company (if not
Holdings) expressly assumes, by an indenture supplemental thereto, executed
and delivered to the Trustee, in form acceptable to the Trustee, all the
obligations of Holdings under the Discount Notes, the Discount Notes Indenture
and the Pledge Agreement; (ii) immediately after giving effect to such
transaction (and treating any Debt which becomes an obligation of the
Successor Company or any Subsidiary as a result of such transaction as having
been Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the

109
<PAGE>

Successor Company would be able to Incur an additional $1.00 of Debt pursuant
to paragraph (a) of the covenant described under "--Limitation on Debt"; (iv)
immediately after giving effect to such transaction, the Successor Company
shall have Consolidated Net Worth in an amount which is not less than the
Consolidated Net Worth of Holdings prior to such transaction; and (v) Holdings
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Discount Notes Indenture.

The Successor Company shall be the successor to Holdings and shall succeed
to, and be substituted for, and may exercise every right and power of,
Holdings under the Discount Notes Indenture, but the predecessor Person in the
case of a conveyance, transfer or lease shall not be released from the
obligation to pay the principal of and interest on the Discount Notes.

DEFAULTS

An "Event of Default" is defined in the Discount Notes Indenture as (a) a
default in any payment of interest on any Discount Note when the same becomes
due and payable, and such default continues for a period of 30 days; (b) a
default in the payment of the principal of any Discount Note when the same
becomes due and payable at its Stated Maturity, upon redemption, upon
declaration, upon required repurchase or otherwise; (c) the failure by
Holdings to comply with its obligations under "--Merger and Consolidation";
(d) the failure by Holdings to comply for 30 days after notice with any of its
obligations in the covenants described above under "--Change of Control"
(other than a failure to purchase Discount Notes) or under "--Certain
Covenants" under "--Limitation on Debt", "--Limitation on Restricted
Payments", "--Limitation on Restrictions on Distributions from Subsidiaries;
Limitation on Preferred Stock of Subsidiaries", "--Limitation on Sales of
Assets and Subsidiary Stock" (other than a failure to purchase Discount
Notes), "--Limitation on Transactions with Affiliates", "--Limitation on
Liens", "--Limitation on Sale/Leaseback Transactions", "--Impairment of
Security Interest", "--Amendments to Pledge Agreement" or "--SEC Reports"; (e)
the failure by Holdings to comply with any of its agreements in the Discount
Notes or the Discount Notes Indenture (other than those referred to in (a),
(b), (c) or (d) above) and such failure continues for 60 days after the notice
specified below; (f) 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 Holdings or any of its Subsidiaries (or the
payment of which is Guaranteed by Holdings or any of its Subsidiaries) whether
such Debt or Guarantee now exists, or is created after the date of the
Discount Notes Indenture, which default (i) 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 (ii) 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 $3 million or more; (g) certain events of bankruptcy
or insolvency of Holdings or any Significant Subsidiary; (h) any judgment or
decree for the payment of money in excess of $3 million is rendered against
Holdings or a Significant Subsidiary and is not discharged and either (A) an
enforcement proceeding has been commenced by any creditor upon such judgment
or decree or (B) 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; or (i) the security interest under the Pledge Agreement shall,
at any time, cease to be in full force and effect for any reason other than
the satisfaction in full of all obligations under the Discount Notes Indenture
and discharge of the Discount Notes Indenture or any security interest created
thereunder shall be declared invalid or unenforceable or Holdings shall
assert, in any pleading in any court of competent jurisdiction, that such
security interest is invalid or unenforceable. A Default under clause (d) or
(e) is not an Event of Default until the Trustee or the Holders of at least
25% in principal amount of the Discount Notes notify Holdings of the Default
and Holdings does not cure such Default within the time specified after
receipt of such notice.

If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Discount Notes may
declare the Accreted Value of and accrued but unpaid interest on all the
Discount Notes to be due and payable (collectively, the "Default Amount").
Upon such a declaration,

110
<PAGE>

the Default Amount shall be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of Holdings or a Significant Subsidiary occurs and is continuing, the Default
Amount on all the Discount Notes will ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holders of the Discount Notes. Under certain circumstances, the holders of
a majority in principal amount of the outstanding Discount Notes may rescind
any such acceleration with respect to the Discount Notes and its consequences.

Subject to the provisions of the Discount Notes Indenture relating to the
duties of the Trustee, in case an Event of Default occurs and is continuing,
the Trustee will be under no obligation to exercise any of the rights or
powers under the Discount Notes Indenture at the request or direction of any
of the holders of the Discount Notes unless such holders have offered to the
Trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium
(if any) or interest when due, no holder of a Discount Note may pursue any
remedy with respect to the Discount Notes Indenture or the Discount Notes
unless (i) such holder has previously given the Trustee notice that an Event
of Default is continuing; (ii) holders of at least 25% in principal amount of
the outstanding Discount Notes have requested the Trustee to pursue the
remedy; (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense; (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the holders of a majority in principal
amount of the outstanding Discount 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 Discount 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.

The Discount Notes Indenture provides that if a Default occurs and is
continuing and is known to the Trustee, the Trustee must mail to each Holder
notice of the Default within 90 days (or such shorter period as may be
required by applicable law) after it occurs. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Discount
Note, the Trustee may withhold notice if and so long as a committee of its
trust officers determines that withholding notice is in the interest of the
holders of the Discount Notes. In addition, Holdings is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred
during the previous year. Holdings also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action Holdings is
taking or proposes to take in respect thereof.

AMENDMENTS AND WAIVERS

Subject to certain exceptions, the Discount Notes Indenture may be amended
or supplemented with the consent of the holders of a majority in principal
amount of the Discount Notes then outstanding and any past default or
compliance with any provisions may be waived with the consent of the holders
of a majority in principal amount of the Discount Notes then outstanding.
However, without the consent of each holder of an outstanding Discount Note,
no amendment may, among other things, (i) reduce the amount of Discount Notes
whose holders must consent to an amendment; (ii) reduce the rate of or extend
the time for payment of interest on any Discount Note; (iii) reduce the
principal amount at maturity or Accreted Value of any Discount Note or extend
the Stated Maturity of any Discount Note; (iv) reduce the premium payable upon
the redemption of any Discount Note or change the time at which any Discount
Note may or shall be redeemed; (v) make any Discount Note payable in money
other than that stated in the Discount Note; (vi) impair the right of any
holder of the Discount Notes to receive payment of principal of, or premium if
any, and interest on such holder's Discount 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 Discount Notes; (vii) make any change in the
amendment provisions which requires each holder's consent or in the waiver
provisions; (viii) make any change in the Pledge Agreement that would
adversely affect the Holders.

111
<PAGE>

Without the consent of any holder of the Discount Notes, Holdings and the
Trustee may amend or supplement the Discount Notes Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by
a successor corporation of the obligations of Holdings under the Discount
Notes Indenture, to provide for uncertificated Discount Notes in addition to
or in place of certificated Discount Notes (provided that the uncertificated
Discount Notes are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Discount Notes are
described in Section 163(f)(2)(B) of the Code), to add Guarantees with respect
to the Discount Notes, to add to the covenants of Holdings and its
Subsidiaries for the benefit of the Holders or to surrender any right or power
conferred upon Holdings, to make any change that does not adversely affect the
rights of any Holder or to comply with any requirement of the SEC in
connection with the qualification of the Discount Notes Indenture under the
Trust Indenture Act of 1939.

The consent of the Holders is not necessary under the Discount Notes
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.

After an amendment under the Discount Notes Indenture becomes effective,
Holdings is required to mail to Holders a notice briefly describing such
amendment. However, the failure to give such notice to all Holders, or any
defect therein, will not impair or affect the validity of the amendment.

TRANSFER

The Discount Notes will be issued in registered form and will be transferred
only upon the surrender of the Discount Notes being transferred for
registration of transfer. Holdings may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges.

DEFEASANCE

Holdings at any time may terminate all its obligations under the Discount
Notes and the Discount Notes Indenture ("legal defeasance"), except for
certain obligations, including those respecting the defeasance trust and
obligation to register the transfer or exchange of the Discount Notes, to
replace mutilated, destroyed, lost or stolen Discount Notes and to maintain a
registrar and paying agent in respect of the Discount Notes. Holdings at any
time may terminate its obligations under the covenants described under "--
Certain Covenants" and "-- Change of Control" ("covenant defeasance").

Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Discount Notes may not be accelerated
because of an Event of Default with respect thereto. If Holdings exercises its
covenant defeasance option, payment of the Discount Notes may not be
accelerated because of an Event of Default specified in clause (d) under "--
Defaults" above or the failure of Holdings to comply with "--Change of
Control" above.

In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Discount Notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivering to the
Trustee an Opinion of Counsel to the effect that holders of the Discount Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such deposit and defeasance and will be subject to Federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in
the case of legal defeasance only, such Opinion of Counsel must be based on a
ruling of the Internal Revenue Service or a change in applicable Federal
income tax law).

112
<PAGE>

CONCERNING THE TRUSTEE

is to be the Trustee under the Discount Notes Indenture and has been
appointed by Holdings as Registrar and Paying Agent with regard to the
Discount Notes.

The Holders of a majority in principal amount of the outstanding Discount
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Discount Notes Indenture provides that if an Event of
Default occurs (and is not cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Discount
Notes Indenture at the request of any Holder of Discount Notes, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory
to it against any loss, liability or expense and then only to the extent
required by the terms of the Discount Notes Indenture.

GOVERNING LAW

The Discount Notes Indenture provides that it and the Discount Notes will be
governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be
required thereby.

CERTAIN DEFINITIONS

"Accreted Value" means, (A) as of any date prior to , 2001, an
amount per $1,000 principal amount at maturity of Discount Notes that is equal
to the sum of (a) the initial offering price ($ per $1,000 principal
amount of Discount Notes) of such Discount Notes and (b) the portion of the
excess of the principal amount of such Discount Note over such initial
offering price which shall have been amortized through such date, such amount
to be so amortized on a daily basis and compounded semi-annually on each
and at the rate of % per annum from the Issue
Date through the date of determination computed on the basis of a 360-day year
of twelve 30-day months (the following table indicating the Accreted Value at
the semiannual compounding dates with respect to each $1,000 principal amount
at maturity of Discount Notes set forth below):

<TABLE>
<CAPTION>
ACCRETED
DATE VALUE
- ----------- -------------------
<S> <C>
, 1996.............................................. $
, 1997..............................................
, 1997..............................................
, 1998..............................................
, 1998..............................................
, 1999..............................................
, 1999..............................................
, 2000..............................................
, 2000..............................................
, 2001..............................................
, 2001..............................................
</TABLE>

and (B) as of any date on or after , 2001, the principal amount
of each Discount Note.

113
<PAGE>

- --Limitation on Affiliate Transactions" and "--Certain Covenants--Limitations
on Sales of Assets and Subsidiary Stock" 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 5% or more of the total voting power of the
Voting Stock (on a fully diluted basis) of Holdings 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.

"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 Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition") by Holdings or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than (i) a disposition by a Subsidiary to Holdings or by Holdings or a
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or
assets (other than shares of Capital Stock of a Subsidiary and which do not
constitute all or substantially all of the assets of any division or line of
business of Holdings or any Subsidiary) at fair market value in the ordinary
course of business, (iii) for purposes of the covenant described under "--
Certain Covenants--Limitation on Sale of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments."

"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 Discount 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).

"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board.

"Business Day" means each day which is not a Legal Holiday.

"Code" means the Internal Revenue Code of 1986, as amended.

"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of Holdings and its consolidated Subsidiaries
which may properly be classified as current liabilities (including taxes
accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between Holdings and any Subsidiary and (ii) all current
maturities of long-term Debt, all as determined in accordance with GAAP
consistently applied.

114
<PAGE>

"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if Holdings or any Subsidiary has
Incurred any Debt since the beginning of such period that remains outstanding
or if the transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an Incurrence of Debt, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Debt as if such discharge had occurred on the first day of such period, (2) if
since the beginning of such period Holdings or any Subsidiary shall have made
any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased
by an amount equal to the EBITDA (if negative), directly attributable thereto
for such period, and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Debt of Holdings or any Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to Holdings and its continuing
Subsidiaries in connection with such Asset Dispositions for such period (or,
if the Capital Stock of any Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Debt of such Subsidiary
to the extent Holdings and its continuing Subsidiaries are no longer liable
for such Debt after such sale), (3) if since the beginning of such period
Holdings or any Subsidiary (by merger or otherwise) shall have made an
Investment in any Subsidiary (or any Person which becomes a Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any Debt)
as if such Investment or acquisition occurred on the first day of such period,
and (4) if since the beginning of such period any Person (that subsequently
became a Subsidiary or was merged with or into Holdings or any Subsidiary
since the beginning of such period) shall have made any Asset Disposition or
any Investment that would have required an adjustment pursuant to clause (2)
or (3) above if made by Holdings or a 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 Holdings. If any Debt bears a floating rate
of interest and is being given pro forma effect, the interest of such Debt
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any
Interest Rate Agreement applicable to such Debt if such Interest Rate
Agreement has a remaining term in excess of 12 months).

"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its consolidated Subsidiaries, plus, to the extent not
included in such interest expense, (i) interest expense attributable to
capital leases, (ii) amortization of debt discount and debt issuance cost,
(iii) capitalized interest, (iv) non-cash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing, (vi) net costs under Interest Rate
Agreements (including amortization of fees), (vii) Preferred Stock dividends
in respect of all Preferred Stock held by Persons other than Holdings or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with
Investments in discontinued operations; (ix) interest actually paid by
Holdings or any of its consolidated Subsidiaries under any Guarantee of Debt
or other obligation of any other Person and (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than Holdings) in connection with Debt Incurred by such plan or
trust.

"Consolidated Net Income" means, for any period, the net income of Holdings
and its consolidated Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income (i) any net

115
<PAGE>

income of any Person if such Person is not a Subsidiary, except that (A)
Holdings'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 Holdings or a
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Subsidiary, to the limitations contained
in clause (iii) below) and (B) Holdings's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated Net
Income; (ii) any net income of any Person acquired by Holdings or a Subsidiary
in a pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income of any Subsidiary if such Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Subsidiary, directly or indirectly, to
Holdings, except that (A) Holdings's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Subsidiary
during such period to Holdings or another Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to
another Subsidiary, to the limitation contained in this clause) and (B)
Holdings's equity in a net loss of any such Subsidiary for such period shall
be included in determining such Consolidated Net Income; (iv) any gain (but
not loss) realized upon the sale or other disposition of any property, plant
or equipment of Holdings 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 (but not loss) realized
upon the sale or other disposition of any Capital Stock of any Person; and (v)
the cumulative effect of a change in accounting principles. Notwithstanding
the foregoing, for the purposes of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded
from Consolidated Net Income any dividends, repayments of loans as advances or
other transfers of assets from a Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (a)(3)(D) thereof.

"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet
of Holdings and its consolidated Subsidiaries, determined on a consolidated
basis in accordance with GAAP, and after giving effect to purchase accounting
and after deducting therefrom Consolidated Current Liabilities and, to the
extent otherwise included, the amounts of: (i) minority interests in
consolidated Subsidiaries held by Persons other than Holdings or a Subsidiary;
(ii) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors; (iii) any revaluation or
other write-up in book value of assets subsequent to the Issue Date as a
result of a change in the method of valuation in accordance with GAAP
consistently applied; (iv) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items; (v) treasury stock; and (vi) cash set apart and held
in a sinking or other analogous fund established for the purpose of redemption
or other retirement of Capital Stock to the extent such obligation is not
reflected in Consolidated Current Liabilities.

"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.

116
<PAGE>

"Debt" of any Person means, without duplication, (i) the principal of and
premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit); (v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock or with
respect to Subsidiaries, any Preferred Stock (but excluding any accrued
dividends); (vi) all Hedging Obligations of such Person; (vii) all obligations
of the type referred to in clauses (i) through (v) of other Persons and all
dividends of other Persons for the payment of which, in either case, such
Person is responsible or liable, directly or indirectly, as obligor, guarantor
or otherwise, including by means of any Guarantee; and (viii) all obligations
of the type referred to in clauses (i) through (vi) of other Persons secured
by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount
of the obligation so secured. The amount of Debt of any Person at any date
shall be the outstanding balance of such date of all unconditional obligations
as described above and the maximum liability upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at
such date; provided, however, that the amount outstanding at any time of any
Debt Incurred with original issue discount is the face amount of such Debt
less the remaining unamortized portion of the original issue discount of such
Debt at such time as determined in conformity with GAAP.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"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: (a) all income tax expense of
Holdings, (b) depreciation expense and (c) amortization expense, in each case
for such period. Notwithstanding the foregoing, the provision for taxes based
on the income or profits of, and the depreciation and amortization of, a
Subsidiary of Holdings 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 to Holdings by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.

"ESOP Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make ESOP loans available to
Chemicals.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of Holdings which
is neither Exchangeable Stock nor Redeemable Stock).

"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.

117
<PAGE>

"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.

"Holder" means the Person in whose name a Discount Note is registered on the
Registrar's books.

"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect Holdings or any Subsidiary against fluctuations in interest rates.

"Issue Date" means the date on which the Discount Notes are originally
issued.

"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).

118
<PAGE>

to such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of the
proceeds from such Asset Disposition, and (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the sellers as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by Holdings or any Subsidiary
after such Asset Disposition.

"Permitted Holders" means Sterling and Unicorn and their respective
Affiliates.

"Permitted Investment" means an Investment by Holdings or any Subsidiary in
(i) a Wholly Owned Subsidiary or a Person that will, upon the making of such
Investment, become a Wholly Owned Subsidiary; (ii) Temporary Cash Investments;
(iii) receivables owing to Holdings or any Subsidiary if created or acquired
in the ordinary course of business and payable or dischargeable in accordance
with customary trade terms; (iv) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to
Holdings or any Subsidiary or in satisfaction of judgments; and (v) any Person
to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock".

"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under worker's compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Debt) or leases to which
such Person is a party, or deposits to secure public or statutory obligations
of such Person or deposits of cash or United States government bonds to secure
surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by
law, such as carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings
or other Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for property taxes not yet subject to
penalties for non-payment or which are being contested in good faith by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of
such Person in the ordinary course of its business; provided, however, that
such letters of credit do not constitute Debt; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use of
real property or Liens incidental to the conduct of the business of such
Person or to the ownership of its properties which were not Incurred in
connection with Debt and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such Person; (f) Liens securing Debt Incurred to
finance the construction, purchase or lease of, or repairs, improvements or
additions to, property of such Person; provided, however, that the Lien may
not extend to any other property owned by such Person or any of its
Subsidiaries at the time the Lien is Incurred, the Debt secured by the Lien
may not be Incurred more than 180 days after the later of the acquisition,
completion of construction, repair, improvement, addition or commencement of
full operation of the property subject to the Lien, the Debt secured by such
Lien shall have otherwise been permitted to be issued under the Discount Notes
Indenture, and

119
<PAGE>

the aggregate principal amount of Debt secured by such Liens shall not exceed
the lesser of cost or Fair Market Value of the assets or property so acquired
or constructed; (g) Liens to secure Debt permitted under the provisions
described in clause (b)(1) and (2) under "--Certain Covenants--Limitation on
Debt"; (h) Liens existing on the Issue Date; (i) Liens on property or shares
of Capital Stock of another Person at the time such other Person becomes a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such other
Person becoming such a Subsidiary; provided further, however, that such Lien
may not extend to any other property owned by such Person or any of its
Subsidiaries; (j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition; provided
further, however, that the Liens may not extend to any other property owned by
such Person or any of its Subsidiaries; (k) Liens securing Debt or other
obligations of a Subsidiary of such Person owing to such Person or a Wholly
Owned Subsidiary of such Person; (l) Liens securing Hedging Obligations so
long as such Hedging Obligations relate to Debt that is, and is permitted to
be under the Discount Notes Indenture, secured by a Lien on the same property
securing such Hedging Obligations; (m) Liens created pursuant to the terms of
the Pledge Agreement and (n) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Debt secured by any Lien referred
to in the foregoing clauses (f), (h), (i) and (j); provided, however, that (x)
such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements to or on such property) and (y)
the Debt secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Debt described under clauses (f), (h), (i) or (j) at
the time the original Lien became a Permitted Lien and (B) an amount necessary
to pay any fees and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement. Notwithstanding the foregoing,
"Permitted Liens" will not include any Lien described in clauses (f), (i) or
(j) above to the extent such Lien applies to any assets acquired directly or
indirectly from Net Available Cash pursuant to clause (a)(ii)(B) or (D) of the
covenant described under "--Certain Covenants--Limitation on Sale of Assets
and Subsidiary Stock".

"Public Equity Offering" means an underwritten primary public offering of
common stock of Holdings pursuant to an effective registration statement under
the Securities Act.

"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Holdings has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.

"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Discount Notes or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated
Maturity of the Discount Notes.

"Refinancing Debt" means Debt that Refinances any Debt of Holdings or any
Subsidiary existing on the Issue Date or Incurred in compliance with the
Discount Notes Indenture including Debt that Refinances

120
<PAGE>

Refinancing Debt; provided, however, that (i) such Refinancing Debt has a
Stated Maturity no earlier than the Stated Maturity of the Debt being
Refinanced, (ii) such Refinancing Debt has an Average Life at the time such
Refinancing Debt is Incurred that is equal to or greater than the Average Life
of the Debt being Refinanced, (iii) such Refinancing Debt has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or
if Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Debt being Refinanced and (iv) with respect to any
Refinancing Debt of Debt other than Senior Debt, such Refinancing Debt shall
rank no more senior, and shall be at least as subordinated, in right of
payment to the Discount Notes as the Debt being so extended, renewed, refunded
or refinanced; provided further, however, that Refinancing Debt shall not
include (x) Debt of a Subsidiary that Refinances Debt of Holdings or (y) Debt
of Holdings or a Subsidiary that Refinances Debt of a Subsidiary.

"Revolving Credit Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make available to
Chemicals a revolving credit facility.

"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Holdings or a Subsidiary transfers such
property to a Person and Holdings or a Subsidiary leases it from such Person.

"SEC" means the Securities and Exchange Commission.

"Senior Debt" means (i) Debt of Holdings, whether outstanding on the Issue
Date or thereafter Incurred and (ii) accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Holdings to the extent post-filing interest is
allowed in such proceeding) in respect of (A) indebtedness of Holdings for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which Holdings is responsible or
liable unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are
subordinate in right of payment to the Discount Notes; provided, however, that
Senior Debt shall not include (1) any obligation of Holdings to any
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or
owing by Holdings, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Debt of Holdings
(and any accrued and unpaid interest in respect thereof) which is subordinate
or junior in any respect to any other Debt or other obligation of Holdings,
(5) that portion of any Debt which at the time of Incurrence is Incurred in
violation of the Discount Notes Indenture, (6) Debt owed, due, or guaranteed
on behalf of, any director, officer or employee of Holdings or any Subsidiary
(including, without limitation, amounts owed for compensation), and (7) Debt
which when Incurred and without respect to any election under Section 1111(b)
of Title 11 United States Code, is without recourse to Holdings.

"Significant Subsidiary" means (i) any domestic Subsidiary of Holdings which
at the time of determination either (A) had assets which, as of the date of
Holdings's most recent quarterly consolidated balance sheet, constituted at
least 3% of Holdings's total assets on a consolidated basis as of such date,
(B) had revenues for the 12-month period ending on the date of Holdings's most
recent quarterly consolidated statement of income which constituted at least
3% of Holdings's total revenues on a consolidated basis for such period, (ii)
any foreign Subsidiary of Holdings which at the time of determination either
(A) had assets which, as of the date of Holdings's most recent quarterly
consolidated balance sheet, constituted at least 5% of Holdings's total assets
on a consolidated basis as of such date, in each case determined in accordance
with GAAP, or (B) had revenues for the 12-month period ending on the date of
Holdings's most recent quarterly consolidated statement of income which
constituted at least 5% of Holdings's total revenues on a consolidated basis
for such period, or (iii) any Subsidiary of Holdings which, if merged with all
Defaulting Subsidiaries of Holdings, would at the time of determination either
(A) have had assets which, as of the date of Holdings's most recent quarterly
consolidated balance sheet, would have constituted at least 10% of Holdings's
total assets on a consolidated basis as of such date or (B) have had revenues
for the 12-month period ending on the date of Holdings's most recent quarterly

121
<PAGE>

consolidated statement of income which would have constituted at least 10% of
Holdings's total revenues on a consolidated basis for such period (each such
determination being made in accordance with GAAP). "Defaulting Subsidiary"
means any Subsidiary of Holdings with respect to which a Default has occurred.

"Subordinated Obligation" means any Debt of Holdings (whether outstanding on
Issue Date or hereafter Incurred) which is subordinate or junior in right of
payment to the Discount Notes.

"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) Holdings, (ii) Holdings and one or more
Subsidiaries or (iii) one or more Subsidiaries.

"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance
sheet of Holdings prepared in accordance with generally accepted accounting
principles, excluding (i) all such tangible property located outside the
United States of America, (ii) all rights, contracts and other intangible
assets of any nature whatsoever and (iii) all inventories and other current
assets.

"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other
than an Affiliate of 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 Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Group, and (v)
investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc.

"Term Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make term loans available to
Chemicals.

"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb)
as in effect on the date of this Discount Notes Indenture.

"Trustee" means the party named as such in the Discount Notes Indenture
until a successor replaces it and, thereafter, means the successor.

122
<PAGE>

"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 Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by Holdings or another
Wholly Owned Subsidiary.

DESCRIPTION OF THE WARRANTS

A total of Warrants will be issued under a warrant agreement
(the "Warrant Agreement") dated as of , 1996, between
Holdings and , as Warrant Agent (the "Warrant Agent"). The
Warrants are subject to the terms contained in the Warrant Agreement. The
following summary, which describes certain material provisions of the Warrant
Agreement and the Warrants, does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Warrant Agreement and
the Warrants, including the definitions therein of the capitalized terms not
defined herein. A copy of the form of the Warrant Agreement is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.

GENERAL

The Warrants will be exercisable at any time beginning twelve months
following the Closing Date and on or prior to the Expiration Date. Each
Warrant, when exercised, will entitle the holder thereof to receive
share(s) of Holdings Common Stock, subject to adjustment, at an exercise price
of $.01 per share (the "Exercise Price"). Upon consummation of the
Transaction, the Warrants will initially entitle the holders thereof to
acquire, in the aggregate, approximately % of the outstanding Holdings
Common Stock on a fully diluted basis. The Discount Notes and the Warrants
will not trade separately until the Separation Date. All outstanding Warrants
will expire on , 2008 (the "Expiration Date"). Holdings will
give notice not less than 90 nor more than 120 days prior to the Expiration
Date to the registered holders of the then outstanding Warrants. If Holdings
fails to give this notice, the Warrants will nevertheless terminate and become
void on the Expiration Date.

METHOD OF EXERCISE

The Warrants may be exercised at any time beginning twelve months following
the Closing Date by surrendering to the Warrant Agent a Warrant certificate
signed by the registered holder indicating such holder's election to exercise
or sell all or a portion of the Warrants evidenced by such certificate,
together with payment in full of the applicable Exercise Price (payable in
cash or through the surrender of unexercised Warrants, as provided in the
Warrant Agreement). Upon surrender of the Warrant certificate for exercise or
sale, and, if applicable, payment of the Exercise Price, the Warrant Agent
will deliver or cause to be delivered, to or upon the written order of any
holder, appropriate evidence of ownership of any shares of Holdings Common
Stock or other securities or property (including any money) to which such
holder is entitled, together with Warrant certificates evidencing any Warrants
not exercised or sold.

Certificates for Warrants will be issued in fully registered form only. No
service charge shall be made for registration of transfer or exchange upon
surrender of any Warrant certificate at the office of the Warrant Agent
maintained for that purpose. Holdings may require payment of a sum sufficient
to cover any tax or other government charge that may be imposed in connection
with any registration or transfer or exchange of Warrant certificates.

Fractional shares of Holdings Common Stock are not required to be issued
upon exercise of Warrants, but in lieu thereof Holdings will pay a cash
adjustment.

123
<PAGE>

ADJUSTMENT

The number of shares of Holdings Common Stock issuable upon the exercise of
each Warrant and the Exercise Price are subject to adjustment in certain
events, including (i) a dividend or distribution on Holdings Common Stock in
shares of Holdings' capital stock or a stock split, combination, subdivision
or reclassification of Holdings Common Stock, (ii) the issuance of rights,
options, warrants or convertible or exchangeable securities (collectively,
"Rights") to all holders of Holdings Common Stock entitling such holders to
purchase shares of Holdings Common Stock for a consideration per share less
than the then current market value per share of Holdings Common Stock, (iii)
the sale of shares of Common Stock or Rights at a price below the then current
market value per share of Holdings Common Stock, and (iv) the distribution to
all holders of Holdings Common Stock of any of Holdings' assets, debt
securities, or any rights or warrants to purchase securities (excluding those
rights referred to in clause (ii) above and excluding cash dividends or other
cash distributions from current or retained earnings).

In the event of a distribution to holders of Holdings Common Stock which
results in an adjustment to the number of shares of Holdings Common Stock or
other consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain United States Federal Income Tax Consequences."

MERGERS, CONSOLIDATIONS, ETC.

In the event that Holdings consolidates or mergers with or into, or sells
all or substantially all of its property and assets to, another person, each
Warrant thereafter shall entitle the holder to receive upon the exercise
thereof the number of shares of capital stock or other securities or property
which the holder of a share of Holdings Common Stock is entitled to receive
upon completion of such consolidation, merger or sale of assets. If Holdings
merges, consolidates or sells all or substantially all of its property and
assets to another person and, in connection therewith, consideration to the
holders of Common Stock in exchange for their shares is payable solely in
cash, or in the event of the dissolution, liquidation or winding-up of
Holdings, then the holders of the Warrants will be entitled to receive
distributions on an equal basis with the holders of Holdings Common Stock (or
other securities) issuable upon exercise of the Warrants, as if the Warrants
had been exercised immediately prior to such event (or the record date
therefor), less the Exercise Price. Upon receipt by the holders of such
payment, if any, the Warrants will expire and the rights of holders thereof
with respect to the Warrants will cease. In the case of any such merger,
consolidation or sale of assets, the surviving or acquiring person and, in the
event of any dissolution, liquidation or winding-up of Holdings, Holdings,
must deposit with the Warrant Agent the funds, if any, necessary to pay the
holders of the Warrants. After such funds and the surrendered Warrants are
received, the Warrant Agent must make payment by delivering a check in such
amount as is appropriate (or, in the case of consideration other than cash,
such consideration as is appropriate) to such person or persons as it may be
directed in writing by the holders surrendering such Warrants.

REGISTRATION REQUIREMENT

Holdings is required, under the terms of the Warrant Agreement, to use its
best efforts to cause to be declared effective no later than twelve months
after the Closing Date, a shelf registration statement with respect to the
issuance of the shares of Holdings Common Stock upon the exercise of the
Warrants. Holdings is required to use its best efforts to maintain the
effectiveness of such shelf registration statement until the earlier of (i)
such time as all Warrants have been exercised and (ii) the Expiration Date.
During any consecutive 365-day period, Holdings will have the ability to
suspend availability of such shelf registration statement for up to two 15
consecutive day periods (except for the 30 consecutive day period immediately
prior to the Expiration Date) if Holdings' Board of Directors determines in
good faith that there is a valid purpose for the suspension and provides
notice of such determination to the holders at their addresses appearing in
the register of Warrants maintained by the Warrant Agent.

124
<PAGE>

NO RIGHTS AS STOCKHOLDERS

Holders of Warrants are not entitled, by virtue of being such holders, to
receive dividends or subscription rights, vote, consent, exercise any
preemptive right or receive notice as stockholders of Holdings in respect of
any meeting of stockholders for the election of directors of Holdings or any
other matter, or exercise any other rights whatsoever as stockholders of
Holdings.

RESERVATION OF SHARES

Prior to the consummation of the Offering, the Company will authorize and
reserve for issuance such number of shares of Holdings Common Stock as shall
be issuable upon exercise of all outstanding Warrants. Such shares of Holdings
Common Stock, when issued, will be duly and validly issued, fully paid and
non-assessable, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issue thereof.

REPORTS

Whether or not required by the rules and regulations of the SEC, so long as
any of the Warrants remain outstanding, Holdings shall cause copies of the
reports described under "Description of the Discount Notes--Certain
Covenants--SEC Reports" to be filed with the Warrant Agent and mailed to the
holders at their addresses appearing in the register of Warrants maintained by
the Warrant Agent.

AMENDMENT

From time to time, Holdings and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including the curing of defects or inconsistencies or making
changes that do not adversely affect the rights of any holder. Any amendment
or supplement to the Warrant Agreement that has an adverse effect on the
interests of the holders of the Warrants shall require the written consent of
the holders of a majority of the then outstanding Warrants. The consent of
each holder of the Warrants affected shall be required for any amendment
pursuant to which the number of shares of Holdings Common Stock receivable
upon the exercise of Warrants would be decreased (other than pursuant to
adjustments provided for in the Warrant Agreement).

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

Upon consummation of the Transaction, the authorized capital stock of
Holdings will be 22,000,000 shares, consisting of 20,000,000 shares of
Holdings Common Stock and 2,000,000 shares of Preferred Stock of Holdings, par
value $0.01 per share ("Preferred Stock"). The following summary is qualified
in its entirety by reference to the Form of Holdings' Certificate of
Incorporation (the "Charter") and the Amended Bylaws of the Company (the
"Bylaws"), which will be the Certificate of Incorporation and Bylaws of
Holdings upon consummation of the Merger. Copies of the Charter and Bylaws are
included as exhibits to the Registration Statement of which this Prospectus is
a part.

Holdings Common Stock. The holders of Holdings Common Stock are entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors out of funds legally available therefor. Holders of Holdings Common
Stock are entitled to one vote per share for the election of directors and
other corporate matters. In the event of liquidation, dissolution or winding
up of Holdings, holders of Holdings Common Stock would be entitled to share
ratably in all assets of Holdings available for distribution to the holders of
Holdings Common Stock. Holdings Common Stock carries no preemptive rights. All
outstanding shares of Holdings Common Stock are expected to be duly
authorized, validly issued, fully paid and nonassessable.

Preferred Stock. The Board of Directors is authorized to issue from time to
time, without stockholder authorization, in one or more designated series,
shares of preferred stock with such dividend, redemption,

125
<PAGE>

conversion and exchange provisions as are provided in the particular series.
Upon consummation of the Transaction, none of such shares will have been
issued. Except as by law expressly provided, or except as may be provided by
resolution of the Board of Directors, the Preferred Stock shall have no right
or power to vote on any question or in any proceeding or to be represented at,
or to receive notice of, any meeting of stockholders of Holdings. The issuance
of the Preferred Stock could have the effect of delaying or preventing a
change in control of Holdings. The Board of Directors has no present plans to
issue any of the Preferred Stock.

PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECT

Statutory Provisions. Section 203 ("Section 203") of the General Corporation
Law of the State of Delaware (the "Delaware Act") restricts certain
transactions between a corporation organized under Delaware law (or its
majority-owned subsidiaries) and any person holding 15% or more of the
corporation's outstanding voting stock, together with the affiliates or
associates of such person (an "Interested Stockholder"). Section 203 generally
prohibits a publicly held Delaware corporation from engaging in the following
transactions with an Interested Stockholder, for a period of three years from
the date the stockholder becomes an Interested Stockholder (unless certain
conditions, described below, are met): (a) all mergers or consolidations, (b)
sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (c) issuances or transfers by the corporation of
any stock of the corporation which would have the effect of increasing the
Interested Stockholder's proportionate share of the stock of any class or
series of the corporation, (d) any other transaction which has the effect of
increasing the proportionate share of the stock of any class or series of the
corporation which is owned by the Interested Stockholder, and (e) receipt by
the Interested Stockholder of the benefit (except proportionately as a
stockholder) of loans, advances, guarantees, pledges or other financial
benefits provided by the corporation.

The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the date such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction whereby such stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
officers and directors or certain employee stock plans. Business combinations
are also permitted within the three-year period if approved by the board of
directors and authorized at an annual or special meeting of stockholders, by
the holders of at least 66-2/3% of the outstanding voting stock not owned by
the Interested Stockholder. In addition, any transaction is exempt from the
statutory ban if it is proposed at a time when the corporation has proposed,
and a majority of certain continuing directors of the corporation have
approved, a transaction with a party which is not an Interested Stockholder of
the corporation (or who becomes such with board approval) if the proposed
transaction involves (a) certain mergers or consolidations involving the
corporation, (b) a sale or other transfer of over 50% of the aggregate assets
of the corporation, or (c) a tender or exchange offer for 50% or more of the
outstanding voting stock of the corporation.

Section 203 is not applicable to corporations that do not have a class of
voting stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on the NASDAQ Stock Market, or (iii) held of record
by more than 2,000 stockholders, unless the foregoing results from action
taken, directly or indirectly, by an Interested Stockholder or from a
transaction in which a person becomes an Interested Stockholder. Upon
consummation of the Transaction, it is expected that Section 203 will not be
applicable to Holdings, though it may be applicable in the future. A
corporation may, at its option, exclude itself from the coverage of Section
203 if its original Certificate of Incorporation contains a provision
expressly electing not to be governed by Section 203. The Charter will not
contain such a provision.

Charter and Bylaw Provisions. The Charter will provide that the number of
directors will be fixed by the Board of Directors in accordance with the
Bylaws, but will consist of not less than three nor more than 15 members. The
Bylaws currently provide that the Board of Directors will consist of seven
members. A director of

126
<PAGE>

Holdings may be removed only upon the affirmative vote of the holders of not
less than 66-2/3% of the outstanding capital stock entitled to vote at an
election of directors.

The Charter will provide that Holdings may, by action of its Board of
Directors, issue warrants, rights and options with such terms as determined by
the Board of Directors. This provision will allow the Board of Directors to
adopt a rights plan. Holdings does not currently have a rights plan in effect.

The Charter will provide that Holdings may, by action of its Board of
Directors, provide for a sinking fund for the purchase or redemption of shares
of any series and specify the terms and conditions governing the operations of
any such fund. Upon consummation of the Transaction, Holdings will not have
any such fund.

The Charter will provide that nominations of persons for election to the
Board of Directors may be made by or at the direction of the Board of
Directors, and that the Bylaws may set forth procedures for nominations of
persons for election to the Board of Directors. The Bylaws do not currently
contain any such procedures. The Charter and the Bylaws will provide that any
newly created directorship resulting from an increase in the number of
directors or a vacancy on the Board of Directors shall be filled by vote of a
majority of the remaining directors then in office, even though less than a
quorum. The Charter will also provide that special meetings of the
stockholders may only be called by the Board of Directors and that the
stockholders may not act by written consent. The Charter will provide that
these provisions of the Charter, and the Bylaws as a whole, may not be amended
by the stockholders without the approval of at least 66-2/3% of the voting
power of all shares of Holdings entitled to vote generally in the election of
directors, voting together as a single class.

The foregoing provisions of the Charter and the Bylaws, and of Section 203
if applicable, together with the ability of the Board of Directors to issue
Preferred Stock without further stockholder action, could delay or frustrate
the removal of incumbent directors or the assumption of control by the holder
of a large block of Holdings Common Stock even if such removal or assumption
would be beneficial, in the short term, to stockholders of Holdings. The
provisions could also discourage or make more difficult a merger, tender offer
or proxy contest even if such event would be favorable to the interests of
stockholders.

LIMITATION ON DIRECTORS AND OFFICERS LIABILITY

The Delaware Act authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting gross negligence in the exercise
of their duty of care. Although the Delaware Act does not change directors'
duty of care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Charter limits the liability of
Holdings' directors to Holdings or its stockholders (in their capacity as
directors but not in their capacity as officers) to the fullest extent
permitted by the Delaware Act. Specifically, directors of Holdings will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to Holdings or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Act or (iv) for any
transaction from which the director derived an improper personal benefit.

The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited Holdings and its stockholders.

127
<PAGE>

TRANSFER RESTRICTIONS

Purchasers of shares in the Equity Private Placement will become parties to
a Stockholder Agreement (the "Stockholder Agreement"), which restricts
transfers of shares of Holdings Common Stock owned by a stockholder other than
(i) Rollover Shares (except with respect to such shares held by parties to the
Inducement Agreement), and (ii) shares distributed to such stockholder by the
New ESOP or the Company's existing Employee Stock Ownership Plan. Except for
certain permitted transfers, and subject to the Control Provision (as defined)
and the Material Agreement Provision (as defined), the Stockholders Agreement
permits the stockholders who are parties thereto (the "Holders") to transfer
their shares of Common Stock or any interest therein only upon receipt of a
bona fide third party offer and after first offering such shares to the New
ESOP, then to Holdings and finally to the other Holders (the "Eligible
Offerees"). Subject to the Control Provision and the Material Agreement
Provision, the Stockholders Agreement permits the Holders to transfer their
shares of Common Stock or an interest therein, without first receiving a bona
fide third party offer and first offering the shares to the Eligible Offerees,
only if the transfer is: (1) between Holders; (2) by any Holder to the New
ESOP or Holdings; (3) by any Holder to a wholly-owned subsidiary corporation
or parent corporation of such Holder and vice versa; (4) by any individual
Holder during such Holder's lifetime to a guardian of his estate, to his
spouse during marriage and not incident to a divorce, or to certain relatives
of such Holder or spouse, and to trusts for the benefit of such Holder, his
spouse, or certain relatives of such Holder or spouse, and vice versa; (5) to
the estate, heirs, beneficiaries or legatees of any individual Holder upon his
death; (6) by certain investors that are Holders to their Associates (as
defined), or the officers, directors, shareholders or employees and certain
consultants of such Holders, and certain of their relatives and their
Associates; (7) by any Holder at a price per share of $12.00 until there has
been a New ESOP valuation of the Common Stock at which time the price shall be
the New ESOP valuation of such Common Stock, to any person who has become a
director, officer or employee of the Company after the date of the Merger; (8)
by a Holder to a bank or other financial institution for the purpose of
securing a loan to a Holder to purchase shares of Common Stock; (9) by the New
ESOP to New ESOP participants, alternate payees and beneficiaries to the
extent required by law or the provisions of the New ESOP; (10) to certain
charitable organizations; (11) with the consent of the Company, by any Holder
to a qualified retirement plan sponsored by the Holder or any corporation
controlling, controlled by or under common control with such Holder; (12) by
any such qualified retirement plan to participants, alternate payees and
beneficiaries to the extent required by law; (13) made, within one year after
the Closing Date, by TSG, William C. Oehmig or Frank J. Hevrdejs in
transactions exempt from registration under the Securities Act; (14) by any
Holder which is a partnership, corporation or limited liability company to the
equity holders of such Holder as a distribution pursuant to law, its
organization documents or its dissolution; (15) by a Holder pursuant to such
Holder's rights under any registration rights agreement to which the Company
is a party or by which it is bound; or (16) by a Holder that is an investment
fund or account which is managed by an investment advisor to the investment
advisor or another fund or account managed by such advisor, and vice versa.

The purchase price of shares of Common Stock under the Stockholders
Agreement is (1) the price contained in the bona fide third party offer in the
event of such an offer or (2) the fair market value of the shares being
purchased, as last determined under the New ESOP (or if no such determination
has yet been made, $12.00 per share), in the event of any other purchase
thereunder.

The Stockholders Agreement contains a provision (the "Material Agreement
Provision") prohibiting the stockholders who are parties thereto from
transferring shares of Common Stock if, in the reasonable judgment of
Holdings, the transfer would cause a material breach, default, event of
default or acceleration of payments under any agreement to which Holdings or
any of its subsidiaries is a party and under which the indebtedness or
liability of Holdings exceeds $1.0 million.

The Stockholders Agreement contains provisions (the "Control Provision")
respecting Control Dispositions, as defined below. The Control Provision
prohibits any stockholder who is a party to the Stockholders Agreement from
initiating the acceptance of a Control Disposition offer without first
complying with the right of first refusal provisions in the Stockholders
Agreement. After compliance with applicable right of first refusal provisions
in the Stockholders Agreement, a stockholder who desires to, and is permitted
to,

128
<PAGE>

initiate the acceptance of a Control Disposition offer (the "Initiating
Stockholder") must give to each other holder of Common Stock who is a party to
the Stockholders Agreement the option to participate in the proposed Control
Disposition on a pro rata basis.

A Control Disposition is defined as any disposition or series of related
dispositions which would have the effect of transferring to any transferee or
group more than (i) 40% of the then outstanding shares of Common Stock, or
(ii) 15% of the shares of Common Stock then outstanding if thereafter the
proposed transferee would directly or indirectly have beneficial ownership of
50% or more of all of the then outstanding Common Stock.

By becoming a party to the Stockholders Agreement, Holders also become bound
by a Tag-Along Agreement as required pursuant to the Merger Agreement. The
Tag-Along Agreement provides that if any of such Holders propose to transfer,
sell or otherwise dispose of (a "Transfer") in the aggregate 51% or more of
the Holdings Common Stock then issued and outstanding, the other holders of
Holdings Common Stock will have the right to participate in such Transfer on a
pro rata basis.

The Stockholders Agreement requires that, at any time that Holdings is
engaged in an underwritten public offering of its securities, each stockholder
who is a party thereto refrain from making any disposition of Common Stock on
a securities exchange or in the over-the-counter or any other public trading
market for the period of time requested by Holdings.

The Stockholders Agreement will terminate upon any of the following events:
(i) the dissolution of Holdings; (ii) any event that reduces the number of
Holders to one in accordance with the terms thereof; (iii) a registered public
offering of Common Stock (excluding certain offerings) resulting in net
proceeds to the Company of not less than $75 million; (iv) the written
agreement of at least the Required Voting Percentage (as defined); or (v) 10
years after the Closing Date; except that the provisions of the Stockholders
Agreement applicable to Control Dispositions that also constitute a Transfer
that is subject to the Tag-Along Agreement shall remain in force and effect
for so long as the Tag-Along Agreement remains in force and effect.

TRANSFER AGENT

The Transfer Agent for the Holdings Common Stock will be KeyCorp Shareholder
Services.

DESCRIPTION OF THE CREDIT FACILITY

As part of the Transaction, Chemicals has entered into a Credit Agreement
(the "Credit Agreement") with Texas Commerce Bank National Association, as
administrative agent (the "Agent"), for a syndicate of lenders, and Credit
Suisse and Chase Securities Inc. as co-arrangers. Funding of the Credit
Facility is subject to (i) there being no Material Adverse Effect (as defined
in the Credit Agreement), (ii) the closing of the Offerings and the Equity
Private Placement and (iii) the consummation of the Merger. The following
description summarizes material provisions of the Credit Agreement; the
description does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the provisions of the Credit Agreement,
including the definitions therein of certain terms, a copy of which has been
filed as an exhibit to the Registration Statement of which this prospectus is
a part.

The Credit Agreement provides for facilities consisting of (i) a six and one
half year revolving credit facility providing for up to $100.0 million in
revolving loans (the "Revolving Credit Facility"), (ii) a term loan facility
providing for up to $350.0 million in term loans ("Term Loans") consisting of
(x) a six and one half year $200.0 million term loan and (y) an eight year
$150.0 million term loan and (iii) a four year $6.5 million ESOP Term Loan.

At the Closing, it is anticipated that Chemicals will borrow all of the Term
Loans. The proceeds from such borrowings will be used to (i) finance the
Merger (ii) refinance certain existing indebtedness of the Company and (iii)
to finance the payment of certain fees and expenses related to the Merger and
the related financings. Additionally, at the Closing, Chemicals will borrow
the entire amount of the ESOP Term Loan and lend those funds to the New ESOP,
which will use such funds to purchase STX Acquisition Common Stock.

129
<PAGE>

The Credit Agreement requires the principal amount of the Term Loans to be
amortized in quarterly installments beginning with the fiscal quarter ending
December 31, 1996, plus additional mandatory prepayments based upon
consolidated excess cash flow. The ESOP Term Loan will be amortized in 16
equal quarterly installment amounts of $406,250 during its four-year term. The
Revolving Credit Facility is a six and one half year revolving line of credit
to Chemicals. Advances under the Revolving Credit Facility will be subject to
a Borrowing Base (as defined) consisting of 85% of eligible accounts
receivable and 65% of eligible inventory with an inventory cap of 50% of the
Borrowing Base.

Under the Credit Agreement, Chemicals is permitted to make optional
prepayments without premium or penalty. Prepayments of borrowings must be
accompanied by payments of all breakage costs and lenders' expenses or losses,
if any, incurred as a result of such prepayment.

Chemicals' obligations under the Revolving Credit Facility, the Term Loans
and the ESOP Term Loan (collectively, the "Credit Facility") will be secured
by a first priority lien on the capital stock of Chemicals' domestic
subsidiaries, 65% of the capital stock of its foreign subsidiaries and
substantially all of the domestic assets of Chemicals, including without
limitation, accounts receivable, inventory, intangibles and fixed assets and
assignments of certain material leases, licenses and contracts. In addition,
the Credit Facility is secured by a pledge by Holdings of all of the capital
stock of Chemicals. A second lien on the capital stock of Chemicals will be
permitted to secure the obligations under the Discount Notes.

The domestic subsidiaries of Chemicals will guarantee the obligations under
the Credit Facility. The six and one half year term loan, the ESOP Term Loan
and the Revolving Credit Facility initially bear interest at a rate per annum
of, at Chemicals' option, either the Eurodollar Rate (as defined) plus 2.5% or
the Base Rate (as defined) plus 1.5%. The applicable margin will be reduced
based on Chemicals' ratio of total outstanding debt at the end of each fiscal
quarter to EBITDA for the four quarter period ending on such quarter. The
eight year term loan will bear interest at the Eurodollar Rate plus 3.0% or
the Base Rate plus 2.0%.

The Credit Agreement contains numerous financial and operating covenants,
including, but not limited to, restrictions on Chemicals' ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in mergers and
acquisitions and refinance existing indebtedness. The Credit Agreement also
requires Chemicals to satisfy certain financial covenants and tests. In
addition, the Credit Agreement includes various circumstances that will
constitute, subject in certain cases to notice and grace periods, an event of
default thereunder.

The Credit Agreement requires Chemicals to pay the following fees in
connection with the maintenance of the Credit Agreement: (i) commitment fees
to be paid to the lenders in amounts equal to 1/2 of 1% per annum (decreasing
to .375 of 1% depending on the debt to EBITDA ratio) on the unused commitment
under the Revolving Credit Facility payable quarterly in arrears until such
time as the Revolving Credit Facility matures, and (ii) an annual
administration fee to the Agent. In addition, at closing Chemicals will pay
various fees and closing costs in connection with the origination and
syndication of the Credit Facility.

Chemicals will also be required to reimburse the Agent for all reasonable
out-of-pocket costs and expenses incurred in the preparation, documentation,
syndication and administration of the Credit Agreement and to reimburse the
lenders for all out-of-pocket costs and expenses incurred in connection with
the enforcement of their rights after a default under the Credit Agreement.
Chemicals agreed to indemnify the Agent and the lenders, certain of their
affiliates, and their respective officers, directors, employees, agents and
attorneys against certain liabilities arising out of or relating to the Credit
Agreement and the transactions contemplated thereby.

As provided for in the Credit Agreement, Sterling Pulp Chemicals, Ltd.
("Sterling Pulp") will enter into a revolving credit facility (the "Canadian
Revolver") with a Canadian financial institution to be determined. The
Canadian Revolver is expected to provide for revolving credit and bank
overdraft loans up to an aggregate of approximately $15 million, subject to a
borrowing base limitation. The Canadian Revolver will be secured by a first
lien on the inventory and accounts receivable of Sterling Pulp. The amount
available under the Canadian Revolver will represent a sub-limit under the
$100 million Revolving Credit Facility.

130
<PAGE>

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes the material U.S. federal income tax
consequences expected to apply to holders from the purchase, ownership and
disposition of the Notes, the Discount Notes, and the Warrants (collectively,
the Notes and the Discount Notes are sometimes referred to as "Debt
Securities"). The summary is based upon currently applicable law, including
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury regulations (the "regulations"),
judicial decisions, and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a
contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may be retroactive and could
affect the tax consequences applicable to holders of the Debt Securities and
Warrants.

The following summary is for general information only, does not address all
aspects of U.S. federal income taxation that may be relevant to particular
investors, deals only with holders that will hold the Securities (and any
Holdings Common Stock acquired upon exercising a Warrant) as capital assets,
and does not discuss any aspect of state, local, or foreign tax laws. The tax
treatment of a holder of the Securities may vary depending upon such holder's
particular situation. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions or broker-dealers, taxpayers
subject to the alternative minimum tax, and foreign corporations and persons
who are not citizens or residents of the United States) may be subject to
special rules not discussed below. EACH POTENTIAL INVESTOR SHOULD CONSULT HIS
OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF PURCHASING,
HOLDING AND DISPOSING OF THE SECURITIES, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.

THE DEBT SECURITIES

STATED INTEREST AND ORIGINAL ISSUE DISCOUNT

Holders of Notes will be required to include stated interest in gross income
in accordance with their method of accounting for tax purposes unless the
Notes are issued with more than a de minimis amount of original issue
discount. At present, Chemicals and the Underwriters expect that the Notes
will be issued with no or a de minimis amount of original issue discount.
Holders of Discount Notes will be required to include stated interest and
original issue discount on the Discount Notes in gross income in accordance
with the original issue discount rules discussed below. As a result, holders
of Discount Notes will be required to include amounts in income with respect
to the Discount Notes prior to the receipt of cash payments attributable to
such income (regardless of whether the holder is a cash or accrual method
taxpayer). Furthermore, even after interest payments commence on the Discount
Notes, the amount of interest that a holder is required to include in income
for any taxable year may exceed the cash payments actually made to the holder
for that taxable year.

Taxation of Original Issue Discount--General Rules

The amount of original issue discount, if any, on a debt instrument is the
excess of its "stated redemption price at maturity" over its "issue price,"
subject to a statutorily defined de minimis exception. The "issue price" of a
debt instrument offered for cash as part of an investment unit, such as a
Discount Note issued together with a Warrant, is as described below under "--
Discount Notes." The "stated redemption price at maturity" of a debt
instrument is the sum of its principal amount plus all other payments required
thereunder, other than payments of "qualified stated interest" (defined
generally as stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate that appropriately takes into account the length of
intervals between payments).

In general, the holder of a debt instrument issued with original issue
discount must include in gross income for federal income tax purposes the sum
of the daily portions of original issue discount with respect to that debt

131
<PAGE>

instrument for each day during the taxable year on which the holder owns the
debt instrument. The daily portions of original issue discount with respect to
a debt instrument are determined by allocating to each day during a taxable
year a ratable portion of the original issue discount attributable to the
accrual period (generally, the accrual periods with respect to any debt
instrument consist of periods of one year or less from the date of original
issuance) in which such day is included. The amount of original issue discount
attributable to each accrual period equals the amount determined by (i)
multiplying the "adjusted issue price" of the debt instrument at the beginning
of the accrual period by the yield to maturity of the debt instrument (i.e.,
the discount rate that, when applied to all payments under the debt
instrument, results in a present value equal to the issue price) and (ii)
subtracting therefrom the amount of the qualified stated interest, if any,
allocable to that accrual period. The "adjusted issue price" at the beginning
of any accrual period is the issue price of the debt instrument, plus the
amount of original issue discount taken into account for all prior accrual
periods, minus the amount of all cash payments previously made on the debt
instrument (other than payments of qualified stated interest). This constant
yield method of determining the amount of original issue discount includable
in income for any period will ordinarily require a holder of a debt instrument
to include increasing amounts of original issue discount in income in
successive accrual periods.

The tax basis of a debt instrument in the hands of the holder is increased
by the amount of original issue discount, if any, on the debt instrument that
is included in the holder's gross income and is decreased by the amount of any
cash payments (other than payments of qualified stated interest) received with
respect to the debt instrument, whether such payments are denominated as
principal or interest.

Notes

It is presently expected that the Notes will be issued for an amount equal
to the stated principal amount payable at maturity on those Notes, and that
all of the interest payable on the Notes will be qualified stated interest.
The issue price of the Notes will be determined without regard to pre-issuance
accrued interest. (Such interest will be returned to the holder of the
obligation as part of the first interest payment on the obligation and treated
as a tax-free return of capital.) As a result, the Notes will be issued with
no original issue discount. Holders of Notes will be required to include the
qualified stated interest payable on the Notes in their gross income in
accordance with their method of accounting for tax purposes. In the event that
the Notes are issued with a de minimis amount of original issue discount, the
original issue discount rules would not apply to the Notes and Holders of the
Notes would be required to include any de minimus original issue discount in
income as principal payments were made on the Notes. However, if the Notes are
issued with more than a de minimis amount of original issue discount, the
Notes would be subject to the original issue discount rules, and Holders of
the Notes would be required to include that original issue discount in income
in accordance with those rules.

Discount Notes

The Discount Notes will be issued with original issue discount for federal
income tax purposes. As a result, holders of Discount Notes will be required
to include amounts in income over the term of the Discount Notes in accordance
with the rules described above.

Because the original purchasers of the Discount Notes will also be
purchasing Warrants, the Discount Notes and the Warrants will be treated as
"investment units". The issue price of a debt instrument issued as part of an
investment unit is determined by allocating the issue price of the investment
unit among each element of such unit in accordance with their relative fair
market values on the date of issuance. The issue price of an investment unit
is equal to the first price at which a substantial amount of Units is sold,
excluding sales to bond houses, brokers and similar persons or organizations
acting in the capacity of underwriters, wholesalers or placement agents. Based
upon the relative valuations determined by its underwriters, Holdings will
make an allocation of the issue price between the Discount Notes and the
Warrants. Holdings' allocation is binding on a holder of Discount Notes unless
such holder explicitly discloses a contrary position on his or her tax return
for the year in which the Discount Notes and Warrants are acquired. This
allocation is, however, not binding on the IRS, and therefore, there can be no
assurance that the IRS will respect such allocation. Because none of the
payments of

132
<PAGE>

stated interest on the Discount Notes will constitute payments of qualified
stated interest, the stated redemption price at maturity of the Discount Notes
will be equal to the sum of the principal amount plus all payments of stated
interest.

Optional Redemption

Holdings may redeem the Discount Notes at the times and the redemption
prices set forth under the heading "Description of the Discount Notes--
Optional Redemption" and Chemicals may redeem the Notes at the times and the
redemption prices set forth under the heading "Description of the Notes--
Optional Redemption." In addition, in the event of a Change of Control (as
defined under the headings "Description of the Discount Notes--Certain
Definitions" and "Description of the Notes--Certain Definitions), Holdings
will be required to offer to redeem all of the Discount Notes and Chemicals
will be required to offer to redeem all of the Notes. Under the original issue
discount regulations, if an issuer of a debt instrument with original issue
discount has an unconditional option to redeem such debt instrument, the
issuer will be treated as having exercised such option if, by treating the
date of deemed exercise of the option as the maturity date and the redemption
price (and all payments of stated interest (other than qualified stated
interest payments) made to the date of deemed exercise) as the stated
redemption price at maturity, the yield to maturity on such debt instrument
would be lower than such yield would have been had the option not been deemed
exercised. Because a redemption of the Discount Notes or the Notes under the
terms applicable in the case of an optional redemption will not lower the
yield to maturity on such notes, neither the Discount Notes nor the Notes will
be deemed to be called prior to their maturity. In addition, Holdings'
obligation to offer to redeem the Discount Notes and Chemicals' obligation to
offer to redeem the Notes on a Change of Control will not affect the yield or
maturity date of the Discount Notes or the Notes unless, based on all of the
facts and circumstances as of the issue date, it is more likely than not that
a redemption will occur as a result of a Change of Control. Holdings and
Chemicals have no present intention to treat the redemption provisions
applicable on a Change of Control or any option to redeem the Discount Notes
or the Notes prior to their stated maturity as being triggered or exercised or
as otherwise affecting the computation of the yield to maturity of, or the
original issue discount on, the Discount Notes or the Notes.

APPLICABLE HIGH YIELD DISCOUNT OBLIGATION RULES

The original issue discount on any obligation that constitutes an
"applicable high yield discount obligation" is not deductible until paid. An
"applicable high yield discount obligation" is any debt instrument that (i)
has a maturity date which is more than five years from the date of issue, (ii)
has a yield to maturity which equals or exceeds five percentage points over
the applicable federal rate for the calendar month in which the obligation is
issued and (iii) has "significant original issue discount." A debt instrument
generally has "significant original issue discount" if, as of the close of any
accrual period ending more than five years after the date of issue, the excess
of the interest that has accrued on the obligation over the interest that is
required to be paid thereunder exceeds the product of the issue price of the
instrument and its yield to maturity. Moreover, if the debt instrument's yield
to maturity exceeds the applicable federal rate plus six percentage points, a
ratable portion of the issuing corporation's deduction for original issue
discount (the "Disqualified OID") will be denied. For purposes of the
dividends-received deduction under Section 243 of the Code, the Disqualified
OID will be treated as a dividend to the extent it would have been so treated
if it had been distributed by the issuing corporation with respect to its
stock.

Holdings expects that, based on the terms of the instrument and its
projected yield to maturity, the Discount Notes will constitute applicable
high yield discount obligations, and a portion of the original issue discount
on those obligations will be treated as Disqualified OID. As a result,
Holdings will not be allowed a deduction for the accrual of original issue
discount on the Discount Notes until such interest is actually paid, and
Holdings will not be allowed a deduction for the accrual or payment of the
portion of the original issue discount that constitutes Disqualified OID.
Corporate holders of the Discount Notes should be allowed a dividends received
deduction (generally at a 70 percent rate) with respect to the accrual of the
Disqualified OID so long as Holdings has current or accumulated earnings and
profits in excess of such amount. The Notes will not constitute applicable
high yield discount obligations.

133
<PAGE>

MARKET DISCOUNT

Purchasers of Debt Securities should be aware that an acquisition of Debt
Securities may be affected by the market discount provisions of the Code.
These rules generally provide that, subject to a statutorily defined de
minimis exception, if a holder of a debt instrument purchases it at a "market
discount" (as defined below) and thereafter recognizes gain on a disposition
of the debt instrument (including a gift), the lesser of such gain (or
appreciation, in the case of a gift) and the portion of the market discount
that accrued while the debt instrument was held by such holder will be treated
as ordinary interest income at the time of the disposition. For this purpose,
a purchase at a "market discount" is defined to include a purchase at or after
the original issue at a price below the stated redemption price at maturity,
or, in the case of a debt instrument issued with original issue discount, such
as a Discount Note, at a price below its "adjusted issue price" (i.e., its
issue price, plus the aggregate original issue discount includible in income
by all holders of the debt instrument, minus all payments made on the note,
other than payments of qualified stated interest). The market discount rules
also provide that a holder who acquires a debt instrument at a market discount
(and who does not elect to include such market discount in income on a current
basis) may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry such debt instrument until the holder disposes of the debt instrument
in a taxable transaction. Holders who purchase the Debt Securities at original
issuance at the issue price will not be subject to the market discount
provisions with respect to such obligations.

The Debt Securities provide that they may be redeemed, in whole or in part,
before maturity. If some or all of the Debt Securities are redeemed in part,
each holder of a Note or Discount Note so redeemed that was acquired at a
market discount would be required to treat the principal payment as ordinary
interest income to the extent of any accrued market discount on such Note or
Discount Note.

For purposes of applying the foregoing rules, any market discount on a Note
or Discount Note will be considered to accrue ratably from the date of its
acquisition to its maturity date, unless the holder makes an irrevocable
election to accrue market discount on a constant interest rate basis. In
addition, a holder of a debt instrument acquired at a market discount may
elect to include the market discount in income as the discount thereon
accrues, either on a straight-line basis or, if elected, on a constant
interest rate basis. The current inclusion election, once made, applies to all
market discount obligations acquired by such holder on or after the first day
of the first taxable year to which the election applies, and the election may
not be revoked without the consent of the IRS. If a holder of a Note or
Discount Note elects to include market discount in income, the foregoing rules
with respect to the recognition of ordinary income on a sale or other
disposition of such Note or Discount Note and the deferral of interest
deductions on indebtedness related to such Note or Discount Note would not
apply. Any accrued market discount which is included in a holder's gross
income would increase the adjusted tax basis of the Note or Discount Note in
the hands of the holder.

ACQUISITION PREMIUM

A holder who pays an "acquisition premium" for a Discount Note may be
entitled to a reduction in the amount of original issue discount includable in
such holder's income for any taxable year to the extent of the portion of the
acquisition premium properly allocable to such year. "Acquisition premium" is
any amount paid by a holder for a Discount Note in excess of its "adjusted
issue price" (i.e., its issue price increased by the original issue discount
previously accrued on the Discount Note and decreased by cash payments (other
than qualified stated interest) made with respect to such Discount Note) at
the time of the acquisition.

AMORTIZABLE BOND PREMIUM

Generally, if the tax basis of a debt instrument held as a capital asset
exceeds the sum of all amounts payable on the obligation other than qualified
stated interest, such excess may constitute amortizable bond premium that the
holder may elect to amortize under the constant interest rate method and
deduct over the period from his or her acquisition date to the obligation's
maturity date. A holder who elects to amortize bond premium must reduce

134
<PAGE>

his or her tax basis in the related obligation by the amount of the aggregate
deductions allowable for amortizable bond premium.

In the case of a debt instrument, such as a Note, that may be called at a
premium prior to maturity, the earlier call date of the debt instrument is
treated as the maturity date of the debt instrument and the amount of bond
premium is determined by treating the amount payable on such call date as the
amount payable at maturity if such a calculation produces a smaller
amortizable bond premium than the method described in the preceding paragraph.
If a holder of a debt instrument is required to amortize and deduct bond
premium by reference to a certain call date, the debt instrument will be
treated as maturing on such date for the amount payable, and, if not redeemed
on such date, the debt instrument will be treated as reissued on such date for
the amount so payable. If a debt instrument purchased at a premium is redeemed
prior to its maturity, a purchaser who has elected to deduct bond premium may
deduct any remaining unamortized bond premium as an ordinary loss in the
taxable year of redemption.

The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each
prospective purchaser is urged to consult his or her tax advisor as to the
consequences of the treatment of such premium as an offset to interest income
for federal income tax purposes.

CONSTANT YIELD ELECTION

A holder of a Note or Discount Note, subject to certain limitations, may
elect to include all interest and discount on the Note or Discount Note in
gross income under the constant yield method. For this purpose, interest
includes stated and unstated interest, acquisition discount, original issue
discount, de minimis market discount and market discount, as adjusted by any
acquisition premium. This election, if made in respect of a market discount
bond, will constitute an election to include market discount in income
currently on all market discount bonds acquired by such holder on or after the
first day of the first taxable year to which the election applies. See "--
Market Discount."

SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION

In general, a holder of a Note or Discount Note will recognize gain or loss
upon the sale, exchange, retirement or other taxable disposition of the Note
or Discount Note measured by the difference between (i) the amount of cash and
the fair market value of property received and (ii) the holder's tax basis in
the Note or Discount Note (as increased by any original issue discount and
market discount previously included in income by the holder and decreased by
any cash payments received (other than payments constituting qualified stated
interest) and any amortizable bond premium deducted over the term of the Note
or Discount Note). Subject to the market discount and amortizable bond premium
rules discussed above, any such gain or loss will generally be long-term
capital gain or loss if the holder has owned the obligation for more than one
year.

WARRANTS

The federal income tax consequences of the purchase and the exercise or sale
of Warrants will depend, to some extent, on whether or not they are viewed,
for federal income tax purposes, as equivalent to common stock. There is no
authority directly dealing with that issue. Because nominal consideration is
required to exercise the Warrants and the exercise of the Warrants is
economically compelling, Holdings believes that, if presented with the issue,
it is likely that the IRS would recharacterize the Warrants as issued and
outstanding shares of non-voting common stock of Holdings for federal income
tax purposes.

Neither Holdings nor the holder will recognize gain or loss as a result of
Holding's issuance of the Warrants as part of the Units. The holder's adjusted
tax basis in a Warrant will be an amount equal to the issue price of the
Warrant. Moreover, the holding period for the Warrants will commence on the
day following the date that the Warrant is issued to the holder as part of the
Unit.

135
<PAGE>

Neither Holdings nor the holder will recognize gain or loss as a result of a
holder's receipt of Common Stock upon exercising Warrants ("Warrant Shares").
A holder's adjusted tax basis in the Warrant Shares will be an amount equal to
the holder's adjusted tax basis in the Warrants plus the amount paid to
Holdings as the exercise price for the Warrant. If the Warrants lapse without
exercise, the holder should recognize a capital loss in an amount equal to the
holder's adjusted tax basis in the Warrants. Any such capital loss will be
long-term capital loss if the holding period for the Warrants exceeds one
year. In the event that a Warrant is sold or otherwise disposed of in a
taxable exchange, the holder will realize and recognize capital gain or loss
in an amount equal to the difference between the amount realized on the
exchange and the holder's adjusted tax basis in the Warrant. If the Warrant
has been held for more than one year, any capital gain or loss recognized by
the holder will be long-term capital gain or loss.

If the Warrants are exercised and Warrant Shares are thereafter disposed of
in a taxable transaction, holders of Warrant Shares will realize and recognize
capital gain or loss in an amount equal to the difference between the amount
realized on the exchange and the holder's adjusted tax basis in the Warrant
Shares. The gain or loss recognized will be long-term capital gain or loss if
the holding period with respect to the Warrant Shares is more than one year.
The holding period of Warrant Shares will depend on whether the Warrants are
treated as warrants or as common stock. If the Warrants are treated as stock,
the holding period of the Warrant Shares will include the holding period of
the Warrants. On the other hand, if the Warrants are treated as warrants the
holding period for the Warrant Shares will commence on the date the Warrants
are exercised.

The conversion ratio of the Warrants is subject to adjustment under certain
circumstances. If an adjustment increases the proportionate interest of a
holder of a Warrant in the fully diluted Common Stock (e.g., an adjustment to
reflect a taxable dividend paid to holders of Common Stock), without
proportionate adjustments to the holders of Common Stock, Section 305 of the
Code may treat holders of the Warrants as having received a constructive
dividend distribution.

BACKUP WITHHOLDING

Backup withholding may apply to certain noncorporate holders with respect to
payments made by Holdings or Chemicals for interest on the Debt Securities,
dividends on the Warrant Shares, or the redemption of the Debt Securities.
Such holders will be subject to backup withholding at a rate of 31 percent
unless the beneficial owner of such security supplies the payor or its agent
with a taxpayer identification number, certified under penalties or perjury,
and certain other information, or otherwise establishes, in the manner
prescribed by law, an exemption from backup withholding. In addition, if a
Warrant Share or a Debt Security is sold to (or through) a "broker"
(disregarding redemptions by Holdings or the Company), the broker may be
required to withhold 31 percent of the entire sale price, unless either (i)
the broker determines that the seller is a corporation or other exempt
recipient or (ii) the seller provides, in the required manner, certain
identifying information. Such a sale must also be reported by the broker to
the IRS, unless the broker determines that the seller is an exempt recipient.
The term "broker" as defined by Treasury regulations, includes all persons
who, in the ordinary course of business, stand ready to effect sales made by
others.

Any amount withheld under backup withholding rules from a payment to a
holder is allowable as a credit or refund against the holder's federal income
tax, provided that the holder furnishes the required information to the IRS.
In addition, certain penalties may be imposed by the IRS on a holder who is
required to supply information but who does not do so in the proper manner.

UNITED STATES FEDERAL TAXATION OF NON-UNITED STATES HOLDERS

This section discusses certain special rules applicable to a holder of Debt
Securities, Warrants or Warrant Shares that is a Non-United States Holder. For
purposes of this discussion, a "Non-United States Holder" means a holder of
Debt Securities or Warrants that is not (i) an individual who is a citizen or
resident of the United States; (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or any
political subdivision thereof; or (iii) an estate or trust whose income is
includable in gross income for United States federal income tax purposes
regardless of its source.

136
<PAGE>

INTEREST AND ORIGINAL ISSUE DISCOUNT ATTRIBUTABLE TO THE DISCOUNT NOTES AND
INTEREST ATTRIBUTABLE TO THE NOTES

Payments of stated interest on the Notes and payments of principal and
interest on the Discount Notes (to the extent of accrued original issue
discount), other than "portfolio interest" as defined below, received by a
Non-United States Holder will generally be subject to withholding of United
States federal income tax at the rate of 30 percent unless the interest is
effectively connected with the conduct of a trade or business within the
United States by the Non-United States Holder, in which case the interest will
be subject to the United States federal income tax on net income at the rates
applicable to United States persons generally (and with respect to corporate
holders and under certain circumstances, the 30 percent branch profits tax).
Non-United States Holders should consult any applicable income tax treaties,
which may provide for a lower rate of withholding, exemption from, or
reduction of branch profits taxes, or other rules different from those
described above.

Portfolio interest is exempt from the 30 percent withholding tax discussed
above. Except as set out below, interest (including original issue discount)
paid to a Non-United States Holder attributable to the Notes or the Discount
Notes will constitute "portfolio interest" within the meaning of Sections
871(h) and 881(c) of the Code, provided Chemicals, Holdings or their paying
agents either receives (i) from the beneficial owner, a properly completed
Form W-8 (or substitute Form W-8) under penalties of perjury which provides
the beneficial owner's name and address and certifies that the beneficial
holder of the Note or the Discount Note is a Non-United States Holder, or (ii)
from a security clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") that holds the Notes or the Discount
Notes certification under penalties of perjury that such a Form W-8 (or
substitute Form W-8) has been received by it from the beneficial owner or
qualifying intermediary and furnishes the payor a copy thereof. The portfolio
interest exemption will not apply to interest or original issue discount
income attributable to the Notes or the Discount Notes received by (i) a 10
percent shareholder (including any shares held indirectly by attribution) of
Holdings, (ii) a Non-United States Holder that holds the Notes or the Discount
Notes in connection with the conduct of a trade or business within the United
States, or (iii) certain banks. A Non-United States holder which is subject to
United States federal income tax with respect to the Notes or the Discount
Notes because payments received with respect to such instruments are
effectively connected with a United States trade or business of the Non-United
States Holder (in which case the Non-United States Holder may be subject to
"branch profits tax" under Section 884 of the Code) and which provides
Chemicals or Holdings, as the case may be, with a properly executed Form 4224
will also be exempt from withholding.

On April 22, 1996 the IRS issued proposed regulations relating to (i)
withholding income tax on U.S.-source income paid to Non-United States
Holders; (ii) claiming Non-United States Holder status to avoid backup
withholding; and (iii) reporting to the IRS of payments to Non-United States
Holders. The proposed regulations would substantially revise some aspects of
the current system for withholding on and reporting amounts paid to Non-United
States Holders. The proposed regulations would substantially revise some
aspects of the current system for withholding on and reporting amounts paid to
Non-United States Holders. The regulations unify current certification
procedures and forms and reliance standards are clarified. Most forms are
proposed to be combined into a single form: Form W-8. The regulations are
proposed to be effective for payments made after December 31, 1997.
Certificates issued, however, on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they
expire. All proposed regulations are subject to change before adoption in
their final form. No reliable prediction can be made as to when, if ever, the
proposed regulations will be made final and if so, as to their final form.

GAIN ON DISPOSITION OF THE NOTES AND THE DISCOUNT NOTES

A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on disposition of the Notes
or the Discount Notes unless (i) the gain is effectively connected with a
trade or business of the Non-United States Holder in the United States; (ii)
in the case of a Non-United States Holder that is an individual, such holder
is present in the United States for 183 or more days in the taxable year of
the disposition and certain other requirements are met; or (iii) in the case
of a Discount Note, original issue discount on such Note does not qualify for
the portfolio interest exemption.

137
<PAGE>

GAIN ON DISPOSITION OF THE WARRANTS OR WARRANTS SHARES

A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on disposition of the
Warrants or Warrant Shares unless (i) the gain is effectively connected with a
trade or business of the Non-United States Holder in the United States; (ii)
in the case of a Non-United States Holder that is an individual, such holder
is present in the United States for 183 or more days in the taxable year of
the disposition and certain other requirements are met; or (iii) Holdings is
at the time of the disposition, or was at any time during the testing period,
a United States real property holding corporation ("USRPHC") as defined under
Section 897(c)(2) of the Code and, in the event the Warrants (if the Warrants
are appropriately treated as an issue of non-voting common stock of Holdings)
or the Warrant Shares are regularly traded on an established securities
market, the Non-United States Holder actually or constructively owned, at any
time during the testing period, more than five percent of such Warrants or
Warrant Shares, respectively. For purposes of this paragraph, the "testing
period" means the shorter of (i) the five-year period ending on the date of
the disposition of such property and (ii) the period during which the Non-
United States Holder held the property. Holdings and Chemicals can give no
assurances that they are not USRPHCs.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Under Treasury Regulations, Chemicals and Holdings must report annually to
the IRS the amount of interest (including original issue discount) paid to
each Non-United States Holder, and the United States federal income tax, if
any, withheld with respect to such interest. Information reporting
requirements will also apply to payments of the cash proceeds of dispositions
of the Debt Securities or Warrants by foreign officers of United States
brokers, or foreign brokers with certain types of relationships to the United
States, unless the broker has documentary evidence in its records that the
holder is a Non-United States Holder and certain other conditions are met, or
the holder otherwise establishes an exemption. Such information may be made
available by the IRS to the tax authorities in a foreign country under the
provisions of an applicable tax treaty or information exchange agreement.

Generally, backup withholding of U.S. income tax at a rate of 31 percent
will not apply to payments to non-United States holders of principal,
interest, and premium (if any) on the Debt Securities if (i) the holder
certifies to the issuer or its agent under penalties of perjury that it is a
Non-United States holder and provides its name and address or (ii) a
securities clearing organization, bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business
and that holds the Debt Security on behalf of its owner certifies to the
issuer or its agent, under penalties of perjury, that it has received such
statement from the owner or from a financial institution between it and the
owner and furnished the issuer or its agent with a copy of such statement. The
31 percent backup withholding tax generally will not apply to dividends paid
to Non-United States holders outside the United States that are subject to the
30 percent withholding tax discussed above or that are not so subject because
a tax treaty applies that reduces or eliminates such withholding. Under
temporary regulations, dividends payable at an address located outside of the
United States to a Non-United States holder are not subject to the backup
withholding rules.

UNITED STATES FEDERAL ESTATE TAXES

The Warrants or Warrant Shares owned or treated as owned by an individual
who is not a citizen or domiciliary of the United States at the date of death
will be included in such individual's estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Subject to applicable treaty provisions, Debt Securities held at the time of
death (or theretofore transferred subject to certain retained rights or
powers) by an individual who is not a citizen or domiciliary of the United
States at the time of death will not be included in such person's gross estate
for United States federal estate tax purposes provided that (i) the decedent
is not a 10 percent shareholder of Holdings and (ii) the decedent does not
hold the Debt Securities in connection with a trade or business within the
United States.

138
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters") have severally but not jointly agreed to
purchase from the Issuers the following respective principal amounts of the
Securities:

<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
UNDERWRITER OF NOTES OF UNITS
----------- ------------ ------------
<S> <C> <C>
CS First Boston Corporation.................... $ $
Chase Securities Inc...........................
------------ ------------
Total........................................ $275,000,000 $
============ ============
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the Securities if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances, the purchase commitment of the non-
defaulting Underwriter may be increased or the Underwriting Agreement may be
terminated.

The Issuers have been advised by the Underwriters that the Underwriters
propose to offer the Securities to the public initially at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession of % and % of the principal amount per
Note and Unit, respectively, and the Underwriters and such dealers may allow a
discount of % and % of such principal amount per Note and Unit,
respectively, on sales to certain other dealers. After the initial public
offering, the public offering prices and concessions and discounts to dealers
may be changed by the Underwriters.

The Securities are new issues of securities with no established trading
market. The Underwriters have advised the Issuers that they intend to act as
market makers for the Securities. However, the Underwriters are not obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading markets for the
Securities.

The Underwriters have informed the Issuers that they do not expect
discretionary sales by the Underwriters to exceed 5.0% of the principal amount
of each Security being offered hereby.

The Issuers have agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.

The Clipper Group includes investment partnerships in which affiliates of CS
First Boston Corporation and CS Holding, the principal shareholder of CS First
Boston Corporation, are limited partners. Based in Zurich, Switzerland, CS
Holding is also the principal shareholder of Credit Suisse. The Clipper Group
will purchase up to $25 million of equity in the Equity Private Placement. CS
First Boston Corporation and its affiliates may be deemed to have an indirect
right to the economic benefits of a portion of such equity. The Offerings,
therefore, are being conducted in accordance with the applicable provisions of
Schedule E to the By-Laws of the National Association of Securities Dealers,
Inc. Schedule E requires that the yields on the Securities not be lower than
that recommended by a "qualified independent underwriter" meeting certain
standards. Accordingly, Chase Securities Inc. is acting as the qualified
independent underwriter in pricing the Offerings and conducting due diligence.
The yields on the Securities, when sold to the public at the public offering
prices set forth on the cover page of this Prospectus, are no lower than that
recommended by Chase Securities Inc.

In the ordinary course of their respective businesses, affiliates of CS
First Boston Corporation have performed, and may in the future perform,
investment banking services for the Issuers and their subsidiaries and

139
<PAGE>

have engaged, and may in the future engage, in commercial banking transactions
with the Issuers and their subsidiaries. Pursuant to an agreement among TSG,
Unicorn and CS First Boston Corporation, CS First Boston Corporation has
provided certain financial advisory services to TSG and Unicorn with respect
to the Transaction, for which CS First Boston Corporation will receive a fee
of approximately $4.0 million. Credit Suisse, an affiliate of CS First Boston
Corporation, is a co-arranger and lender under the Credit Facility and will
receive certain fees in connection therewith. See "Description of the Credit
Facility."

Chase Securities Inc. is an affiliate of Texas Commerce Bank National
Association which will be administrative agent and a lender to Chemicals under
the Credit Facility and will receive customary fees in connection with the
Credit Facility. Texas Commerce Bank National Association will receive its
proportionate share of the repayment by the Company of amounts outstanding
under its existing credit facilities from the proceeds of the Offerings. Chase
Securities Inc. will act as co-arranger for the Credit Facility, for which it
will receive customary fees. Affiliates of Chase Securities Inc. have
participated and in the future may participate in various financing and
banking transactions for the Company, Chemicals, Holdings and TSG and certain
of its affiliates.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Securities in Canada is being made only on a private
placement basis exempt from the requirement that the Issuers prepare and file
a prospectus with the securities regulatory authorities in each province where
trades of Securities are effected. Accordingly, any resale of the Securities
in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Securities.

REPRESENTATIONS OF PURCHASERS

Each purchaser of Securities in Canada who receives a purchase confirmation
will be deemed to represent to the Issuers and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Securities without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, such purchaser is purchasing as principal and not as agent,
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."

RIGHTS OF ACTION AND ENFORCEMENT

The Securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.

All of the issuers' directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuers or such persons. All or a substantial portion of the assets
of the issuers and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the issuers or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuers or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Securities to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Securities acquired by such purchaser pursuant to the Offerings. Such report
must be in the form

140
<PAGE>

attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Issuers. Only one such report must be
filed in respect of Securities acquired on the same date and under the same
prospectus exemption.

LEGAL MATTERS

Andrews & Kurth L.L.P., Houston, Texas has passed upon certain matters with
respect to the validity of Units and Notes offered hereby, as counsel for STX
Acquisition and Chemicals. Certain legal matters will be passed upon for the
Underwriters by Dewey Ballantine, New York, New York.

CHANGE OF ACCOUNTANTS

On October 25, 1995, the Audit Committee of the Board of Directors of the
Company recommended and the Board of Directors of the Company approved the
engagement of the firm of Arthur Andersen LLP ("Arthur Andersen") as its
independent auditors for the year ending September 30, 1996, to replace the
firm of Coopers & Lybrand L.L.P. The termination by the Company of the
engagement of Coopers & Lybrand L.L.P. was effective upon the completion of
the audit for the year ended September 30, 1995, and the filing of the
Company's Annual Report on Form 10-K for such year. The appointment of Arthur
Andersen as the Company's independent auditors for the fiscal year ending
September 30, 1996 was ratified by the stockholders at the 1996 Annual Meeting
of Stockholders.

During the two most recent fiscal years and the subsequent period through
December 18, 1995, the date of filing of the Company's Annual Report on Form
10-K, there were no disagreements with Coopers & Lybrand L.L.P. on any matter
of accounting principles or practices, financial statement disclosure, or
audit scope or procedures, which disagreements, if not resolved to their
satisfaction, would have caused them to make reference in connection with
their report to the subject matter of the disagreement.

During the two most recent fiscal years and the subsequent period through
December 18, 1995, the date of filing of the Company's Annual Report on Form
10-K, the Company has not been advised by Coopers & Lybrand L.L.P. of any of
the reportable events listed in Item 304(a)(1)(v)(A) through (D) of SEC
Regulation S-K and during such period the Company has not consulted with
Arthur Andersen regarding any matter referenced under Item 304(a)(2) of SEC
Regulation S-K.

The audit reports of Coopers & Lybrand L.L.P. on the consolidated financial
statements of the Company as of and for the fiscal years ended September 30,
1995 and 1994, did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles, except for an explanatory paragraph noting that the
Company changed its method of accounting for income taxes effective October 1,
1993.

The Company requested that Coopers & Lybrand L.L.P. furnish a letter
addressed to the SEC stating whether Coopers & Lybrand L.L.P. agreed with the
above statements. A copy of the Coopers & Lybrand L.L.P. letter to the SEC
stating that such firm agreed with the above statements, dated December 18,
1995, was filed as Exhibit 16 to the Company's Form 8-K, dated December 18,
1995.

EXPERTS

The consolidated balance sheet of Holdings as of May 14, 1996 and the
balance sheet of Chemicals as of May 14, 1996 included in the Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.

The consolidated balance sheet of Sterling Chemicals, Inc. as of September
30, 1995 and 1994 and the consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1995, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

141
<PAGE>

AVAILABLE INFORMATION

STX Acquisition and Chemicals have filed with the SEC a registration
statement (the "Registration Statement") under the Securities Act on Form S-1
(Reg. No. 333-04343) with respect to the Securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement and any amendments thereto,
including exhibits filed or incorporated by reference as a part thereof, are
available for inspection and copying at the SEC's offices as described above.

The Company is subject to the informational requirements of the Exchange Act
and, accordingly, files reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information filed with the
SEC are available for inspection and copying at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, and at the SEC's Regional Offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and at Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such documents may also be obtained from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549, at prescribed rates.

STX Acquisition and Chemicals are not currently subject to the periodic
reporting and other informational requirements of the Exchange Act. Upon the
effectiveness of the Registration Statement STX Acquisition and Chemicals will
become subject to the informational requirements of the Exchange Act, and in
accordance therewith will file all reports and other information as required
thereby with the SEC.

The obligation of Holdings (as successor to STX Acquisition) to file
periodic reports with the SEC pursuant to the Exchange Act may be suspended if
(i) Holdings ceases to have a class of equity securities held by 750 or more
persons and (ii) the Discount Notes are held of record by fewer than 300
holders at the beginning of any fiscal year other than the fiscal year in
which the Registration Statement becomes effective. The obligation of
Chemicals to file periodic reports with the SEC pursuant to the Exchange Act
may be suspended if the Notes are held of record by fewer than 300 holders at
the beginning of any fiscal year other than the fiscal year in which the
Registration Statement becomes effective. The Indentures will provide,
however, that STX Acquisition and Chemicals, respectively, must file with the
SEC and provide the holders of the respective notes with copies of annual
reports and other information, documents and reports specified in Section 13
and 15(d) of the Exchange Act as long as the respective notes are outstanding.

142
<PAGE>

GLOSSARY

The following glossary lists certain of the more frequently used terms in
this Prospectus.

<TABLE>
<C> <S>
ABS acrylonitrile butadiene styrene resins.
ACRYLONITRILE a colorless flammable liquid resulting from propylene
ammoxidation, primarily used in the manufacture of
intermediate products such as acrylic fibers and ABS
resins for apparel, furnishings, upholstery, household
appliances, carpets and plastics for automotive parts.
ACETIC ACID a colorless liquid derived from the reaction of
methanol with carbon monoxide, bacterial action on
ethyl alcohol, the oxidation of acetaldehyde or other
processes; acetic acid and its derivatives have
applications in adhesives, paper, paints, solvents,
textiles and flavoring agents.
BENZENE a volatile, colorless, highly flammable liquid used by
the Company as a raw material for the manufacture of
styrene.
CHLORINE DIOXIDE a bleaching agent produced by reacting sodium chlorate
or sodium chlorite in an acid medium; used primarily in
pulp bleaching and as an antimacrobial.
CONVERSION ARRANGEMENT an arrangement whereby the Company receives the raw
materials from a customer and sells the finished
product to that customer at a price which reflects the
added value of processing.
DEBOTTLENECKING an increase in output using the same basic plant by
improving process efficiency or changing certain
equipment which currently limits production capability.
ETHYLENE a basic building block commodity chemical used to
manufacture styrene.
KRAFT PULP a strong paper or pulp made from wood chips. Bleached
kraft pulp is used to make uncoated paper, diapers and
paperboard.
METHANOL a colorless liquid obtained by the destructive
distillation of wood or the incomplete oxidation of
natural gas, or produced synthetically from carbon
monoxide and hydrogen; primarily used by the Company in
the manufacture of acetic acid.
MONOMER a molecule or compound of relatively simple structure
that can be converted to polymers through reaction with
itself or other molecules.
PLASTICIZERS products made by the Company primarily from alpha-
olefins and orthoxylene used in the manufacture of
flexible plastics.
PROPYLENE a colorless flammable gas used as a raw material in the
manufacture of acrylonitrile.
SAN styrene acrylonitrile resins, used in the production of
various consumer products.
SODIUM CHLORATE a colorless, water soluble solid primarily used in the
production of chlorine dioxide.
SODIUM CHLORITE a specialty product used to produce chlorine dioxide
primarily for water treatment and as a disinfectant for
fresh produce.
SODIUM CYANIDE a white, water soluble powder used chiefly in
electroplating and in the mining of precious metals.
STYRENE a product manufactured from ethylene and benzene.
Styrene is principally used in the manufacture of
intermediate products such as polystyrene, ABS,
synthetic rubbers, SB latex, unsaturated polyester
resins and SAN.
TBA tertiary butylamine, a product manufactured from
isobutylene and hydrogen cyanide; TBA is used in the
production of pesticides and solvents.
</TABLE>

A-1
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
STX Acquisition Corp. and Subsidiary:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheet as of May 14, 1996........................... F-3
Notes to Consolidated Balance Sheet..................................... F-4
STX Chemicals Corp.:
Independent Auditors' Report............................................ F-5
Balance Sheet as of May 14, 1996........................................ F-6
Note to Balance Sheet................................................... F-7
Sterling Chemicals, Inc.:
Report of Independent Accountants....................................... F-8
Consolidated Statement of Operations for the Years Ended September 30,
1995,
1994 and 1993.......................................................... F-9
Consolidated Balance Sheet as of September 30, 1995 and 1994............ F-10
Consolidated Statement of Changes in Stockholders' Equity for the Years
Ended
September 30, 1995, 1994 and 1993...................................... F-11
Consolidated Statement of Cash Flows for the Years Ended September 30,
1995,
1994 and 1993.......................................................... F-12
Notes to Consolidated Financial Statements.............................. F-13
Supplemental Financial Information--Quarterly Financial Data
(Unaudited)............................................................ F-29
Condensed Consolidated Balance Sheet as of March 31, 1996 and September
30, 1995 (Unaudited)................................................... F-30
Condensed Consolidated Statement of Operations for the Six Months Ended
March 31, 1996 and 1995 (Unaudited).................................... F-31
Condensed Consolidated Statement of Cash Flows for the Six Months Ended
March 31, 1996 and 1995 (Unaudited).................................... F-32
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-35
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
STX Acquisition Corp. and Subsidiary

We have audited the accompanying consolidated balance sheet of STX
Acquisition Corp. and Subsidiary as of May 14, 1996. This consolidated balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on the consolidated balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of STX Acquisition
Corp. and Subsidiary as of May 14, 1996 in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP
Houston, Texas
May 20, 1996

F-2
<PAGE>

STX ACQUISITION CORP.

CONSOLIDATED BALANCE SHEET

MAY 14, 1996

<TABLE>
<S> <C>
Assets--Cash............................................................ $2,008
======
Stockholders' Equity
Common stock, $.01 par value; 900,000 shares authorized; 84 shares
issued and outstanding............................................... $ 1
Additional paid-in capital............................................ 2,007
------
Total Stockholders' Equity.............................................. $2,008
======
</TABLE>

See accompanying notes.

F-3
<PAGE>

STX ACQUISITION CORP.

NOTES TO CONSOLIDATED BALANCE SHEET

AS OF MAY 14, 1996

1. ORGANIZATION AND OPERATIONS

The consolidated balance sheet includes the accounts of STX Acquisition
Corp. ("STX Acquisition") and its wholly-owned subsidiary, STX Chemicals Corp.
("Chemicals").

STX Acquisition is a Delaware Corporation formed in April 1996 by an
investor group led by The Sterling Group, Inc. and The Unicorn Group L.L.C. to
effect the merger (the "Merger") of STX Acquisition with and into Sterling
Chemicals, Inc., (the "Company"). Pursuant to an Agreement and Plan of Merger
dated April 24, 1996 between STX Acquisition and the Company, the stockholders
of STX Acquisition will acquire a controlling interest in the Company through
the Merger, with the Company being the surviving corporation. Chemicals will
become a wholly owned subsidiary of the Company and all operating assets and
related liabilities of the Company will be conveyed to and assumed by
Chemicals.

2. COMMITMENTS AND CONTINGENCIES

In April and May, 1996 six putative class action complaints relating to the
proposed Merger and the events leading up to the recommendation of the
approval thereof by the Board of Directors of the Company were filed in the
Court of Chancery for New Castle, Delaware (the "Court"). It is anticipated
that the Court will consolidate the six actions. The complaints name the
Company and each of its directors as defendants and generally allege that the
course of conduct taken by the Company's directors in considering the
Company's strategic alternatives and in recommending the Merger has been in
violation of their fiduciary duties to the Company's stockholders and seek
injunctive relief and unspecified damages. One of the lawsuits includes STX
Acquisition as a defendant. Such lawsuit is styled Alan R. Kahn V. Sterling
Chemicals, Inc., The Sterling Group, Inc., The Unicorn Group, Inc., STX
Acquisition Corp., Gordon A. Cain, et al; Civil Action No. 14981; In the Court
of Chancery of the State of Delaware, New Castle County, Delaware. STX
Acquisition believes that this action is without merit. While this lawsuit is
in the early stages, at this time it is not anticipated to have a material
adverse effect on the financial position of STX Acquisition.

F-4
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder
STX Chemicals Corp.

We have audited the accompanying balance sheet of STX Chemicals Corp. (a
wholly owned subsidiary of STX Acquisition Corp.) as of May 14, 1996. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on the balance sheet based on our
audit.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of STX Chemicals Corp. as of May 14,
1996 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Houston, Texas
May 20, 1996

F-5
<PAGE>

STX CHEMICALS CORP.
(A WHOLLY OWNED SUBSIDIARY OF STX ACQUISITION CORP.)

BALANCE SHEET

MAY 14, 1996

<TABLE>
<S> <C>
Assets--Cash............................................................ $1,000
======
Stockholder's Equity
Common stock, $.01 par value; 1,000 shares authorized,
issued and outstanding............................................... $ 10
Additional paid-in capital............................................ 990
------
Total Stockholder's Equity.............................................. $1,000
======
</TABLE>

See accompanying note.

F-6
<PAGE>

STX CHEMICALS CORP.
(A WHOLLY OWNED SUBSIDIARY OF STX ACQUISITION CORP.)

NOTE TO BALANCE SHEET

AS OF MAY 14, 1996

1. ORGANIZATION AND OPERATIONS

STX Chemicals Corp. ("Chemicals"), incorporated in Delaware in May 1996, is
a wholly owned subsidiary of STX Acquisition Corp. ("STX Acquisition"). STX
Acquisition was formed to effect the merger of STX Acquisition with and into
Sterling Chemicals, Inc. (the "Company"). Concurrently with the merger,
Chemicals will become a wholly owned subsidiary of the Company and all
operating assets and related liabilities of the Company will be conveyed to
and assumed by Chemicals.

F-7
<PAGE>

REPORT OF INDEPENDENT
ACCOUNTANTS

To the Board of Directors and Stockholders of Sterling Chemicals, Inc.

We have audited the consolidated balance sheet of Sterling Chemicals, Inc.
as of September 30, 1995 and 1994 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sterling
Chemicals, Inc. as of September 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1995, in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Houston, Texas
October 25, 1995

F-8
<PAGE>

STERLING CHEMICALS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Revenues........................................ $1,030,198 $700,840 $518,821
Cost of goods sold.............................. 758,580 606,916 477,902
---------- -------- --------
Gross profit.................................... 271,618 93,924 40,919
Selling, general and administrative expenses
(Note 7)....................................... 28,856 46,150 25,495
Interest and debt related expenses, net of
interest income................................ 14,604 22,126 22,392
Gain on sale of assets.......................... -- (2,606)
---------- -------- --------
Income (loss) before taxes and extraordinary
item........................................... 228,158 28,254 (6,968)
Provision (benefit) for income taxes............ 75,005 9,122 (1,548)
---------- -------- --------
Income (loss) before extraordinary item......... 153,153 19,132 (5,420)
Extraordinary item, loss on early extinguishment
of debt, net of tax (Note 3)................... 3,104 -- --
---------- -------- --------
Net income (loss)............................... $ 150,049 $ 19,132 $ (5,420)
========== ======== ========
Per share data:
Income (loss) before extraordinary item......... $ 2.76 $ 0.34 $ (0.10)
Extraordinary item.............................. .06 -- --
---------- -------- --------
Net income (loss) per share..................... $ 2.70 $ 0.34 $ (0.10)
========== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-9
<PAGE>

STERLING CHEMICALS, INC.

CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 30,882 $ 2,013
Accounts receivable...................................... 112,102 127,705
Inventories.............................................. 67,867 69,758
Prepaid expenses......................................... 3,878 2,700
Deferred income taxes.................................... 5,622 9,332
-------- --------
Total current assets................................... 220,351 211,508
Property, plant and equipment, net......................... 309,084 291,126
Other assets............................................... 80,504 78,291
-------- --------
Total assets........................................... $609,939 $580,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 72,016 $ 76,857
Accrued liabilities...................................... 55,858 80,071
Current portion of long-term debt........................ 17,857 33,771
-------- --------
Total current liabilities.............................. 145,731 190,699
Long-term debt............................................. 103,581 192,621
Deferred income tax liability.............................. 40,297 38,837
Deferred credits and other liabilities..................... 81,012 69,034
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value, 150,000 shares authorized,
60,327 shares issued, 55,674 and 55,660 shares
outstanding at September 30, 1995 and 1994,
respectively............................................ 603 603
Additional paid-in capital............................... 33,269 33,232
Retained earnings........................................ 275,052 125,003
Pension adjustment....................................... (1,556) (950)
Accumulated translation adjustment....................... (17,307) (17,322)
Deferred compensation.................................... (129) (68)
-------- --------
289,932 140,498
Treasury stock, at cost, 4,653 and 4,667 shares at
September 30, 1995 and 1994, respectively............... (50,614) (50,764)
-------- --------
Total stockholders' equity................................. 239,318 89,734
-------- --------
Total liabilities and stockholders' equity................. $609,939 $580,925
======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-10
<PAGE>

STERLING CHEMICALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
------------- PAID-IN RETAINED PENSION TRANSLATION DEFERRED TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT COMPENSATION STOCK
------ ------ ---------- -------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1992................... 60,150 $602 $35,478 $114,603 $(1,009) $ (6,610) $(234) $(55,487)
Net loss................ -- -- -- (5,420) -- -- -- --
Translation adjustment.. -- -- -- -- -- (9,574) -- --
Dividends paid on common
stock $.06 per share... -- -- -- (3,312) -- -- -- --
Common stock issued..... 175 1 700 -- -- -- -- --
Treasury stock
transactions........... -- -- (1,470) -- -- -- (135) 2,286
Amortization of deferred
compensation........... -- -- -- -- -- -- 205 --
Pension adjustment...... -- -- -- -- (288) -- -- --
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30,
1993................... 60,325 603 34,708 105,871 (1,297) (16,184) (164) (53,201)
Net income.............. -- -- -- 19,132 -- -- -- --
Translation adjustment.. -- -- -- -- -- (1,138) -- --
Common stock issued..... 2 -- 6 -- -- -- -- --
Treasury stock
transactions........... -- -- (1,482) -- -- -- -- 2,437
Amortization of deferred
compensation........... -- -- -- -- -- -- 96 --
Pension adjustment...... -- -- -- -- 347 -- -- --
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30,
1994................... 60,327 603 33,232 125,003 (950) (17,322) (68) (50,764)
Net income.............. -- -- -- 150,049 -- -- -- --
Translation adjustment.. -- -- -- -- -- 15 -- --
Treasury stock
transactions........... -- -- 37 -- -- -- -- 150
Amortization of deferred
compensation........... -- -- -- -- -- -- (61) --
Pension adjustment...... -- -- -- -- (606) -- -- --
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30,
1995................... 60,327 $603 $33,269 $275,052 $(1,556) $(17,307) $(129) $(50,614)
====== ==== ======= ======== ======= ======== ===== ========
</TABLE>

F-11
<PAGE>

STERLING CHEMICALS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers................ $1,159,192 $709,026 $558,088
Miscellaneous cash receipts................. 14,007 10,618 10,945
Cash paid to suppliers and employees........ (893,324) (614,856) (497,920)
Interest paid............................... (14,811) (20,443) (21,622)
Interest received........................... 2,540 60 86
Income taxes paid........................... (75,766) (9,156) (1,463)
---------- -------- --------
Net cash provided by operating activities..... 191,838 75,249 48,114
Cash flows from investing activities:
Capital expenditures........................ (53,962) (12,343) (12,175)
Proceeds from sale of assets................ -- 2,606 --
---------- -------- --------
Net cash used in investing activities......... (53,962) (9,737) (12,175)
Cash flows from financing activities:
Proceeds from long-term debt................ 217,000 -- --
Repayment of long-term debt................. (322,282) (65,517) (33,649)
Dividends paid.............................. -- -- (3,312)
Other....................................... (3,735) 643 (96)
---------- -------- --------
Net cash used in financing activities......... (109,017) (64,874) (37,057)
Effect of U.S./Canadian exchange rate on cash. 10 23 (155)
---------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 28,869 661 (1,273)
Cash and cash equivalents--beginning of year.. 2,013 1,352 2,625
---------- -------- --------
Cash and cash equivalents--end of year........ $ 30,882 $ 2,013 $ 1,352
========== ======== ========
Reconciliation of Net Income (Loss) to Cash
Provided by Operating Activities:
Net income (loss)............................. $ 150,049 $ 19,132 $ (5,420)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 43,033 40,953 38,679
Extraordinary item.......................... 3,104 -- --
Deferred tax expense (benefit).............. 4,280 (4,817) 1,239
Accrued compensation including SARs......... (2,638) 21,941 205
Other....................................... 1,058 (1,180) 1,494
Change in assets/liabilities:
Accounts receivable......................... 22,540 (52,304) (17,705)
Inventories................................. 1,921 (9,493) 17,708
Prepaid expenses............................ (1,183) 2,649 2,430
Other assets................................ (4,075) (1,437) (4,411)
Accounts payable............................ (4,117) 34,083 8,123
Accrued liabilities......................... (21,447) 17,604 6,332
Other liabilities........................... (687) 8,118 (560)
---------- -------- --------
Net cash provided by operating activities..... $ 191,838 $ 75,249 $ 48,114
========== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-12
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Sterling Chemicals, Inc. (the "Company") operates petrochemical facilities
in Texas City, Texas and pulp chemical facilities throughout Canada. The
significant accounting policies of the Company are described below.

Principles of Consolidation

The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. The Company's investment in a cogeneration joint venture is
accounted for under the equity method with earnings from the joint venture
recorded as a reduction of cost of goods sold.

Cash Equivalents

The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market; cost is determined on
the first-in, first-out ("FIFO") basis except for stores and supplies, which
are valued at average cost.

The Company enters into agreements with other companies to exchange chemical
inventories in order to minimize working capital requirements and to
facilitate distribution logistics. Balances related to quantities due to or
payable by the Company are included in inventory.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Major renewals and
improvements which extend the useful lives of the equipment are capitalized.
Major planned maintenance expenses are accrued for during the periods prior to
the maintenance, while routine repair and maintenance expenses are charged to
operations as incurred. Disposals are removed at carrying cost less
accumulated depreciation with any resulting gain or loss reflected in
operations. Depreciation is provided using the straight-line method over
estimated useful lives ranging from 5 to 25 years with the predominant life of
the plant and equipment being 15 years. The Company capitalizes interest costs
which are incurred as part of the cost of constructing major facilities and
equipment. The amount of interest capitalized for the fiscal years 1995, 1994
and 1993 was $1,024, $145 and $291, respectively.

Patents and Royalties

The cost of patents is amortized on a straight-line basis over their
estimated useful lives which approximates ten years. The Company capitalized
the value of the chlorine dioxide generator technology acquired in 1992 based
on the net present value of all estimated remaining royalty payments
associated with the technology. The resulting intangible amount is included in
other assets and is amortized over an average life for these royalty payments
of ten years.

Debt Issue Costs

Debt issue costs relating to long-term debt are amortized using the interest
method and are included in other assets.

F-13
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

Income Taxes

Deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the tax basis of assets and liabilities and the
financial reporting amounts at each year-end.

Revenue Recognition

The Company generates revenues through sales in the open market, raw
material conversion agreements and long-term supply contracts. In addition,
the Company has entered into shared profit arrangements with respect to
certain petrochemical products. The Company recognizes revenue from sales in
the open market, raw material conversion agreements and long-term supply
contracts as the products are shipped. Revenues from shared profit
arrangements are estimated and accrued monthly. The Company also generates
revenues from the construction and sale of chlorine dioxide generators which
are recognized using the percentage of completion method. Deferred credits are
amortized over the life of the contract which gave rise to them. The Company
also receives prepaid royalties which are recognized over a period which is
typically ten years.

Foreign Exchange

Assets and liabilities denominated in Canadian dollars are translated into
U.S. dollars at year-end exchange rates and revenues and expenses are
translated at the average monthly exchange rates. Translation adjustments are
reported as a separate component of stockholders' equity while transaction
gains and losses are included in operations when incurred.

Financial Instruments

The Company's Canadian subsidiaries enter into forward foreign exchange
contracts to minimize the short-term impact of Canadian dollar fluctuations on
certain of its Canadian dollar denominated commitments. Gains or losses on
these contracts are deferred and are included in operations in the same period
in which the related transactions are settled.

The Company has entered into interest rate swap agreements to hedge interest
rate fluctuation on its long-term debt. The differences between the floating
interest rate or the Company's debt and the fixed contract rate under the
interest rate swap agreements are reflected as a component of interest expense
in the consolidated financial statements. The impact of interest rate swaps on
interest expense in 1995 was not material. For all of the Company's financial
instruments the counterparties were large financial institutions and therefore
the risk of credit loss is considered minimal.

Income (Loss) Per Share

Income (loss) per share for fiscal years 1995, 1994 and 1993 has been
computed using a weighted average shares outstanding of 55,674,000, 55,606,000
and 55,252,000, respectively.

Environmental Costs

Environmental costs are expensed unless the expenditures extend the economic
useful life of the assets. Costs that extend the economic life of the assets
are capitalized and depreciated over the remaining life of such assets.

Reclassification

Certain amounts reported in the financial statements for the prior periods
have been reclassified to conform with the current financial statement
presentation with no effect on net income (loss) or stockholders' equity.

F-14
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Inventories:
Finished products....................................... $ 44,802 $ 49,189
Raw materials........................................... 16,506 21,761
--------- ---------
Inventories at FIFO cost................................ 61,308 70,950
Inventories under exchange agreements................... (4,783) (12,350)
Stores and supplies..................................... 11,342 11,158
--------- ---------
$ 67,867 $ 69,758
========= =========
Property, plant and equipment:
Land.................................................... $ 11,775 $ 11,771
Buildings............................................... 26,955 24,944
Plant and equipment..................................... 422,479 406,860
Construction in progress................................ 49,782 14,132
Less accumulated depreciation........................... (201,907) (166,581)
--------- ---------
$ 309,084 $ 291,126
========= =========
Other assets:
Patents and technology, net............................. $ 40,971 $ 46,918
Estimated insurance recoveries.......................... 10,315 --
Intangible pension asset................................ 3,733 4,139
Deferred catalyst....................................... 4,357 4,126
Debt issue costs........................................ 3,370 5,835
Other................................................... 17,758 17,273
--------- ---------
$ 80,504 $ 78,291
========= =========
Accrued liabilities:
Repairs................................................. $ 9,021 $ 13,468
Income taxes............................................ 2,250 13,257
Interest................................................ 574 576
Estimated contract adjustments.......................... 1,536 9,684
Property taxes.......................................... 6,179 5,796
Litigation contingency.................................. 6,000 --
Accrued compensation.................................... 10,019 21,719
Other................................................... 20,279 15,571
--------- ---------
$ 55,858 $ 80,071
========= =========
Deferred credits and other liabilities:
Deferred revenue........................................ $ 21,969 $ 27,513
Accrued postretirement benefits......................... 24,722 22,746
Additional minimum pension liability.................... 6,127 5,601
Accrued compensation.................................... 2,922 9,030
Litigation contingency.................................. 10,315 --
Other................................................... 14,957 4,144
--------- ---------
$ 81,012 $ 69,034
========= =========
</TABLE>

F-15
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

3. LONG-TERM DEBT:

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Revolving credit facilities................................. $ 902 $ 32,940
Term loan................................................... 120,536 20,000
Project loan................................................ -- 16,134
Subsidiary term loan........................................ -- 113,050
Subordinated note........................................... -- 44,268
-------- --------
Total debt outstanding.................................... 121,438 226,392
Less:
Current maturities........................................ (17,857) (33,771)
-------- --------
Total long-term debt........................................ $103,581 $192,621
======== ========
</TABLE>

On April 13, 1995, the Company entered into a seven-year agreement (the
"Credit Agreement") with a group of 14 commercial banks to refinance the
Company's existing debt except for the revolving debt associated with Sterling
Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement provides for a
revolving credit facility of $150,000 (the "Revolver") and a term loan of
$125,000 (the "Term Loan"). On April 28, 1995, Sterling Pulp entered into a
separate agreement for a Cdn. $20,000 revolving credit facility (the "Canadian
Revolver"). The Canadian Revolver was utilized to refinance the revolving debt
associated with Sterling Pulp.

The Revolver and the Term Loan bear interest at the Base Rate or, at the
Company's option, the Eurodollar rate. The Base Rate is equal to the greater
of the Prime Rate as announced from time to time by the agent bank, or the
Federal Funds Rate plus 1/2%. The Eurodollar Rate is equal to the Eurodollar
Interbank Rate plus the Margin Percentage, which is adjustable quarterly and
can range from 0.65% to 1.25%. Subsequent to the closing of the Credit
Agreement, the Company entered into an interest rate swap, equivalent in
amount and term to the Term Loan. The swap effectively replaces the variable
rate on the Term Loan with a fixed interest rate of approximately 7% per annum
for the remaining term.

In connection with arranging the Credit Agreement, the Company incurred fees
of approximately $3,000 which will be amortized over the term of the loans.
Unamortized debt issue costs related to the retired loans were expensed in
April 1995 and are recorded as an extraordinary loss from early extinguishment
of debt of approximately $3,104, net of tax of $1,571, or $.06 per share.

At September 30, 1995, the Company had indebtedness of $120,536 under the
Term Loan and $902 under the Canadian Revolver. The carrying value of such
debt approximates the market value of the debt due to its floating rate
nature. Additionally, the Company had $2,172 in letters of credit under the
Revolver and $1,070 in letters of credit under the Canadian Revolver, both of
which reduced the amount available under these respective facilities. The
weighted average interest rate of the Company's long-term debt at September
30, 1995 was 6.6%. In addition, availability under the Revolver for loans and
letters of credit is subject to a monthly borrowing base. At September 30,
1995, the borrowing base limited availability under the Revolver to $129,398.

The Term Loan requires equal quarterly installments of $4,464 over the
seven- year term. This payment schedule has resulted in a significant decrease
in current maturities of long-term debt from $33,771 on September 30, 1994 to
$17,857 on September 30, 1995. The Revolver and the Canadian Revolver mature
at the end of their seven-year terms, and no principal payments are required
prior to that time.

F-16
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

The Revolver and the Term Loan are collateralized by substantially all of
the inventory and accounts receivable of the Company and certain of its
domestic subsidiaries, all of the Company's equity interests in Sterling
Canada, Inc. (a wholly-owned subsidiary of the Company), 65% of the equity of
Sterling Pulp and Sterling NRO, Ltd., and certain contract rights of the
Company. Additionally, certain of the Company's domestic subsidiaries have
guaranteed the Revolver and Term Loan.

The Credit Agreement contains a number of financial and other covenants that
management believes are customary in lending transactions of this type. The
Credit Agreement allows the Company to redeem, retire or acquire shares of its
capital stock and to make dividend payments, within certain conditions and
limitations, as long as no Default or Event of Default (as defined in the
Credit Agreement) has occurred or is continuing.

On September 28, 1995, Sterling Pulp entered into a seven-year credit
agreement to finance the construction of the Georgia sodium chlorate plant
(the "Chlorate Plant Credit Agreement") with the same bank group that is a
party to the Credit Agreement. Sterling Pulp can borrow up to $60 million
under the Chlorate Plant Credit Agreement to purchase taxable bonds from the
local county development authority that will use the bond proceeds to finance
the construction of the plant. The first quarterly scheduled principal payment
on the debt is due October 1, 1997 while the final scheduled payment is due
July 1, 2002. There is an annual excess cash flow test required by the
Chlorate Plant Credit Agreement that could result in mandatory prepayments of
some of the scheduled principal payments. Most of the debt is scheduled to be
paid during the last two years of the seven-year term. As a result of a
guaranty provided by the Company, the overall borrowing rate under the
Chlorate Plant Credit Agreement will be the same as under the Credit
Agreement, excluding the effect of any interest rate hedging arrangements. The
debt will be collateralized by the taxable bonds and the Company's interest in
the plant. No debt was outstanding under the Chlorate Plant Credit Agreement
at September 30, 1995.

Debt Maturities

The estimated remaining principal payments on the outstanding debt are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL
SEPTEMBER 30, PAYMENTS
------------- ---------
<S> <C>
1996........................................................ $ 17,857
1997........................................................ 17,857
1998........................................................ 17,857
1999........................................................ 17,857
2000........................................................ 17,857
2001........................................................ 17,857
2002........................................................ 14,296
--------
Total outstanding debt...................................... $121,438
========
</TABLE>

F-17
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

4. INCOME TAXES:

A reconciliation of federal statutory income taxes to the Company's
effective tax provision (benefit) before extraordinary item follows:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
------------------------
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Provision (benefit) for federal income tax at
the statutory rate............................ $79,855 $9,772 $(2,994)
Foreign sales corporation...................... (7,991) -- --
State and foreign income taxes................. 2,862 90 877
Estimated income tax settlement and other...... 279 (740) 569
------- ------ -------
Effective tax provision (benefit).............. $75,005 $9,122 $(1,548)
======= ====== =======
</TABLE>

The provision (benefit) for income taxes is composed of the following:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
From operations:
Current federal.............................. $67,393 $18,618 $(2,849)
Deferred federal............................. 1,075 (7,809) 148
Deferred foreign............................. 3,489 (1,687) 1,153
Current state................................ 2,947 -- --
Deferred state............................... 101 -- --
------- ------- -------
Total tax provision (benefit).................. $75,005 $ 9,122 $(1,548)
======= ======= =======
</TABLE>

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes("SFAS 109"), effective October
1, 1993. Under SFAS 109, deferred income taxes are provided for temporary
differences between the tax basis of assets and liabilities and amounts for
financial reporting purposes. The adoption of this statement did not have an
effect on the Company's results of operations. Upon adoption of SFAS 109, the
Company's current deferred tax asset and deferred tax liability each increased
by approximately $1,600.

The components of the deferred income taxes for 1993 (a disclosure no longer
required for years subsequent to adoption of SFAS 109) are summarized below:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1993
-------------
<S> <C>
Depreciation and amortization............................... $1,709
Alternate minimum tax....................................... (959)
Accrued expenses for book purposes.......................... 484
Pension expense............................................. (729)
Postretirement expense...................................... (667)
Effect of tax rate change................................... 500
Other....................................................... 963
------
Total deferred tax expense.................................. $1,301
======
</TABLE>

F-18
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

The components of the Company's deferred income tax assets and liabilities
are summarized below:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1995 1994
------- -------
<S> <C> <C>
Assets:
Accrued liabilities...................................... $10,475 $13,099
Accrued postretirement cost.............................. 8,719 7,405
Tax loss and credit carryforward......................... 7,470 11,389
Other.................................................... -- 523
Total deferred tax assets................................ 26,664 32,416
Less current deferred income tax benefit................. 5,622 9,332
------- -------
Noncurrent deferred tax assets........................... $21,042 $23,084
======= =======
Liabilities:
Property, plant and equipment............................ $57,466 $60,756
Accrued pension cost..................................... 2,471 1,165
Other.................................................... 1,402 --
------- -------
Total deferred tax liabilities........................... $61,339 $61,921
======= =======
</TABLE>

The Company has approximately Cdn. $25,000 in Canadian tax loss
carryforwards which will expire from 1998 through 2001.

5. EMPLOYEE BENEFITS:

The Company has established the following benefit plans:

Retirement Benefit Plans

The Company has non-contributory pension plans in the United States and
employer and employee contributory plans in Canada which cover all salaried
and wage employees. The benefits under these plans are based primarily on
years of service and employees' pay near retirement. For those Company
employees who were employed by the Company as of September 30, 1986 and were
previously employed by Monsanto, the Company recognizes their Monsanto pension
years of service for purposes of determining benefits under the Company's
plans. For those Company employees who were employed by the Company on August
21, 1992 and were previously employed by Tenneco Inc., the Company recognizes
their Tenneco Inc. pension years of service for purposes of determining
benefits under the Company's plans. The Company's funding policy is consistent
with the funding requirements of federal law and regulations. Plan assets
consist principally of common stocks and government and corporate securities.

The Company has recorded its additional minimum liability in accordance with
Statement of Financial Accounting Standards No. 87 "Employers' Accounting for
Pensions." In recognizing the additional pension liability at September 30,
1995 and 1994, the Company recorded a liability of $6,127 and $5,601, an
intangible asset of $3,733 and $4,139, which is included with other assets,
and a reduction of stockholders' equity of $1,556 and $950, net of deferred
tax of $838 and $512, respectively.

F-19
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

The components of pension expense for the years ended September 30, 1995,
1994 and 1993 were as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost (for benefits earned during the
period)........................................ $3,288 $3,386 $3,195
Interest cost on projected benefit obligation... 4,471 3,891 3,499
Actual return on plan assets and contributions.. (5,825) 617 (2,940)
Deferral of asset gain (loss)................... 1,909 (3,997) 59
Net amortization of unrecognized amounts........ 871 848 863
------ ------ ------
Pension expense................................. $4,714 $4,745 $4,676
====== ====== ======
</TABLE>

Assumptions used in determining the projected benefit obligation and pension
cost for the periods were as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rates.......................................... 7.5% 8.0% 7.5%
Rates of increase in salary compensation level.......... 5.5% 5.5% 5.5%
Expected long-term rate of return on assets............. 9.0% 9.0% 9.0%
</TABLE>

The funded status of the Company's pension plans for which assets exceed
accumulated benefits and plans for which accumulated benefits exceed assets as
of the actuarial valuation dates of August 31, 1995 and 1994 follows:

<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of
benefits based on service to
date and present pay levels:
Vested benefit obligation..... $ 26,222 $21,743 $19,392 $17,776
Non-vested benefit obligation. 1,029 1,293 2,040 1,309
-------- ------- ------- -------
Accumulated benefit
obligation................... 27,251 23,036 21,432 19,085
Plan assets at fair value..... 33,540 21,134 26,835 16,795
-------- ------- ------- -------
Plan assets in excess of (less
than) accumulated benefit
obligation................... 6,289 (1,902) 5,403 (2,290)
Additional amounts related to
projected salary increases... 16,431 658 14,806 812
-------- ------- ------- -------
Plan assets less than total
projected benefit obligation. (10,142) (2,560) (9,403) (3,102)
Unrecognized net loss
resulting from plan
experience and changes in
actuarial assumptions........ 5,995 2,579 4,935 1,871
Unrecognized prior service
cost......................... 2 3,689 (49) 3,949
Unrecognized transition
obligation................... 2,716 156 3,067 182
-------- ------- ------- -------
Prepaid (accrued) pension cost
before additional minimum
liability.................... (1,429) 3,864 (1,450) 2,900
Additional minimum liability.. -- (6,127) -- (5,601)
-------- ------- ------- -------
Total accrued pension
obligation.................... $ (1,429) $(2,263) $(1,450) $(2,701)
======== ======= ======= =======
</TABLE>

F-20
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

Postretirement Benefits Other Than Pensions

The Company provides certain health care benefits and life insurance
benefits for retired employees. Substantially all of the Company's employees
become eligible for these benefits at normal retirement age. The Company
accrues the cost of these benefits during the period in which the employee
renders the necessary service.

Health care benefits are provided to employees who retire from the Company
with ten or more years of service except for Canadian employees subject to
collective bargaining agreements. All of the Company's employees are eligible
for postretirement life insurance. Postretirement health care benefits for
most U.S. employees are provided for under a contributory, comprehensive plan
while all other plans are non-contributory. Benefit provisions for most hourly
and some salaried employees are subject to collective bargaining. In general,
the plan stipulates that retiree health care benefits are paid as covered
expenses are incurred. For U.S. employees, postretirement medical plan
deductibles are assumed to increase at the rate of the long-term consumer
price index. Approximately two hundred seventy-four retirees and dependents
are covered under these plans. The components of postretirement benefits cost
other than pensions for the years ended September 30, 1995 and 1994 were as
follows:

<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Service cost (for benefits earned during the period)....... $1,084 $1,064
Interest cost on projected benefit obligation.............. 1,835 1,688
Amortization of plan amendments............................ 29 29
------ ------
$2,948 $2,781
====== ======
</TABLE>

Actuarial assumptions used to determine fiscal year 1995 and 1994 costs and
benefit obligations for postretirement benefit plans other than pensions
include an average discount rate of 7.5% and an average rate of future
increases in benefit compensation of 5.5%. The assumed composite rate of
future increases in per capita cost of health care benefits ( health care cost
trend rate ) was 7.8% for fiscal year 1995, exclusive of demographic changes,
decreasing gradually to 5.5% by the year 2028.

These trend rates reflect current cost performance and management's
expectation that future rates will decline. Increasing the health care cost
trend rate by one percentage point would increase the accumulated
postretirement benefit obligation by $1,391 and would increase annual
aggregate service and interest costs by $173.

The following sets forth the plan's funded status reconciled with amounts
reported in the Company's consolidated balance sheet at September 30, 1995 and
1994.

Accumulated postretirement benefit obligation (APBO):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Retirees............................................... $ 7,315 $ 5,956
Fully eligible active plan participants................ 7,690 7,234
Other active plan participants......................... 11,956 11,752
------- -------
Total APBO............................................. 26,961 24,942
Plan assets at fair value.............................. -- --
Unrecognized loss...................................... (1,987) (1,915)
Unrecognized prior service cost........................ (252) (281)
------- -------
Accrued postretirement benefit liability............... $24,722 $22,746
======= =======
</TABLE>

F-21
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

Postemployment Benefits

During the first quarter of fiscal 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires
accrual accounting for benefits provided to former or inactive employees after
employment but before retirement. The Company implemented the provisions of
SFAS 112 in fiscal 1995 and the effect of adoption on the Company's financial
position and results of operations was not material.

Employee Stock Ownership Trust

The Employee Stock Ownership Trust ("ESOT") was formed to invest primarily
in the Company's common stock and includes only participants contributing to
the Company's Savings and Investment Plan ("SIP"). The Company's contribution
to the ESOT is 60% of the participant's SIP contributions to the extent that
such participant's contributions do not exceed 7.5% of the employee's eligible
earnings. The Company's contributions are subject to a 20% per year vesting
schedule commencing after one year of service. The Company's contributions to
the ESOT for the years ended September 30, 1995, 1994 and 1993 were $1,684,
$1,688 and $1649, respectively.

Profit Sharing Plans

The Company provides profit sharing plans for the benefit of salaried and
hourly employees meeting certain eligibility requirements. These plans were
amended and restated in fiscal 1993. The Company distributes quarterly, to
eligible employees, a specified percentage of its earnings before interest,
taxes, depreciation and amortization above a specified level. The amount of
each eligible employee's quarterly cash distribution is related to a specified
percentage of such employee's base salary or wages, with the percentage
determined by the employee's position in the Company. Profit sharing expense
for the years ended September 30, 1995 and 1994 was $13,038 and $3,815,
respectively. There was no profit sharing expense during fiscal 1993.

Omnibus Stock and Incentive Plan

The Company has an Omnibus Stock and Incentive Plan, under which the Company
may grant to key employees incentive and nonincentive stock options, stock
appreciation rights, restricted stock, performance units and performance
shares. The terms and amounts of the awards are determined by the Compensation
Committee of the Board of Directors. Upon a change of control of the Company,
all awards granted under the plan become fully vested and all performance
based awards will be paid at the higher of performance goals or actual
performance to date. 3,000,000 shares of the Company's stock were reserved
under the plan when it was established. As of September 30, 1995, 263,000
shares have been issued.

In fiscal year 1993, the Company granted stock appreciation rights ("SARs")
to certain key employees and directors. Total expense benefit is determined
based on 3,632,000 SARs granted, the vesting period (five years beginning
September 1992) and the appreciation of the Company's stock price above $4 per
share, which was the fair market value of the Company's common stock on the
date of grant of the SARs. In October 1994, the Company amended the SAR
program by modifying the vesting periods and limiting the amount of
appreciation for each SAR during each vesting period, thereby limiting the
Company's aggregate future expenses. The Company recorded expense (benefit)
for the years ended September 30, 1995 and 1994 of ($2,767) and $21,800,
respectively, and paid $8,297 in October 1994 and $5,820 in September 1995
pursuant to the SARs, as amended. There was no expense associated with the
SARs for fiscal year 1993 as the market price of the Company's stock at
September 30, 1993 was less than the price at the date of grant. The expense
(benefit) for the SARs is included in selling, general and administrative
expenses in the Company's income statement.

F-22
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

In fiscal 1995, the Company granted 82,500 stock options to certain officers
of the Company with an exercise price of $13.50 per share. The options are
exercisable from the third through the tenth anniversary of the date of the
grant.

6. COMMITMENTS AND CONTINGENCIES:

Product Contracts

The Company has certain long-term agreements which provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
TBA and sodium cyanide, each to one customer. The Company also has various
sales and conversion agreements which dedicate significant portions of the
Company's production of styrene monomer and acrylonitrile to various
customers. These agreements generally provide for cost recovery plus an agreed
margin or element of profit based upon market price.

Lease Commitments

The Company has entered into various long-term noncancellable operating
leases. Future minimum lease commitments at September 30, 1995 are as follows:
fiscal 1996--$2,135; fiscal 1997--$1,971; fiscal 1998--$1,878; fiscal 1999--
$1,661; fiscal 2000--$1,553; and $5,701 thereafter. Rent expense for fiscal
years 1995, 1994 and 1993 was not material.

Environmental and Safety Matters

New laws or permit requirements and conditions may affect the Company's
operations, products or waste disposal. Past or future operations may result
in claims or liabilities. Expenditures could be required to upgrade wastewater
collection, pretreatment, disposal systems or other matters.

The Company routinely incurs expenses associated with managing hazardous
substances and pollution in ongoing operations. These operating expenses
include items such as depreciation on its waste treatment facilities, outside
waste management, fuel, electricity and salaries. The amounts of these
operating expenses were approximately $45,000 and $44,000 for fiscal years
1995 and 1994, respectively. The Company does not anticipate a material
increase in these types of expenses during fiscal 1996. The Company considers
these types of environmental expenditures normal operating expenses and
includes them in cost of goods sold.

At its Texas City facility, the Company has reduced emissions of targeted
chemicals 74% from 1987 levels under the EPA's voluntary 33/50 program. These
reductions included a 96% reduction in hydrogen cyanide emissions and an 87%
reduction in benzene emissions. Additionally, the Company will initiate
appropriate actions or preventive projects necessary to insure that the
facility continues to operate in a safe and environmentally responsible
manner. No assurances can be given that the Company will not incur material
environmental expenditures associated with its facilities, operations or
products.

The Company's sodium chlorate market is sensitive to potential environmental
regulation. In general, environmental regulations support substitution of
chlorine dioxide, which is produced from sodium chlorate, for elemental
chlorine in the pulp bleaching process. Certain environmental groups are
encouraging passage of

F-23
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

regulations which restrict the amount of Absorbable Organic Halides (AOX) or
chlorine derivatives in bleach plant effluent. Increased substitution of
chlorine dioxide for elemental chlorine in the pulp bleaching process
significantly reduces the amount of AOX and chlorine derivatives in bleach
plant effluent. As long as there is not an outright ban on chlorine-containing
compounds, regulation restricting AOX or chlorine derivatives in bleach plant
effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any
significant ban on all chlorine-containing compounds could have a material
adverse effect on the Company's financial condition and results of operations.

British Columbia has a regulation in place that would effectively eliminate
the use of chlorine dioxide in the bleaching process by the year 2002. The
pulp and paper industry is working to change this regulation and believes that
the ban of chlorine dioxide in the bleaching process will yield no measurable
environmental or public health benefit. The Company is not aware of any other
laws or regulations currently in place which would restrict the use of the
product.

Legal Proceedings

Petrochemicals

HUNTSMAN LAWSUIT: On January 30, 1995, the Company filed a lawsuit against
Huntsman Chemical Corporation and certain affiliates seeking a declaratory
judgment in connection with an alleged agreement arising from discussions,
previously suspended by the Company, relating to possible future capacity
rights for a significant portion of the Company's styrene monomer unit at its
Texas City facility. In the lawsuit, the Company is requesting a judicial
determination that, among other things, there was no enforceable agreement
between the Company and any of the defendants. In response, the defendants
filed a counterclaim demanding a jury trial and asserting that a contractual
agreement existed, that the Company breached the alleged agreement, and that
as a result the defendants incurred an unspecified amount of "massive
damages". Subsequently, the Company filed a motion for summary judgment.

On November 30, 1995, summary judgment was granted in the Company's favor.
The summary judgment, which is subject to appeal, confirms that as a matter of
law, no enforceable contract or agreement ever existed between the Company and
the defendants. The Court's order also moots the defendants' counterclaim
against the Company for damages resulting from breach of the alleged contract.

The Company believes a loss with respect to this matter is not probable and
is unable to quantify a reasonably possible loss estimate (as defined in
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies") at this time.

ALLEMAND LAWSUIT: On June 19, 1995, a lawsuit was filed against the Company
and several other corporate defendants asserting personal injury and mental
anguish resulting from an incident occurring on June 16, 1995 in which a hose
being used to unload a barge of sulfuric acid at the Company's Texas City
facility ruptured, spraying sulfuric acid on an employee of Marine Fueling
Service, Inc. The plaintiffs seek an unspecified amount of damages. The
incident is under investigation and discovery is ongoing.

AMMONIA RELEASE: On May 8, 1994, an ammonia release occurred at the
Company's Texas City facility while a reactor in the acrylonitrile unit was
being restarted after a shutdown for routine maintenance. The Company
estimated that approximately three thousand pounds of ammonia were emitted
into the atmosphere.

F-24
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

Approximately nine thousand individuals have filed claims directly with the
Company alleging personal injury and/or property damage as a result of
exposure to the ammonia. The Company and its insurance carriers are in the
process of evaluating these claims. Approximately two thousand of these claims
have been settled and three thousand have been denied. Settlements, costs and
expenses to date have totaled less than $2,000. All amounts above the
Company's $1,000 deductible (which has been charged against earnings) have
been paid by its insurance carriers.

Sixteen lawsuits involving approximately four thousand plaintiffs have been
filed against the Company seeking unspecified damages for personal injuries
and property damage as a result of the release. Additional claims and
litigation against the Company asserting similar claims may ensue.

SMITH LAWSUIT: On April 27, 1994, approximately one thousand two hundred
plaintiffs sued the Company and eighteen other corporate defendants in the
Texas City, Texas area. The plaintiffs seek an unspecified amount of damages
for personal injury and property damages arising from alleged chemical
releases. Discovery is proceeding and the Company is vigorously defending this
lawsuit.

ALLEN LAWSUIT: On May 9, 1991, a lawsuit was filed against the Company and
several other petrochemical companies operating in the Texas City, Texas area.
The plaintiffs in the lawsuit assert personal injury and property damage
claims arising from alleged chemical releases. The plaintiffs seek an
unspecified amount of damages. Although the court dismissed a number of the
plaintiffs for failure to comply with discovery, over three hundred plaintiffs
remain. The Company is vigorously defending this lawsuit.

The Company is subject to various other claims and legal actions that arise
in the ordinary course of its business.

Pulp Chemicals

The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel
and its affiliates. The Company and Akzo Nobel are involved in numerous patent
disputes throughout the world in which the Company and Akzo Nobel are
challenging certain patents of the other and attempting to restrict the
other's operating range. If either party is successful in these disputes, the
other party may be required to make adjustments and modifications to its
commercial operations or obtain a license from the prevailing party. The
Company believes that it is entitled to certain indemnities from Tenneco
Canada with respect to the acquired technology. The Company and Akzo Nobel
have initiated discussions to resolve these disputes.

Litigation Contingency

In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies" and Financial Accounting Standards Board
Interpretation No. 39 "Offsetting of Amounts Related to Certain Contracts",
the Company has made estimates of the reasonably possible range of liability
with regard to its outstanding litigation for which it may incur liability.
These estimates are based on management's judgments using currently available
information as well as consultation with the Company's insurance carriers and
outside legal counsel. A number of the claims in these litigation matters are
covered by the Company's insurance policies or by third-party indemnification
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 indemnifications, discussions
with its insurers and indemnitors and consultation with outside legal counsel,
in addition to management's judgments. Based on the foregoing as of September
30, 1995,

F-25
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

the Company has accrued approximately $17,000 as its estimate of aggregate
contingent liability for these matters, and has also recorded aggregate
receivables from its insurers and third party indemnitors of approximately
$16,000. In addition, management estimates that at present, the reasonably
possible range of loss, in addition to the amount accrued, is from $0 to
$37,000. The Company believes that it is insured or indemnified for this
additional reasonably possible loss, except for a portion which is not
material.

While the Company has based its estimates on its evaluation of available
information to date and the other matters described above, much of the
litigation is in its early stages and it is impossible to predict with
certainty the ultimate outcome. The Company will adjust its estimates as
necessary as additional information is developed and evaluated. However, the
Company believes that the final resolution of these contingencies will not
have a material adverse impact on the financial position, results of
operations or cash flows of the Company.

The timing of probable insurance and indemnity recoveries, and payment of
liabilities, if any, is not expected to have a material effect on the
financial position, results of operations or cash flows of the Company.

7. SEGMENT AND GEOGRAPHIC INFORMATION:

Sales to individual customers constituting 10% or more of total revenues (in
any of the last three fiscal years) and sales by geographic region were as
follows:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Major Customers:
British Petroleum plc and subsidiaries.......... $169,944 $103,637 $ 54,497
Mitsubishi International Corporation............ $129,812 $ 69,920 $ 60,186
Export Sales:
Export revenues................................. $534,067 $324,930 $158,804
Percentage of total revenues.................... 52% 46% 31%
Export revenues (as a percent of total exports)
by geographical area:
Asia.......................................... 64% 80% 61%
Europe........................................ 36% 16% 39%
Other......................................... -- 4% --
</TABLE>

F-26
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Geographic Segment Information:
Revenues:
United States................................. $ 886,247 $578,295 $399,486
Canada........................................ 143,951 122,545 119,335
---------- -------- --------
Total........................................... $1,030,198 $700,840 $518,821
========== ======== ========
Income before taxes and extraordinary item:
United States................................. $ 210,320 $ 27,106 $(12,877)
Canada........................................ 17,838 1,148 5,909
---------- -------- --------
Total........................................... $ 228,158 $ 28,254 $ (6,968)
========== ======== ========
Net Income:
United States................................. $ 140,382 $ 17,979 $ (8,991)
Canada........................................ 9,667 1,153 3,571
---------- -------- --------
Total........................................... $ 150,049 $ 19,132 $ (5,420)
========== ======== ========
Assets:
United States................................. $ 405,324 $376,594 $331,149
Canada........................................ 204,615 204,331 215,605
---------- -------- --------
Total........................................... $ 609,939 $580,925 $546,754
========== ======== ========
Selling, general and administrative expenses:
United States................................. $ 14,535 $ 10,232 $ 10,422
Canada........................................ 17,088 14,075 15,073
SARs.......................................... (2,767) 21,843 --
---------- -------- --------
Total........................................... $ 28,856 $ 46,150 $ 25,495
========== ======== ========
Other Information:
Depreciation and amortization:
United States................................. $ 28,386 $ 26,327 $ 25,021
Canada........................................ $ 14,647 $ 14,626 $ 13,826
Capital expenditures:
United States................................. $ 45,759 $ 7,875 $ 9,377
Canada........................................ $ 8,203 $ 4,468 $ 2,798
</TABLE>

8. FINANCIAL INSTRUMENTS:

Foreign Exchange

The Company enters into forward foreign exchange contracts to hedge Canadian
dollar currency transactions on a continuing basis for periods consistent with
its committed exposures. The forward foreign exchange contracts have varying
maturities with none exceeding 18 months. The Company makes net settlements of
U.S. dollars for Canadian dollars at rates agreed to at inception of the
contracts.

The Company does not engage in currency speculation. However, the Company
enters into forward foreign exchange contracts to reduce risk due to Canadian
dollar exchange rate movements. The Company had a notional amount of
approximately $26,000 and $20,000 of forward foreign exchange contracts
outstanding to buy Canadian dollars at September 30, 1995 and 1994,
respectively. The deferred gain on these forward foreign exchange contracts at
September 30, 1995 and 1994 was immaterial.

F-27
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

Concentration of Credit Risk

The Company sells its products primarily to companies involved in the
petrochemical and pulp and paper manufacturing industries. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral for accounts receivable. However, letters of credit are
required by the Company on many of its export sales. The Company's credit
losses have been minimal.

The Company maintains cash deposits with major banks which from time to time
may exceed federally insured limits. Management periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.

Investments

It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations
such as certificates of deposit, repurchase agreements or Eurodollar deposits
with domestic or foreign banks or other financial institutions. Other
permitted investments include commercial paper of major U.S. corporations with
ratings of A1 by Standard & Poor's or P1 by Moody's, loan participations of
major U.S. corporations with a short term credit rating of A1/P1 and direct
obligations of the U.S. Government or its agencies. In addition, not more than
$5,000 will be invested with any single bank, financial institution or U.S.
corporation.

9. RELATED PARTY TRANSACTIONS:

The Company, through a wholly-owned subsidiary, is a partner in a joint
venture which constructed and operates a cogeneration plant at the Texas City
facility. During fiscal years 1995, 1994 and 1993, the Company purchased
$16,622, $16,546 and $16,646 of steam and electricity from the joint venture,
respectively, and recorded earnings of $3,391, $2,788 and $2,598,
respectively. The Company's investment in the joint venture is not material.

F-28
<PAGE>

STERLING CHEMICALS, INC.

SUPPLEMENTAL FINANCIAL INFORMATION--QUARTERLY FINANCIAL DATA

(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
FISCAL FIRST SECOND THIRD FOURTH(/1/)
YEAR QUARTER QUARTER QUARTER QUARTER
------ -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................ 1995 $240,622 $303,954 $298,491 $187,131
1994 $130,560 $154,754 $204,668 $210,858
Gross profit.................... 1995 $ 48,354 $ 93,530 $103,504 $ 26,230
1994 $ 2,971 $ 14,806 $ 27,861 $ 48,286
Income before extraordinary
item........................... 1995 $ 22,259 $ 56,077 $ 59,767 $ 15,050
1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248
Net income (loss)............... 1995 $ 22,259 $ 56,077 $ 56,663 $ 15,050
1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248
Per Share Data:
Income (loss) before
extraordinary item............. 1995 $ .40 $ 1.01 $ 1.08 $ .27
1994 $ (.06) $ .03 $ .10 $ .27
Net income (loss)............... 1995 $ .40 $ 1.01 $ 1.02 $ .27
1994 $ (.06) $ .03 $ .10 $ .27
</TABLE>
- --------
(1) The decline in revenues, gross profit and net income in the fourth quarter
of fiscal 1995 relative to previous quarters resulted from the decrease in
prices and margins for styrene and acrylonitrile as well as the negative
impact from the shutdowns in styrene and acrylonitrile during the quarter.
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
Fourth quarter net income in fiscal 1994 included a charge of $12,159, or
$.14 per share, for expenses related to the SARs described in Note 5 of the
"Notes to Consolidated Financial Statements." In the fourth quarter of
fiscal 1995, the charge was $(4,325), or $(.05) per share. The Company's
stock price decreased from $13.50 on September 30, 1994 to $8.25 on
September 30, 1995, resulting in the reversal of the previously accrued
expenses.

F-29
<PAGE>

STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 1996 1995
------ --------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 1,261 $ 30,882
Accounts receivable................................... 123,867 112,102
Inventories........................................... 58,833 67,867
Prepaid expenses...................................... 4,782 3,878
Deferred income taxes................................. 6,751 5,622
-------- --------
Total current assets................................ 195,494 220,351
Property, plant and equipment, net...................... 336,371 309,084
Other assets............................................ 82,594 80,504
-------- --------
Total assets........................................ $614,459 $609,939
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 62,267 $ 72,016
Accrued liabilities................................... 50,842 55,858
Current portion of long-term debt..................... 13,393 17,857
-------- --------
Total current liabilities........................... 126,502 145,731
Long-term debt.......................................... 110,750 103,581
Deferred income taxes................................... 43,577 40,297
Deferred credits and other liabilities.................. 76,507 81,012
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 150,000 shares
authorized, 60,327 shares issued, 55,690 and
55,674 shares outstanding, respectively.............. 603 603
Additional paid-in capital.............................. 33,225 33,269
Retained earnings....................................... 294,266 275,052
Pension adjustment...................................... (1,556) (1,556)
Accumulated translation adjustment...................... (18,881) (17,307)
Deferred compensation................................... (94) (129)
-------- --------
307,563 289,932
Treasury stock, at cost, 4,637 and 4,653 shares,
respectively........................................... (50,440) (50,614)
-------- --------
Total stockholders' equity.......................... 257,123 239,318
-------- --------
Total liabilities and stockholders' equity........ $614,459 $609,939
======== ========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-30
<PAGE>

STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Revenues...................................................... $382,421 $544,576
Cost of goods sold............................................ 323,628 402,690
-------- --------
Gross profit.................................................. 58,793 141,886
Selling, general and administrative expenses.................. 16,108 15,977
Stock appreciation rights (SARs) expense (benefit)............ 6,658 503
Other expense (Note 8)........................................ 3,550 --
Interest and debt related expenses, net of interest income.... 3,210 9,715
-------- --------
Income before income taxes.................................... 29,267 115,691
Provision for income taxes.................................... 10,053 37,354
-------- --------
Net income.................................................... $ 19,214 $ 78,337
======== ========
Net income per share.......................................... $ 0.35 $ 1.41
Weighted average shares outstanding........................... 55,682 55,674
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-31
<PAGE>

STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............................ $ 422,542 $ 533,496
Miscellaneous cash receipts............................. 11,044 9,682
Cash paid to suppliers and employees.................... (404,391) (451,726)
Interest paid........................................... (3,280) (9,649)
Interest received....................................... 538 2,188
Income taxes paid....................................... (10,303) (31,458)
--------- ---------
Net cash provided by operating activities................. 16,150 52,533
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (48,996) (15,774)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................ 38,000 --
Repayment of long-term debt............................. (34,392) (38,574)
Other................................................... (289) (50)
--------- ---------
Net cash provided by (used in) financing activities....... 3,319 (38,624)
--------- ---------
Effect of exchange rate on cash........................... (94) (31)
--------- ---------
Net decrease in cash and cash equivalents................. (29,621) (1,896)
Cash and cash equivalents--beginning of period............ 30,882 2,013
--------- ---------
Cash and cash equivalents--end of period.................. $ 1,261 $ 117
========= =========
</TABLE>

F-32
<PAGE>

STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED

(IN THOUSANDS)
(UNAUDITED)

RECONCILIATION OF NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES

<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Net income.................................................. $ 19,214 $ 78,337
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................. 21,188 20,769
Loss on disposal of assets................................ 3,329 103
Deferred tax expense...................................... 1,600 3,374
Accrued compensation...................................... 6,850 571
Change in:
Accounts receivable....................................... (15,570) (47,095)
Inventories............................................... 8,960 12,754
Prepaid expenses.......................................... (912) (1,382)
Other assets.............................................. (5,589) (1,187)
Accounts payable.......................................... (10,727) (7,301)
Accrued liabilities....................................... (18,829) (8,802)
Interest payable.......................................... 705 (2,591)
Taxes payable............................................. (840) 3,098
Other liabilities......................................... 6,771 1,885
-------- --------
Net cash provided by operating activities................... $ 16,150 $ 52,533
======== ========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-33
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
(IN THOUSANDS)

1. BASIS OF PRESENTATION:

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the consolidated financial position of Sterling Chemicals, Inc. and its
subsidiaries (the "Company") as of March 31, 1996 and its consolidated results
of operations for the three and six-month periods ended March 31, 1996 and
1995 and consolidated cash flows for the six-month periods ended March 31,
1996 and 1995. 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
condensed consolidated financial statements should be, and are assumed to have
been, read in conjunction with the consolidated financial statements and notes
included in the Company's Annual Report for the fiscal year ended September
30, 1995 (the "Annual Report").

2. RECLASSIFICATION:

3. INVENTORIES:

Inventories consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
--------- -------------
<S> <C> <C>
Finished products................................. $36,317 $44,802
Raw materials..................................... 11,172 16,506
------- -------
Inventories at FIFO cost........................ 47,489 61,308
Inventories under exchange agreements............. (528) (4,783)
Stores and supplies............................... 11,872 11,342
------- -------
$58,833 $67,867
======= =======
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
--------- -------------
<S> <C> <C>
Revolving credit facilities...................... $ -- $ 902
Term loan........................................ 107,143 120,536
Loan under chlorate plant credit agreement....... 17,000 --
-------- --------
Total debt outstanding......................... 124,143 121,438
Less:
Current maturities............................. (13,393) (17,857)
-------- --------
Total long-term debt............................. $110,750 $103,581
======== ========
</TABLE>

F-34
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

5. COMMITMENTS AND CONTINGENCIES:

Product Contracts

The Company has certain long-term agreements which provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
tertiary butylamine and sodium cyanide, each to one customer. The Company also
has various sales and conversion agreements which dedicate significant
portions of the Company's production of styrene monomer and acrylonitrile, the
Company's major petrochemical products, to various customers. These agreements
generally provide for cost recovery plus an agreed margin or element of profit
based upon market price.

Environmental Regulations

The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits
which are required for the Company's operations are subject to periodic
renewal and may be revoked or modified for cause. New laws or permit
requirements and conditions may affect the Company's operations, products or
waste disposal. Past or future operations may result in claims or liabilities.
Expenditures could be required to upgrade waste water collection, pretreatment
or disposal systems or for other matters.

Legal Proceedings

Shareholder Lawsuits

In April and May, 1996, six class action lawsuits were filed against the
Company and the Company's directors alleging conflict of interest and breach
of fiduciary duties relating to the sale of the Company (see Note 7). These
lawsuits are styled:

1. Kurt Kopf et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al;
Civil Action No. 14960; In the Court of Chancery of the State of Delaware, New
Castle County, Delaware.
2. Ernest Hack v. Sterling Chemicals, Inc., Gordon A. Cain, et al; Civil
Action No. 14962; In the Court of Chancery of the State of Delaware, New
Castle County, Delaware.
3. Salim Shiry, et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al;
Civil Action No. 14963; In the Court of Chancery of the State of Delaware, New
Castle County, Delaware.
4. Olga Fried, et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al;
Civil Action No. 14969; In the Court of Chancery of the State of Delaware, New
Castle County, Delaware.
5. Maria Lerman, et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al;
Civil Action No. 14972; In the Court of Chancery of the State of Delaware, New
Castle County, Delaware.
6. Alan R. Kahn v. Sterling Chemicals, Inc., The Sterling Group, Inc., The
Unicorn Group, Inc., STX Acquisition Corp., Gordon A. Cain, et al; Civil
Action No. 14981; In the Court of Chancery of the State of Delaware, New
Castle County, Delaware.

These lawsuits are in their early stages and the Company is unable at this
time to predict the impact, if any, these lawsuits may have on its financial
position, results of operations or cash flows.

Petrochemicals

HUNTSMAN LAWSUIT: On November 30, 1995, the court granted the motion for
summary judgment filed by the Company in Sterling Chemicals, Inc. v. Huntsman
Chemical Corporation, Huntsman Styrene

F-35
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

Corporation and Huntsman Corporation. As discussed in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, the summary
judgment confirms that, as a matter of law, no enforceable contract or
agreement ever existed between the Company and the defendants. The court's
order, which includes recovery of legal fees, also moots the defendants'
counterclaim against the Company for damages resulting from breach of the
alleged contract. The defendants have appealed this decision.

Pulp Chemicals

PATENT LITIGATION: The Company's primary competitor in the supply of
patented technology for generators which convert sodium chlorate into chlorine
dioxide is Akzo Nobel (formerly Eka Nobel) and its affiliates. The Company
previously disclosed that it was engaged with Akzo Nobel in numerous patent
disputes throughout the world in which the Company and Akzo Nobel were
challenging certain patents of the other and attempting to restrict the
other's operating range. The Company and Akzo Nobel have reached an out-of-
court settlement resolving all such disputes. The settlement allows licensees
of both the Company and Akzo Nobel to operate their chlorine dioxide
generators within the broadest range of operating conditions. The settlement
did not have a material adverse effect on the Company's financial position,
results of operations or cash flows.

Litigation Contingency:

In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies," and Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
the Company has made estimates of the reasonably possible range of liability
with regard to its outstanding litigation for which it may incur liability. In
addition, liabilities have been accrued based on the estimated probable loss
from such litigation. These estimates are based on management's judgments
using currently available information as well as consultation with the
Company's insurance carriers and outside legal counsel. A number of the claims
in these litigation matters are covered by the Company's insurance policies or
by third-party indemnification 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 indemnifications, discussions with its insurers and indemnitors and
consultation with outside legal counsel, in addition to management's
judgments. Based on the foregoing as of March 31, 1996, the Company has
accrued approximately $12 million as its estimate of aggregate contingent
liability for these matters, and has also recorded aggregate receivables from
its insurers and third-party indemnitors of $11 million. In addition, at March
31, 1996, management estimates that the aggregate reasonably possible range of
loss for all litigation combined, in addition to the amount accrued, is from
$0 to $41 million. The Company believes that it is insured or indemnified for
this additional reasonably possible loss, except for a portion which is not
material.

The timing of probable insurance and indemnity recoveries, and additional
accruals or payment of liabilities, if any, are not expected to have a
material adverse effect on the financial position, results of operations or
cash flows of the Company.

F-36
<PAGE>

STERLING CHEMICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED)
(IN THOUSANDS)

6. NEW ACCOUNTING STANDARDS:

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". This statement
establishes new accounting standards for measuring the impairment of long-
lived assets. The Company is required to adopt this Statement by fiscal 1997.
The Company anticipates that the adoption of this Statement will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.

7. RECENT DEVELOPMENTS:

On January 29, 1996, the Company announced that it was exploring all
strategic alternatives to enhance stockholder value. In this connection, the
Board of Directors established a Special Committee which retained Lazard
Freres & Co. LLC as its financial advisor and Piper & Marbury L.L.P. as legal
advisors.

On April 25, 1996, the Company announced that it had entered into a
definitive agreement for the sale of the Company to an investment group formed
by The Sterling Group, Inc. and The Unicorn Group L.L.C. Under the terms of
the agreement, shareholders may elect to receive $12.00 per share in cash, or
retain part or all of their shares in the Company, subject to a 5,000,000
share maximum, and proration to the extent aggregate elections exceed
5,000,000 shares.

The transaction is expected to be concluded by late August of this year and
is subject to customary closing conditions, including shareholder approval.

8. WRITE-OFF OF LACTIC ACID PLANT:

The Company has decided to stop producing lactic acid at its Texas City,
Texas facility by the end of the third quarter of fiscal 1996. In the second
quarter of fiscal 1996, the Company charged to expense the remaining net book
value and other related costs resulting in a $3.6 million pretax charge
against earnings ($0.04 per share, after taxes).

F-37
<PAGE>

- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF.

------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 16
The Transaction........................................................... 23
Use of Proceeds........................................................... 26
Capitalization............................................................ 27
Selected Historical Financial Data........................................ 28
Pro Forma Consolidated Financial Statements and Other Information......... 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 36
Business.................................................................. 48
Management................................................................ 67
Principal Stockholders.................................................... 77
Certain Transactions...................................................... 78
Description of the Notes.................................................. 80
Description of the Units.................................................. 101
Description of Capital Stock.............................................. 125
Description of the Credit Facility........................................ 129
Certain United States Federal Income Tax Consequences..................... 131
Underwriting.............................................................. 139
Notice to Canadian Residents.............................................. 140
Legal Matters............................................................. 141
Change of Accountants..................................................... 141
Experts................................................................... 141
Available Information..................................................... 142
Glossary.................................................................. A-1
Index to Financial Statements............................................. F-1
</TABLE>

------------

UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

[LOGO OF STERLING GROUP APPEARS HERE]

Sterling Chemicals, Inc.
$275,000,000
% Senior Subordinated Notes

Sterling Chemicals Holdings, Inc.
Units consisting of
$
% Senior Secured Discount Notes
and Warrants to Acquire Shares of Common Stock

PROSPECTUS

CS First Boston

Chase Securities Inc.

- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below are the estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities registered
hereby.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fees............ $129,311
NASD filing fee................................................. 30,500
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Placement Agent fees and expenses............................... *
Blue Sky fees and expenses...................................... *
Miscellaneous expenses.......................................... *
--------
Total....................................................... $ *
--------
</TABLE>
- --------
* To be filed by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations.
Article Eighth of STX Acquisition's Certificate of Incorporation and Section
6.1 of STX Acquisition's Bylaws provide for the indemnification of directors,
officers and other authorized representatives of the Company. The Certificate
of Incorporation and Section 145 provide that the corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise. Depending on the character of the
proceeding, the corporation may indemnify against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding if the
person seeking indemnification acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of an action
by or in the right of the corporation, no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of liability such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. The Certificate of Incorporation and Section 145 further
provide that to the extent a director or officer of the corporation has been
successful in defense of any action, suit or proceeding referred to above or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith. The Bylaws provide for indemnification to the
maximum extent permitted by Delaware General Corporation Law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with the formation of STX Acquisition, Frank J. Hevrdejs, T.
Hunter Nelson and Susan O. Rheney purchased an aggregate of 84 shares of
common stock for an aggregate consideration of $1,008. In such transaction,
STX Acquisition relied on Section 4(2) under the Securities Act for an
exemption from registration under the Securities Act. In connection with the
Merger, such shares will be purchased by Holdings for the original purchase
price.

II-1
<PAGE>

Concurrently with the consummation of the Offerings, STX Acquisition is
conducting a private placement of its Common Stock. At the effective date of
this Registration Statement, it is expected that STX Acquisition will have
commitments to purchase a maximum of $103.1 million of STX Acquisition Common
Stock from investors organized by TSG and Unicorn. In connection with the
Equity Private Placement, STX Acquisition will rely on Section 4(2) of the
Securities Act for an exemption from registration under the Securities Act.
The actual number of holders of STX Acquisition Common Stock and their
ownership will not be known until such time as the number of Rollover Shares
is determinable. The consummation of the Equity Private Placement will occur
simultaneously with the consummation of the Merger.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following exhibits are filed as part of this Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
**1.1 Form of Underwriting Agreement
2.1 Amended and Restated Agreement and Plan of Merger between STX
Acquisition Corp. and Sterling Chemicals, Inc. dated as of April
24, 1996, incorporated by reference from the Company's Current
Report on Form 8-K dated April 24, 1996 as amended by Form 8-K/A.
*3.1 Form of Certificate of Incorporation of Sterling Chemicals
Holdings, Inc.
*3.2 Certificate of Incorporation of STX Chemicals, Inc.
3.3 Holdings' Bylaws (Amended Bylaws of Sterling Chemicals, Inc.),
incorporated by reference from exhibit 3.2 of the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1994
*3.4 Chemicals' Bylaws
*4.1 Form of Common Stock Certificate of STX Acquisition, Inc.
*4.2 Form of Common Stock Certificate of STX Chemicals, Inc.
4.3 Form of Warrant Certificate (included in Exhibit 4.4)
**4.4 Form of Warrant Agreement
**4.5 Indenture governing the Discount Notes
4.6 Form of Discount Note (included in Exhibit 4.5)
**4.7 Indenture governing the Notes
4.8 Form of Note (included in Exhibit 4.7)
**4.9 Credit Agreement among Chemicals, Texas Commerce Bank as Agent,
Credit Suisse and Chase Securities Inc. as co-arrangers and the
lenders named therein.
**4.10 Stockholders Agreement
**4.11 Registration Rights Agreement
**4.12 Voting Agreement
**5.1 Opinion of Andrews & Kurth L.L.P.
10.1 Assets Purchase Agreement dated August 1, 1986, between Monsanto
Company and the Company, incorporated by reference from exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
10.2 Sterling Chemicals, Inc. Salaried Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference from
exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
10.3 Supplement to the Sterling Chemicals, Inc. Salaried Employees'
Pension Plan (Restated as of January 1, 1994), incorporated by
reference from exhibit 10.6(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.4 First and Second Amendments to the Sterling Chemicals, Inc.
Salaried Employees' Pension Plan dated April 27, 1994 and
September 23, 1994, respectively, incorporated by reference from
exhibit 10.6(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994.
10.5 Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference from
exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.6 Supplement to the Sterling Chemicals, Inc. Hourly Paid Employee's
Pension Plan (Restated as of January 1, 1994), incorporated by
reference from exhibit 10.8(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.7 First Amendment to the Sterling Chemicals, Inc. Hourly Paid
Employees' Pension Plan dated April 27, 1994, incorporated by
reference from exhibit 10.8(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.8 Sterling Chemicals, Inc. Amended and Restated Savings and
Investment Plan, incorporated by reference from exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
10.9 Supplements to the Sterling Chemicals, Inc. Savings and Investment
Plan for Hourly Paid Employees and Salaried Employees,
incorporated by reference from exhibit 10.10(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
10.10 First and Second Amendments to the Sterling Chemicals, Inc.
Amended and Restated Savings and Investment Plan dated April 27,
1994 and October 26, 1994, respectively, incorporated by reference
from exhibit 10.10(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994.
10.11 Sterling Chemicals, Inc. Pension Benefit Equalization Plan,
incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
10.12 Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan,
incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
10.13 Sterling Chemicals, Inc. Amended and Restated Employee Stock
Ownership Plan, incorporated by reference from exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
10.14 First Amendment to the Sterling Chemicals, Inc. Amended and
Restated Employees' Stock Ownership Plan dated April 27, 1994,
incorporated by reference from exhibit 10.12(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
+10.15 Styrene Monomer Conversion Contract dated November 3, 1995,
between Monsanto Company and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995.
+10.16 Acrylonitrile Exchange Contract dated January 1, 1994, between the
Company and Monsanto Company, incorporated by reference from
exhibit 10.19 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
+10.17 Production Agreement dated April 15, 1988 between BP Chemicals
Americas Inc. and the Company and First and Second Amendment
thereto, incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1995.
+10.18 Agreement dated May 2, 1988 between E. I. du Pont de Nemours and
Company and the Company, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
10.19 License Agreement dated April 15, 1988, between BP Chemicals
Americas Inc. and the Company, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
+10.20 Product Sales Agreement dated August 1, 1986, between BASF
Corporation and the Company, incorporated by reference from
exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992.
+10.21 Amendment No. 3 to Product Sales Agreement as of January 1, 1994,
between BASF Corporation and the Company, incorporated by
reference from exhibit 10.22(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.22 License Agreement dated August 1, 1986, between Monsanto Company
and the Company, incorporated by reference from exhibit 10.25 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.23 Amended Lease and Production Agreement dated August 8, 1994,
between BP Chemicals Americas Inc. and the Company, incorporated
by reference from exhibit 10.21 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.24 Form of Indemnity Agreement executed between the Company and each
of its officers and directors, incorporated by reference from
exhibit 10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
10.25 Agreement dated January 30, 1987, among J. Virgil Waggoner, Gordon
A. Cain and the Company, regarding capital stock of the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
10.26 Amended and Restated Sterling Chemicals, Inc. Hourly Employees'
Profit Sharing Plan, incorporated by reference from exhibit 10.32
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.27 Amended and Restated Sterling Chemicals, Inc. Salaried Employees'
Profit Sharing Plan, incorporated by reference from exhibit 10.31
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.28 Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan, incorporated by reference from exhibit
10.34 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1989.
10.29 Sterling Chemicals, Inc. Deferred Compensation Plan, incorporated
by reference from exhibit 10.35 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1989.
10.30 Article of Agreement between the Company, its successors and
assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas
City, Texas, May 1, 1993 to May 1, 1996, incorporated by reference
from exhibit 10.35 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
10.31 Conditional Performance Guaranty dated as of August 20, 1992, by
Albright & Wilson, Ltd. in favor of Sterling Pulp Chemicals, Ltd.,
Sterling Canada, Inc. and the Indemnities identified in Section
10.2 of the Purchase Agreement, incorporated by reference from
exhibit 10.38 to the Company's current Report on Form 8-K dated
September 3, 1992.
10.32 Performance Guaranty dated as of August 20, 1992, by the Company
in favor of Tenneco Canada Inc., Rio Linda Chemical Co., Albright
& Wilson Americas, Inc. and the Indemnities identified in Section
10.3 of the Purchase Agreement, incorporated by reference from
exhibit 10.39 to the Company's Current Report on Form 8-K dated
September 3, 1992.
10.33 Lease dated March 1, 1990 between Procter & Gamble, Inc. and
Tenneco Canada Inc., as amended by a Lease Modification Agreement
dated August 9, 1991, and Consent and Assignment Agreement dated
as of August 21, 1992 among 982174 Ontario Limited, Sterling Pulp
Chemicals, Ltd., Proctor & Gamble, Inc., Tenneco Canada Inc. and
The Bank of Nova Scotia, incorporated by reference from exhibit
10.45 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
10.34 Lease dated July 1, 1977 between Canadian National Railway Company
and ERCO Industries Limited, and Consent and Assignment Agreement
dated as of August 21, 1992 among Tenneco Canada Inc., Sterling
Pulp Chemicals, Ltd., Canadian National Railway Company and The
Bank of Nova Scotia, incorporated by reference from exhibit 10.46
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992.
+10.35 Sales and Purchase Agreement dated April 1, 1994, between BP
Chemicals Ltd. and the Company, incorporated by reference from
exhibit 10.48 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
+10.36 Contract for Sale and Purchase of Ethylene dated October 28, 1988,
between Phillips 66 Company and the Company, incorporated by
reference from exhibit 10.49 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.37 Agreement between Sterling Pulp Chemicals Ltd. North Vancouver
British Columbia and Pulp, Paper and Woodworkers of Canada Local 5
British Columbia effective December 1, 1994 to November 30, 1997,
incorporated by reference from exhibit 10.50 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
+10.38 Contract for Sale and Purchase of Ethylene effective January 1,
1995, between Phillips Chemical Company and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
+10.39 Chemical Products Sales Agreement--Ethylene, dated December 7,
1994, between Lyondell Petrochemical Company and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
10.40 Agreement between Sterling Pulp Chemicals Ltd. Buckingham, Quebec
and the Energy and Chemicals Workers Union effective November 30,
1994 to November 30, 1997, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended September
30, 1995.
10.41 Agreement between Sterling Pulp Chemicals Ltd., Buckingham,
Quebec, and the Office and Professional Employees International
Union, effective June 25, 1995 to November 14, 1997, incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1995.
+10.42 Product Supply Agreement dated May 15, 1995, between Praxair
Hydrogen Supply, Inc. and the Company, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
September 30, 1995.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 List of subsidiaries of STX Acquisition Corp. and STX Chemicals
Corp.
21.2 List of subsidiaries of Sterling Chemicals, Inc.
*23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
24.1 Powers of Attorney (included in Part II of the Registration
Statement)
*25.1 Statement of eligibility of the trustee for the Notes and Discount
Notes.
27.1 STX Acquisition Corp. Financial Data Schedule
27.2 STX Chemicals Corp. Financial Data Schedule
</TABLE>
- --------
+ Confidential treatment has been requested with respect to portions of this
Exhibit, and such request has been granted.

* Filed herewith.

** To be filed by amendment.

(b) Financial Statement Schedules:

None.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

II-5
<PAGE>

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
the registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

II-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1933, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas
on the 3rd day of July, 1996.

STX ACQUISITION CORP.

/s/ JOHN D. HAWKINS
By: _________________________________

Attorney-in-fact

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 3, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ FRANK J. HEVRDEJS* President and Director
____________________________________ (Chief Executive Officer)
Frank J. Hevrdejs

/s/ T. HUNTER NELSON* Vice President and Treasurer
____________________________________ (Chief Financial and
T. Hunter Nelson Accounting Officer)
</TABLE>

*By Power of Attorney

/s/ JOHN D. HAWKINS

___________________________________

John D. Hawkins

II-7
<PAGE>

SIGNATURES

STX CHEMICALS CORP.

/s/ JOHN D. HAWKINS
By: _________________________________

Attorney-in-fact

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 3, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ FRANK J. HEVRDEJS* President and Director
____________________________________ (Chief Executive Officer)
Frank J. Hevrdejs

/s/ T. HUNTER NELSON* Vice President and Treasurer
____________________________________ (Chief Financial and
T. Hunter Nelson Accounting Officer)
</TABLE>

*By Power of Attorney

/s/ JOHN D. HAWKINS

___________________________________

John D. Hawkins

II-8

<PAGE>

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

STERLING CHEMICALS, INC.

ARTICLE I

Name, Registration and Purpose
------------------------------

Section 1.01. Name. The name of the Corporation is "Sterling Chemicals
----
Holdings, Inc.".

Section 1.02. Registered Office and Registered Agent. The registered
--------------------------------------
office of the Corporation in the State of Delaware is located at Corporation
Trust Center, 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at such address is
The Corporation Trust Company.

Section 1.03. Purpose. The purpose for which the Corporation is
-------
organized is to engage in any lawful acts and activities for which corporations
may be organized under the General Corporation Law of the State of Delaware
("DGCL"), and the Corporation shall have the power to perform all lawful acts
- ------
and activities.

ARTICLE II

Capitalization
--------------

Section 2.01. Authorized Capital. (a) The total number of shares of
------------------
stock that the Corporation shall have the authority to issue is 22,000,000
shares of capital stock, consisting of (i) 2,000,000 shares of preferred stock,
par value $0.01 per share (the "Preferred Stock"), and (ii) 20,000,000 shares of
common stock, par value $0.01 per share (the "Common Stock").

(b) Subject to the provisions of this Certificate of Incorporation and
the Preferred Stock Designation (as defined below) creating any series of
Preferred Stock, the Corporation may issue shares of its capital stock from time
to time for such consideration (not less than the par value thereof) as may be
fixed by the Board of Directors of the Corporation (the "Board of Directors"),
which is expressly authorized to fix the same in its absolute discretion subject
to the foregoing conditions. Shares so issued for which the consideration shall
have been paid or delivered to the Corporation shall be deemed fully paid stock
and shall not be liable to any further call or assessment thereon, and the
holders of such shares shall not be liable for any further payments in respect
of such shares.
<PAGE>

(c) The right to cumulate votes for the election of directors as provided
in Section 214 of the DGCL shall not be granted and is hereby expressly denied.

Section 2.02. Preferred Stock. (a) The Preferred Stock may be issued
---------------
from time to time in one or more series. Authority is hereby expressly granted
to and vested in the Board of Directors to authorize from time to time the
issuance of Preferred Stock in one or more series. With respect to each series
of Preferred Stock authorized by it, the Board of Directors shall be authorized
to establish by resolution or resolutions, and by filing a certificate pursuant
to the applicable law of the State of Delaware (a "Preferred Stock
Designation"), the following to the fullest extent now or hereafter permitted by
the DGCL:

(i) the designation of such series;

(ii) the number of shares to constitute such series;

(iii) whether such series is to have voting rights (full, special or
limited) or is to be without voting rights;

(iv) if such series is to have voting rights, whether or not such
series is to be entitled to vote as a separate class either alone or together
with the holders of the Common Stock or one or more other series of Preferred
Stock;

(v) the preferences and relative, participating, optional, conversion
or other special rights (if any) of such series and the qualifications,
limitations or restrictions (if any) with respect to such series;

(vi) the redemption rights and price(s), if any, of such series, and
whether or not the shares of such series shall be subject to the operation of
retirement or sinking funds to be applied to the purchase or redemption of
such shares for retirement and, if such retirement or sinking funds or funds
are to be established, the periodic amount thereof and the terms and
provisions relative to the operation thereof;

(vii) the dividend rights and preferences (if any) of such series,
including, without limitation, (A) the rates of dividends payable thereon,
(B) the conditions upon which and the time when such dividends are payable,
(C) whether or not such dividends shall be cumulative or noncumulative and,
if cumulative, the date or dates from which such dividends shall accumulate
and (D) whether or not the payment of such dividends shall be preferred to
the payment of dividends payable on the Common Stock or any other series of
Preferred Stock;

(viii) the preferences (if any), and the amounts thereof, which the
holders of such series shall be entitled to receive upon the voluntary or
involuntary liquidation, dissolution or winding-up of, or upon any
distribution of the assets of, the Corporation;

2
<PAGE>

(ix) whether or not the shares of such series, at the option of the
Corporation or the holders thereof or upon the happening of any specified
event, shall be convertible into or exchangeable for (A) shares of Common
Stock, (B) shares of any other series of Preferred Stock or (C) any other
stock or securities of the Corporation;

(x) if such series is to be convertible or exchangeable, the price or
prices or ratio or ratios or rate or rates at which such conversion or
exchange may be made and the terms and conditions (if any) upon which such
price or prices or ratio or ratios or rate or rates may be adjusted; and

(xi) such other rights, powers and preferences with respect to such
series as may to the Board of Directors seem advisable.

Any series of Preferred Stock may vary from any other series of Preferred Stock
in any or all of the foregoing respects and in any other manner.

(b) The Board of Directors may, with respect to any existing series of
Preferred Stock but subject to the Preferred Stock Designation creating such
series, increase the number of shares of Preferred Stock designated for such
series by a resolution adding to such series authorized and unissued shares of
Preferred Stock not designated for any other series. The Board of Directors
may, with respect to any existing series of Preferred Stock but subject to the
Preferred Stock Designation creating such series, decrease the number of shares
of Preferred Stock designated for any existing series by a resolution
subtracting from such series shares of Preferred Stock designated for such
series (but not below the number of shares of such series then outstanding), and
the shares so subtracted shall become authorized, unissued and undesignated
shares of Preferred Stock.

(c) No vote of the holders of the Common Stock or the Preferred Stock
shall, unless otherwise expressly provided in a Preferred Stock Designation, be
a prerequisite to the issuance of any shares of any series of the Preferred
Stock authorized by and complying with the conditions of this Certificate of
Incorporation. Shares of any series of Preferred Stock that have been
authorized for issuance pursuant to this Certificate of Incorporation and that
have been issued and reacquired in any manner by the Corporation (including upon
conversion or exchange thereof) shall be restored to the status of authorized
and unissued shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors and a Preferred Stock Designation as set forth above.

Section 2.03. Common Stock. (a) The holders of shares of the Common
------------
Stock shall be entitled to vote upon all matters submitted to a vote of the
common stockholders of the Corporation and shall be entitled to one vote for
each share of the Common Stock held.

(b) Subject to the prior rights and preferences (if any) applicable to
shares of Preferred Stock of any series, the holders of shares of the Common
Stock shall be entitled to receive such

3
<PAGE>

dividends (payable in cash, stock or otherwise) as may be declared thereon by
the Board of Directors at any time and from time to time out of any funds of the
Corporation legally available therefor.

(c) In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation, and subject to the preferential
or other rights (if any) of the holders of shares of the Preferred Stock in
respect thereof, the holders of shares of the Common Stock shall be entitled to
receive all the remaining assets of the Corporation available for distribution
to its stockholders, ratably in proportion to the number of shares of the Common
Stock held by them. For purposes of this paragraph (c), a liquidation,
dissolution or winding-up of the Corporation shall not be deemed to be
occasioned by or to include (i) any consolidation or merger of the Corporation
with or into another corporation or other entity or (ii) a sale, lease, exchange
or conveyance of all or a part of the assets of the Corporation.

Section 2.04. Stock Options, Warrants, etc. Unless otherwise expressly
-----------------------------
prohibited in a Preferred Stock Designation creating any series of Preferred
Stock, the Corporation shall have authority to create and issue warrants, rights
and options entitling the holders thereof to purchase from the Corporation
shares of the Corporation's capital stock of any class or series or other
securities of the Corporation for such consideration and to such persons, firms
or corporations as the Board of Directors, in its sole discretion, may
determine, setting aside from the authorized but unissued stock of the
Corporation the requisite number of shares for issuance upon the exercise of
such warrants, rights or options. Such warrants, rights and options shall be
evidenced by one or more instruments approved by the Board of Directors. The
Board of Directors shall be empowered to set the exercise price, duration, time
for exercise and other terms of such warrants, rights or options; provided,
however, that the consideration to be received for any shares of capital stock
subject thereto shall not be less than the par value thereof.

ARTICLE III

Directors
---------

Section 3.01. Number and Term. The number of directors of the
---------------
Corporation shall from time to time be fixed exclusively by the Board of
Directors in accordance with, and subject to the limitations set forth in, the
bylaws of the Corporation (the "Bylaws"); provided, however, that the Board of
------
Directors shall at all times consist of a minimum of three and a maximum of
fifteen members, subject, however, to increases above fifteen members as may
required in order to permit the holders of any series of Preferred Stock to
exercise their right (if any) to elect additional directors under specified
circumstances. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Anything in this Certificate of
Incorporation or the Bylaws to the contrary notwithstanding, each director shall
hold office until his successor is elected and qualified or until his earlier
death, resignation or removal.

4
<PAGE>

Section 3.02. Nomination and Election. (a) Nominations of persons for
-----------------------
election or reelection to the Board of Directors may be made by or at the
direction of the Board of Directors. The Bylaws may set forth procedures for
the nomination of persons for election or reelection to the Board of Directors
and only persons who are nominated in accordance with such procedures (if any)
shall be eligible for election or reelection as directors of the Corporation;
provided, however, that such procedures shall not infringe upon (i) the right of
the Board of Directors to nominate persons for election or reelection to the
Board of Directors or (ii) the rights of the holders of any series of Preferred
Stock, voting separately by class or series, to elect additional directors under
specified circumstances.

(b) Each director shall be elected in accordance with this Certificate of
Incorporation, the Bylaws and applicable law. Election of directors by the
Corporation's stockholders need not be by written ballot unless the Bylaws so
provide.

Section 3.03. Removal. No director may be removed except by the
-------
affirmative vote of the holders of not less than 66-2/3% in voting power of all
the outstanding shares of capital stock of the Corporation entitled to vote
generally in an election of directors, voting together as a single class. The
Board of Directors may not remove any director, and no recommendation by the
Board of Directors that a director be removed may be made to the Corporation's
stockholders unless such recommendation is set forth in a resolution adopted by
the affirmative vote of not less than two-thirds of the whole Board of
Directors.

Section 3.04. Vacancies. (a) In case any vacancy shall occur on the
---------
Board of Directors because of death, resignation or removal, such vacancy may be
filled only by a majority (or such higher percentage as may be specified in the
Bylaws) of the directors remaining in office (though less than a quorum), and
the director so appointed shall serve for the unexpired term of his predecessor
or until his successor is elected and qualified or until his earlier death,
resignation or removal. If there are no directors then in office, an election
of directors may be held in the manner provided by applicable law.

(b) Any newly-created directorship resulting from any increase in the
number of directors may be filled only by a majority (or such higher percentage
as may be specified in the Bylaws) of the directors then in office (though less
than a quorum). Each director so appointed shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal.

(c) Except as expressly provided in this Certificate of Incorporation or
as otherwise provided by applicable law, stockholders of the Corporation shall
not have the right to fill vacancies or newly-created directorships on the Board
of Directors.

Section 3.05. Subject to Rights of Holders of Preferred Stock.
-----------------------------------------------
Notwithstanding the foregoing provisions of this Article III, if the Preferred
Stock Designation creating any series of Preferred Stock entitles the holders of
such Preferred Stock, voting separately by class or series, to

5
<PAGE>

elect additional directors under specified circumstances, then all provisions of
such Preferred Stock Designation relating to the nomination, election, term of
office, removal, filling of vacancies and other features of such directorships
shall, as to such directorships, govern and control over any conflicting
provisions of this Article III.

Section 3.06. Limitation of Access of Stockholders to Books and Records.
--------------------------------------------------------
In furtherance of, and not in limitation of, the powers conferred by law, the
Board of Directors is expressly authorized and empowered to determine from time
to time whether and to what extent, and at what times and places, and under what
conditions and regulations, the accounts and books of the Corporation, or any of
them, shall be open to inspection of stockholders and, except as so determined
or as expressly provided in this Certificate of Incorporation or in any
Preferred Stock Designation, no stockholder shall have any right to inspect any
account, book or document of the Corporation other than such rights as may be
conferred by applicable law.

Section 3.07. Limitation of Personal Liability. (a) No person who is or
--------------------------------
was a director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived an improper personal benefit.

(b) If the DGCL is hereafter amended to authorize corporate action
further limiting or eliminating the personal liability of directors, then the
personal liability of the directors to the Corporation or its stockholders shall
be limited or eliminated to the full extent permitted by the DGCL, as so amended
from time to time. Any repeal or modification of this Section 3.07 shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation or its stockholders arising from an
act or omission occurring prior to the time of such repeal or modification.

ARTICLE IV

Amendment of Bylaws
-------------------

The Board of Directors is expressly authorized and empowered to adopt,
alter, amend or repeal the Bylaws. Stockholders of the Corporation shall have
the power to alter, amend, expand or repeal the Bylaws but only by the
affirmative vote of the holders of not less than 66-2/3% in voting power of all
outstanding shares of capital stock of the Corporation entitled to vote
generally at an election of directors, voting together as a single class.

6
<PAGE>

ARTICLE V

Actions and Meetings of Stockholders
-------------------------------------

Section 5.01. No Action by Written Consent. No action shall be taken by
----------------------------
the stockholders of the Corporation except at an annual or special meeting of
stockholders. Stockholders of the Corporation may not act by written consent in
lieu of a meeting.

Section 5.02. Meetings. (a) Meetings of the stockholders of the
--------
Corporation (annual or special) may only be called by the Board of Directors or
such officer or officers of the Corporation as the Board of Directors may from
to time authorize to call meetings of the stockholders of the Corporation.
Stockholders of the Corporation shall not be entitled to call any meeting of
stockholders or to require the Board of Directors or any officer or officers of
the Corporation to call a meeting of stockholders except as otherwise expressly
provided by law or in the Preferred Stock Designation creating any series of
Preferred Stock.

(b) Stockholders of the Corporation shall have the right to propose
business (including, without limitation, the nomination of any person for
election or reelection as a director of the Corporation) for consideration at
any meeting of stockholders but only as may be expressly provided in, and then
only in compliance with, the Bylaws.

(c) Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice or waivers of notice of such
meeting. The person presiding at a meeting of stockholders may determine
whether business (including, without limitation, the nomination of any person
for election or reelection as a director of the Corporation) has been properly
brought before the meeting and, if the facts so warrant, such person may refuse
to transact any business at such meeting which has not been properly brought
before such meeting.

Section 5.03. Appoint and Remove Officers, etc. The stockholders of the
--------------------------------
Corporation shall have no right or power to appoint or remove officers of the
Corporation nor to abrogate the power of the Board of Directors to elect and
remove officers of the Corporation. Except as provided in Section 3.03, the
stockholders of the Corporation shall have no power to appoint or remove
directors as members of committees of the Board of Directors nor to abrogate the
power of the Board of Directors to establish one or more such committees or the
power of any such committee to exercise the powers and authority of the Board of
Directors.

ARTICLE VI

Indemnification of Directors and Officers
-----------------------------------------

The Corporation shall indemnify, to the fullest extent permitted by
applicable law, each person who is or was a director or officer of the
Corporation and each person who, at the request of the Board of Directors of the
Corporation or an officer of the Corporation, is or was a director or officer of
another corporation, partnership, joint venture, trust or other enterprise, and
may indemnify

7
<PAGE>

each employee and agent of the Corporation and all other persons whom the
Corporation is authorized to indemnify under the provisions of the DGCL. Without
limiting the generality or effect of the foregoing, the Corporation may enter
into one or more agreements with any person which provide for indemnification
greater or different than that provided in this Section 6.01. Any amendment or
repeal of this Section 6.01 shall not adversely affect any right or protection
existing hereunder in respect of any act or omission occurring prior to such
amendment or repeal.

ARTICLE VII

Election to be Governed by Section 203 of the DGCL
--------------------------------------------------

The Corporation hereby elects to be governed by Section 203 of the DGCL;
provided, however, that the provisions of this Article VII shall not apply to
restrict a business combination between the Corporation and an interested
stockholder (as defined in Section 203 of the DGCL) of the Corporation if either
(i) such business combination was approved by the Board of Directors prior to
the time that such stockholder became an interested stockholder or (ii) such
stockholder became an interested stockholder at or prior to the Effective Time
(as defined in that certain Agreement and Plan of Merger dated as of April 24,
1996 between Sterling Chemicals, Inc., a Delaware corporation, and STX
Acquisition Corp., a Delaware corporation, as amended) as the result of a
transaction which was approved by the Board of Directors prior to the time that
such stockholder became an interested stockholder.

ARTICLE VIII

Amendment of Certificate of Incorporation
-----------------------------------------

The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation or a Preferred Stock
Designation, in the manner now or hereafter prescribed by applicable law, and
all rights, preferences and privileges conferred upon stockholders, directors or
any other persons by and pursuant to this Certificate of Incorporation are
granted subject to this reservation. Notwithstanding the foregoing or any other
provision of this Certificate of Incorporation or any provision of law that
might otherwise permit a lesser or no vote, the provisions of this Article VIII
and of Articles III, IV and V may not be repealed or amended in any respect, and
no provision inconsistent with any such provision or imposing cumulative voting
in the election of directors may be added to this Certificate of Incorporation,
unless such action is approved by the affirmative vote of the holders of not
less than 66-2/3% in voting power of all outstanding shares of capital stock of
the Corporation entitled to vote generally at an election of directors, voting
together as a single class; provided, however, that any amendment or repeal of
Section 3.08 or Article VI of this Certificate of Incorporation shall not
adversely affect any right or protection existing hereunder in respect of any
act or omission occurring prior to such amendment or repeal and, provided
further, that no Preferred Stock Designation shall be amended after the issuance
of any shares of the series of Preferred Stock created thereby, except in
accordance with the terms of such Preferred Stock Designation and the
requirements of applicable law.

8
<PAGE>

ARTICLE IX

Voting Requirements Not Exclusive
---------------------------------

The voting requirements contained in this Certificate of Incorporation
shall be in addition to the voting requirements imposed by law or by the
Preferred Stock Designation creating any series of Preferred Stock.

<PAGE>

Exhibit 3.2

CERTIFICATE OF INCORPORATION
OF
STX CHEMICALS CORP.

The undersigned natural person, acting as an incorporator of a
corporation under the General Corporation Law of the State of Delaware, hereby
adopts the following Certificate of Incorporation for such corporation:

ARTICLE I

NAME
----

The name of the corporation is "STX Chemicals Corp." (the "Corporation").

ARTICLE II

REGISTERED OFFICE AND AGENT
---------------------------

The street address of the initial registered office of the Corporation is
1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name
of its initial registered agent at such address is The Corporation Trust
Company.

ARTICLE III

PURPOSE
-------

The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.

ARTICLE IV

SHARES
------

The aggregate number of shares which the Corporation has authority to
issue is 1,000 shares, par value $0.01 per share. The shares are designated as
common stock and have identical rights and privileges in every respect.
<PAGE>

ARTICLE V

INCORPORATOR
------------

The name and address of the incorporator is:

Thomas M. Hart III
c/o Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002

ARTICLE VI

INITIAL DIRECTORS
-----------------

The number of directors constituting the initial Board of Directors is
one and the name and address of the person who is to serve as director until his
successor is duly elected and qualified is:

Frank J. Hevrdejs
Eight Greenway Plaza, Suite 702
Houston, Texas 77046

ARTICLE VII

LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
---------------------------------------------

No director (including any advisory director) of the Corporation shall be
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit.

ARTICLE VIII

INDEMNITY
---------

Section 1. The Corporation shall indemnify any person who was or is a
---------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding,

2
<PAGE>

whether civil, criminal, administrative, or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

Section 2. The Corporation shall indemnify any person who was or is a
---------
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.

Section 3. To the extent that a director, officer, employee, or agent of
---------
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.

Section 4. Any indemnification under Sections 1 and 2 (unless ordered by
---------
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 and 2. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, (ii) if such a quorum is not obtainable, or, even if obtainable, if
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders. Notwithstanding the foregoing,
a director, officer,

3
<PAGE>

employee, or agent of the Corporation shall be able to contest any determination
that the director, officer, employee, or agent has not met the applicable
standard of conduct set forth in Sections 1 and 2 by petitioning a court of
appropriate jurisdiction.

Section 5. Expenses incurred by an officer or director in defending or
---------
settling a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII. Such expenses incurred by other employees and agents shall be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.

Section 6. The indemnification and advancement of expenses provided by,
---------
or granted pursuant to, the other sections of this Article VIII shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, vote of
stockholders, or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.

Section 7. The Corporation shall have the power to purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VIII.

Section 8. For purposes of this Article VIII, references to the
---------
"Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees, or
agents, so that any person who is or was a director, officer, employee, or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, shall stand
in the same position under the provisions of this Article VIII with respect to
the Corporation as he would have with respect to such constituent corporation if
its separate existence had continued.

Section 9. For purposes of this Article VIII, references to "other
---------
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee, or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries

4
<PAGE>

of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.

Section 10. The indemnification and advancement of expenses provided by,
----------
or granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

ARTICLE IX

BYLAWS
------

The Bylaws of the Corporation may be amended or repealed, or new Bylaws
may be adopted (i) by the Board of Directors of the Corporation at any duly held
meeting or pursuant to a written consent in lieu of such meeting or (ii) by the
holders of a majority of the shares represented at any duly held meeting of
stockholders, provided that notice of such proposed action shall have been
contained in the notice of any such meeting, or pursuant to a written consent
signed by the holders of a majority of the outstanding shares entitled to vote
thereon.

The undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly I have hereunto set my hand this the 10th day of May, 1996.

-------------------------------------
Thomas M. Hart III

<PAGE>

Exhibit 3.4

================================================================================

B Y L A W S

STX CHEMICALS CORP.

================================================================================

DATED MAY 13TH, 1996

===============================================================================
<PAGE>

I N D E X
<TABLE>
<CAPTION>

PAGE
----
<S> <C> <C>

ARTICLE I - OFFICES......................................... 1

Section 1.1 Principal Office......................... 1
Section 1.2 Registered Office........................ 1
Section 1.3 Other Offices............................ 1

ARTICLE II - STOCKHOLDERS' MEETINGS......................... 1

Section 2.1 Annual Meeting........................... 1
Section 2.2 Special Meetings......................... 1
Section 2.3 Notice of Meetings and Adjourned Meetings 2
Section 2.4 Voting Lists............................. 2
Section 2.5 Quorum................................... 2
Section 2.6 Organization............................. 3
Section 2.7 Voting................................... 3
Section 2.8 Stockholders Entitled to Vote............ 3
Section 2.9 Order of Business........................ 4
Section 2.10 Action by Written Consent................ 4
Section 2.11 Authorization of Proxies................. 4
Section 2.12 Inspection of Voting Procedures.......... 4

ARTICLE III - DIRECTORS..................................... 5

Section 3.1 Management............................... 5
Section 3.2 Number and Term.......................... 5
Section 3.3 Quorum and Manner of Action.............. 5
Section 3.4 Vacancies................................ 6
Section 3.5 Resignations............................. 6
Section 3.6 Removals................................. 6
Section 3.7 Annual Meetings.......................... 6
Section 3.8 Regular Meetings......................... 7
Section 3.9 Special Meetings......................... 7
Section 3.10 Organization of Meeting.................. 7
Section 3.11 Place of Meetings........................ 7
Section 3.12 Compensation of Directors................ 7
Section 3.13 Action by Unanimous Written Consent...... 7
Section 3.14 Participation in Meetings by Telephone... 7

ARTICLE IV - COMMITTEES OF THE BOARD........................ 8
Section 4.1 Membership and Authorities............... 8
Section 4.2 Minutes.................................. 8
Section 4.3 Vacancies................................ 8
Section 4.4 Telephone Meetings....................... 8
Section 4.5 Action Without Meeting................... 9

</TABLE>

i
<PAGE>

ARTICLE V - OFFICERS............................................................................ 9

Section 5.1 Number and Title............................................................ 9
Section 5.2 Term of Office; Vacancies................................................... 9
Section 5.3 Removal of Elected Officers................................................. 9
Section 5.4 Resignations................................................................ 9
Section 5.5 The Chairman of the Board................................................... 10
Section 5.6 President................................................................... 10
Section 5.7 Vice Presidents............................................................. 10
Section 5.8 Secretary................................................................... 10
Section 5.9 Assistant Secretaries....................................................... 10
Section 5.10 Treasurer................................................................... 11
Section 5.11 Assistant Treasurers........................................................ 11
Section 5.12 Subordinate Officers........................................................ 11
Section 5.13 Salaries and Compensation................................................... 11

ARTICLE VI - INDEMNIFICATION.................................................................... 11

Section 6.1 Indemnification of Directors and Officers................................... 11

ARTICLE VII - CAPITAL STOCK..................................................................... 12

Section 7.1 Certificates of Stock....................................................... 12
Section 7.2 Lost Certificates........................................................... 13
Section 7.3 Fixing Date for Determination of Stockholders of Record for Certain Purposes 13
Section 7.4 Dividends................................................................... 14
Section 7.5 Registered Stockholders..................................................... 14
Section 7.6 Transfer of Stock........................................................... 14

ARTICLE VIII - MISCELLANEOUS PROVISIONS......................................................... 14

Section 8.1 Corporate Seal.............................................................. 14
Section 8.2 Fiscal Year................................................................. 14
Section 8.3 Checks, Drafts, Notes....................................................... 15
Section 8.4 Notice and Waiver of Notice................................................. 15
Section 8.5 Examination of Books and Records............................................ 15
Section 8.6 Voting Upon Shares Held by the Corporation.................................. 15

ARTICLE IX - AMENDMENTS......................................................................... 16

Section 9.1 Amendment................................................................... 16

</TABLE>

ii
<PAGE>

================================================================================

STX CHEMICALS CORP.

B Y L A W S

================================================================================

ARTICLE I
OFFICES
-------
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the Corporation
shall be in the City of Houston, Texas.

SECTION 1.2 REGISTERED OFFICE. The registered office of the
Corporation required to be maintained in the State of Delaware by the General
Corporation Laws of the State of Delaware, may be, but need not be, identical
with the Corporation's principal office, and the address of the registered
office may be changed from time to time by the Board of Directors.

SECTION 1.3 OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.

ARTICLE II
STOCKHOLDERS' MEETINGS
----------------------

SECTION 2.1 ANNUAL MEETING. The annual meeting of the holders of shares
of each class or series of stock as are entitled to notice thereof and to vote
thereat pursuant to applicable law and the Corporation's Certificate of
Incorporation for the purpose of electing directors and transacting such other
proper business as may come before it shall be held in each year, at such time,
on such day and at such place, within or without the State of Delaware, as may
be designated by the Board of Directors.

SECTION 2.2 SPECIAL MEETINGS. In addition to such special meetings as
are provided by law or the Corporation's Certificate of Incorporation, special
meetings of the holders of any class or series or of all classes or series of
the Corporation's stock for any purpose or purposes, may be called at any time
by the Board of Directors and may be held on such day, at such time and at such
place, within or without the State of Delaware, as shall be designated by the
Board of Directors.
<PAGE>

SECTION 2.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except as
otherwise provided by law, written notice of any meeting of Stockholders (i)
shall be given either by personal delivery or by mail to each Stockholder of
record entitled to vote thereat, (ii) shall be in such form as is approved by
the Board of Directors, and (iii) shall state the date, place and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such written
notice shall be given not less than ten nor more than 60 days before the date
of the meeting. Except when a Stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened,
presence in person or by proxy of a Stockholder shall constitute a waiver of
notice of such meeting. Further, a written waiver of any notice required by law
or by these Bylaws, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Except as
otherwise provided by law, the business that may be transacted at any such
meeting shall be limited to and consist of the purpose or purposes stated in
such notice. If a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Stockholder of record entitled to vote at the
meeting.

SECTION 2.4 VOTING LISTS. The officer of agent having charge of the
stock transfer books for shares of the Corporation shall keep a complete list of
Stockholders entitled to vote at meetings or any adjournments thereof, arranged
in alphabetical order, in accordance with applicable law and shall make same
available prior to and during each Stockholders' meeting for inspection by the
Corporation's Stockholders as required by law. The Corporation's original stock
transfer books shall be prima facie evidence as to who are the Stockholders
entitled to examine such list or transfer books or to vote at any meeting of
Stockholders.

SECTION 2.5 QUORUM. Except as otherwise provided by law or by the
Corporation's Certificate of Incorporation, the holders of a majority of the
Corporation's stock issued and outstanding and entitled to vote at a meeting,
present in person or represented by proxy, without regard to class or series,
shall constitute a quorum at all meetings of the Stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the Stockholders, the holders of a majority of
such shares of stock, present in person or represented by proxy, may adjourn any
meeting from time to time without notice other than announcement at the meeting,
except as otherwise required by these Bylaws, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally called.

2
<PAGE>

SECTION 2.6 ORGANIZATION. Meetings of the Stockholders shall be
presided over by the Chairman of the Board of Directors, if one shall be
elected, or in his absence, by the President or by any Vice President, or, in
the absence of any of such officers, by a chairman to be chosen by a majority of
the Stockholders entitled to vote at the meeting who are present in person or by
proxy. The Secretary, or, in his absence, any Assistant Secretary or any person
appointed by the individual presiding over the meeting, shall act as secretary
at meetings of the Stockholders.

SECTION 2.7 VOTING. Each Stockholder of record, as determined pursuant
to Section 2.8, who is entitled to vote in accordance with the terms of the
Corporation's Certificate of Incorporation and in accordance with the provisions
of these Bylaws, shall be entitled to one vote, in person or by proxy, for each
share of stock registered in his name on the books of the Corporation. Every
Stockholder entitled to vote at any Stockholders' meeting may authorize another
person or persons to act for him by proxy pursuant to Section 2.11, provided
that no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only so long as, it
is coupled with an interest sufficient in law to support an irrevocable power.
A Stockholder's attendance at any meeting shall not have the effect of revoking
a previously granted proxy unless such Stockholder shall in writing so notify
the Secretary of the meeting prior to the voting of the proxy. Unless
otherwise provided by law, no vote on the election of directors or any question
brought before the meeting need be by ballot unless the chairman of the meeting
shall determine that it shall be by ballot or the holders of a majority of the
shares of stock present in person or by proxy and entitled to participate in
such vote shall so demand. In a vote by ballot, each ballot shall state the
number of shares voted and the name of the Stockholder or proxy voting. Except
as otherwise provided by law, by the Corporation's Certificate of Incorporation
or these Bylaws, all elections of directors and all other matters before the
Stockholders shall be decided by the vote of the holders of a majority of the
shares of stock present in person or by proxy at the meeting and entitled to
vote in the election or on the question. In the election of directors, votes
may not be cumulated.

SECTION 2.8 STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors may
fix a date not more than 60 days nor less than ten days prior to the date of any
meeting of Stockholders, or, in the case of corporate action by written consent
in accordance with the terms of Section 2.10, not more than 60 days prior to
such action, as a record date for the determination of the Stockholders entitled
to notice of and to vote at such meeting and any adjournment thereof, or to act
by written consent, and in such case such Stockholders and only such
Stockholders as shall be Stockholders of record on the date so fixed shall be
entitled to notice of and to vote at such meeting and any adjournment thereof,
or to act by written consent, as the case may be, notwithstanding any transfer
of any stock on the books of the Corporation after such record date fixed as
aforesaid.

3
<PAGE>

SECTION 2.9 ORDER OF BUSINESS. The order of business at all meetings of
Stockholders shall be as determined by the chairman of the meeting or as is
otherwise determined by the vote of the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote without regard to class
or series at the meeting.

SECTION 2.10 ACTION BY WRITTEN CONSENT. Unless otherwise provided by
law or the Corporation's Certificate of Incorporation, any action required or
permitted to be taken by the Stockholders of the Corporation may be taken
without prior notice and an actual meeting if a consent in writing setting forth
the action so taken shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Except as provided above, no action shall be taken by
the Stockholders by written consent. Prompt notice of the taking of any
corporate action without a meeting by less than unanimous written consent shall
be given to those Stockholders who have not consented in writing.

SECTION 2.11 AUTHORIZATION OF PROXIES. Without limiting the manner in
which a Stockholder may authorize another person or persons to act for him as
proxy, the following are valid means of granting such authority. A Stockholder
may execute a writing authorizing another person or persons to act for him as
proxy. Execution may be accomplished by the Stockholder or his authorized
officer, director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature. A Stockholder may also authorize
another person or persons to act for him as proxy by transmitting or authorizing
the transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other means of
electronic transmission must either set forth or be submitted with information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the Stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.

SECTION 2.12 INSPECTORS AND VOTING PROCEDURES. (a) The Corporation
shall, in advance of any meeting of Stockholders, appoint one or more inspectors
to act at the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no

4
<PAGE>

inspector or alternate is able to act at a meeting of Stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.

(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.

(c) The date and time of the opening and closing of the polls for each
matter upon which the Stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery upon application by a Stockholder shall
determine otherwise.

(d) In determining the validity and counting of proxies and ballots, the
inspectors may examine and consider such records or factors as allowed by the
General Corporation Laws of the State of Delaware.

ARTICLE III
DIRECTORS
---------

SECTION 3.1 MANAGEMENT. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all powers of the Corporation and do all lawful acts and
things as are not by law, by the Corporation's Certificate of Incorporation or
by these Bylaws directed or required to be exercised or done by the
Stockholders.

SECTION 3.2 NUMBER AND TERM. The number of directors may be fixed from
time to time by resolution of the Board of Directors adopted by the affirmative
vote of a majority of the members of the entire Board of Directors, but shall
consist of not less than one member who shall be elected annually by the
Stockholders except as provided in Section 3.4. Directors need not be
Stockholders. No decrease in the number of directors shall have the effect of
shortening the term of office of any incumbent director.

SECTION 3.3 QUORUM AND MANNER OF ACTION. At all meetings of the Board
of Directors a majority of the total number of directors holding office shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as

5
<PAGE>

may be otherwise specifically provided by law, by the Corporation's Certificate
of Incorporation or these Bylaws. When the Board of Directors consists of one
director, the one director shall constitute a majority and a quorum. If at any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at such adjourned meeting. Attendance by a director at a meeting
shall constitute a waiver of notice of such meeting except where a director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.

SECTION 3.4 VACANCIES. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, in the case of any increase in the
authorized number of directors or of any vacancy in the Board of Directors,
however created, the additional director or directors may be elected, or, as the
case may be, the vacancy or vacancies may be filled by majority vote of the
directors remaining on the whole Board of Directors although less than a quorum,
or by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled by
a majority of the directors who will remain on the whole Board of Directors,
although less than a quorum, or by a sole remaining director. Any director
elected or chosen as provided herein shall serve until the sooner of (i) the
unexpired term of the directorship to which he is appointed, (ii) until his
successor is elected and qualified or (iii) until his earlier resignation or
removal.

SECTION 3.5 RESIGNATIONS. A director may resign at any time upon
written notice of resignation to the Corporation. Any resignation shall be
effective immediately unless a certain effective date is specified therein, in
which event it will be effective upon such date and acceptance of any
resignation shall not be necessary to make it effective.

SECTION 3.6 REMOVALS. Any director or the entire Board of Directors may
be removed, with or without cause, and another person or persons may be elected
to serve for the remainder of his or their term by the holders of a majority of
the shares of the Corporation entitled to vote in the election of directors. In
case any vacancy so created shall not be filled by the Stockholders at such
meeting, such vacancy may be filled by the directors as provided in Section 3.4.

SECTION 3.7 ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held, if a quorum be present, immediately following each
annual meeting of the Stockholders at the place such meeting of Stockholders
took place, for the purpose of organization and transaction of any other
business that might be transacted at a regular meeting thereof, and no notice of
such meeting shall be necessary. If a quorum is not present, such annual
meeting may be held at any other time or place that may be specified in a notice
given in the manner provided in Section 3.9 for special meetings of the Board of
Directors or in a waiver of notice thereof.

6
<PAGE>

SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such places and times as shall be
determined from time to time by resolution of the Board of Directors. Except as
otherwise provided by law, any business may be transacted at any regular meeting
of the Board of Directors.

SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President, or by the Secretary on the written
request of one-third of the members of the whole Board of Directors stating the
purpose or purposes of such meeting. Notices of special meetings, if mailed,
shall be mailed to each director not later than two days before the day the
meeting is to be held or if otherwise given in the manner permitted by these
Bylaws, not later than the day before such meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in any
notice or written waiver of notice unless so required by the Corporation's
Certificate of Incorporation or by these Bylaws. Any and all business may be
transacted at a special meeting, unless limited by law, the Corporation's
Certificate of Incorporation or by these Bylaws.

SECTION 3.10 ORGANIZATION OF MEETINGS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as such Board
of Directors may from time to time determine, and all matters shall be
determined by the vote of a majority of the directors present at any meeting at
which there is a quorum, except as otherwise provided by these Bylaws or
required by law.

SECTION 3.11 PLACE OF MEETINGS. The Board of Directors may hold their
meetings and have one or more offices, and keep the books of the Corporation,
outside the State of Delaware, at any office or offices of the Corporation, or
at any other place as they may from time to time by resolution determine.

SECTION 3.12 COMPENSATION OF DIRECTORS. Directors shall not receive any
stated salary for their services as directors, but by resolution of the Board of
Directors a fixed honorarium or fees and expenses, if any, of attendance may be
allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending such committee
meetings.

SECTION 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless otherwise
restricted by law, the Corporation's Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting if prior
to such action all members of the Board of Directors or of such committee, as
the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or the
committee.

SECTION 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless otherwise
restricted by the Corporation's Certificate of Incorporation or these Bylaws,
members of the Board of Directors or of any committee thereof may

7
<PAGE>

participate in a meeting of such Board of Directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting in such manner shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the grounds that the meeting is not lawfully called or convened.

ARTICLE IV
COMMITTEES OF THE BOARD
-----------------------

SECTION 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more Directors to constitute an Executive Committee and such
other committees as the Board of Directors may determine, each of which
committees to the extent provided in said resolution or resolutions or in these
Bylaws, shall have and may exercise all the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except in those
cases where the authority of the Board of Directors is specifically denied to
the Executive Committee or such other committee or committees by law, the
Corporation's Certificate of Incorporation or these Bylaws, and may authorize
the seal of the Corporation to be affixed to all papers that may require it.
The designation of an Executive Committee or other committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it or him by law.

SECTION 4.2 MINUTES. Each committee designated by the Board of
Directors shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required.

SECTION 4.3 VACANCIES. The Board of Directors may designate one or more
of its members as alternate members of any committee who may replace any absent
or disqualified member at any meeting of such committee. If no alternate
members have been appointed, the committee member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. The Board of Directors shall have the power at any time to fill
vacancies in, to change the membership of, and to dissolve, any committee.

SECTION 4.4 TELEPHONE MEETINGS. Members of any committee designated by
the Board of Directors may participate in or hold a meeting by use of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this Section 4.4 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express

8
<PAGE>

purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.

SECTION 4.5 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of any committee designated by the Board of Directors may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the committee and filed with the minutes
of the committee proceedings. Such consent shall have the same force and effect
as a unanimous vote at a meeting.

ARTICLE V

OFFICERS
--------

SECTION 5.1 NUMBER AND TITLE. The elected officers of the Corporation
shall be chosen by the Board of Directors and shall be a President, a Vice
President, a Secretary and a Treasurer. The Board of Directors may also choose
a Chairman of the Board, who must be a Board member of the Board of Directors,
and additional Vice Presidents, Assistant Secretaries and/or Assistant
Treasurers. One person may hold any two or more of these offices and any one or
more of the Vice Presidents may be designated as an Executive Vice President or
Senior Vice President.

SECTION 5.2 TERM OF OFFICE; VACANCIES. So far as is practicable, all
elected officers shall be elected by the Board of Directors at the annual
meeting of the Board of Directors in each year, and except as otherwise provided
in this Article V, shall hold office until the next such meeting of the Board of
Directors in the subsequent year and until their respective successors are
elected and qualified or until their earlier resignation or removal. All
appointed officers shall hold office at the pleasure of the Board of Directors.
If any vacancy shall occur in any office, the Board of Directors may elect or
appoint a successor to fill such vacancy for the remainder of the term.

SECTION 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer may be
removed at any time, with or without cause, by affirmative vote of a majority of
the whole Board of Directors, at any regular meeting or at any special meeting
called for such purpose.

SECTION 5.4 RESIGNATIONS. Any officer may resign at any time upon
written notice of resignation to the President, Secretary or Board of Directors
of the Corporation. Any resignation shall be effective immediately unless a
date certain is specified for it to take effect, in which event it shall be
effective upon such date, and acceptance of any resignation shall not be
necessary to make it effective, irrespective of whether the resignation is
tendered subject to such acceptance.

9
<PAGE>

SECTION 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one shall be elected, shall preside at all meetings of the Stockholders and
Board of Directors. In addition, the Chairman of the Board shall perform
whatever duties and shall exercise all powers that are given to him by the Board
of Directors.

SECTION 5.6 PRESIDENT. The President shall be the chief executive
officer of the Corporation; shall (in the absence of the Chairman of the Board,
if one be elected) preside at meetings of the Stockholders and Board of
Directors; shall be ex officio a member of all standing committees; shall have
general and active management of business of the corporation; shall implement
the general directives, plans and policies formulated by the Board of Directors;
and shall further have such duties, responsibilities and authorities as may be
assigned to him by the Board of Directors. He may sign, with any other proper
officer, certificates for shares of the Corporation and any deeds, bonds,
mortgages, contracts and other documents which the Board of Directors has
authorized to be executed, except where required by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors or these Bylaws, to some other
officer or agent of the Corporation. In the absence of the President, his
duties shall be performed and his authority may be exercised by a Vice President
of the Corporation as may have been designated by the President with the right
reserved to the Board of Directors to designate or supersede any designation so
made.

SECTION 5.7 VICE PRESIDENTS. The several Vice Presidents shall have
such powers and duties as may be assigned to them by these Bylaws and as may
from time to time be assigned to them by the Board of Directors and may sign,
with any other proper officer, certificates for shares of the Corporation.

SECTION 5.8 SECRETARY. The Secretary, if available, shall attend all
meetings of the Board of Directors and all meetings of the Stockholders and
record the proceedings of the meetings in a book to be kept for that purpose and
shall perform like duties for any committee of the Board of Directors as shall
designate him to serve. He shall give, or cause to be given, notice of all
meetings of the Stockholders and meetings of the Board of Directors and
committees thereof and shall perform such other duties incident to the office of
secretary or as may be prescribed by the Board of Directors or the President,
under whose supervision he shall be. He shall have custody of the corporate
seal of the Corporation and he, or any Assistant Secretary, or any other person
whom the Board of Directors may designate, shall have authority to affix the
same to any instrument requiring it, and when so affixed it may be attested by
his signature or by the signature of any Assistant Secretary or by the signature
of such other person so affixing such seal.

SECTION 5.9 ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors, the
President or the Secretary. The Assistant Secretary or such other person as may
be designated by the President shall exercise the powers of the Secretary during
that officer's absence or inability to act.

10
<PAGE>

SECTION 5.10 TREASURER. The Treasurer shall have the custody of and be
responsible for the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in the books belonging to the Corporation
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation and
he shall perform all other duties incident to the position of Treasurer, or as
may be prescribed by the Board of Directors or the President. If required by
the Board of Directors, he shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.

SECTION 5.11 ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors, the
President or the Treasurer. The Assistant Treasurer or such other person
designated by the President shall exercise the power of the Treasurer during
that officer's absence or inability to act.

SECTION 5.12 SUBORDINATE OFFICERS. The Board of Directors may (i)
appoint such other subordinate officers and agents as it shall deem necessary
who shall hold their offices for such terms, have such authority and perform
such duties as the Board of Directors may from time to time determine or (ii)
delegate to any committee or officer the power to appoint any such subordinate
officers or agents.

SECTION 5.13 SALARIES AND COMPENSATION. The salary or other
compensation of officers shall be fixed from time to time by the Board of
Directors. The Board of Directors may delegate to any committee or officer the
power to fix from time to time the salary or other compensation of subordinate
officers and agents appointed in accordance with the provisions of Section 5.12.

ARTICLE VI
INDEMNIFICATION
---------------

SECTION 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that such person is or was, at any time prior to or during which
this Article VI is in effect, a director, officer, employee or agent of the
Corporation,

11
<PAGE>

or is or was, at any time prior to or during which this Article VI is in effect,
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against reasonable expenses (including
attorneys' fees), judgments, fines, penalties, amounts paid in settlement and
other liabilities actually and reasonably incurred by such person in connection
with such action, suit or proceeding to the full extent permitted by the General
Corporation Laws of the State of Delaware, upon such determination having been
made as to such person's good faith and conduct.

(b) Expenses (including attorneys' fees) incurred by a person who is or
was a director or officer of the Corporation in appearing at, participating in
or defending any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, shall be paid by the
Corporation at reasonable intervals in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized by
this Article VI.

(c) It is the intention of the Corporation to indemnify the persons
referred to in this Article VI to the fullest extent permitted by law and with
respect to any action, suit or proceeding arising from events which occur at any
time prior to or during which this Article VI is in effect. The indemnification
and advancement of expenses provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be or become entitled under any law, the
Corporation's Certificate of Incorporation, these Bylaws, agreement, the vote of
Stockholders or disinterested directors or otherwise, or under any policy or
policies of insurance purchased and maintained by the Corporation on behalf of
any such person, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.

(d) The indemnification provided by this Article VI shall be subject to
all valid and applicable laws, and, in the event this Article VI or any of the
provisions hereof or the indemnification contemplated hereby are found to be
inconsistent with or contrary to any such valid laws, the latter shall be deemed
to control and this Article VI shall be regarded as modified accordingly, and,
as so modified, to continue in full force and effect.

ARTICLE VII
CAPITAL STOCK
-------------

SECTION 7.1 CERTIFICATES OF STOCK. Certificates of stock shall be
issued to each Stockholder certifying the number of shares owned by him in the
Corporation and shall be in a form not inconsistent with the Certificate of

12
<PAGE>

Incorporation and as approved by the Board of Directors. The certificates shall
be signed by the Chairman of the Board, the President or a Vice President and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer and may be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.

If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided by statute, in lieu of the foregoing requirements, there may
be set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each Stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.

SECTION 7.2 LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the owner of such certificate, or his legal
representative. When authorizing the issuance of a new certificate, the Board of
Directors may in its discretion, as a condition precedent to the issuance
thereof, require the owner, or his legal representative, to give a bond in such
form and substance with such surety as it may direct, to indemnify the
Corporation against any claim that may be made on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.

SECTION 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD FOR
CERTAIN PURPOSES. (a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than 60 days prior to the date of payment of such dividend or
other distribution or allotment of such rights or the date when any such rights
in respect of any change, conversion or exchange of stock may be exercised or
the date of such other action. In such a case, only Stockholders of record on
the date so fixed shall be entitled to receive any such dividend or other
distribution or allotment of rights or to exercise such rights or for any other

13
<PAGE>

purpose, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.

(b) If no record date is fixed, the record date for determining
Stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.

SECTION 7.4 DIVIDENDS. Subject to the provisions of the Corporation's
Certificate of Incorporation, if any, and except as otherwise provided by law,
the directors may declare dividends upon the capital stock of the Corporation as
and when they deem it to be expedient. Such dividends may be paid in cash, in
property or in shares of the Corporation's capital stock. Before declaring any
dividend there may be set apart out of the funds of the Corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion think proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends, or for such other purposes as the
directors shall think conducive to the interests of the Corporation and the
directors may modify or abolish any such reserve in the manner in which it was
created.

SECTION 7.5 REGISTERED STOCKHOLDERS. Except as expressly provided by
law, the Corporation's Certificate of Incorporation or these Bylaws, the
Corporation shall be entitled to treat registered Stockholders as the only
holders and owners in fact of the shares standing in their respective names and
the Corporation shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, regardless of
whether it shall have express or other notice thereof.

SECTION 7.6 TRANSFER OF STOCK. Transfers of shares of the capital stock
of the Corporation shall be made only on the books of the Corporation by the
registered owners thereof, or by their legal representatives or their duly
authorized attorneys. Upon any such transfers the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock transfer books and ledgers, by whom they shall be canceled and new
certificates shall thereupon be issued.

ARTICLE VIII
MISCELLANEOUS PROVISIONS
------------------------

SECTION 8.1 CORPORATE SEAL. If one be adopted, the corporate seal shall
have inscribed thereon the name of the Corporation and shall be in such form as
may be approved by the Board of Directors. Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner reproduced.

SECTION 8.2 FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.

14
<PAGE>

SECTION 8.3 CHECKS, DRAFTS, NOTES. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner as shall from time to time be
determined by resolution (whether general or special) of the Board of Directors
or may be prescribed by any officer or officers, or any officer and agent
jointly, thereunto duly authorized by the Board of Directors.

SECTION 8.4 NOTICE AND WAIVER OF NOTICE. Whenever notice is required to
be given to any director or Stockholder under the provisions of applicable law,
the Corporation's Certificate of Incorporation or these Bylaws, such notice
shall be in writing and delivered either (i) personally, (ii) by registered or
certified mail or (iii) by telegram, telecopy, or similar facsimile means
(delivered during the recipient's regular business hours). Such notice shall be
sent to such director or Stockholder at the address or telecopy number as it
appears on the records of the Corporation, unless prior to the sending of such
notice he has designated, in a written request to the Secretary of the
Corporation, another address or telecopy number to which notices are to be sent.
Notices shall be deemed given when received, if sent by telegram, telex,
telecopy or similar facsimile means (confirmation of such receipt by confirmed
facsimile transmission being deemed receipt of communications sent by telex,
telecopy or other facsimile means); and when delivered and receipted for (or
upon the date of attempted delivery where delivery is refused), if hand-
delivered, sent by express courier or delivery service, or sent by certified or
registered mail. Whenever notice is required to be given under any provision of
law, the Corporation's Certificate of Incorporation or these Bylaws, a waiver
thereof in writing, by telegraph, cable or other form of recorded communication,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
Stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the
Corporation's Certificate of Incorporation or these Bylaws.

SECTION 8.5 EXAMINATION OF BOOKS AND RECORDS. The Board of Directors
shall determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the Corporation (except
such as may by statute be specifically opened to inspection) or any of them
shall be open to inspection by the Stockholders, and the Stockholders' rights in
this respect are and shall be restricted and limited accordingly.

SECTION 8.6 VOTING UPON SHARES HELD BY THE CORPORATION. Unless
otherwise provided by law or by the Board of Directors, the Chairman of the
Board of Directors, if one shall be elected, or the President, if a Chairman

15
<PAGE>

of the Board of Directors shall not be elected, acting on behalf of the
Corporation, shall have full power and authority to attend and to act and to
vote at any meeting of Stockholders of any corporation in which the Corporation
may hold stock and, at any such meeting, shall possess and may exercise any and
all of the rights and powers incident to the ownership of such stock which, as
the owner thereof, the Corporation might have possessed and exercised, if
present. The Board of Directors by resolution from time to time may confer like
powers upon any person or persons.

ARTICLE IX

AMENDMENTS
----------

SECTION 9.1 AMENDMENT. Except as otherwise expressly provided in the
Corporation's Certificate of Incorporation, the directors, by the affirmative
vote of a majority of the entire Board of Directors and without the assent or
vote of the Stockholders, may at any meeting, provided the substance of the
proposed amendment shall have been stated in the notice of the meeting, make,
repeal, alter, amend or rescind any of these Bylaws. The Stockholders shall not
make, repeal, alter, amend or rescind any of the provisions of these Bylaws
except by the holders of not less than a majority of the total voting power of
all shares of stock of the Corporation entitled to vote in the election of
directors, considered for purposes of this Article IX as one class.

================================================================================

<PAGE>

Exhibit 4.1

[Description of Specimen Certificate representing common stock of STX
Acquisition Corp.]

[Front of Certificate]

SEE REVERSE SIDE FOR RESTRICTIONS ON TRANSFER

INCORPORATED UNDER THE LAWS OF
DELAWARE

NUMBER SHARES
-000- -000-

STX ACQUISITION CORP.

This Certifies that SPECIMEN is the
registered holder of Zero (000) - - - - - - - - - - - - Shares
of Common Stock of STX ACQUISITION CORP., Par Value $.01 per Share
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed

IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this day of A.D. 19

President Secretary

1
<PAGE>

[Reverse of Certificate]

STX ACQUISITION CORP.

CERTIFICATE
FOR

-000-
SHARES

Common Stock
$0.01 par value
per share

ISSUED TO

SPECIMEN

DATED

2
<PAGE>

[Reverse of Certificate, continued]

[Transfer language - vertically aligned on left side]

For Value Received, hereby sell, assign and transfer
unto
Shares
represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated 19
In presence of

NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.

[Legend - vertically aligned on right side]

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
SECURITIES LAWS OF ANY STATE. EXCEPT UPON SUCH REGISTRATION, SUCH SHARES MAY
NOT BE SOLD OR TRANSFERRED AT ANY TIME WHATSOEVER EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE
REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER AND/OR SUBMISSION TO THE COMPANY
OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND/OR APPLICABLE STATE SECURITIES LAWS AND/OR ANY RULE OR REGULATION
PROMULGATED THEREUNDER.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF WHICH THE CORPORATION IS AUTHORIZED TO ISSUE AND OF THE QUALIFICATION,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.

<PAGE>

Exhibit 4.2

[Description of Specimen Certificate representing common stock of STX Chemicals
Corp.]

[Front of Certificate]

SEE REVERSE SIDE FOR RESTRICTIONS ON TRANSFER

INCORPORATED UNDER THE LAWS OF
DELAWARE

NUMBER SHARES
-000- -000-

STX CHEMICALS CORP.

This Certifies that SPECIMEN is the
registered holder of Zero (000) - - - - - - - - - - - - Shares
of Common Stock of STX CHEMICALS CORP., Par Value $.01 per Share
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed

IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this day of A.D. 19

President Secretary
<PAGE>

[Reverse of Certificate]

STX CHEMICALS CORP.

CERTIFICATE
FOR

-000-
SHARES

Common Stock
$0.01 par value
per share

ISSUED TO

SPECIMEN

DATED
<PAGE>

[Reverse of Certificate, continued]

[Transfer language - vertically aligned on left side]

NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.

[Legend - vertically aligned on right side]

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-04343 of STX Acquisition Corp. and STX Chemicals Corp. on Form S-1 of our
reports dated May 20, 1996, appearing in the Prospectus, which is part of such
Registration Statement and to the reference to us under the heading "Experts"
in such Prospectus.

DELOITTE & TOUCHE LLP
Houston, Texas

July 2, 1996

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated October 25, 1995, on our audits of the consolidated financial
statements of Sterling Chemicals, Inc., as of September 30, 1994 and 1995 and
for each of the three years in the period ended September 30, 1995. We also
consent to the reference to our Firm under the caption "Experts."

COOPERS & LYBRAND L.L.P.
Houston, Texas

July 3, 1996

<PAGE>

EXHIBIT 25.1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

----------

FORM T-1

----------

STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE

----------

/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)

FLEET NATIONAL BANK
---------------------------------------------------------
(Exact name of trustee as specified in its charter)

<TABLE>
<S> <C>
Not applicable 04-317415
- ------------------------------- -----------------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)

One Monarch Place, Springfield, MA 01102
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>

Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065
--------------------------------------------------------------
(Name, address and telephone number of agent for service)

STX ACQUISITION CORPORATION
STX CHEMICAL CORPORATION
---------------------------------------------------
(Exact name of obligor as specified in its charter)

Delaware 76-0500122
Delaware 76-0502785
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

C/O The Sterling Group, Inc.
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>

Senior Subordinated Notes Due 2006(2)
Senior Secured Discount Notes Due 2008
------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>

Item 1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to
which it is subject,

The Comptroller of the Currency,
Washington, D.C.

Federal Reserve Bank of Boston
Boston, Massachusetts

Federal Deposit Insurance Corporation
Washington, D.C.

(b) Whether it is authorized to exercise
corporate trust powers:

The trustee is so authorized.

Item 2. Affiliations with obligor and underwriter. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.

None with respect to the trustee.

Item 16. List of exhibits.

List below all exhibits filed as a part of this statement of
eligibility and qualification.

(1) A copy of the Articles of Association of the trustee as
now in effect.

(2) A copy of the Certificate of Authority of the trustee
to do business.

(3) A copy of the Certification of Fiduciary Powers of the
trustee.

(4) A copy of the By-Laws of the trustee as now in effect.

(5) Consent of the trustee required by Section 321(b)
of the Act.

(6) A copy of the latest Consolidated Reports of Condition
and Income of the trustee published pursuant to law or
the requirements of its supervising or examining authority.

NOTES

In as much as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base answers to Item 2, the answers to said Items are
based upon imcomplete information. Said Items may, however, be considered
correct unless amended by an amendment to this Form T-1.
<PAGE>

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 27th day of June, 1996.

FLEET NATIONAL BANK,
AS TRUSTEE

By: /s/
-------------------------
Michael M. Hopkins
Its Vice President
<PAGE>

EXHIBIT 1

ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK

FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."

SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.

THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.

FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefore in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.

FIFTH. The authorized amount of capital stock of this Association shall be
eight million five hundred thousand (8,500,000) shares of which three million
five hundred thousand (3,500,000) shares shall be common stock with a
par value of six and 25/100 dollars ($6.25) each, and of which five million
(5,000,000) shares without par value shall be preferred stock. The capital
stock may be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.

No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.
<PAGE>

The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and
to fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:

a. The number of shares constituting that series and the distinctive
designation of that series;

b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;

c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;

d. Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;

e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;

f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;

g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of
any outstanding stock of the Association;

h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and

i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.

Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred
stock and by the provisions of any applicable law.

Subject to the provisions of any applicable law, or except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.

Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.

Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, in the event of any liquidation, dissolution
or winding up of the Association, whether voluntary or involuntary, after
payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of preferred stock the
holders of common stock shall be entitled, to the exclusion of the holders of
preferred stock of any and all series, to share, ratable according to the
number of shares of common stock held by them, in all remaining assets of the
Association available for distribution to its shareholders.

The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.
<PAGE>

SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.

The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.

SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.

EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.

NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.

TENTH. (a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director, officer or employee of the Association or is or was
serving at the request of the Association as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust, or other enterprise, including service with respect
to an employee benefit plan, shall be indemnified and held harmless by the
Association to the fullest extent authorized by the law of the state in which
the Association's ultimate parent company is incorporated, except as provided
in subsection (b). The aforesaid indemnity shall protect the indemnified
person against all expense, liability and loss (including attorney's fees,
judgements, fines ERISA excise taxes or penalties, and amounts paid in
settlement) reasonably incurred by such person in connection with such a
proceeding. Such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors, and administrators, but shall only cover such person's
period of service with the Association. The Association may, by action of its
Board of Directors, grant rights to indemnification to agents of the
Association and to any director, officer, employee or agent of any of its
subsidiaries with the same scope and effect as the foregoing indemnification
of directors and officers.

(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or any applicable final regulation or interpretation now or hereafter
adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal
Deposit Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.

(c) Advancement of Expenses. The conditional right to indemnification
conferred in this section shall be a contract right and shall include the
right to be paid by the Association the reasonable expenses (including
attorney's fees) incurred in defending a proceeding in advance of its final
disposition (an "advancement of expenses"); provided, however, that an
advancement of expenses shall be made only upon (i) delivery to the Association
of a binding written undertaking by or on behalf of the person receiving the
advancement to repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified in such proceeding,
including if such proceeding results in a final order assessing civil money
penalties against that person, requiring affirmative action by that person
in the form of payments to the Association, or removing or prohibiting that
person from service with the Association, and (ii) compliance with any other
actions or determinations required by applicable law, regulation or OCC or FDIC
interpretation to be taken or made by the Board of Directors of the Association
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any
of the prerequisites for advancement of expenses are no longer being met.

(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Association to recover an advancement of expenses pursuant
to the terms of an undertaking, the claimant shall be entitled to be paid also
the expense of prosecuting or defending such claim. It shall be a defense to
any such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final
adjudication that the claimant has not met any applicable standard for
indemnification standard for indemnification under the law of the state in
which the Association's ultimate parent company is incorporated.

(e) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this section shall not be exclusive of any
other right which any person may have or hereafter acquired under any statute,
agreement, vote of stockholders or disinterested directors or otherwise.

(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.

ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.

I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.

Secretary/Assistant Secretary
- --------------------------------------------------

Dated at , as of .
--------------------------------------- --------------------

Revision of February 15, 1996
<PAGE>

EXHIBIT 2

[LOGO OF STERLING
GROUP APPEARS HERE]

- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------

Washington, D.C. 20219

CERTIFICATE

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
that:

(1) The Comptroller of the Currency, pursuant to Revised Statutes
324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession,
custody and control of all records pertaining to the chartering, regulation and
supervision of all National Banking Associations.

(2) "Fleet National Bank of Connecticut", Hartford, Connecticut,
(Charter No. 1338), is a National Banking Association formed under the
laws of the United States and is authorized thereunder to transact the
business of banking on the date of this Certificate.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at
the Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.

/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE>

EXHIBIT 2

[LOGO OF STERLING
GROUP APPEARS HERE]

Washington, D.C. 20219

Certification of Fiduciary Powers

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
the records in this Office evidence "Fleet National Bank of Connecticut",
Hartford, Connecticut, (Charter No. 1338), was granted, under the hand
and seal of the Comptroller, the right to act in all fiduciary capacities
authorized under the provisions of The Act of Congress approved
September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the
authority so granted remains in full force and effect.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
Office of the Comptroller of the Currency
to be affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.

/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE>

EXHIBIT 4

AMENDED AND RESTATED BY-LAWS OF

FLEET NATIONAL BANK

ARTICLE I

MEETINGS OF SHAREHOLDERS

Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on
the fourth Thursday of April in each year at 1:15 o'clock in the afternoon
unless some other hour of such day is fixed by the Board of Directors.

If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.

Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.

Section 3. Notice of Meetings of Shareholders. Except as otherwise provided
by law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before
the date of the meeting to each shareholder of record entitled to vote thereat
at his address as shown upon the books of the Association; but any failure to
mail such notice to any shareholder or any irregularity therein, shall not
affect the validity of such meeting or of any of the proceedings thereat.
Notice of a special meeting shall also state the purpose of the meeting.

Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital
stock represented in person or by proxy; less than such quorum may adjourn the
meeting to a future time. No notice need be given of an adjourned annual or
special meeting of the shareholders if the adjournment be to a definite place
and time.

Section 5. Votes and Proxies. At every meeting of the shareholders, each
share of the capital stock shall be entitled to one vote except as otherwise
provided by law. A majority of the votes cast shall decide every question
or matter submitted to the shareholder at any meeting, unless otherwise
provided by law or by the Articles of Association or these By-laws. Share-
holders may vote by proxies duly authorized in writing and filed with the
Cashier, but no officer, clerk, teller or bookeeper of the Association may act
as a proxy.
<PAGE>

Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any share-
holder of record of any outstanding class of stock of the Association entitled
to vote for the election of Directors. No person other than those whose names
are stated as proposed nominees in the proxy statement accompanying the notice
of the meeting may be nominated as such meeting unless a shareholder shall have
given to the President of the Association and to the Comptroller of the
Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which
such nomination is to be made; provided, however, that if less than twenty-one
(21) days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day
on which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made.
Such notice may contain the names of more than one proposed nominee, and if
more than one is named, any one or more of those named may be nominated.

Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.

ARTICLE II

DIRECTORS

Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.

Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve
as a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December
15, 1995 who has attanined the age of 65 on or prior to such date shall be
permitted to continue to serve as a director until the date of the first
meeting of the stockholders of the Association held on or after the date on
which such person attains the age of 70.

-2-
<PAGE>

Section 3. General Powers. The Board of Directors shall exercise all the
coporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and dispositon of all its
property and affairs.

Section 4. Annual Meeting. Immediately following a meeting of shareholders
held for the election of Directors, the Cashier shall notify the directors-
elect who may be present of their election and they shall then hold a meeting
at the Main Office of the Association, or such other place as the Board of
Directors may designate, for the purpose of taking their oaths, organizing the
new Board, electing officers and transacting any other business that may come
before such meeting.

Section 5. Regular Meeting. Regular meetings of the Board of Directors shall
be held without notice at the Main Office of the Association, or such other
place as the Board of Directors may designate, at such dates and times as the
Board shall determine. If the day designated for a regular meeting falls on a
legal holiday, the meeting shall be held on the next business day.

Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.

Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn
a meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.

Section 8. Action by Directors Without a Meeting. Any action requiring
Director approval or consent may be taken without a meeting and without notice
of such meeting by written consent of all the Directors.

Section 9. Telephonic Participation in Directors' Meetings. A Director or
member of a Committee of the Board of Directors may participate in a meeting of
the Board or of such Committee may participate in a meeting of the Board or of
such Committee by means of a conference telephone or similar communications
equipment enabling all Directors participating in the meeting to hear one
another, and participation in such a meeting shall constitute presence in person
at such a meeting.

Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.

Section 11. Interim Appointments. The Board of Directors shall, if the share-
holders at any meeting for the election of Directors have determined a number
of Directors less than twenty-five (25), have the power, by affirmative vote of
the majority of all the Directors, to increase such number of Directors to not
more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the
next election of Directors; provided, however, that the number of Directors
shall not be so increased by more than two (2) if the number last determined
by shareholders was fifteen (15) or less, or increased by more than four (4) if
the number last determined by shareholders was sixteen (16) or more.

Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.

ARTICLE III

COMMITTEES OF THE BOARD

Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called
at any time upon the written request of the Chairman of the Board, the President
or the Chairman of the Executive Committee, stating the purpose of the meeting.
Not less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.

-3-
<PAGE>

The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings
and cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating
to loans and discounts.

All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be,
and may be certified as being, the acts of and under the authority of the
Board.

Section 2. Risk Management Committee. The Board shall appoint from its
members a Risk Management Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Risk
Management Committee to serve as Chairman thereof. It shall be the duty of the
Risk Management Committee to (a) serve as the channel of communication with
management and the Board of Directors of Fleet Financial Group, Inc. to assure
that formal processes supported by management information systems are in place
for the identification, evaluation and management of significant risks inherent
in or associated with lending activities, the loan portfolio, asset-liablity
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time
to time; (b) assure the formulation and adoption of policies approved by the
Risk Management Committee or Board governing lending activities, management of
the loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail
sale of non-deposit investment products, new products and services and such
additional activities or functions as the Board may determine from time to time
(c) assure that a comprehensive independent loan review program is in place for
the early detection of problem loans and review significant reports of the loan
review department, management's responses to those reports and the risk
attributed to unresolved issues; (d) subject to control of the Board, exercise
general supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.

Section 3. Audit Committee. The Board shall appoint from its memebers and
Audit Committee which shall consist of such number as the Board shall determine
no one of whom shall be an active officer or employee of the Association or
Fleet Financial Group, Inc. or any of its affiliates. In addition, members of
the Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting,
or banking matters. No member of the Audit Commitee may have significant
direct or indirect credit or other relationships with the Association, the
termination of which would materially adversely affect the Association's
financial condition or results of operations.

The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or
other examining authority and monitor any needed corrective action by
management; (f) ensure that a formal system of internal controls is in place
for maintaining compliance with laws and regulations; (g) cause an audit of the
Trust Department at least once during each calendar year and within 15 months
of the last such audit or, in liew thereof, adopt a continuous audit system and
report to the Board each calendar year and within 15 months of the previous
report on the performance of such audit function; and (h) perform such
additional duties and exercise such additional powers of the Board as the Board
may determine from time to time.

The Audit Committee may consult with internal counsel and retain its own
outside counsel without approval (prior or otherwise) from the Board or
management and obligate the Association to pay the fees of such counsel.

-4-
<PAGE>

Section 4. Community Affairs Committee. The Board shall appoint from its
members a Community Affairs Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Community
Affairs Committee to serve as Chairman thereof. It shall be the duty of the
Commmunity Affairs Committee to (a) oversee compliance by the Association with
the Community Reinvestment Act of 1977, as amended, and the regulations
promulgated thereunder; and (b) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.

Section 5. Regular Meetings. Except for the Executive Committee which shall
meet on an ad hoc basis as set forth in Section 1 of this Article, regular
meetings of the Committees of the Board of Directors shall be held, without
notice, at such time and place as the Committee or the Board of Directors may
appoint and as often as the business of the Association may require.

Section 6. Special Meetings. A Special Meeting of any of the Committees of
the Board of Directors may be called upon the written request of the Chairman
of the Board or the President, or of any two members of the respective
Committee, stating the purpose of the meeting. Not less than twenty-four
hours' notice of such special meeting shall be given to each member of the
Committee personally, by telephoning, or by mail.

Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees
of the Board of Directors may be called at the request of the Chairman of the
Board or the President, who shall state that an emergency exists, upon not
less than one hour's notice to each member of the Committee personally or by
telephoning.

Section 8. Action Taken Without a Committee Meeting. Any Committee of the
Board of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.

Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee of-
members of the Board of Directors, to act in the place and stead of members who
temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.

Section 10. Record. The committes of the Board of Directors shall keep a
record of their respective meetings and proceedings which shall be presented
at the regular meeting of the Board of Directors held in the calendar month
next following the meetings of the Committees. If there is no regular Board
of Directors meeting held in the calendar month next following the meeting of
a Committee, then such Committee's records shall be presented at the next
regular Board of Directors meeting held in a month subsequent to such Committee
meeting.

Section 11. Changes and Vacancies. The Board of Directors shall have power
to change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.

Section 12. Other Committees. The Board of Directors may appoint, from time
to time, other committees of one or more persons, for such purposes and with
such powers as the Board may determine.

ARTICLE IV

WAIVER OF NOTICE OF MEETINGS

Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may
be waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.

-5-
<PAGE>

ARTICLE V

OFFICERS AND AGENTS

Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and-
such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two
or more offices, except those of President and Cashier, or Secretary, may be
held by the same person. The Board may, from time to time, by resolution
passed by a majority of the entire Board, designate one or more officers of the
Association or of an affiliate or of Fleet Financial Group, Inc. with power to
appoint one or more Vice Presidents and such other officers of the Association
below the level of Vice President as the officer or officers designated in such
resolution deem necessary or desirable for the proper transaction of the
business of the Association.

Section 2. Chairman of the Board. The chairman of the Board shall preside at
all meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.

Section 3. President. The President shall preside at all meetings of the
Board of Directors if there be no Chairman or if the Chairman be absent.
Subject to definition by the Board of Directors, he shall have general
executive powers and such specific powers and duties as from time to time may
be conferred upon or assigned to him by the Board of Directors.

-6-
<PAGE>

Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the
giving of all notices required by these By-laws. He shall be custodian of the
corporate seal, records, documents and papers of the Association. He shall
have such powers and perform such duties as pertain by law or regulation to the
office of Cashier, or as are imposed by these By-laws, or as may be delegated
to him from time to time by the Board of Directors, the Chairman of the Board
or the President.

Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board
of Directors.

Section 6. Officers Seriatim. The Board of Directors shall designate from
time to time not less than two officers who shall in the absence or disability
of the Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.

Section 7. Clerks and Agents. The Board of Directors may appoint, from time
to time, such clerks, agents and employees as it may deem advisable for the
prompt and orderly transaction of the business of the Association, define
their duties, fix the salaries to be paid them and dismiss them. Subject to
the authority of the Board of Directors, the Chairman of the Board or the
President, or any other officer of the Association authorized by either of them
may appoint and dismiss all or any clerks, agents and employees and prescribe
their duties and the conditions of their employment, and from time to time
fix their compensation.

Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least two-
thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either
of such officers appointed to fill a vacancy occurring in an unexpired term
shall serve for such unexpired term of such vacancy. All other officers,
clerks, agents, attorneys-in-fact and employees of the Association shall hold
office during the pleasure of the Board of Directors or of the officer or
committee appointing them respectively.

ARTICLE VI

TRUST DEPARTMENT

Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision
of an officer or officers appointed by the Board of Directors. The duties of
all officers of the Trust Department shall be to cause the policies and
instructions of the Board and the Risk Management Committee with respect to the
trusts under their supervision to be carried out, and to supervise the due
performance of the trusts and agencies entrusted to the Association and under
their supervision, in accordance with law and in accordance with the terms of
such trusts and agencies.

-7-
<PAGE>

ARTICLE VII

BRANCH OFFICES

Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.

Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be
under the immediate supervision and control of the President or of such other
officer or officers, employee or employees, or other individuals as the Board
of Directors may from time to time determine, with such powers and duties as
the Board of Directors may confer upon or assign to him or them.

ARTICLE VIII

SIGNATURE POWERS

Section 1. Authorization. The power of officers, employees, agents and
attorneys to sign on behalf of and to affix the seal of the Association shall
be prescribed by the Board of Directors or by the Executive Committee or by
both; provided that the President is authorized to restrict such power of any
officer, employee, agent or attorney to the business of a specific department
or departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.

-8-
<PAGE>

ARTICLE IX

STOCK CERTIFICATES AND TRANSFERS

Section 1. Stock Records. The Trust Department shall have custody of the
stock certificate books and stock ledgers of the Association, and shall make
all transfers of stock, issue certificates thereof and disburse dividends
declared thereon.

Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form
as the Board of Directors may approve. The certificates shall state on the
face thereof that the stock is transferable only on the books of the
Association and shall be signed by such officers as may be prescribed from time
to time by the Board of Directors or Executive Committee. Facsimile signatures
may be authorized.

Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly
authorized in writing, upon surrender of the certificate therefor properly
endorsed, or upon the surrender of such certificate accompanied by a properly
executed written assignment of the same, or a written power of attorney to
sell, assign or transfer the same or the shares represented thereby.

Section 4. Lost Certificate. The Board of Directors or Executive Committee
may order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance
of a new certificate.

Section 5. Closing Transfer Books. The Board of Directors may close the
transfer books for a period not exceeding thirty days preceding any regular
or special meeting of the shareholders, or the day designated for the payment
of a dividend or the allotment of rights. In lieu of closing the transfer
books the Board of Directors may fix a day and hour not more than thirty days
prior to the day of holding any meeting of the shareholders, or the day
designated for the payment of a dividend, or the day designated for the
allotment of rights, or the day when any change of conversion or exchange of
capital stock is to go into effect, as the day as of which shareholders
entitled to notice of and to vote at such meetings or entitled to such dividend
or to such allotment of rights or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, shall be determined, and
only such shareholders as shall be shareholders of record on the day and hour
so fixed shall be entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, as the case may be.

ARTICLE X

THE CORPORATE SEAL

Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.

ARTICLE XI

BUSINESS HOURS

Section 1. Business Hours. The main office of this Association and each
branch office thereof shall be open for business on such days, and for such
hours as the Chairman, or the President, or any Executive Vice President, or
such other officer as the Board of Directors shall from time to time
designate, may determine as to each office to conform to local custom and
convenience, provided that any one or more of the main and branch offices or
certain departments thereof may be open for such hours as the President, or
such other officer as the Board of Directors shall from time to time designate,
may determine as to each office or department on any legal holiday on which
work is not prohibited by law, and provided further that any one or more of
the main and branch offices or certain departments thereof may be ordered
closed or open on any day for such hours as to each office or department as
the President, or such other officer as the Board of Directors shall from time
to time designate, subject to applicable laws regulations, may determine when
such action may be required by reason of disaster or other emergency condition.

ARTICLE IX

CHANGES IN BY-LAWS

Section 1. Amendments. These By-laws may be amended upon vote of a majority
of the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.

A true copy

Attest:

Secretary/Assistant Secretary
- ---------------------------------------

Dated at , as of .
--------------------------------------- ----------------------

Revision of January 11, 1993

-9-
<PAGE>

EXHIBIT 5

CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939

The undersigned, as Trustee under the Indenture to be entered into between
STX Acquisition Corp., STX Chemicals Corp. and Fleet National Bank, as Trustee,
does hereby consent that, pursuant to Section 321(b) of the Trust Indenture
Act of 1939, reports of examinations with respect to the undersigned by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.

FLEET NATIONAL BANK,
AS TRUSTEE

By /s/
-------------------------------
Michael M. Hopkins
Its: Vice President

Dated:
<PAGE>

EXHIBIT 6

<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036

Federal Deposit Insurance Corporation
OMB Number: 3064-0052

Office of the Comptroller of the Currency
OMB Number: 1557-0081

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------

Please refer to page i, / 1 /
[LOGO OF STERLING Table of Contents, for
GROUP APPEARS HERE] the required disclosure
of estimated burden.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031
(960331)
REPORT AT THE CLOSE OF BUSINESS March 31, 1996 -----------
(RCRI 9999)

This report is required by law: 12 U.S.C. Section 324 (State member banks);
12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).

This report form is to be filed by banks with branches and consolidation
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.

- --------------------------------------------------------------------------------

NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, Giro S. DeRosa, Vice President and Controller
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report

of the named bank do hereby declare that these Reports of Condition and
Income (including the supporting schedules) have been prepared in conformance
with the instructions issued by the appropriate Federal regulatory authority
and are true to the best of my knowledge and belief.

/s/ GIRO DEROSA
- --------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report

April 25, 1996
- --------------------------------------------------------------------------------
Date of Signature

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.

We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.

/s/
- --------------------------------------------------------------------------------
Director (Trustee)

- --------------------------------------------------------------------------------
<PAGE>

FOR BANKS SUBMITTING HARD COPY REPORT FORMS:

STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Feserve District Bank.

STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
___
FDIC Certificate Number | 1 | 0 | 5 | 8 | 2 | |
______________________ CALL NO. 190 31 03-31-96
(RCRI 9050)
CERT: 02499 10582 STBK 09-0590

FLEET NATIONAL BANK OF CONNECTICUT
777 MAIN STREET
HARTFORD, CT 06115
| |
___ ___

Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency

</TABLE>
<PAGE>

FFIEC 031
Page i
/2/
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
________________________________________________________________________________

TABLE OF CONTENTS

SIGNATURE PAGE Cover

REPORT OF INCOME

Schedule RI--Income Statement...........................................RI-1,2,3
Schedule RI-A--Changes in Equity Capital....................................RI-3
Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses..................................................................RI-4,5
Schedule RI-C--Applicable Income Taxes by
Taxing Authority..........................................................RI-5
Schedule RI-D--Income from
International Operations..................................................RI-6
Schedule RI-E--Explanations...............................................RI-7,8

REPORT OF CONDITION

Schedule RC--Balance Sheet................................................RC-1,2
Schedule RC-A--Cash and Balances Due
From Depository Institutions..............................................RC-3
Schedule RC-B--Securities...............................................RC-3,4,5
Schedule RC-C--Loans and Lease Fianancing
Receivables:
Part I. Loans and Leases..............................................RC-6,7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only).....................................................RC-7a,7b
Schedule RC-D--Trading Assets and Liabilities
(to be completed only by selected banks)..................................RC-8
Schedule RC-E--Deposit Liabilities....................................RC-9,10,11
Schedule RC-F--Only Assets.................................................RC-11
Schedule RC-G--Other Liabilities...........................................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.........................................................RC-12
Schedule RC-I--Selected Assets and Liabilities
of IBF's.................................................................RC-13
Schedule RC-K--Quarterly Averages..........................................RC-13
Schedule RC-L--Off-Balance Sheet Items...............................RC-14,15,16
Schedule RC-M--Memoranda................................................RC-17,18
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets..............................................RC-19,20
Schedule RC-O--Other Data for Deposit
Insurance Assessments.................................................RC-21,22
Schedule RC-R--Risk-Based Captial.......................................RC-23,24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Conditions and Income....................................................RC-25
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only to
and to be completed only by savings banks)
<PAGE>

DISCLOSURE OF ESTIMATED BURDEN

The estimated average burden associated with this information collection is
32.2 hours per respondent and is estimated to vary from 15 to 230 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the required
form, and completing the information collection, but exclude the time for
compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs. Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:

Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219

Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429

For information or assistance, national and state nonmember banks should
contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington,
D.C. 20429, toll free on (800)688-FDIC (3342), Monday through Friday between
8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.

___________
<PAGE>

Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Consolidated Report of Income
for the period January 1, 1996 - March 31, 1996

All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars.
file
Schedule RI--Income Statement ________
| I480 |
Dollar Amounts in Thousands RIAD Bil Mil Thou__|
_______________________________________________________________________________________________ ___________|________|
<S> <C> <C>
1. Interest income: | ////////////////// |
a. Interest and fee income on loans: | ////////////////// |
(1) In domestic offices: | ////////////////// |
(a) Loans secured by real estate ................................................... | 4011 68,007 | 1.a.(1)(a)
(b) Loans to depository institutions ............................................... | 4019 0 | 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ............ | 4024 42 | 1.a.(1)(c)
(d) Commercial and industrial loans ................................................ | 4012 119,467 | 1.a.(1)(d)
(e) Acceptances of other banks ..................................................... | 4026 22 | 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// |
(1) Credit cards and related plans ............................................. | 4054 1,870 | 1.a.(1)(f)(1)
(2) Other ...................................................................... | 4055 11,553 | 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ......................... | 4056 0 | 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political | ////////////////// |
subdivisions in the U.S.: | ////////////////// |
(1) Taxable obligations ........................................................ | 4503 0 | 1.a.(1)(h)(1)
(2) Tax-exempt obligations ..................................................... | 4504 469 | 1.a.(1)(h)(2)
(i) All other loans in domestic offices ............................................ | 4058 14,004 | 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4059 0 | 1.a.(2)
b. Income from lease financing receivables: | ////////////////// |
(1) Taxable leases ..................................................................... | 4505 192 | 1.b.(1)
(2) Tax-exempt leases .................................................................. | 4307 0 | 1.b.(2)
c. Interest income on balances due from depository institutions:(1) | ////////////////// |
(1) In domestic offices ................................................................ | 4105 0 | 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4106 26 | 1.c.(2)
d. Interest and dividend income on securities: | ////////////////// |
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations .... | 4027 33,725 | 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// |
(a) Taxable securities ............................................................. | 4506 0 | 1.d.(2)(a)
(b) Tax-exempt securities .......................................................... | 4507 1 | 1.d.(2)(b)
(3) Other domestic debt securities ..................................................... | 3657 7,306 | 1.d.(3)
(4) Foreign debt securities ............................................................ | 3658 49 | 1.d.(4)
(5) Equity securities (including investments in mutual funds) .......................... | 3659 1,888 | 1.d.(5)
e. Interest income from trading assets..................................................... | 4069 0 | 1.e.
_____________________
<FN>
____________
(1) Includes interest income on time certificates of deposit not held for trading.

</TABLE>

3
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

Schedule RI--Continued
________________
Dollar Amounts in Thousands | Year-to-date |
___________________________________________________________________________________ ______________
<S> <C> <C>
1. Interest income (continued) | RIAD Bil Mil Thou |
f. Interest income on federal funds sold and securities purchased | ////////////////// |
under agreements to resell in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4020 292 | 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 258,913 | 1.g.
2. Interest expense: | ////////////////// |
a. Interest on deposits: | ////////////////// |
(1) Interest on deposits in domestic offices: | ////////////////// |
(a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// |
telephone and preauthorized transfer accounts) .............. | 4508 519 | 2.a.(1)(a)
(b) Nontransaction accounts: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................... | 4509 6,345 | 2.a.(1)(b)(1)
(2) Other savings deposits .................................. | 4511 11,368 | 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ | 4174 21,500 | 2.a.(1)(b)(3)
(4) All other time deposits ................................. | 4512 31,522 | 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// |
subsidiaries, and IBFs .......................................... | 4172 4,742 | 2.a.(2)
b. Expense of federal funds purchased and securities sold under | ////////////////// |
agreements to repurchase in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4180 35,405 | 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// |
liabilities, and other money borrowed ............................... | 4185 29,123 | 2.c.
d. Interest on mortgage indebtedness and obligations under | ////////////////// |
capitalized leases .................................................. | 4072 106 | 2.d.
e. Interest on subordinated notes and debentures ....................... | 4200 2,993 | 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 143,623 | 2.f.
___________________________
3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 115,290 | 3.
___________________________
4. Provisions: | ////////////////// |
___________________________
a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 1,911 | 4.a.
b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b.
___________________________
5. Noninterest income: | ////////////////// |
a. Income from fiduciary activities .................................... | 4070 21,652 | 5.a.
b. Service charges on deposit accounts in domestic offices ............. | 4080 15,687 | 5.b.
c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// |
items 8.a through 8.d)............................................... A220 78 5.c.
d. Other foreign transaction gains (losses) ............................ | 4076 6 | 5.d.
e. Not applicable....................................................... | ////////////////// |
f. Other noninterest income: | ////////////////// |
(1) Other fee income ................................................ | 5407 13,425 | 5.f.(1)
(2) All other noninterest income* ................................... | 5408 43,419 | 5.f.(2)
___________________________
g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 94,267 | 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | 1 | 6.a.
b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 11,352 | 6.b.
| ////////////////// |___________________________
7. Noninterest expense: | ////////////////// |
a. Salaries and employee benefits ...................................... | 4135 36,676 | 7.a.
b. Expenses of premises and fixed assets (net of rental income) | ////////////////// |
(excluding salaries and employee benefits and mortgage interest) .... | 4217 14,846 | 7.b.
c. Other noninterest expense* .......................................... | 4092 57,219 | 7.c.
___________________________
d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 108,741 | 7.d.
___________________________
8. Income (loss) before income taxes and extraordinary items and other | ////////////////// |
___________________________
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 110,258 | 8.
9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 51,617 | 9.
___________________________
10. Income (loss) before extraordinary items and other adjustments | ////////////////// |
___________________________
(item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 58,641 | 10.
_________________________________________________
<FN>
____________
*Describe on Schedule RI-E--Explanations.
</TABLE>

4
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION> __________
______|__I481__|
Memoranda | Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// |
August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 0 | M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// |
(included in Schedule RI, item 8) ............................................................... | 8431 0 | M.2.
3.-4. Not applicable | ////////////////// |
5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number |
nearest whole number) ........................................................................... | 4150 1,831 | M.5.
6. Not applicable | ////////////////// |
7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY |
accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// |
(sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou |
a. Interest rate exposures ...................................................................... | 8757 11 | M.8.a.
b. Foreign exchange exposures ................................................................... | 8758 67 | M.8.b.
c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c.
d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// |
a. Net increase (decrease) to interest income.....................................................| 8761 (2,618)| M.9.a.
b. Net (increase) decrease to interest expense ...................................................| 8762 (2,834)| M.9.b.
c. Other (noninterest) allocations ...............................................................| 8763 0 | M.9.c.
10. Credit losses on off-balance sheet derivatives (see instructions).................................| A251 0 | M.10.

____________
*Describe on Schedule RI-E--Explanations.

</TABLE>
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-A--Changes in Equity Capital

Indicate decreases and losses in parentheses. _________
| I483 |
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of Condition | ////////////////// |
and Income ...................................................................................... | 3215 1,342,473 | 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,342,473 | 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 58,641 | 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 0 | 5.
6. Changes incident to business combinations, net .................................................. | 4356 0 | 6.
7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 0 | 7.
8. LESS: Cash dividends declared on common stock ................................................... | 4460 10,922 | 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// |
for this schedule) .............................................................................. | 4411 0 | 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 (10,978)| 11.
12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 0 | 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// |
item 28) ........................................................................................ | 3210 1,379,214 | 14.
______________________
<FN>
____________
*Describe on Schedule RI-E--Explanations.
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses

Part I. Charge-offs and Recoveries on Loans and Leases

Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.
__________
| I486 | (-
_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4651 6,328 | 4661 3,137 | 1.a.
b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b.
2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a.
b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... | 4655 2 | 4665 21 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4645 5,700 | 4617 1,564 | 4.a.
b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 0 | 4.b.
5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures: | ////////////////// | ////////////////// |
a. Credit cards and related plans ........................................ | 4656 290 | 4666 10 | 5.a.
b. Other (includes single payment, installment, and all student loans) ... | 4657 2,187 | 4667 702 | 5.b.
6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6.
7. All other loans .......................................................... | 4644 0 | 4628 298 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ......................................... | 4658 0 | 4668 0 | 8.a.
b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b.
9. Total (sum of items 1 through 8) ......................................... | 4635 14,507 | 4605 5,732 | 9.
___________________________________________

</TABLE>
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-B--Continued

Part I. Continued

Memoranda

_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1-3. Not applicable | ////////////////// | ////////////////// |
4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 71 | 5410 667 | M.4.
5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, item1, above): | ////////////////// | ////////////////// |
a. Construction and land development ..................................... | 3582 102 | 3583 142 | M.5.a.
b. Secured by farmLand ................................................... | 3584 75 | 3585 4 | M.5.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ..................... | 5411 963 | 5412 0 | M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties ...... | 5413 2,574 | 5414 642 | M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties ............. | 3588 78 | 3589 211 | M.5.d.
e. Secured by nonfarm nonresidential properties .......................... | 3590 2,536 | 3591 2,138 | M.5.e.
|_________________________________________|

Part II. Changes in Allowance for Loan and Lease Losses
_____________________

Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income.......... | 3124 266,943 | 1.
2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 5,732 | 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 14,507 | 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 1,911 | 4.
5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 0 | 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// |
item 4.b) ..................................................................................... | 3123 260,079 | 6.
|____________________|
____________
*Describe on Schedule RI-E--Explanations.

Schedule RI-C--Applicable Income Taxes by Taxing Authority

Schedule RI-C is to be reported with the December Report of Income.
| I489 | (-
____________ ________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
1. Federal ....................................................................................... | 4780 N/A | 1.
2. State and local................................................................................ | 4790 N/A | 2.
3. Foreign ....................................................................................... | 4795 N/A | 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 N/A | 4.
____________________________| |
5. Deferred portion of item 4 ........................................ | RIAD 4772 | N/A | ////////////////// | 5.
__________________________________________________

</TABLE>

7
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-6
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-D--Income from International Operations

For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations
account for more than 10 percent of total revenues, total assets, or net income.

Part I. Estimated Income from International Operations

__________
| I492 | (-
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// |
and IBFs: | ////////////////// |
a. Interest income booked ................................................................... | 4837 N/A | 1.a.
b. Interest expense booked .................................................................. | 4838 N/A | 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// |
(item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c.
2. Adjustments for booking location of international operations: | ////////////////// |
a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c.
3. Noninterest income and expense attributable to international operations: | ////////////////// |
a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a.
b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b.
c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// |
minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d.
4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// |
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// |
the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5.
6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// |
adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8.
______________________

Memoranda ______________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1.
2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2.
______________________
</TABLE>

<TABLE>
<CAPTION>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
________________

| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1.
2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2.
3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs): | ////////////////// |
a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a.
b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b.
4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// |
domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4.
5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs) ............................................................................ | 4853 N/A | 5.
______________________
</TABLE>

8
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-E--Explanations

Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.

Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all
significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
__________
| I495 | (-
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// |
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// |
a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a.
b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b.
c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 5.f.(2): | ////////////////// |
_____________
d. | TEXT 4461 |______________________________________________________________________________| |
___________ Gain on Sale of Branches 4461 27,961 1.d.
e. | TEXT 4462 |______________________________________________________________________________| 4462 | 1.e.
___________ 4463 1.f.
f. | TEXT 4463 |______________________________________________________________________________| |
_____________
2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// |
a. Amortization expense of intangible assets ................................................ | 4531 5,424 | 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// |
b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b.
c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c.
d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 7.c: | ////////////////// |
_____________
e. | TEXT 4464 |______________________________________________________________________________| |
___________ Intercompany Data Processing & Programming Charges 4464 19,616 2.e.
f. | TEXT 4467 |______________________________________________________________________________| 4467 11,457 | 2.f.
___________ Intercompany Corporate Support Function Charges 4468 2.g.
g. | TEXT 4468 |______________________________________________________________________________| |
_____________
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// |
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// |
all extraordinary items and other adjustments): | ////////////////// |
_____________
a. (1) | TEXT 4469 |__________________________________________________________________________| 4469 | 3.a.(1)
_____________
(2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2)
_____________ ____________________________
b. (1) | TEXT 4487 |__________________________________________________________________________| 4487 | 3.b.(1)
_____________
(2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2)
_____________ ____________________________
c. (1) | TEXT 4489 |__________________________________________________________________________| 4489 | 3.c.(1)
_____________
(2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2)
____________________________
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// |
item 2) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4492 |______________________________________________________________________________| 4492 | 4.a.
___________
b. | TEXT 4493 |______________________________________________________________________________| 4493 | 4.b.
_____________
5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// |
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// |
_____________
a. | TEXT 4494 |______________________________________________________________________________| 4494 | 5.a.
___________
b. | TEXT 4495 |______________________________________________________________________________| 4495 | 5.b.
_____________
6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// |
item 10) (itemize and describe all corrections): | ////////////////// |
_____________
a. | TEXT 4496 |______________________________________________________________________________| 4496 | 6.a.
___________
b. | TEXT 4497 |______________________________________________________________________________| 4497 | 6.b.
_____________
______________________
</TABLE>

9
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RI-E--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// |
(itemize and describe all such transactions): | ////////////////// |
_____________
a. | TEXT 4498 |______________________________________________________________________________| 4498 | 7.a.
___________
b. | TEXT 4499 |______________________________________________________________________________| 4499 | 7.b.
_____________
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// |
item 5) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4521 |
|______________________________________________________________________________| 4521 | 8.a.
_____________
b. | TEXT 4522 |______________________________________________________________________________| 4522 | 8.b.
_____________
____________________
9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 | (-
______________________
at its option, any other significant items affecting the Report of Income):
___
No comment |X| (RIAD 4769)
___
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>

10
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for March 31, 1996

All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.

Schedule RC--Balance Sheet
__________
| C400 | (-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 644,422 | 1.a.
b. Interest-bearing balances(2) ............................................................ | 0071 175 | 1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 3,192 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 1,806,430 | 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// |
a. Federal funds sold ...................................................................... | 0276 0 | 3.a.
b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b.
4. Loans and lease financing receivables: ____________________________| ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 10,679,728 | ////////////////// | 4.a.
b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 260,079 | ////////////////// | 4.b.
c. LESS: Allocated transfer risk reserve ....................... | RCFD 3128 | 0 | ////////////////// | 4.c.
____________________________
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 10,419,649 | 4.d.
5. Trading assets (from schedule RC-D )........................................................ | 3545 484 | 5.
6. Premises and fixed assets (including capitalized leases) ................................... | 2145 146,450 | 6.
7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 871 | 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 6,513 | 9.
10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 283,894 | 10.
11. Other assets (from Schedule RC-F) .......................................................... | 2160 615,485 | 11.
12. Total assets (sum of items 1 through 11) ................................................... | 2170 13,927,565 | 12.
______________________
<FN>
____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>

11
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC--Continued
___________________________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
LIABILITIES | /////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... | RCON 2200 8,134,739 | 13.a.
____________________________
(1) Noninterest-bearing(1) ................................ | RCON 6631 2,366,568 | /////////////////////// | 13.a.(1)
(2) Interest-bearing ...................................... | RCON 6636 5,768,171 | /////////////////////// | 13.a.(2)
____________________________
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// |
part II) .............................................................................. | RCFN 2200 261,352 | 13.b.
____________________________
(1) Noninterest-bearing ................................... | RCFN 6631 0 | /////////////////////// | 13.b.(1)
(2) Interest-bearing ...................................... | RCFN 6636 261,352 | /////////////////////// | 13.b.(2)
____________________________
14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// |
a. Federal funds purchased ............................................................... | RCFD 0278 2,009,304 | 14.a.
b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 55,853 | 14.b.
15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 170,257 | 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 460 | 15.b.
16. Other borrowed money: | /////////////////////// |
a. With a remaining maturity of one year or less.......................................... | RCFD 2332 954,145 | 16.a.
b. With a remaining maturity of more than one year........................................ | RCFD 2333 143,887 | 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 8,762 | 17.
18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 6,513 | 18.
19. Subordinated notes and debentures ........................................................ | RCFD 3200 440,000 | 19.
20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 363,079 | 20.
21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 12,548,351 | 21.
| /////////////////////// |
22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22.
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23.
24. Common stock ............................................................................. | RCFD 3230 19,487 | 24.
25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 955,984 | 25.
26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 286,513 | 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (7,770)| 26.b.
27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27.
28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 1,379,214 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// |
and 28) .................................................................................. | RCFD 3300 13,927,565 | 29.
___________________________
</TABLE>

<TABLE>
<CAPTION>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external __________________
auditors as of any date during 1995 ............................................................... | RCFD 6724 2 | M.1.
__________________
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
<FN>
____________
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
</TABLE>

12
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-A--Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
__________
| C405 | (-
_________________________________ ________
| (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// |
coin .................................................................... | 0022 553,818 | ////////////////// | 1.
a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 418,841 | 1.a.
b. Currency and coin .................................................... | ////////////////// | 0080 134,977 | 1.b.
2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 89,741 | 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a.
b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// |
in the U.S. (including their IBFs) ................................... | 0085 89,741 | ////////////////// | 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 1,038 | 3.
a. Foreign branches of other U.S. banks ................................. | 0073 0 | ////////////////// | 3.a.
b. Other banks in foreign countries and foreign central banks ........... | 0074 1,038 | ////////////////// | 3.b.
4. Balances due from Federal Reserve Banks ................................. | 0090 0 | 0090 0 | 4.
5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// |
Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 644,597 | 0010 644,597 | 5.
___________________________________________
______________________
Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// |
column B above) .............................................................................. | 0050 89,566 | M.1.
______________________
</TABLE>

Schedule RC-B--Securities
Exclude assets held in trading accounts.

<TABLE>
<CAPTION>
_______
| C410 |

___________________________________________________________________________ ________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C> <C>
1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 843,487 | 1287 829,503 | 1.
2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
(exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a.
b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
agencies(3) ................... | 1294 0 | 1295 0 | 1297 0 | 1298 0 | 2.b.
_____________________________________________________________________________________
<FN>
_____________
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</TABLE>

13
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-B--Continued

_____________________________________________________________________________________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// |
and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// |
in the U.S.: | ////////////////// |////////////////// | ////////////////// | ////////// ////// |
a. General obligations ......... | 1676 0 |1677 0 | 1678 0 | 1679 0 | 3.a.
b. Revenue obligations ......... | 1681 42 |1686 45 | 1690 0 | 1691 0 | 3.b.
c. Industrial development ...... | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and similiar obligations ........| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c.
4. Mortgage-backed: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// |
GNMA ....................... | 1698 0 |1699 0 | 1701 849 | 1702 849 | 4.a.(1)
(2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and FHLMC ................. | 1703 0 |1705 0 | 1706 847,095 | 1707 849,756 | 4.a.(2)
(3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// |
secruities ................. | 1709 0 |1710 0 | 1711 0 | 1713 0 | 4.a.(3)
b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// |
MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
or GNMA ............... | 1714 0 |1715 0 | 1716 0 | 1717 0 | 4.b.(1)
(2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// |
guaranteed by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2)
(3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// |
backed securities ..... | 1733 0 |1734 0 | 1735 0 | 1736 0 | 4.b.(3)
5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities | 1737 0 |1738 0 | 1739 478 | 1741 475 | 5.a.
b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities ................. | 1742 2,900 |1743 2,900 | 1744 0 | 1746 0 | 5.b.
6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// |
funds ...................... | ////////////////// |////////////////// | 1747 9,427 | 1748 9,427 | 6.a.
b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// |
with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// |
able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b.
c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (1) ............. | ////////////////// |////////////////// | 1752 116,420 | 1753 116,420 | 6.c.
7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// |
through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// |
column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// |
Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// |
equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
item 2.b) ..................... | 1754 3,192 | 1771 3,195 | 1772 1,817,756 | 1773 1,806,430 | 7.
____________ |__________________________________________________________________________________|
1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.

</TABLE>
14
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-B--Continued

___________
Memoranda | C412 | (-
___________ _________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Pledged securities(2) ......................................................................... | 0416 934,681 | M.1.
2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status):| ////////////////// |
a. Fixed rate debt securities with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | 0343 5,621 | M.2.a.(1)
(2) Over three months through 12 months .................................................... | 0344 0 | M.2.a.(2)
(3) Over one year through five years ....................................................... | 0345 1,548,431 | M.2.a.(3)
(4) Over five years ........................................................................ | 0346 27,232 | M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 1,581,284 | M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | 4544 99,741 | M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 2,750 | M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3)
(4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 102,491 | M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// |
securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// |
debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 1,683,775 | M.2.c.
3. Not applicable | ////////////////// |
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// |
in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4.
5. Not applicable | ////////////////// |
6. Floating rate debt securities with a remaining maturity of one year or less(2)(4) (included in | ////////////////// |
Memorandum items 2.b(1) through 2.b.(4) above)................................................. | 5519 1,000 | M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// |
trading securities during the calendar year-to-date (report the amortized cost at date of sale. | ////////////////// |
or transfer ................................................................................... | 1778 0 | m.7.
8. High-Risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// |
accounts in Schedule RC-B, item 4.b): | ////////////////// |
a. Amortized cost ............................................................................. | 8780 0 | M.8.a.
b. Fair Value ................................................................................. | 8781 0 | M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// |
Schedule RC-B, items.2, 3, and 5): | ////////////////// |
a. Amortized cost ............................................................................. | 8782 0 | M.9.a.
b. Fair Value ................................................................................. | 8783 0 | M.9.b.
----------------------
____________
(2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.

</TABLE>

15
<PAGE>

Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State Zip: HARTFORD, CT 06115 Page RC-6

Schedule RC-C--Loans and Lease Financing Receivables

Part I. Loans and Leases

Do not deduct the allowance for loan and lease losses from amounts __________
reported in this schedule. Report total loans and leases, net of unearned _________________________________| C415 | (-
income. Exclude assets held for trading. | (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate ........................................... | 1410 3,574,653 | ////////////////// | 1.
a. Construction and land development ................................... | ////////////////// | 1415 51,282 | 1.a.
b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// |
improvements) ....................................................... | ////////////////// | 1420 307 | 1.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ................... | ////////////////// | 1797 325,605 | 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(a) Secured by first liens ...................................... | ////////////////// | 5367 2,073,517 | 1.c.(2)(a)
(b) Secured by junior liens ..................................... | ////////////////// | 5368 172,054 | 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 65,430 | 1.d.
e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 886,458 | 1.e.
2. Loans to depository institutions: | ////////////////// | ////////////////// |
a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 204,042 | 2.a.
(1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1)
(2) To other commercial banks in the U.S. ........................... | 1507 204,042 | ////////////////// | 2.a.(2)
b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 0 | 2.b.
c. To banks in foreign countries ....................................... | ////////////////// | 1510 0 | 2.c.
(1) To foreign branches of other U.S. banks ......................... | 1513 0 | ////////////////// | 2.c.(1)
(2) To other banks in foreign countries ............................. | 1516 0 | ////////////////// | 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers .... | 1590 1,568 | 1590 1,568 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ....................................... | 1763 5,397,715 | 1763 5,397,715 | 4.a.
b. To non-U.S. addressees (domicile) ................................... | 1764 0 | 1764 0 | 4.b.
5. Acceptances of other banks: | ////////////////// | ////////////////// |
a. Of U.S. banks ....................................................... | 1756 1,538 | 1756 1,538 | 5.a.
b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b.
6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 548,048 | 6.
a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// |
revolving credit plans) ............................................. | 2008 25,114 | ////////////////// | 6.a.
b. Other (includes single payment, installment, and all student loans) . | 2011 522,934 | ////////////////// | 6.b.
7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// |
foreign central banks) ................................................. | 2081 0 | 2081 0 | 7.
8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// |
subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// |
obligations) ........................................................... | 2107 27,864 | 2107 27,864 | 8.
9. Other loans ............................................................ | 1563 934,616 | ////////////////// | 9.
a. Loans for purchasing or carrying securities (secured and unsecured) . | ////////////////// | 1545 155,278 | 9.a.
b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 779,338 | 9.b.
10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 7,297 | 10.
a. Of U.S. addressees (domicile) ....................................... | 2182 7,297 | ////////////////// | 10.a.
b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 17,613 | 2123 17,613 | 11.
12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// |
10 minus item 11) (total of column A must equal Schedule RC, item 4.a) . | 2122 10,679,728 | 2122 10,679,728 | 12.
___________________________________________
</TABLE>

16
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC031
Address: 777 MAIN STREET Page: RC-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-C--Continued

Part I. Continued
___________________________________________
| (Column A) | (Column B) |
| Consolidated | Domestic |
Memoranda | Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1.
2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// |
(included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// |
or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// |
a. Loans secured by real estate: | ////////////////// | ////////////////// |
(1) To U.S. addressees (domicile) ................................... | 1687 19,431 | M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans | ////////////////// |
to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b.
c. Commercial and industrial loans to and lease financing receivables | ////////////////// |
of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// |
above ............................................................... | 8692 0 | M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// |
in nonaccrual status): | ////////////////// |
a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// |
(1) Three months or less ............................................ | 0348 4,174,641 | M.3.a.(1)
(2) Over three months through 12 months ............................. | 0349 85,961 | M.3.a.(2)
(3) Over one year through five years ................................ | 0356 965,740 | M.3.a.(3)
(4) Over five years ................................................. | 0357 1,877,648 | M.3.a.(4)
(5) Total fixed rate loans and leases (sum of | ////////////////// |
Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 7,103,990 | M.3.a.(5)
b. Floating rate loans with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently .................................... | 4554 2,937,472 | M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly . | 4555 547,425 | M.3.b.(2)
(3) Every five years or more frequently, but less frequently than | ////////////////// |
annually ........................................................ | 4561 20,958 | M.3.b.(3)
(4) Less frequently than every five years ........................... | 4564 0 | M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// |
through 3.b.(4)) ................................................ | 4567 3,505,855 | M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// |
(must equal the sum of total loans and leases, net, from | ////////////////// |
Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// |
Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// |
leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 10,609,845 | M.3.c.
d. Floating rate loans with a remaining maturity of one year or less | ////////////////// |
(included in Memorandum items 3.b.(1) through 3.b.(4) above)......... | A246 277,721 | M.3.d.
4. Loans to finance commercial real estate, construction, and land | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// |
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 47,652 | M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// |
above .................................................................. | 5369 0 | M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// |_____________________
residential properties (included in Schedule RC-C, part I, item | ////////////////// | RCON Bil Mil Thou |
| ////////////////// |____________________
1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 425,358 | M.6.
___________________________________________
<FN>
_____________________________
(1) Memorandum item 3 is not applicable to savings banks that must complete supplememtal Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A.

</TABLE>

17
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________

Schedule RC-D--Trading Assets and Liabilities _________

Schedule RC-D is to be completed only by banks with $1 billion or more intotal assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).
</TABLE>

<TABLE>
<CAPTION>
| C420 |
Dollar Amounts in Thousands ////////// Bil Mil Thou
__________________________________________________________________________________________________ _______________|________|
<S> <C> <C>
ASSETS | /////////////////////// |
1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// |
backed securities) .......................................................................... | RCON 3532 0 | 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3.
4. Mortgage-backed securities (MBS) in domestic offices ........................................ | /////////////////////// |
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// |
(include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b.
c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c.
5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5.
6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6.
7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7.
8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8.
9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9.
10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts: | /////////////////////// |
a. In domestic offices ...................................................................... | RCON 3543 484 | 11.a.
b. In foreign offices ....................................................................... | RCFN 3544 0 | 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 484 | 12.
___________________________
___________________________
| ///////// Bil Mil Thou |
LIABILITIES _________________________
13. Liability for short positions ............................................................... | RCFD 3546 0 | 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts ................................................................................... | RCFD 3547 460 | 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 460 | 15.
___________________________
</TABLE>

18
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-9
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-E--Deposit Liabilities

Part I. Deposits in Domestic Offices
__________
| C425 | (-
______________________________________________________ ________
| | Nontransaction |
| Transaction Accounts | Accounts |
_________________________________________ ____________________
| (Column A) | (Column B) | (Column C) |
| Total transaction | Memo: Total | Total |
| accounts (including| demand deposits | nontransaction |
| total demand | (included in | accounts |
| deposits) | column A) | (including MMDAs) |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou |
__________________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
Deposits of: | ////////////////// | ////////////////// | ////////////////// |
1. Individuals, partnerships, and corporations .......... | 2201 1,870,879 | 2240 1,790,783 | 2346 5,557,638 | 1.
2. U.S. Government ...................................... | 2202 32,574 | 2280 32,277 | 2520 0 | 2.
3. States and political subdivisions in the U.S. ........ | 2203 150,578 | 2290 127,109 | 2530 106,071 | 3.
4. Commercial banks in the U.S. ......................... | 2206 202,546 | 2310 202,546 | 2550 100 | 4.
5. Other depository institutions in the U.S. ............ | 2207 174,699 | 2312 174,699 | 2349 500 | 5.
6. Banks in foreign countries ........................... | 2213 318 | 2320 318 | 2236 0 | 6.
7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// |
(including foreign central banks) .................... | 2216 0 | 2300 0 | 2377 0 | 7.
8. Certified and official checks ........................ | 2330 38,836 | 2330 38,836 | ////////////////// | 8.
9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// |
columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// |
item 13.a) ........................................... | 2215 2,470,430 | 2210 2,366,568 | 2385 5,664,309 | 9.
________________________________________________________________
</TABLE>

<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// |
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 698,350 | M.1.a.
b. Total brokered deposits ..................................................................... | 2365 974,688 | M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// |
(1) Issued in denominations of less than $100,000 ........................................... | 2343 60 | M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000 | ////////////////// |
and participated out by the broker in shares of $100,000 or less ........................ | 2344 974,628 | M.1.c.(2)
d. Maturity data for brokered deposits: | ////////////////// |
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining | ////////////////// |
maturity of one year or less (included in Memorandum item 1.c.(1) above)................. | A243 40 | M.1.d.(1)
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining | ////////////////// |
maturity of one year or less (included in memorandum item 1.b above)..................... | A244 348,862 | M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// |
reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 250,556 | M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// |
equal item 9, column C above): | ////////////////// |
a. Savings deposits: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................................................... | 6810 2,070,204 | M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................. | 0352 607,255 | M.2.a.(2)
b. Total time deposits of less than $100,000 ................................................... | 6648 1,723,479 | M.2.b.
c. Time certificates of deposit of $100,000 or more ............................................ | 6645 1,263,371 | M.2.c.
d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d.
3. All NOW accounts (included in column A above) .................................................. | 2398 103,862 | M.3.
4. Not applicable.
______________________
</TABLE>

19
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-10
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
<CAPTION>
Schedule RC-E--Continued

Part I. Continued

Memoranda (continued)
_________________________________________________________________________________________________________________________________
</TABLE>

<TABLE>
<CAPTION>
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of | ////////////////// |
Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) | ////////////////// |
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: | ////////////////// |
(1) Three months or less.................................................................... | A225 606,686 | M.5.a.(1)
(2) Over three months through 12 months..................................................... | A226 797,678 | M.5.a.(2)
(3) Over one year........................................................................... | A227 271,853 | M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently............................................................ | A228 47,262 | M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly......................... | A229 0 | M.5.b.(2)
(3) Less frequently than annually........................................................... | A230 0 | M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)............... | A231 28,168 | M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates | ////////////////// |
of deposits of $100,000 or more and open-account time deposits of $100,000 or more) | ////////////////// |
(sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum | ////////////////// |
items 2.c and 2.d above):(1) | ////////////////// |
a. Fixed rate time deposits of $100,000 or more wiht a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | A232 270,543 | M.6.a.(1)
(2) Over three months through 12 months .................................................... | A233 297.457 | M.6.a.(2)
(3) Over one year through five years ....................................................... | A234 695,371 | M.6.a.(3)
(4) Over five years ........................................................................ | A235 0 | M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | A236 0 | M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | A237 0 | M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | A238 0 | M.6.b.(3)
(4) Less frequently than every five years .................................................. | A239 0 | M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)............... | A240 0 | M.6.c.
______________________
<FN>
_____________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</TABLE>

20
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-11
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-E--Continued

Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)

______________________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
Deposits of: | ////////////////// |
1. Individuals, partnerships, and corporations ................................................... | 2621 256,352 | 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 0 | 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs).... | 2625 5,000 | 3.
4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4.
5. Certified and official checks ................................................................. | 2330 0 | 5.
6. All other deposits ............................................................................ | 2668 0 | 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 261,352 | 7.

Memorandum
Dollar Amounts in Thousands |RCFN Bil Mil Thou |
1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) |A245 261,352 | M.1.
______________________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-F--Other Assets
__________
| C430 | (-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Income earned, not collected on loans ........................................................ | RCFD 2164 51,988 | 1.
2. Net deferred tax assets(1) ................................................................... | RCFD 2148 166,839 | 2.
3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 17,484 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2168 379,174 | 4.
_____________ ___________________________
a. | TEXT 3549 |____________________________________________________| RCFD 3549 | | /////////////////////// | 4.a.
___________
b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b.
___________
c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 615,485 | 5.
___________________________
<CAPTION>
Memorandum ___________________________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1.
___________________________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-G--Other Liabilities
__________
| C435 | (-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 24,670 | 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 305,857 | 1.b.
2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 0 | 2.
3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2938 32,552 | 4.
_____________ ___________________________
a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a.
___________
b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b.
___________
c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 363,079 | 5.
___________________________
<FN>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
</TABLE>

21
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-12
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
__________
| C440 | (-
____________ ________
| Domestic Offices |
____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 6,513 | 1.
2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 6,513 | 2.
3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 0 | 3.
4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 2,065,157 | 4.
5. Other borrowed money ............................................................................ | 3190 1,098,032 | 5.
EITHER | ////////////////// |
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6.
OR | ////////////////// |
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 261,771 | 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 13,927,565 | 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 12,286,580 | 9.
______________________

</TABLE>

Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________
| RCON Bil Mil Thou |
____________________
<S> <C> <C>
10. U.S. Treasury securities ....................................................................... | 1779 829,753 | 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// |
securities) .................................................................................... | 1785 0 | 11.
12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 42 | 12.
13. Mortgage-backed securities (MBS): | ////////////////// |
a. Pass-through securities: | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 850,605 | 13.a.(1)
(2) Other pass-through securities ........................................................... | 1869 0 | 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 0 | 13.b.(1)
(2) All other mortgage-backed securities..................................................... | 2253 0 | 13.b.(2)
14. Other domestic debt securities ................................................................. | 3159 475 | 14.
15. Foreign debt securities ........................................................................ | 3160 2,900 | 15.
16. Equity securities: | ////////////////// |
a. Investments in mutual funds ................................................................. | 3161 9,427 | 16.a.
b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b.
c. All other equity securities ................................................................. | 3169 116,420 | 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 1,809,622 | 17.
______________________

</TABLE>

<TABLE>
<CAPTION>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)

______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
EITHER | ////////////////// |
1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 N/A | M.1.
OR | ////////////////// |
2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2.
______________________
</TABLE>

22
<PAGE>

<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-13
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-I--Selected Assets and Liabilities of IBFs

To be completed only by banks with IBFs and other "foreign" offices. __________
| C445 | (-
____________ ________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. | 2133 N/A | 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// |
column A) ...................................................................................... | 2076 N/A | 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... | 2077 N/A | 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... | 2898 N/A | 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// |
part II, items 2 and 3) ........................................................................ | 2379 N/A | 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... | 2381 N/A | 6.
______________________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-K--Quarterly Averages (1)
__________
| C455 | (-
_________________ ________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
ASSETS | /////////////////////// |
1. Interest-bearing balances due from depository institutions ............................... | RCFD 3381 1,841 | 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ....... | RCFD 3382 2,327,287 | 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... | RCFD 3383 42 | 3.
4. a. Other debt securities(2) .............................................................. | RCFD 3647 537,639 | 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . | RCFD 3648 124,253 | 4.b.
5. Federal funds sold and securities purchased under agreements to resell in domestic offices | /////////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs ...................... | RCFD 3365 24,049 | 5.
6. Loans: | /////////////////////// |
a. Loans in domestic offices: | /////////////////////// |
(1) Total loans ....................................................................... | RCON 3360 11,036,031 | 6.a.(1)
(2) Loans secured by real estate ...................................................... | RCON 3385 3,924,553 | 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers ............... | RCON 3386 1,787 | 6.a.(3)
(4) Commercial and industrial loans ................................................... | RCON 3387 5,456,987 | 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ....... | RCON 3388 620,136 | 6.a.(5)
| /////////////////////// |
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. | RCFN 3360 0 | 6.b.
7. Trading assets ........................................................................... | RCFD 3401 658 | 7.
8. Lease financing receivables (net of unearned income) ..................................... | RCFD 3484 9,155 | 8.
9. Total assets (4) ......................................................................... | RCFD 3368 15,745,746 | 9.
LIABILITIES | /////////////////////// |
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// |
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. | RCON 3485 145,491 | 10.
11. Nontransaction accounts in domestic offices: | /////////////////////// |
a. Money market deposit accounts (MMDAs) ................................................. | RCON 3486 1,367,351 | 11.a.
b. Other savings deposits ................................................................ | RCON 3487 1,715,719 | 11.b.
c. Time certificates of deposit of $100,000 or more ...................................... | RCON 3345 1,290,422 | 11.c.
d. All other time deposits ............................................................... | RCON 3469 2,270,162 | 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. | RCFN 3404 357,799 | 12.
13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs .............. | RCFD 3353 2,634,782 | 13.
14. Other borrowed money ..................................................................... | RCFD 3355 1,058,218 | 14.
___________________________
<FN>
_____________
(1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized cost.
(3) Quarterly averages for all equity securities should be based on historical cost.
(4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized
cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
</TABLE>

23
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-14
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-L--Off-Balance Sheet Items

Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts
reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________
| C460 | (-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unused commitments: | ////////////////// |
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// |
equity lines ............................................................................... | 3814 404,731 | 1.a.
b. Credit card lines .......................................................................... | 3815 0 | 1.b.
c. Commercial real estate, construction, and land development: | ////////////////// |
(1) Commitments to fund loans secured by real estate ....................................... | 3816 112,242 | 1.c.(1)
(2) Commitments to fund loans not secured by real estate ................................... | 6550 4,610 | 1.c.(2)
d. Securities underwriting .................................................................... | 3817 0 | 1.d.
e. Other unused commitments ................................................................... | 3818 5,996,651 | 1.e.
2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 1,038,270 | 2.
___________________________
a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 1,075 | ////////////////// | 2.a.
___________________________
3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 48,181 | 3.
a. Amount of performance standby letters of credit conveyed to | ////////////////// |
___________________________
others .......................................................... | RCFD 3822 | 0 | ////////////////// | 3.a.
___________________________
4. Commercial and similar letters of credit ...................................................... | 3411 129,940 | 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// |
the reporting bank ............................................................................ | 3428 0 | 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// |
(nonaccepting) bank ........................................................................... | 3429 0 | 6.
7. Securities borrowed ........................................................................... | 3432 0 | 7.
8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// |
against loss by the reporting bank) ........................................................... | 3433 0 | 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for | ////////////////// |
Call Report purposes: | ////////////////// |
a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 60,259 | 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 54,182 | 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 0 | 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 0 | 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2)
d. Small business obligations transferred with recourse under Section 208 of the | ////////////////// |
Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// |
(1) Outstanding principal balance of small business obligations transferred | ////////////////// |
as of the report date................................................................... | A249 0 | 9.d.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. | A250 0 | 9.d.(2)
10. When-issued securities: | ////////////////// |
a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a.
b. Gross commitments to sell .................................................................. | 3435 0 | 10.b.
11. Spot foreign exchange contracts ............................................................... | 8765 0 | 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives ) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12.
a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a.

b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b.
___________
c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c.
_____________
d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d.
_____________

Dollar Amounts in Thousands RCFD Bil Mil Thou
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital") | 5591 0 | 13.

_____________ __________________________
a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a.
___________
b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b.
___________
c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c.
_____________
d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d.
_____________
________________________________________________

</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Schedule RC-L -- Continued

_____________
| C461 | (-
_________________________________________ ____________________________|___________|
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
items 14.a through 14.e must equal| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________|
a. Future contracts .............. | 0 | 0 | 0 | 0 | 14.a.
| RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 |
b. Forward contracts ............. | 0 | 0 | 0 | 0 | 14.b.
| RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 |
c. Exchange-traded option contracts| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1)
| RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 |
(2) Purchased options ........ | 0 | 0 | 0 | 0 | 14.c.(2)
| RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 |
d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// |
(1) Written options .......... | 68,500 | 0 | 0 | 0 | 14.d.(1)
| RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 |
(2) Purchased options ........ | 368,500 | 0 | 0 | 0 | 14.d.(2)
| RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 |
e. Swaps ............................ | 4,553,328 | 0 | 0 | 0 | 14.e.
| RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 |
15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading ......................... | 160,000 | 0 | 0 | 0 | 15.
| RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 |
16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
a. Contracts marked to market ... | 0 | 0 | 0 | 0 | 16.a.
| RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 |
b. Contracts not marked to market | 4,830,328 | 0 | 0 | 0 | 16.b.
| RCFD 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 |
___________________________________________________________________________________|
</TABLE>

25
<PAGE>

Schedule RC-L -- Continued
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in thousands |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8733 484 | 8734 0 | 8735 0 | 8736 0 | 17.a.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8737 460 | 8738 0 | 8739 0 | 8740 0 | 17.a.(2)
b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8741 0 | 8742 0 | 8743 0 | 8744 0 | 17.b.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8745 0 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2)
c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value .................. | 8749 5,594 | 8750 0 | 8751 0 | 8752 0 | 17.c.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8753 44,514 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2)
|__________________________________________________________________________________|

______________________
Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou |
_________________________________________________________________________________________________________________________
1. -2. Not applicable | ////////////////// |
3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// |
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// |
that are fee paid or otherwise legally binding) ................................................ | 3833 4,493,867 | M.3.
a. Participations in commitments with an original maturity | ////////////////// |
exceeding one year conveyed to others ................................|RCFD 3834 | 93,830 | ////////////////// | M.3.a.
________________________
4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// |
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above .............. | 3377 317,126 | M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// |
have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// |
by type of loan: | ////////////////// |
a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// |
September report only)....................................................................... | 2741 N/A | M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... | 2742 0 | M.5.b.
c. All other consumer installment credit (including mobile home loans)(to be completed for the | ////////////////// |
September report only........................................................................ | 2743 N/A | M.5.c

</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-17
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9| _____________
| C465 |
_________|___________|
Schedule RC-M--Memoranda | |
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// |
shareholders, and their related interests as of the report date: | ////////////////// |
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// |
shareholders and their related interests ..................................................... | 6164 159,583 | 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// |
extensions of credit by the reporting bank (including extensions of credit to | ////////////////// |
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// |
___________________________| ////////////////// |
of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 7 | ////////////////// |
___________________________| ////////////////// | 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// |
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2.
3. Not applicable. | ////////////////// |
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// |
(include both retained servicing and purchased servicing): | ////////////////// |
a. Mortgages serviced under a GNMA contract ...................................................... | 5500 20,866 | 4.a.
b. Mortgages serviced under a FHLMC contract: | ////////////////// |
(1) Serviced with recourse to servicer ........................................................ | 5501 11,305 | 4.b.(1)
(2) Serviced without recourse to servicer ..................................................... | 5502 1,163,045 | 4.b.(2)
c. Mortgages serviced under a FNMA contract: | ////////////////// |
(1) Serviced under a regular option contract .................................................. | 5503 48,954 | 4.c.(1)
(2) Serviced under a special option contract .................................................. | 5504 2,112,518 | 4.c.(2)
d. Mortgages serviced under other servicing contracts ............................................ | 5505 3,306,908 | 4.d.
5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// |
equal Schedule RC, item 9): | ////////////////// |
a. U.S. addressees (domicile) .................................................................... | 2103 6,513 | 5.a.
b. Non-U.S. addressees (domicile) ................................................................ | 2104 0 | 5.b.
6. Intangible assets: | ////////////////// |
a. Mortgage servicing rights ..................................................................... | 3164 28,816 | 6.a.
b. Other identifiable intangible assets: | ////////////////// |
(1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1)
(2) All other identifiable intangible assets .................................................. | 5507 0 | 6.b.(2)
c. Goodwill ...................................................................................... | 3163 255,078 | 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 283,894 | 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// |
are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// |
redeem the debt ...................................................................................| 3295 0 | 7.
______________________

- ------------
(1) Do not report federal funds sold and securities purchased under agreements to resell with other
commercial banks in the U.S. in this item.

</TABLE>
27
<PAGE>

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATINAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-18
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Schedule RC-M--Continued ________________________
Dollar Amounts in Thousands | Bil Mil Thou|
_____________________________________________________________________________________________ |_______________________|
<S> <C> C>
8. a. Other real estate owned: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1)
(2) All other real estate owned: | /////////////////////// |
(a) Construction and land development in domestic offices ....................... | RCON 5508 74 | 8.a.(2)(a)
(b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 596 | 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 192 | 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 9 | 8.a.(2)(e)
(f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 871 | 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// |
item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 0 | 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// |
proprietary, private label, and third party products): | /////////////////////// |
a. Money market funds .................................................................. | RCON 6441 0 | 10.a.
b. Equity securities funds ............................................................. | RCON 8427 0 | 10.b.
c. Debt securities funds ............................................................... | RCON 8428 0 | 10.c.
d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d.
e. Annuities ........................................................................... | RCON 8430 0 | 10.e.
f. Sales of proprietary mutual funds and annuities (included in itmes 10.a through | /////////////////////// |
10.e. above) ........................................................................... | RCON 8784 0 | 10.f.
_________________________
</TABLE>

<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
| |
______________________
|Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
|1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | |
| a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 N/A | M.1.a. |
| b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 N/A | M.1.b. |
______________________
| |
_________________________________________________________________________________________________________________________________
</TABLE>

28
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-19
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets

The FFIEC regards the information reported in __________
all of Memorandum item 1, in items 1 through 10, | C470 | (-
column A, and in Memorandum items 2 through 4, ______________________________________________________ ________
column A, as confidential. | (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
| accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1245 | 1246 18,232 | 1247 53,840 | 1.a.
b. To non-U.S. addressees (domicile) ............ | 1248 | 1249 0 | 1250 0 | 1.b.
2. Loans to depository institutions and | ////////////////// | ////////////////// | ////////////////// |
acceptances of other banks: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository | ////////////////// | ////////////////// | ////////////////// |
institutions ................................. | 5377 | 5378 0 | 5379 0 | 2.a.
b. To foreign banks ............................. | 5380 | 5381 0 | 5382 0 | 2.b.
3. Loans to finance agricultural production and | ////////////////// | ////////////////// | ////////////////// |
other loans to farmers .......................... | 1594 | 1597 0 | 1583 100 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1251 | 1252 1,756 | 1253 31,162 | 4.a.
b. To non-U.S. addressees (domicile) ............ | 1254 | 1255 0 | 1256 0 | 4.b.
5. Loans to individuals for household, family, and | ////////////////// | ////////////////// | ////////////////// |
other personal expenditures: | ////////////////// | ////////////////// | ///////////////// |
a. Credit cards and related plans ............... | 5383 | 5384 183 | 5385 184 | 5.a.
b. Other (includes single payment, installment, | ////////////////// | ////////////////// | ////////////////// |
and all student loans) ....................... | 5386 | 5387 1,542 | 5388 2,138 | 5.b.
6. Loans to foreign governments and official | ////////////////// | ////////////////// | ////////////////// |
institutions .................................... | 5389 | 5390 0 | 5391 0 | 6.
7. All other loans ................................. | 5459 | 5460 253 | 5461 72 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ................ | 1257 | 1258 0 | 1259 0 | 8.a.
b. Of non-U.S. addressees (domicile) ............ | 1271 | 1272 0 | 1791 0 | 8.b.
9. Debt securities and other assets (exclude other | ////////////////// | ////////////////// | ////////////////// |
real estate owned and other repossessed assets) . | 3505 | 3506 0 | 3507 0 | 9.
________________________________________________________________
</TABLE>

<TABLE>
<CAPTION>
====================================================================================================================================

Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.

________________________________________________________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
10. Loans and leases reported in items 1 | | | |
through 8 above which are wholly or partially | ////////////////// | ////////////////// | ////////////////// |
guaranteed by the U.S. Government ............... | 5612 | 5613 324 | 5614 317 | 10.
a. Guaranteed portion of loans and leases | ////////////////// | ////////////////// | ////////////////// |
included in item 10 above .................... | 5615 | 5616 256 | 5617 263 | 10.a.
________________________________________________________________
</TABLE>

29
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-20
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-N--Continued
__________
| C473 | (-
______________________________________________________ ________
| (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
Memoranda | accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Restructured loans and leases included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 1 through 8, above (and not | ////////////////// | /////////////////// | ///////////////// |
reported in Schedule RC-C, part I, Memorandum | ////////////////// | /////////////////// | ///////////////// |
item 2) ......................................... | 1658 | | | M.1.
2. Loans to finance commercial real estate, | ////////////////// | /////////////////// | ///////////////// |
construction, and land development activities | ////////////////// | /////////////////// | ///////////////// |
(not secured by real estate) included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 4 and 7, above ............. | 6558 | 6559 593 | 6560 26 | M.2.
|____________________|____________________ |___________________
3. Loans secured by real estate in domestic offices | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou|
|___________________ |____________________ ____________________
(included in Schedule RC-N, item 1, above): | ////////////////// | ////////////////// | ////////////////// |
a. Construction and land development ............ | 2759 | 2769 0 | 3492 1,108 | M.3.a.
b. Secured by farmland .......................... | 3493 | 3494 0 | 3495 0 | M.3.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by | ////////////////// | ////////////////// | ////////////////// |
1-4 family residential properties and | ////////////////// | ////////////////// | ////////////////// |
extended under lines of credit ........... | 5398 | 5399 1,772 | 5400 2,746 | M.3.c.(1)
(2) All other loans secured by 1-4 family | ////////////////// | ////////////////// | ////////////////// |
residential properties ................... | 5401 | 5402 12,822 | 5403 13,798 | M.3.c.(2)
d. Secured by multifamily (5 or more) | ////////////////// | ////////////////// | ////////////////// |
residential properties ....................... | 3499 | 3500 1,426 | 3501 1,352 | M.3.d.
e. Secured by nonfarm nonresidential properties . | 3502 | 3503 2,212 | 3504 34,836 | M.3.e.
________________________________________________________________
</TABLE>

<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
| Past due 30 | Past due 90 |
| through 89 days | days or more |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other | ////////////////// | ////////////////// |
commodity and equity contracts: | ////////////////// | ////////////////// |
a. Book value of amounts carried as assets ...... | 3522 | 3528 0 | M.4.a.
b. Replacement cost of contracts with a | ////////////////// | ////////////////// |
positive replacement cost .................... | 3529 | 3530 0 | M.4.b.
___________________________________________
</TABLE>

30
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-21
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION> ______________________
Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 |
|____________________|
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unposted debits (see instructions): | ////////////////// |
a. Actual amount of all unposted debits ...................................................... | 0030 0 | 1.a.
OR | ////////////////// |
b. Separate amount of unposted debits: | ////////////////// |
(1) Actual amount of unposted debits to demand deposits ................................... | 0031 N/A | 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 N/A | 1.b.(2)
2. Unposted credits (see instructions): | ////////////////// |
a. Actual amount of all unposted credits ..................................................... | 3510 0 | 2.a.
OR | ////////////////// |
b. Separate amount of unposted credits: | ////////////////// |
(1) Actual amount of unposted credits to demand deposits .................................. | 3512 N/A | 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 N/A | 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 3520 28,655 | 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// |
Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// |
a. Demand deposits of consolidated subsidiaries .............................................. | 2211 3,266 | 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 5,000 | 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 2 | 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// |
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b.
c. Interest accrued and unpaid on deposits in insured branches | ////////////////// |
(included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c.
______________________
______________________
Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// |
Federal Reserve to act as pass-through correspondents. | ////////////////// |
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// |
behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// |
of the reporting bank: | ////////////////// |
a. Amount reflected in demand deposits (included in Schedule RC-E, item 4 or 5, column B)..... | 2314 0 | 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, | ////////////////// |
item 4 or 5, column A or C, but not column B).............................................. | 2315 0 | 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// |
a. Unamortized premiums ...................................................................... | 5516 0 | 7.a.
b. Unamortized discounts ..................................................................... | 5517 0 | 7.b.
______________________

_______________________________________________________________________________________________________________________________
| |
|8. To be completed by banks with "Oakar deposits." |
______________________
| Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | |
| the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 864,186 | 8. |
______________________
| |
_______________________________________________________________________________________________________________________________
______________________
9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 8432 0 | 10.
______________________
<FN>
______________
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction
accounts and all transaction accounts other than demand deposits.
</TABLE>

31
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-22
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-O--Continued

Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// |
certain reciprocal demand balances: | ////////////////// |
a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// |
between the reporting bank and savings associations were reported on a net basis | ////////////////// |
rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// |
between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// |
reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// |
collections were included in the calculation of net reciprocal demand balances between | ////////////////// |
the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// |
in Schedule RC-E ............................................................................ | A182 0 | 11.c.
____________________

Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou |
________________________________________________________________________________________________|____________________|
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a. (1) and | ////////////////// |
1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// |
a. Deposits accounts of $100,000 or less: | ////////////////// |
(1) amount of deposit accounts of $100,000 or less .................................... | 2702 4,389,311 | M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// |
completed for the June report only) ..........................|RCON 3779________N/A | ////////////////// | M.1.a.(2)
b. Deposit accounts of more than $100,000: | ////////////////// |
(1) Amount of deposit accounts of more than $100,000 .................................. | 2710 3,745,428 | M.1.b.(1)
Number | ////////////////// |
(2) Number of deposit accounts of more than $100,000 .............|RCON 2722______6,366 | ////////////////// | M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by mutiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.

Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits that the ____________YES_______NO__
estimated described above ............................................................... |RCON 6861| |///| x | M.2.a.

____________________
b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou|
determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b.

_____________________________________________________________________________________________________________________________
| C477 | (-
Person to whom questions about the Reports of Condition and Income should be directed: __________

PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
___________________________________________________________________________________ ______________________________________
Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)

</TABLE>

32
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-23
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-R--Regulatory Capital

This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than
$1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
<S> <C>
____________
| C480 | (-
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed _____|__________|
only by banks with total assets of less than $1 billion. Indicate in the appropriate | YES NO |
box at the right whether the bank has total capital greater than or equal to eight percent___________ _______________
of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1.
_____________________________
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>

<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
|Subordinated Debt(1)| Other |
| and Intermediate | Limited- |
Items 2 and 3 are to be completed by all banks. | Term Preferred | Life Capital |
| Stock | Instruments |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital instruments (original | ////////////////// | ////////////////// |
weighted average maturity of at least five years) with a remaining | ////////////////// | ////////////////// |
maturity of: | ////////////////// | ////////////////// |
a. One year or less ...................................................... | 3780 0 | 3786 0 | 2.a.
b. Over one year through two years ....................................... | 3781 0 | 3787 0 | 2.b.
c. Over two years through three years .................................... | 3782 0 | 3788 0 | 2.c.
d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d.
e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e.
f. Over five years ....................................................... | 3785 440,000 | 3791 0 | 2.f.
3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | ////////////////// |
determined by the bank for its own internal regulatory capital analyses): | ////////////////// | RCFD Bil Mil Thou |
a. Tier 1 capital......................................................... | ////////////////// | 8274 1,131,906 | 3.a.
b. Tier 2 capital......................................................... | ////////////////// | 8275 614,539 | 3.b.
c. Total risk-based capital............................................... | ////////////////// | 3792 1,746,445 | 3.c.
d. Excess allowance for loan and lease losses............................. | ////////////////// | A222 85,540 | 3.d.
e. Risk-weighted assets................................................... | ////////////////// | A223 13,877,543 | 3.e.
f. "Average total assets"................................................. | ////////////////// | A224 15,490,668 | 3.f.
___________________________________________
| (Column A) | (Column B) |
Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- |
by banks that answered NO to item 1 above and | Recorded | alent Amount |
by banks with total assets of $1 billion or more. | on the | of Off-Balance |
| Balance Sheet | Sheet Items(2) |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
4. Assets and credit equivalent amounts of off-balance sheet items assigned | | |
to the Zero percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// |
guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// |
OECD central governments .......................................... | 3794 848,861 | ////////////////// | 4.a.(1)
(2) All other ......................................................... | 3795 168,507 | ////////////////// | 4.a.(2)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 0 | 4.b.
___________________________________________
<FN>
______________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in column A.
</TABLE>

33
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-24
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>

<TABLE>
<CAPTION>
Schedule RC-R--Continued
___________________________________________
| (Column A) | (Column B) |
| Assets | Credit Equiv- |
| Recorded | alent Amount |
| on the | of Off-Balance |
| Balance Sheet | Sheet Items(1) |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 20 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// |
agencies and other OECD central governments ....................... | 3798 21,083 | ////////////////// | 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// |
ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// |
securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// |
by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2)
(3) All other ......................................................... | 3800 1,567,242 | ////////////////// | 5.a.(3)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 67,114 | 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 50 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3802 2,037,765 | ////////////////// | 6.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 116,963 | 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 100 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3804 9,551,472 | ////////////////// | 7.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 3,288,367 | 7.b.
8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// |
risk-based capital ratio(2) .............................................. | 3806 (7,286)| ////////////////// | 8.
9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// |
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// |
item 12 plus items 4.b and 4.c) .......................................... | 3807 14,187,644 | ////////////////// | 9.
___________________________________________

Memoranda
______________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// |
risked-based capital standards ...................................................................| 8764 6,077| M.1.
|___________________|

________________________________________________________________
| With a remaining maturity of |
|______________________________________________________________|
| (Column A) | (Column B) | (Column C) |
| | | |
| One year or less | Over one year | Over five years |
| | through five years | |
|______________________________________________________________|
|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|
|____________________|____________________|____________________|
2. Notional principal amounts of
off-balance sheet derivative contracts(3):| | | |
a. Interest rate contracts ................. | 3809 1,308,203 | 8766 3,328,625 | 8767 0 | M.2.a.
b. Foreign exchange contracts .............. | 3812 0 | 8769 0 | 8770 0 | M.2.b.
c. Gold contracts .......................... | 8771 0 | 8772 0 | 8773 0 | M.2.c.
d. Other precious metals contracts ......... | 8774 0 | 8775 0 | 8776 0 | M.2.d.
e. Other commodity contracts ............... | 8777 0 | 8778 0 | 8779 0 | M.2.e.
f. Equity derivative contracts ............. | A000 0 | A001 0 | A002 0 | M.2.f.
|______________________________________________________________|

_________________
1) Do not report in column B the risk-weighted amount of assets reported in column A.
2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report
the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or
portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as
any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital.
3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.

</TABLE>

34
<PAGE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- -------------------------------------------------------------------------------------------------------------------------------
| OMB No. For OCC: 1557-0081
Name and address of Bank | OMB No. For FDIC: 3064-0052
| OMB No. For Federal Reserve: 7100-0036
| Expiration Date: 3/31/96
|
PLACE LABEL HERE |
| SPECIAL REPORT
| (Dollar Amounts in Thousands)
|
|___________________________________________________________________
| CLOSE OF BUSINESS| FDIC Certificate Number | |
| DATE | | C-700 | (-
| 12/31/95 | |0|2|4|9|9 | |
__________________________________________________________________________________________________________________________________
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ----------------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of Condition.
With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to
their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none"
against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See
Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation 0) for the definitions
of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and
principal shareholders who are not executive officers.
________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________
SIGNATURE OF TITLE OF OFFICER AUTHORIZED TO SIGN REPORT | DATE (Month, Day, Year)
|
|
________________________________________________________________________________________________________________________________
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) | AREA CODE/PHONE NUMBER/EXTENSION
| (TEXT 8904)
|
ROBERT P. DUFF VICE PRESIDENT | (203) 986-2474
|
________________________________________________________________________________________________________________________________
FDIC 8040/53 (6-95)

</TABLE>
<PAGE>

<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State, Zip: HARTFORD, CT 06115 Page RC-25
FDIC Certificate No.: 02499

Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on March 31, 1996

</TABLE>

FLEET NATIONAL BANK OF CONNECTICUT HARTFORD , CONNECTICUT
Legal Title of Bank City State

The management of the reporting bank may, if it wishes, submit a brief
narrative statement on the amounts reported in the Reports of Condition and
Income. This optional statement will be made available to the public, along
with the publicly available data in the Reports of Condition and Income, in
response to any request for individual bank report data. However, the
information reported in column A and in all of Memorandum item 1 of Schedule
RC-N is regarded as confidential and will not be released to the public.
BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL
BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS
IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE
MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks
choosing not to make a statement may check the "No comment" box below and
should make no entries of any kind in the space provided for the narrative
statement; i.e., DO NOT enter in this space such phrases as "No statement,"
"Not applicable," "N/A," "No comment," and "None."

The optional statement must be entered on this sheet. The statement should
not exceed 100 words. Further, regardless of the number of words, the
statement must not exceed 750 characters, including punctuation, indentation,
and standard spacing between words and sentences. If any submission should
exceed 750 characters, as defined, it will be truncated at 750 characters with
no notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.

All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.

If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.

The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
_____________________________________________________________________________
No comment |X| )RCON 6979) | c471 | C472 |

BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)

__Gero DeRosa_______________________________ ___4/25/96________
Signature of Executive Officer of Bank Date of Signature