Document:

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                                                                   EXHIBIT 10.24

                              INVESTMENT AGREEMENT

                                October __, 2002

Sterling Chemicals Holdings, Inc.
Sterling Chemicals, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 77002

Attention:  David G. Elkins

Gentlemen:

                  This Investment Agreement (as the same may hereafter be
amended, modified or supplemented, this "Agreement") sets forth the agreement
among Sterling Chemicals Holdings, Inc., a Delaware corporation ("Holdings"),
Sterling Chemicals, Inc., a Delaware corporation (including, on or after the
Effective Date, as defined herein, its successor as reorganized pursuant to the
Bankruptcy Code, as defined herein, "Chemicals") (Holdings and Chemicals
collectively, the "Company"), and Resurgence Asset Management, L.L.C., a
Delaware limited liability company ("RAM") on behalf of itself and its
Affiliates' managed funds and accounts (such funds and accounts, collectively,
the "Investor").

                  The Company hereby agrees to issue and sell to Investor, and
RAM agrees to cause Investor to purchase from the Company, on the terms and
conditions contained herein and in the Plan (as defined below), and subject to
entry of the Confirmation Order (as defined below), 2,175 shares of the
Company's liquidation preference convertible preferred stock (the "New SCI
Preferred Shares"), convertible into 43.5% of the Company's common equity issued
and outstanding as of the Effective Date (assuming the conversion of all New SCI
Preferred Shares), for an aggregate of $30,000,000 in cash. In addition, on the
terms and conditions contained herein and in the Plan, and subject to the
procedures governing the proposed offering (the "Subscription Rights Offering")
to holders (collectively, the "Unsecured Holders") of General Unsecured Claims,
Old Unsecured Note Claims and Self-Insured Tort Claims (as such terms are
defined in the Plan) of subscription rights entitling the Unsecured Holders to
purchase up to 43.5% of the common stock of the Company assuming the conversion
of all New SCI Preferred Shares (the "Subscription Shares") for an exercise
price of $1,000 per right (the "Subscription Rights" and any Subscription Rights
not subscribed for by such Unsecured Holders for any reason, including, without
limitation, any Subscription Rights not subscribed for as a result of any
recalculation of the "Eligible Claim Amount", as such term is described in
Exhibit F to the Plan, the "Unsubscribed Subscription Rights"), RAM agrees to
cause Investor to subscribe for any Unsubscribed Subscription Rights, and to
purchase all Underwritten Subscription Shares (as defined below). RAM shall
cause Investor to pay to Chemicals for the Underwritten Subscription Shares an
amount in cash

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determined by multiplying the Subscription Price (as defined below) by the total
number of Subscription Rights exercisable for the Underwritten Subscription
Shares. The terms of the New SCI Preferred Shares, the New SCI Common Shares (as
defined below) and the Subscription Rights shall be as set forth in the Plan and
in the Term Sheet attached as Appendix A hereto.

                  Investor's purchase of the New SCI Preferred Shares and the
Underwritten Subscription Shares (collectively, the "Investment") will be made
in connection with and as part of the transactions to be consummated pursuant to
the amended plan of reorganization of the Company dated October 11, 2002, as the
same may be later modified with the consent of RAM (the "Plan") and an order
confirming the Plan (the "Confirmation Order") issued by the Bankruptcy Court
(as defined in the Plan). The Plan will contain provisions called for by, or
otherwise consistent with, this Agreement.

                  SECTION 1. Definitions.

                  For purposes of this Agreement, except as expressly provided
herein or unless the context otherwise requires, the following terms shall have
the following respective meanings (capitalized terms not otherwise defined
herein shall have the meanings set forth for such terms in the Plan):

                  "Affiliate" shall mean (a) when used with reference to any
partnership, any Person that, directly or indirectly, owns or controls 10% or
more of either the capital or profit interests of such partnership or is a
partner of such partnership or is a Person in which such partnership has a 10%
or greater direct or indirect equity interest and (b) when used with reference
to any corporation, any Person that, directly or indirectly, owns or controls
10% or more of the outstanding voting securities of such corporation or is a
Person in which such corporation has a 10% or greater direct or indirect equity
interest. In addition, the term "Affiliate," when used with reference to any
Person, shall also mean any other Person that, directly or indirectly, controls
or is controlled by or is under common control with such Person. As used in the
preceding sentence, (x) the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of the entity referred to, whether through ownership of voting
securities, by contract or otherwise and (y) the terms "controlling" and
"controls" shall have meanings correlative to the foregoing. Notwithstanding the
foregoing, the Company will not be deemed to be an Affiliate of Investor or any
of its partners or assignees.

                  "Agreement" shall have the meaning specified in the first
paragraph of this Agreement.

                  "Alternate Bid" shall have the meaning specified in Section
17(b).

                  "Alternate Bid Procedures" shall have the meaning specified in
Section 17(b).

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                  "Alternative Plan" shall mean a plan of reorganization (other
than the Plan) that does not include Investor and/or funds managed by Investor
as the sole new money underwriter.

                  "Approvals" shall mean all approvals, permits, authorizations,
consents, licenses and agreements that are necessary or required in order to
consummate the Investment and the other transactions contemplated hereby and to
permit the Company to carry on its business after the Effective Date in a manner
consistent in all material respects with the manner in which it was carried on
prior to the Effective Date.

                  "Chemicals" shall have the meaning specified in the first
paragraph of this Agreement.

                  "Company" shall have the meaning specified in the first
paragraph of this Agreement.

                  "Deposit" shall have the meaning specified in Section 13(e).

                  "Designated Directors, Officers and Employees" shall mean (a)
each director, officer and employee of each of the Debtors that serves in such
capacity at any time on or after the date hereof and (b) each director, officer
or employee of each of the Debtors that serves as a fiduciary of any employee
benefit plan or program of any of the Debtors at any time on or after the date
hereof.

                  "Disclosure Statement" shall mean the disclosure statement
with respect to the Plan dated October 11, 2002, as the same may be later
modified with the consent of Investor.

                  "Eligible Claim Amount" shall mean $15,849.98, subject to
recalculation as set forth in the Plan and the Disclosure Statement.

                  "Escrow Agreement" shall have the meaning specified in Section
13(e).

                  "Governmental Authority" shall mean (a) any nation or
government, (b) any federal, state, county, locality, province, city, town,
municipality, commonwealth, territory, possession or other political subdivision
thereof, (c) any agency, authority, instrumentality, council, court, tribunal,
arbitrator, department, bureau, commission, board or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and (d) any other governmental entity, agency or
authority having or exercising jurisdiction over any relevant Person, item or
matter.

                  "Holdings" shall have the meaning specified in the first
paragraph of this Agreement.

                  "Initial Order" shall mean the order or orders to be obtained
by the Company pursuant to Section 16 with respect to expenses and the break-up
fee.

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                  "Investment" shall have the meaning specified in the third
paragraph of this Agreement.

                  "Investor" shall have the meaning specified in the first
paragraph of this Agreement.

                  "Investor Securities" shall mean the New SCI Preferred Shares
and the Underwritten Subscription Shares.

                  "Outside Date" shall mean June 30, 2003.

                  "Permitted Transactions" shall have the meaning set forth in
Section 19(b).

                  "Plan" shall have the meaning specified in the third paragraph
of this Agreement.

                  "Preferred Shares Purchase Price" shall have the meaning
specified in Section 3.

                  "Present DIP Financing" shall have the meaning set forth in
Section 18(b)(F).

                  "Regulatory Approvals" shall mean all Approvals required to be
obtained from, or notices to or registrations or filings with, any Governmental
Authority.

                  "SEC" shall mean the United States Securities and Exchange
Commission.

                  "Securities Act" shall mean the Securities Act of 1933, as
amended.

                  "Subscription Price" shall mean the $1,000 cash subscription
price per 72.5 New SCI Common Shares distributed upon exercise of each
Subscription Right.

                  "Subscription Rights" shall have the meaning set forth in the
second paragraph of this Agreement.

                  "Subscription Shares" shall have the meaning set forth in the
second paragraph of this Agreement.

                  "Term Sheet" shall mean the term sheet dated as of September
4, 2002, among Investor, the Company, the Unofficial Secured Noteholders
Committee and the Creditors Committee, a copy of which is included as Appendix A
hereto.

                  "Total Purchase Price" shall mean, collectively, (a) the
Preferred Shares Purchase Price and (b) the aggregate amount payable for the
purchase of the Underwritten Subscription Shares.

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                  "Underwritten Subscription Shares" shall mean all Subscription
Shares not purchased for any reason pursuant to the Subscription Rights
Offering, including, without limitation, (a) all Subscription Shares that RAM is
required to cause Investor to subscribe for pursuant to the Unsubscribed
Subscription Rights, (b) all Subscription Shares issued into reserve for the
benefit of a holder of a Disputed General Unsecured Claim, Disputed Old
Unsecured Note Claim or Disputed Self-Insured Tort Claim whose claim is found by
a final order of the Bankruptcy Court not to be an Allowed Claim or, if found to
be partially an Allowed Claim, to the extent found not to be an Allowed Claim,
and (c) all Subscription Shares not purchased by any other Person as a result of
any recalculation of the Eligible Claim Amount.

                  "Unsubscribed Subscription Rights" shall have the meaning set
forth in the second paragraph of this Agreement.

                  SECTION 2. Term Sheet Commitments.

                  The Company and RAM are parties, along with the Unofficial
Secured Noteholders Committee and the Creditors Committee, to the Term Sheet.
The Term Sheet contains commitments by the Company and RAM as to the treatment
under the Plan of the Old 12?% Secured Note Claims, a majority of whose holders
are believed to be represented by the Unofficial Secured Noteholders Committee,
the treatment under the Plan of General Unsecured Claims, Old Unsecured Note
Claims and Old Discount Note Claims, whose holders are represented by the
Creditors Committee, and as to other material terms and provisions of the Plan.
The Company and RAM acknowledge that this Agreement does not modify the
commitments of the Company or RAM under the Term Sheet to the Unofficial Secured
Noteholders Committee or the Creditors Committee, which commitments remain in
full and force effect.

                  SECTION 3. Commitment to Make Investment. Subject to the terms
and conditions of this Agreement, on the Effective Date, the Company shall issue
and sell to Investor, and RAM shall cause Investor to purchase from the Company,
the New SCI Preferred Shares and all Underwritten Subscription Shares. The New
SCI Preferred Shares shall be issued, sold and delivered to Investor (as
designated by RAM), and the $30,000,000 purchase price for the New SCI Preferred
Shares (the "Preferred Shares Purchase Price") shall be paid on the Effective
Date by one or more wire transfers of immediately available funds to an account
to be designated in writing by the Company prior to the Effective Date. RAM
shall cause Investor to (a) purchase all of the New SCI Preferred Shares, (b)
subscribe for all Unsubscribed Subscription Rights, (c) underwrite all other
Subscription Rights, (d) purchase all Underwritten Subscription Shares and (e)
pay the Deposit and the balance of the Total Purchase Price at the times
specified in this Agreement and the Plan by wire transfer(s) of immediately
available funds to an account to be designated in writing by the Company. The
New SCI Common Shares constituting Underwritten Subscription Shares shall be
issued and delivered to Investor (as designated by RAM) on or as soon as
practicable after the Effective Date. It is the parties' expressly agreed intent
that upon the consummation of the Rights Offering and of the transactions
contemplated hereunder the Company shall receive $60,000,000 in new capital and
that RAM shall cause Investor to fully underwrite such amount. For the avoidance
of doubt,

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no term of this Agreement shall prevent RAM (on behalf of itself and its
Affiliates' managed funds and accounts) from exercising its pro rata portion of
the Subscription Rights allocated to RAM (on behalf of itself and its
Affiliates' managed funds and accounts) in its capacity as a holder of Old
Unsecured Note Claims in Class 8.

                  SECTION 4. Plan of Reorganization.

                  The Plan shall (a) be proposed by the Company with the consent
of RAM, (b) be consistent with commitments made to the Unofficial Secured
Noteholders Committee and the Creditors Committee as set forth in the Term Sheet
unless otherwise agreed by such parties and (c) contain terms and conditions
reasonably satisfactory to Investor and the Company; provided that RAM and the
Company may, by mutual agreement, and with the consent of the Unofficial Secured
Noteholders Committee and the Creditors Committee, modify the Plan or otherwise
restructure the Investment in a manner consistent with the contemplated economic
consequences to the Company and RAM if necessary to achieve business or
financial objectives or to obtain confirmation of the Plan.

                  SECTION 5. Disposition of Non-Core Businesses.

                  (a) The Company shall market its pulp chemicals business for
         sale, with the goal of closing such sale on the Effective Date but in
         no event later than the Outside Date. The Company shall regularly
         inform RAM as to the status of the sale process, shall consult with RAM
         regarding the sale process and shall not accept any bid as the highest
         and best bid without the written agreement of RAM and as otherwise
         required by the Term Sheet unless pursuant to an order of the
         Bankruptcy Court. The net proceeds of the sale shall be allocated as
         provided in the Plan.

                  (b) The Company's acrylic fibers business will be transferred
         to local senior management of the Company's acrylic fibers business for
         little or no consideration; provided, however, that the Company shall
         not enter into any definitive documentation for such transaction unless
         and until RAM has approved the form and content of such definitive
         documentation.

                  SECTION 6. Capitalization.

                  (a) Equity. As of the Effective Date, the Company's authorized
         capital shall consist of 10,000,000 New SCI Common Shares and 25,000
         New SCI Preferred Shares. Subject to the terms and conditions of the
         Plan, the Company shall issue:

                  (i) 65,000 New SCI Common Shares to the holders of Allowed Old
         Discount Note Claims;

                  (ii) 585,000 New SCI Common Shares to the holders of Allowed
         General Unsecured Claims, Old Unsecured Note Claims and Self-Insured
         Tort Claims;

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                  (iii) 2,175,000 New SCI Common Shares to the holders of
         Allowed General Unsecured Claims, Old Unsecured Note Claims and
         Self-Insured Tort Claims and Investor (as designated by RAM) pursuant
         to the Subscription Rights Offering;

                  (iv) 2,175 New SCI Preferred Shares to Investor (as designated
         by RAM); and

                  (v) New SCI Warrants to purchase 15% of the fully-diluted New
         SCI Common Shares outstanding as of the Effective Date (assuming the
         conversion of all New SCI Preferred Shares into New SCI Common Shares,
         the exercise of all New SCI Warrants and the prior issuance of all
         shares available for issuance under the SCI Management Incentive Plan)
         to the holders of Allowed General Unsecured Claims, Old Unsecured Note
         Claims and Self-Insured Tort Claims.

In addition, the Company shall reserve for issuance after the Effective Date the
maximum number of New SCI Common Shares available for issuance under the SCI
Management Incentive Plan and the number of New SCI Common Shares issuable upon
conversion of all New SCI Preferred Shares and the exercise of all New SCI
Warrants.

                  (b) Secured Notes Due 2009. Subject to the terms and
         conditions of the Plan, the Company shall issue the New SCI Notes to
         the holders of Old 12-3/8% Secured Note Claims and shall issue the New
         UC Notes to the holders of Allowed General Unsecured Claims, Old
         Unsecured Note Claims and Self-Insured Tort Claims.

                  (c) New Credit Agreement. On the Effective Date, the Company
         shall enter into a new secured revolving credit facility in an amount
         up to $100 million.

                  SECTION 7. Company's Board of Directors.

                  The Plan shall provide that, on the Effective Date, the
Company's Board of Directors shall consist of eight members, six of which shall
be designated by RAM (on behalf of Investor), one of which shall be designated
by the Unofficial Secured Noteholders Committee and one of which shall be
designated by the Creditors Committee. The Certificate of Incorporation of the
Company shall provide that, from and after the Effective Date, RAM (on behalf of
Investor and its Affiliates) shall continue to be entitled to designate a number
of directors of the Company in proportion to its equity ownership of the Company
(assuming the conversion of all New SCI Preferred Shares into New SCI Common
Shares), but in any event not less than a majority of such directors for so long
as Investor and its Affiliates hold, in the aggregate, at least 35% of the New
SCI Common Shares (on a fully diluted basis), and each such director may only be
removed (other than for cause) by, and any vacancy resulting from the death,
resignation or removal of any such director may only be filled by, a majority
vote of the New SCI Common Shares and New SCI Preferred Shares that are owned by
Investor and

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its Affiliates. During the period commencing on the Effective Date and
continuing thereafter until the New SCI Notes have been paid in full, the
holders of the New SCI Notes shall continue to have the right to designate one
member of the Board of Directors of the Company in the manner set forth in the
Plan and the member designated by the Unofficial Secured Noteholder Committee or
the holders of the New SCI Notes, as the case may be, may only be removed (other
than for cause) by, and any vacancy resulting from the death, resignation or
removal of such director may only be filled by, the holders of the New SCI Notes
in the manner set forth in the Plan. The Director designated by the Creditors
Committee shall serve for a period of two (2) years after the Effective Date,
and may only be removed (other than for cause) by, and any vacancy resulting
from the death, resignation or removal of such director may only be filled by,
the Creditors Committee in the manner set forth in the Plan. The Persons
designating initial board members of the Company shall file with the Bankruptcy
Court and give to the Debtors written notice of the identities of such members
on a date that is not less than five (5) days prior to the Confirmation Hearing;
provided, however, that if and to the extent that any such Person fails to file
and give such notice, the Debtors shall designate, after consultation with such
Person, the members of the Board of Directors of the Company which such Person
is entitled to designate by announcing their identities at the Confirmation
Hearing.

                  SECTION 8. Matters Affecting Securities.

                  (a) At all times during the period commencing with the
         Effective Date and continuing thereafter for 18 months, the Company
         shall cause the New SCI Common Shares to be registered under Section
         12(g) of, and will timely file with the SEC all reports required to be
         filed pursuant to Section 13 of the Securities Exchange Act of 1934, as
         amended, and applicable to a U.S. company subject to such sections,
         within such time limits and periods provided therefor notwithstanding
         that the Company may not be required to remain subject to the reporting
         requirements of Section 13 of such act.

                  (b) The Company, RAM (on behalf of the Investor) and any
         recipient of at least 5% of the fully diluted New SCI Common Shares on
         the Effective Date will execute and deliver on the Effective Date a
         registration rights agreement providing for normal and customary demand
         registration rights for Investor and normal and customary piggyback
         rights for such recipient.

                  (c) The Certificate of Incorporation of the Company shall
         include provisions for, and RAM, on behalf of Investor, shall execute,
         a tag-along agreement (the "Tag-Along Agreement") for the benefit of
         all holders of New SCI Common Shares and holders of New SCI Warrants
         (other than Investor and other Affiliates of RAM) prohibiting RAM and
         Investor (and its Affiliates) from selling, in a single transaction or
         related series of transactions (a "Proposed Transfer"), New SCI Common
         Shares, New SCI Preferred Shares and/or New SCI Warrants representing,
         in the aggregate, 50% or more of all Equity Securities (as defined
         below) of Chemicals unless all other holders of New SCI Common Shares
         and New SCI Warrants (other than Investor and its Affiliates) shall
         have

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         been given a reasonable opportunity to participate therein on a pro
         rata basis and at the same price per share and on the same economic
         terms and conditions applicable to such sale; provided, however, that
         neither RAM nor Investor (or any of its Affiliates) shall be required
         to provide the holders of New SCI Warrants an opportunity to
         participate in such Proposed Transfer, and RAM, on behalf on Investor,
         shall not be prohibited from selling New SCI Warrants, if the value of
         the aggregate per share consideration offered for New SCI Common Shares
         in such Proposed Transfer (including in such per share computation the
         consideration being paid for any New SCI Preferred Shares to be sold on
         the basis of the number of the New SCI Common Shares into which such
         New SCI Preferred Shares are convertible) is less than the Minimum
         Consideration (as defined below). For purposes of this Section 8(c),
         "Equity Securities" shall mean (i) all New SCI Common Shares then
         outstanding assuming the conversion of all New SCI Preferred Shares
         and, in the event the value of the aggregate per share consideration
         offered for New SCI Common Shares in the Proposed Transfer (including
         in such per share computation the consideration being paid for any New
         SCI Preferred Shares to be sold on the basis of the number of the New
         SCI Common Shares into which such New SCI Preferred Shares are
         convertible) is equal to or exceeds the exercise price of the New SCI
         Warrants, the exercise of all New SCI Warrants (including New SCI
         Warrants held by Investor and its Affiliates) or (ii) in the event the
         value of the aggregate per share consideration offered for New SCI
         Common Shares in the Proposed Transfer (including in such per share
         computation the consideration being paid for any New SCI Preferred
         Shares to be sold on the basis of the number of the New SCI Common
         Shares into which such New SCI Preferred Shares are convertible) is
         less than the exercise price of the New SCI Warrants, all New SCI
         Common Shares outstanding assuming the conversion only of all New SCI
         Preferred Shares. For purposes of this Section 8(c), "Minimum
         Consideration" shall mean an amount equal to the exercise price of the
         New SCI Warrants. Notwithstanding the foregoing, no sale, transfer or
         other disposition of New SCI Common Shares, New SCI Preferred Shares
         and/or New SCI Warrants by an Investor to any Affiliate of RAM shall
         constitute a Proposed Transfer or shall otherwise be subject to this
         Section 8(c); provided, however, that the Tag-Along Agreement shall
         contain an acknowledgment by RAM, on behalf of any such proposed
         transferee that, upon any such sale, transfer or other disposition,
         such transferee shall be bound by the terms of the Tag-Along Agreement.

                  (d) The New SCI Common Shares and the New SCI Preferred Shares
         acquired by Investor pursuant to this Agreement, the New SCI Common
         Shares issued upon conversion of such New SCI Preferred Shares, and the
         New SCI Warrants acquired by the Investor pursuant to the Plan shall be
         conspicuously endorsed with an appropriate legend to the effect that
         such securities may not be sold, transferred or otherwise disposed of
         except in compliance with applicable securities laws. All New SCI
         Common Shares, New SCI Preferred Shares and New SCI Warrants acquired
         by the Investor pursuant to this Agreement or the Plan, and the New SCI
         Common Shares issued upon conversion of such New SCI Preferred Shares
         or exercise of such New SCI Warrants, and any New SCI

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         Common Shares, New SCI Preferred Shares or New SCI Warrants
         transferred or disposed of to any Affiliates of RAM pursuant to the
         last sentence of 8(c) shall be conspicuously endorsed with an
         appropriate legend to the effect that such securities may not be sold,
         transferred or otherwise disposed of except in compliance with the
         terms of the Tag-Along Agreement and the Company's Certificate of
         Incorporation.

                  SECTION 9. Conditions to Investor's Obligations Relating to
the Investment.

                  The obligations of RAM to cause Investor to consummate the
Investment and the other transactions contemplated herein shall be subject to
the satisfaction on or before the Effective Date, or the earlier date identified
below, or the written waiver by RAM, of the following conditions:

                  (a) the Disclosure Statement Order shall have been entered and
         there shall not be in effect any stay of such Disclosure Statement
         Order, nor shall such Disclosure Statement Order have been vacated or
         reversed;

                  (b) the Confirmation Order shall have been entered in form and
         substance reasonably satisfactory to Investor by December 4, 2002 (or
         such date as soon thereafter as possible that accommodates the schedule
         of the Bankruptcy Court, or by such later date as shall have been
         agreed to in writing by the Company, RAM, the Unofficial Secured
         Noteholders Committee Majority (or their advisors) or the Creditors
         Committee Majority (or their advisors)), and there shall not be in
         effect any stay of such Confirmation Order, nor shall such Confirmation
         Order have been vacated or reversed;

                  (c) the outstanding amount of Allowed Administrative Claims
         (excluding normal post-petition trade payables and amounts payable to
         Investor under Section 16 or Section 23) shall not exceed $40 million
         in the aggregate, provided, however, that this subsection is not
         intended to, and shall not be deemed or construed to, prohibit or limit
         the ability or right of RAM to object to any Administrative Claim;

                  (d) the documents necessary to implement the Plan, including
         the Merger Agreement, the Certificate of Incorporation of the Company,
         the Bylaws of the Company, the New Credit Agreement, the Purchase
         Agreement, the New SCI Warrants, the New Indentures, the Registration
         Rights Agreement, the Fibers Buyout Agreement and the SCI Management
         Incentive Plan, shall be in form and substance reasonably acceptable to
         RAM and shall be executed and delivered by the parties thereto;

                  (e) the Company shall have arranged for credit availability
         under the New Credit Agreement in amount, form and substance reasonably
         acceptable to RAM;

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                  (f) the Company shall have received at least one bid for, and
         shall have executed a definitive agreement with respect to a sale of,
         the Pulpco Business that would result in the receipt of an amount
         greater than or equal to $300,000,000 in cash or other consideration
         acceptable to the Ad Hoc Committee (such amount to be net of all fees
         and expenses of the Pulpco Sale, the amount of funded debt of the
         Pulpco Business repaid with the consideration received and a provision
         for taxes or alternative minimum taxes, if any);

                  (g) all conditions precedent to the consummation of the
         transactions contemplated by the Purchase Agreement shall have been
         satisfied or waived by the parties thereto and the PulpCo Sale shall be
         consummated on the Effective Date;

                  (h) the Company and Investor, as applicable, shall have
         received all Regulatory Approvals, which shall have become final and
         nonappealable or any period of objection by Governmental Authorities
         shall have expired, as applicable;

                  (i) the Company shall have received all other material
         Approvals from other Persons;

                  (j) there shall not be any application for, or in effect any,
         injunction, stay, restraining order, appeal or decree pending before,
         or issued by, any court of competent jurisdiction, whether foreign or
         domestic, requesting a stay of or staying the effectiveness of any of
         the Approvals, the Disclosure Statement Order or the Confirmation
         Order; provided, however, that the foregoing condition shall not apply
         to any such injunction, stay, order or decree requested, initiated or
         supported by Investor, RAM or any of RAM's partners or other Affiliates
         or to any such request or motion made, initiated or supported by
         Investor, RAM or any of RAM's partners or other Affiliates;

                  (k) during the period commencing on the date hereof and
         continuing thereafter until the Confirmation Date, there shall have not
         been any Material Adverse Change. For purposes hereof, a "Material
         Adverse Change" shall mean any material adverse change in the business
         or financial condition of the Company (expressly excluding the pulp
         chemicals business) as such shall exist on the date of execution of
         this Agreement, excluding any change (i) resulting from general
         economic conditions in the U.S. or elsewhere or the execution of the
         Term Sheet or this Agreement or (ii) that affects the chemicals
         industry as a whole;

                  (l) the Company shall have performed in all material respects
         (i) all obligations on its part required to be performed on or before
         the Effective Date under this Agreement and (ii) all obligations on its
         part required to be performed on or before the Effective Date under all
         orders of the Bankruptcy Court;

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                  (m) all representations and warranties of the Company under
         this Agreement shall be true in all material respects as of the
         Effective Date (except (i) to the extent such representations are
         qualified as to materiality, in which case they shall be true and
         correct in all respects (after giving effect to such qualifications)
         and (ii) to the extent such representations are expressly made as of a
         different date, in which case they shall be true and correct in all
         respects as of such date);

                  (n) all other conditions precedent to the Effective Date as
         set forth in the Plan shall have been satisfied on or before the
         Effective Date or waived as provided for in the Plan; and

                  (o) the Effective Date shall have occurred on or prior to the
         Outside Date unless the reason therefor shall be attributable to the
         breach by RAM or Investor of any of its express representations,
         warranties, covenants or obligations contained herein (regardless of
         whether Investor is an express party hereto).

                  SECTION 10. Conditions to the Company's Obligations Relating
to Investment.

                  The Company's obligations to issue the Investor Securities
pursuant to this Agreement and to consummate or cause the consummation of the
other transactions contemplated hereby, shall be subject to the satisfaction on
or before the Effective Date, or the written waiver by the Company, of the
following conditions:

                  (a) the Disclosure Statement Order shall have been entered and
         there shall not be in effect any stay on such Disclosure Statement
         Order, nor shall such Disclosure Statement Order have been vacated or
         reversed;

                  (b) the Confirmation Order shall have been entered in form and
         substance reasonably satisfactory to the Company by December 4, 2002
         (or such date as soon thereafter as possible that accommodates the
         schedule of the Bankruptcy Court, or by such later date as shall have
         been agreed to in writing by the Company, RAM, the Unofficial Secured
         Noteholders Committee Majority (or their advisors) or the Creditors
         Committee Majority (or their advisors)), and there shall not be in
         effect any stay of such Confirmation Order, nor shall such Confirmation
         Order have been vacated or reversed;

                  (c) the documents necessary to implement the Plan, including
         the Merger Agreement, the Certificate of Incorporation of the Company,
         the Bylaws of the Company, the New Credit Agreement, the Purchase
         Agreement, the New SCI Warrants, the New Indentures, the Registration
         Rights Agreement, the Fibers Buyout Agreement and the SCI Management
         Incentive Plan, shall be in form and substance reasonably acceptable to
         the Company and shall be executed and delivered by the parties thereto;

                                       12
<PAGE>

                  (d) the payment of the Total Purchase Price by Investor at the
         times and in the manner contemplated hereby;

                  (e) the Company shall have arranged for credit availability
         under the New Credit Agreement in amount, form and substance acceptable
         to the Company;

                  (f) the sale of the Company's pulp chemicals business shall
         have been consummated and the Company shall have retained $80 million
         from the proceeds of such sale;

                  (g) the Company and Investor, as applicable, shall have
         received all Regulatory Approvals, which shall have become final and
         nonappealable or any period of objection by Governmental Authorities
         shall have expired, as applicable;

                  (h) the Company shall have received all other material
         Approvals from other Persons;

                  (i) there shall not be any application for, or in effect any,
         injunction, stay, restraining order, appeal or decree pending before,
         or issued by, any court of competent jurisdiction, whether foreign or
         domestic, requesting a stay of or staying the effectiveness of any of
         the Approvals, the Disclosure Statement Order or the Confirmation
         Order; provided, however, that the foregoing condition shall not apply
         to any such injunction, stay, order or decree requested, initiated or
         supported by the Company or to any such request or motion made,
         initiated or supported by the Company;

                  (j) RAM shall have, and shall have caused Investor to, perform
         in all material respects (i) all obligations of RAM and Investor
         required to be performed on or before the Effective Date under this
         Agreement and (ii) all obligations of RAM and Investor required to be
         performed on or before the Effective Date under all orders of the
         Bankruptcy Court;

                  (k) all representations and warranties of RAM and Investor
         under this Agreement shall be true in all material respects as of the
         Effective Date (except (i) to the extent such representations are
         qualified as to materiality, in which case they shall be true and
         correct in all respects (after giving effect to such qualifications)
         and (ii) to the extent such representations are expressly made as of a
         different date, in which case they shall be true and correct in all
         respects as of such date);

                  (l) all other conditions precedent to the Effective Date as
         set forth in the Plan shall have been satisfied on or before the
         Effective Date or waived as provided for in the Plan; and

                  (m) the Effective Date shall have occurred on or prior to the
         Outside Date unless the reason therefor shall be attributable to the
         breach by the

                                       13
<PAGE>

         Company of any of its representations, warranties, covenants or
         obligations contained herein.

                  SECTION 11. Representations, Warranties and Agreements of the
Company.

                  The Company represents and warrants to RAM and Investor as
follows:

                  (a) Subject to the Bankruptcy Code, the Company has the
         requisite power and authority to execute and deliver this Agreement and
         to perform its obligations hereunder, and the execution, delivery and
         performance of this Agreement and the consummation by the Company of
         the transactions contemplated hereby have been authorized by all
         requisite action on the part of the Company. This Agreement has been
         duly and validly executed and delivered by the Company and, upon entry
         of the Confirmation Order (assuming this Agreement constitutes a valid
         and binding obligation of RAM), shall constitute a legal, valid and
         binding obligation of the Company enforceable against the Company in
         accordance with its terms, subject to applicable bankruptcy,
         reorganization, insolvency, moratorium and other laws affecting
         creditors' rights generally from time to time in effect and to general
         equitable principles.

                  (b) The Company has complied in all material respects with the
         terms of all orders of the Bankruptcy Court in respect of the
         Investment and this Agreement.

                  (c) The Company has delivered to RAM copies of the audited
         balance sheets, statements of income, stockholders' equity and cash
         flows of the Company and its affiliates, on a consolidated basis, for
         the fiscal year ended September 30, 2001 and for the three years then
         ended, together with the notes thereto; and unaudited balance sheets,
         statements of income, stockholders' equity and cash flows of the
         Company and its affiliates, on a consolidated basis, for the three and
         nine-month periods ending June 30, 2002. Such financial statements
         present fairly, in accordance with generally accepted accounting
         principles (applied on a consistent basis except as disclosed in the
         footnotes thereto), the financial position and results of operations of
         the Company as of the dates and for the periods therein set forth.

                  (d) No written statement, memorandum, certificate, schedule or
         other written information provided to Investor by or on behalf of the
         Company in connection with the transactions contemplated hereby, when
         viewed together with all other written statements and information
         provided to Investor by or on behalf of the Company, in light of the
         circumstances under which they were made, (i) contains any materially
         misleading statement or (ii) omits to state any material fact necessary
         to make the statements therein not misleading.

                  (e) Except as disclosed on Schedule I, there is no suit,
         claim, action, proceeding, or investigation pending or, to the
         knowledge of the

                                       14
<PAGE>

         Company, threatened against or directly affecting the Company, any
         subsidiary of the Company or any of the directors or officers of the
         Company or any of its subsidiaries in their capacity as such which
         would have a material adverse effect on the Company.

                  The Company agrees that:

                  (i) the Company shall promptly notify, but in any event within
5 (five) days, RAM of receipt of information that there is a suit, claim,
action, proceeding, or investigation pending or threatened against or directly
affecting the Company, any subsidiary of the Company or any of the directors or
officers of the Company or any of its subsidiaries in their capacity as such, in
which the damages sought exceed $175,000 individually or $1,000,000 when taken
in the aggregate; and

                  (ii) RAM or its agents shall have reasonable access to all
facilities used for the conduct of the Company's businesses during normal
business hours, and the Company shall make its management available to RAM or
its agents upon its reasonable request and notice.

                  SECTION 12. Representations and Warranties of RAM.

                  RAM, as to itself or on behalf of Investor (as applicable),
represents and warrants to the Company as follows:

                  (a) RAM has the requisite power and authority to execute and
         deliver this Agreement and to perform its obligations hereunder, and
         the execution, delivery and performance of this Agreement and the
         consummation by RAM of the transactions contemplated hereby have been
         authorized by all requisite action on the part of RAM. This Agreement
         has been duly and validly executed and delivered by RAM on it own
         behalf and on behalf of its Affiliates' managed funds and accounts and,
         constitutes a legal, valid and, upon entry of the Confirmation Order
         (assuming this Agreement constitutes a valid and binding obligation of
         the Company), binding obligation of RAM and the Investor enforceable
         against RAM and the Investor in accordance with its terms, subject to
         applicable bankruptcy, reorganization, insolvency, moratorium and other
         laws affecting creditors' rights generally from time to time in effect
         and to general equitable principles.

                  (b) RAM has full legal authority and power of attorney to bind
         Investor to consummate the transaction contemplated herein in all
         respects, and RAM has such knowledge of Investor and its affairs to
         have a reasonable basis for making the representations and warranties
         of Investor made on its behalf by RAM herein.

                  (c) Investor has, or has binding commitments for, sufficient
         funds to pay the Total Purchase Price and to consummate the
         transactions contemplated by this Agreement.

                                       15
<PAGE>

                  (d) No written statement, memorandum, certificate, schedule or
         other written information provided to the Company or any of its
         representatives by or on behalf of RAM when viewed together with all
         other written statements and information provided to the Company and
         its representatives by or on behalf of RAM, in light of the
         circumstances under which they were made, (i) contains any materially
         misleading statement or (ii) omits to state any material fact necessary
         to make the statements therein not misleading.

                  (e) No Approvals (other than those which have been applied for
         and obtained) are required for the execution, delivery and performance
         of this Agreement and the consummation by RAM or the Investor of the
         transactions contemplated hereby.

                  (f) The Investor Securities will be acquired for investment
         for the account of such Investor, not as a nominee or agent, and not
         with a view to the resale or distribution of any part thereof; and
         Investor has no present intention of selling, granting any
         participation in or otherwise distributing the same.

                  (g) Investor does not have any contract, undertaking,
         agreement or arrangement with any Person to sell, transfer or grant
         participations to such Person or to any third Person with respect to
         any of the Investor Securities.

                  (h) RAM, as agent and on behalf of Investor, participated
         fully in the formulation of the Plan of which the acquisition of the
         Investor Securities hereunder is a part. RAM, as agent and on behalf of
         Investor, has received all information it considers necessary or
         appropriate for deciding whether to cause Investor to purchase the
         Investor Securities, and RAM, as agent and on behalf of Investor, has
         had an opportunity to ask questions of, and receive answers from, the
         Company regarding the terms and conditions of the offering of the
         Investor Securities and the business, properties, prospects and
         financial condition of the Company.

                  (i) RAM, on behalf of the Investor or its Affiliates, has
         invested in securities of numerous companies undergoing restructuring
         through bankruptcy proceedings and represents that (i) Investor can
         bear the economic risk and the total loss of the Investment and (ii)
         RAM has such knowledge, experience and sophistication in financial or
         business matters that it is capable of evaluating the merits and risks
         of the Investment in the Investor Securities. RAM further represents
         that Investor has not been organized for the purpose of acquiring the
         Investor Securities or, in such case, that the equity holders of such
         Investor are "accredited investors" within the meaning of Rule 501 of
         Regulation D, as promulgated by the SEC and as presently in effect
         ("Rule 501").

                  (j) Investor is an "accredited investor" within the meaning of
         Rule 501.

                                       16
<PAGE>

                  (k) Investor understands that the Investor Securities are
         characterized as "restricted securities" under the federal securities
         laws (as they are being acquired from the Company in a transaction not
         involving a public offering pursuant to Section 4(2) of the Securities
         Act), and that under such laws and applicable regulations the Investor
         Securities may be resold without registration under the Securities Act
         only in certain limited circumstances. In the absence of an effective
         registration statement covering the Investor Securities (or the New SCI
         Common Shares issued on conversion or exercise thereof, as applicable)
         or an available exemption from registration under the Securities
         Exchange Act of 1934, as amended, the Investor Securities (and any New
         SCI Common Shares issued on conversion or exercise thereof, as
         applicable) must be held indefinitely. In this connection, such
         Investor represents that it is familiar with Rule 144 under the
         Securities Act of 1933, as amended, as presently in effect, and
         understands the resale limitations imposed thereby, and to the extent
         applicable, by the Securities Exchange Act of 1934, as amended.

                  SECTION 13. Undertakings of RAM.

                  (a) RAM shall cause Investor to take all actions necessary to
         consummate the Investment. It is expressly understood and agreed that
         payment of the Total Purchase Price is a material element of the Plan,
         and that upon the failure to pay all or any portion of the Total
         Purchase Price in accordance with the terms of this Agreement, the
         Company shall be entitled to pursue all available remedies in law or at
         equity.

                  (b) RAM shall provide sufficient evidence of its authority to
         execute this Agreement on behalf of Investor as the Company may
         reasonably request; provided, however, that the Company shall maintain
         as confidential all such information provided.

                  (c) The obligations of RAM and Investor hereunder shall not be
         subject to any due diligence or other conditions other than those
         expressly set forth herein.

                  (d) On or before the close of business on October 25, 2002,
         RAM shall provide to the Company a schedule identifying (i) the names
         of the funds and/or accounts constituting Investor, (ii) the amounts to
         be invested by such funds and/or accounts, (iii) entity status of such
         funds and/or accounts, and (iv) the addresses of each such fund and/or
         account; provided, however, that no term of this Agreement shall
         prevent RAM from designating additional or substitute funds
         constituting Investor at any time prior to the Effective Date. The
         Company hereby agrees to maintain as confidential all such information.

                  (e) On or before the close of business on October 25, 2002,
         and subject to the terms of an escrow agreement to be executed between
         the Company and RAM in form and substance reasonably acceptable to RAM
         (the "Escrow Agreement"), RAM shall cause Investor to transfer to a
         segregated, interest

                                       17
<PAGE>

         bearing account of the Company a deposit equal to $9,000,000 (the
         "Deposit"), which amount is equal to 15% of the new capital commitment
         contemplated by Section 3 hereof. The Escrow Agreement shall provide,
         among other things, that the Deposit, subject to customary terms and
         conditions terms with respect to retention of the Deposit by the
         Company in the event of certain breaches of the Agreement by RAM or
         Investor to be mutually agreed upon by the Company and RAM, together
         with the interest earned thereon, shall be released (i) to RAM promptly
         after the date of any termination of this Agreement by RAM pursuant to
         Section 34(a) or (ii) to the Company on the Effective Date as partial
         payment of the total amount due and payable to the Company on the
         Effective Date pursuant to this Agreement.

                  SECTION 14. Financial Information.

                  (a) The Company shall provide RAM with reports of the
         Company's operating performance, in form and substance reasonably
         satisfactory to Investor, on a monthly basis no later than 30 (thirty)
         days after the end of each month.

                  (b) The Company shall deliver to RAM, as soon as it is
         available, a copy of the unaudited balance sheet of the Company as of
         the end of each fiscal quarter of the Company prior to the Effective
         Date and the unaudited statements of income and cash flows for the
         periods then ended.

                  (c) The Company shall deliver to RAM, no later than December
         24, 2002, copies of the audited balance sheets, statements of income,
         stockholders' equity and cash flows of the Company on a consolidated
         basis, for the fiscal year ended September 30, 2002 and for the three
         years then ended, together with the notes thereto. Such financial
         statements shall present fairly, in accordance with generally accepted
         accounting principles (applied on a consistent basis except as
         disclosed in the footnotes thereto), the financial position and results
         of operations of the Company as of the dates and for the periods
         therein set forth.

                  (d) The Company shall notify RAM promptly upon any material
         change in its ability to operate any of its assets.

                  (e) The Company shall promptly furnish to RAM such other
         information and in such form as RAM may reasonably request.

                  SECTION 15. Certain Taxes.

                  The Company shall bear and pay all transfer, stamp or other
similar taxes (if any are not exempted under Section 1146 of the Bankruptcy
Code) imposed in connection with the issuance and sale of the Investor
Securities.

                                       18
<PAGE>

                  SECTION 16. Break-Up Fee; Expense and Fee Reimbursements.

                  (a) Subject to approval of the Bankruptcy Court, and after the
         date of execution of this Agreement, if the Company files an
         Alternative Plan, RAM shall be entitled to a break-up fee from the
         Company in the amount of $1,800,000 plus an amount equal to all
         documented out-of-pocket expenses incurred by RAM in connection with
         the Plan, payable by wire transfer of same day funds; provided however,
         that the aggregate amount of out-of-pocket expenses reimbursed to RAM,
         together with all other expenses for which RAM is reimbursed pursuant
         to Section 16(b), shall not exceed $1,000,000 in the aggregate.

                  (b) Subject to approval of the Bankruptcy Court, the Company
         shall, from time to time, upon request and upon receipt of an
         accounting reasonably acceptable to the Company, promptly reimburse RAM
         for all reasonable out-of-pocket expenses actually paid or incurred by
         RAM on behalf of Investor in connection with its due diligence in
         pursuit of the Investment (including up to $250,000 as provided for in
         that certain letter from the Company to RAM dated May 13, 2002
         (adequate documentation for which the Company hereby acknowledges
         having previously been provided) and all out-of-pocket fees incurred in
         connection with the sale of the Company's pulp chemicals business,
         including without limitation the fees of Renard Strautman; provided,
         however, that in the event that the break-up fee becomes payable to RAM
         in accordance with Section 16(a), the aggregate amount of expenses to
         be reimbursed by the Company, including the expenses referred to in
         this paragraph (b) and the expenses included within the break-up fee,
         shall not exceed $1,000,000 in the aggregate.

                  (c) The Company shall use commercially reasonable efforts, and
         endeavor in good faith and without unreasonable delay, to obtain an
         order of the Bankruptcy Court approving the break-up fee and the
         reimbursement of expenses provided for in Sections 16(a) and 16(b)
         above.

                  (d) Notwithstanding any provision of this Agreement to the
         contrary, the Company shall have no obligation under this Agreement to
         pay, or reimburse RAM or any other Person for, any expenses or fees
         unless approved by the Bankruptcy Court either by specific order or
         pursuant to the Plan as confirmed.

                  SECTION 17. No Solicitation; Alternate Bid Procedures; etc.

                  (a) Prior to the termination of this Agreement, but subject to
         its fiduciary duties, the Company shall not, directly or indirectly,
         solicit or knowingly encourage the initiation of any inquiries or
         proposals regarding any transaction that if consummated would
         constitute an Alternative Plan; provided, that the Company may answer
         questions and furnish information in response to unsolicited inquiries.

                  (b) Notwithstanding the foregoing, the Company may provide
         information to and enter into negotiations with potential alternate
         bidders

                                       19
<PAGE>

         regarding unsolicited proposals for an Alternative Plan ("Alternate
         Bids") in accordance with the agreement reached on October 7, 2002,
         among the Company, the Creditors Committee, the Unofficial Secured
         Noteholders Committee, Phoenix Acquisition Corporation, Mariner
         Investment Group, Inc. and Trilogy Capital LLC as to procedures (the
         "Alternate Bid Procedures") to allow for consideration of Alternate
         Bids as set forth in this Section 17(b) and as described in the
         Disclosure Statement, as such description may be modified and amended
         from time to time. Any Alternate Bid (together with any and all related
         documents) must be submitted to the Company and RAM prior to 9:00 a.m.
         New York time on October 28, 2002. The Company shall also provide to
         RAM copies of any written proposals, and summaries of any oral
         proposals, received prior to 9:00 a.m. on October 27, 2002 within 24
         hours after the receipt of such proposals. Any Alternate Bid must be
         without contingencies and conditions (other than substantially similar
         contingencies and conditions to those to RAM's and the Investor's
         obligations under this Agreement), must be fully financed (and evidence
         of committed financing must be provided to RAM and the Company at the
         time such proposal is made) and must be capable of being consummated by
         December 31, 2002. The Company shall advise RAM by 9:00 a.m. New York
         time on October 29, 2002 whether any Alternate Bid is considered more
         favorable to the Estates and the Creditors, together with an analysis
         of the basis for such conclusion. No later than 9:00 a.m. New York time
         on October 30, 2002, the Company shall notify RAM if the Company, in
         consultation with the Creditors Committee and the Unofficial Secured
         Noteholders Committee, has determined to accept a more favorable
         Alternate Bid. In the event the Company notifies RAM of its
         determination to accept a more favorable Alternate Bid, RAM shall be
         entitled to, until 12:00 p.m. New York time on October 30, 2002, either
         (i) submit to the Company a counter-proposal to such more favorable
         Alternate Bid or (ii) immediately terminate this Agreement pursuant to
         Section 34(a). A meeting will be held on October 30, 2002 commencing at
         9:00 a.m. New York time, to be attended by the Company, the Creditors
         Committee, the Unofficial Secured Noteholders Committee, RAM and any
         party who timely submitted an Alternate Bid, at which (A) any proponent
         of an Alternate Bid shall be entitled to submit one or more
         counter-proposals to any existing Alternate Bid or any
         counter-proposal(s) submitted by RAM, and (B) RAM shall be entitled to
         submit one or more counter-proposals to any counter-proposal(s)
         submitted by any proponent of an Alternate Bid, provided, that, RAM and
         each of such other parties shall have the right to make topping
         counter-proposals until 1:30 p.m. Central Time on October 31, 2002 (the
         "Bidding Deadline"). At the Bidding Deadline, the Company, in the
         exercise of its business judgment and in consultation with the
         Creditors Committee and the Unofficial Secured Noteholders Committee,
         will determine which among the proposal of RAM as set forth in this
         Agreement (including any counter-proposal) and any Alternate Bids
         submitted is most favorable to the Estates and the Creditors, taking
         into account the factors listed above and such other factors as may be
         deemed relevant, including the existence, or absence, and the amount of
         any deposit to secure the performance of any Alternate Bid. The Company
         will submit its determination as to which bid is

                                       20
<PAGE>

         most favorable to the Bankruptcy Court for approval on October 31,
         2002. If at the Bidding Deadline the Company, in consultation with the
         Creditors Committee and the Unofficial Secured Noteholders Committee,
         has determined to accept an Alternate Bid, RAM shall be entitled to
         immediately terminate this Agreement in accordance with Section 34(a).
         The Company shall be entitled to terminate this Agreement, with the
         consent of the Creditors Committee Majority (or its advisors) and the
         Unofficial Secured Noteholders Committee Majority (or its advisors)
         upon acceptance of an Alternate Bid in accordance with Section 34(a).
         To the extent of any inconsistency between this Section 17(b) and the
         description of the Alternate Bid Procedures in the Disclosure
         Statement, the description in the Disclosure Statement shall govern and
         is incorporated herein by reference.

                  (c) Notwithstanding anything to the contrary in this
         Agreement, the Company and RAM agree and acknowledge that in the event
         that the Company accepts a RAM counter-proposal in accordance with
         Section 17(b) above, (i) this Agreement shall be deemed to be amended
         to include the terms of such more favorable counter-proposal and (ii)
         RAM and the Company shall take all such actions as are commercially
         reasonable to effect such counter-proposal, subject to Bankruptcy Court
         approval.

                  (d) Notwithstanding anything to the contrary in this
         Agreement, in the event the Company (i) elects to accept an Alternate
         Bid or files an Alternative Plan and (ii) elects to terminate this
         Agreement, or if RAM shall terminate this Agreement pursuant to Section
         34(a) hereof, RAM and the Investor shall (i) be released from their
         obligations hereunder with the exception of their obligations set forth
         in Sections 21(b), 27, 33, 34 and 35, (ii) not be obligated to vote to
         approve any such Alternative Plan, (iii) be able to rescind any prior
         vote and may vote to reject the Plan and (iv) retain all their rights
         under the Bankruptcy Code.

                  SECTION 18. Interim Period.

                  The Company covenants as follows with respect to the period
prior to the earlier of the Effective Date and the termination of this
Agreement:

                  (a) The Company shall use commercially reasonable efforts and
         take all actions reasonably necessary or appropriate to preserve the
         business, assets and goodwill of the Company's petrochemicals and pulp
         chemicals businesses and to operate the petrochemicals and pulp
         chemicals businesses of the Company in the ordinary and normal course
         consistent in all material respects with prior practices.

                  (b) Except as expressly permitted hereunder or with the
         written consent of RAM (which consent shall not be unreasonably
         withheld, delayed or conditioned), the Company (i) shall not implement
         any material changes to the operation of its petrochemicals business,
         (ii) shall not enter into any new material contracts (such as labor
         union contracts and employment contracts) or amend, modify or terminate
         any such contracts, or waive any of its material rights

                                       21
<PAGE>

         thereunder and (iii) shall not modify its petrochemicals business plans
         or budgets in any material respect; provided, however, that nothing in
         this Agreement shall be construed to prohibit the Company from taking
         any of the following actions (collectively, the "Permitted
         Transactions"):

                  (A) operating its businesses or managing its properties in the
         ordinary course, and paying obligations that arise in connection
         therewith;

                  (B) complying with its obligations as a debtor-in-possession
         under the Bankruptcy Code, the Bankruptcy Rules and orders of the
         Bankruptcy Court;

                  (C) renewing or extending existing contracts for products and
         services, or entering into replacement contracts for such products and
         services, in the ordinary course of business and upon terms and
         conditions available in the market place in arms'-length transactions
         with non-Affiliates;

                  (D) reconciling, objecting to and litigating or resolving
         claims asserted against the Company;

                  (E) paying administrative obligations that arise in the
         ordinary course or are authorized to be paid by order of the Bankruptcy
         Court, including obligations for fees and expenses owed to
         professionals employed by the Company and the Creditors Committee, and
         compromising any of such obligations as may be appropriate;

                  (F) amending the Company's existing debtor-in-possession
         credit facility ("Present DIP Financing") as necessary to insure the
         availability of funding through the Effective Date;

                  (G) selling the Company's pulp chemicals business as
         contemplated by the Plan but subject to compliance with Section 5(a);

                  (H) disposing of the Company's acrylic fibers business as
         contemplated by the Plan but subject to compliance with Section 5(b);
         or

                  (I) selling or otherwise disposing of surplus assets within
         the limits specified in the Present DIP Financing.

                           (c) The Company shall provide RAM with (i) access to
         all of the Company's data (as reasonably requested by Investor), (ii)
         access to the Company's officers and (iii) full opportunity to
         investigate the Company's businesses and assets. The Company shall keep
         RAM fully informed in reasonable detail and with all reasonable
         promptness regarding (A) negotiations with its creditors, employees,
         labor unions and other interested parties in the Company's chapter 11
         case and (B) the nature of, and any material changes to, its

                                       22
<PAGE>

         condition (financial or other), businesses, assets, liabilities
         (including contingencies), properties, results of operations and cash
         flows.

                  (d) The Company will promptly advise RAM, and will afford RAM
         with reasonable and timely opportunities to consult, regarding any
         material actions to be taken or omitted by the Company with respect to
         the proceedings in the Bankruptcy Court or with respect to any material
         changes in its charter or bylaws, material capital commitments,
         material capital expenditures, material financing transactions
         (including renegotiations or other modifications to existing material
         debt, credit or lease liabilities or arrangements, material purchases
         or sales of assets, material contracts or material litigation);
         provided, however, that, notwithstanding anything to the contrary
         contained in this Agreement, ultimate control of the business of the
         Company shall remain exclusively with the Company until the Effective
         Date.

                  (e) As soon as practicable, the Company and RAM will make, and
         cooperate in making, all filings, applications, requests for consents
         or similar authorizations for any Regulatory Approvals.

                  SECTION 19. Cooperation.

                  (a) The Company and RAM shall use commercially reasonable
         efforts and endeavor in good faith and without unreasonable delay to
         (i) file any modifications to the Plan as may be necessary (and which
         are in, any event, consistent with the provisions of the Term Sheet and
         this Agreement), (ii) obtain the Initial Order, the Disclosure
         Statement Order and the Confirmation Order; (iii) subject to the entry
         of the Confirmation Order, consummate the transactions contemplated by
         this Agreement, and (iv) obtain all necessary Approvals, all within the
         respective time periods set forth in this Agreement. RAM agrees to
         cooperate in good faith with all reasonable requests of the Company in
         performing the obligations under this paragraph (a).

                  (b) The Company shall consult and coordinate with RAM with
         respect to all material filings, hearings and other proceedings in the
         Bankruptcy Court, including, without limitation, those that are
         pertinent to (i) the Company's performance of its obligations under
         this Agreement or to the satisfaction of the conditions to the
         consummation of the transactions contemplated hereby or (ii) the entry
         of the Initial Order, the Disclosure Statement Order and the
         Confirmation Order. Such consultation and coordination shall include
         providing RAM with reasonable opportunity to review and comment on all
         significant drafts of the Initial Order, the Disclosure Statement Order
         and the Confirmation Order, which documents shall be in form and
         substance satisfactory to RAM.

                  (c) Notwithstanding anything to the contrary contained in this
         Agreement, neither the refusal or failure of the Bankruptcy Court to
         enter the Initial Order, the Disclosure Statement Order or the
         Confirmation Order, nor the confirmation of a plan of reorganization
         relating to the Company other than the

                                       23
<PAGE>

         Plan, shall constitute a breach of this Agreement by either party,
         except to the extent that such refusal or failure resulted primarily
         from a breach by such party of one or more of its obligations under
         this Agreement.

                  SECTION 20. Public Announcements.

                  Unless otherwise mutually agreed, neither party hereto shall
make or authorize any public release of information regarding the matters
contemplated by this Agreement, except that (a) the parties may communicate with
employees, creditors and other parties in interest in the Company's chapter 11
case, customers, suppliers, stockholders, bondholders, lenders, lessors,
Governmental Authorities, analysts, stock exchanges and other particular groups,
including prospective lenders and investor groups, as may be necessary or
appropriate and not inconsistent with the prompt consummation of the
transactions contemplated by this Agreement, it being understood that each party
hereto will keep the other reasonably informed with respect to such
communications which are material and not confidential, and (b) either party, on
advice of legal counsel, may make such press releases and other public
disclosures as it deems necessary to comply with applicable law.

                  SECTION 21. Liability.

                  (a) RAM or Investor and its permitted assigns (including any
         Affiliate, stockholder, director, officer, agent, advisor or
         Representative (as defined below) thereof shall not have nor be under
         any liability of any nature whatsoever to the Company arising out of or
         in any manner connected with this Agreement, or any actions, inactions
         or omissions in any manner relating hereto or to any actions or
         transactions contemplated hereby, whether occurring prior to or after
         the date hereof, except to the extent that RAM or Investor is liable to
         the Company for damages which are found in a final judgment by a court
         of competent jurisdiction to have resulted from any material breach by
         RAM or Investor of an express obligation or undertaking contained in
         this Agreement (regardless of whether Investor is an express party
         hereto) or any material breach (as of the date made) by RAM or Investor
         of an express representation or warranty contained in this Agreement
         (regardless of whether Investor is an express party hereto) or for any
         act of bad faith or willful or deliberate wrongdoing by RAM or
         Investor, which bad faith, breach or wrongdoing is not discontinued or
         remedied promptly (and in any event within 7 (seven) days) after
         written notice thereof specifying the same in reasonable detail from
         the Company.

                  (b) The Company and its permitted assigns (including any
         Affiliate, stockholder, director, officer, agent, advisor or
         Representative thereof (as defined in 21(d) below)) shall not have nor
         be under any liability of any nature whatsoever to Investor arising out
         of or in any manner connected with this Agreement, or any actions,
         inactions or omissions in any manner relating hereto or to any actions
         or transactions contemplated hereby, whether occurring prior to or
         after the date hereof, except to the extent that the Company is liable
         to Investor for damages which are found in a final judgment by a court
         of competent

                                       24
<PAGE>

         jurisdiction to have resulted from any material breach by the Company
         of an express obligation or undertaking contained in this Agreement or
         any material breach (as of the date made) by the Company of an express
         representation or warranty contained in this Agreement or for any act
         of bad faith or willful or deliberate wrongdoing by the Company, which
         bad faith, breach or wrongdoing is not discontinued or remedied
         promptly (and in any event within 7 (seven) days) after written notice
         thereof specifying the same in reasonable detail from RAM or Investor.

                  (c) The Plan shall contain standard exculpations (i) providing
         that neither RAM nor Investor nor the Company (nor other appropriate
         parties as identified in the Plan) shall have or incur any liability to
         any holder of a Claim or an Interest, or any other party in interest,
         or any of their respective agents, employees, representatives,
         advisors, attorneys or affiliates, or any of their successors or
         assigns, for any act or omission in connection with, relating to or
         arising out of, the Company's chapter 11 case, the formulation,
         negotiation or implementation of the Plan, the solicitation of
         acceptances of the Plan, the pursuit of confirmation of the Plan, the
         Confirmation of the Plan, the consummation of the Plan or the
         administration of the Plan or the property to be distributed under the
         Plan, except for their willful misconduct, and in all respects shall be
         entitled to reasonably rely upon the advice of counsel with respect to
         their duties and responsibilities under the Plan, and (ii) providing
         that no holder of a Claim or an Interest, no other party in interest,
         none of their respective agents, employees, representatives, advisors,
         attorneys or affiliates, and none of their respective successors or
         assigns, shall have any right of action against RAM or Investor or the
         Company (or other appropriate parties as identified in the Plan), or
         any of their respective present or former members, officers, directors,
         employees, advisors or attorneys, for any act or omission in connection
         with, relating to or arising out of, the Company's chapter 11 case, the
         formulation, negotiation or implementation of the Plan, solicitation of
         acceptances of the Plan, the pursuit of confirmation of the Plan, the
         Confirmation of the Plan, the consummation of the Plan or the
         administration of the Plan or the property to be distributed under the
         Plan, except for their willful misconduct.

                  (d) "Representative" shall include (i) any and all officers,
         directors, employees, Affiliates, agents, partners and representatives
         of a Person, (ii) all lawyers, financial advisers, appraisers,
         accountants, other professionals or consultants (and their respective
         officers, directors, employees, Affiliates, agents, partners and
         representatives) engaged by a Person and (iii) any prospective
         purchaser of any Investor Securities and any prospective lender that is
         considering making a loan to the Investor to assist in the consummation
         of the transactions contemplated hereby and their respective lawyers,
         financial advisers, appraisers, accountants, other professionals or
         consultants (and their respective officers, directors, employees,
         Affiliates, agents, partners and representatives) engaged by such
         prospective purchaser or lender.

                                       25
<PAGE>

                  SECTION 22. Assumption and Rejection Decisions.

                  (a) RAM agrees that Company may assume all plans, programs and
         policies benefiting the Company's current and former employees existing
         as of the date hereof (the "Existing Plans"); provided, however, that
         the assumption of any Existing Plan will not impair or infringe upon
         the right of the Company to thereafter terminate or modify the same in
         accordance with the provisions thereof. At any time prior to the
         Effective Date, RAM may suggest revisions to the Existing Plans based
         on prudent business considerations and, if such suggestions are made,
         the Company will consider such suggestions in good faith.

                  (b) Except with respect to Existing Plans, the Company's
         decisions with respect to assumption or rejection of prepetition
         executory contracts and unexpired leases shall be subject to approval
         by RAM.

                  SECTION 23. Administrative Expense.

                  All amounts owed to RAM or its assignees by the Company under
this Agreement and approved by order of the Bankruptcy Court in respect thereof
shall be treated as an allowed administrative expense priority claim under
Section 507(a)(1) of the Bankruptcy Code.

                  SECTION 24. Notices.

                  All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
or by prepaid express courier to the parties at the following addresses or
facsimile numbers:

                 If to the Company:     Sterling Chemicals, Inc.
                                        1200 Smith Street, Suite 1900
                                        Houston, Texas 77002
                                        Attention:  David G. Elkins
                                        Fax Number:  (713) 750-0079
                                        Attention:  Kenneth M. Hale
                                        Fax Number:  (713) 654-9577

                 with a copy to:        Skadden, Arps, Slate, Meagher & Flom LLP
                                        Four Times Square
                                        New York, New York  10036-6522
                                        Attention: D.J. Baker
                                        Fax Number:  (212) 735-2000

                 If to RAM or Investor: Resurgence Asset Management, L.L.C.
                                        10 New King Street
                                        White Plains, New York  10604
                                        Attention:  Byron Haney
                                        Fax Number:  (914) 683-3610
                                        Attention:  Marc Kirschner
                                        Fax Number:  (914) 683-3610

                                       26
<PAGE>

                 with a copy to:        Weil, Gotshal & Manges LLP
                                        700 Louisiana, Suite 1600
                                        Houston, Texas  77002
                                        Attention:  Alfredo R. Perez
                                        Fax Number:  (713) 224-9511

All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section 24 be deemed given upon
delivery, (b) if delivered by facsimile transmission to the facsimile number as
provided in this Section 24, be deemed given upon receipt, and (c) if delivered
by mail or by express courier in the manner described above to the address as
provided in this Section 24, be deemed given upon receipt (in each case
regardless of whether such notice is received by any other Person to whom a copy
of such notice, request or other communication is to be delivered pursuant to
this Section 24). Either party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other party hereto.

                  SECTION 25. Governing Law.

                  Except to the extent inconsistent with the Bankruptcy Code,
this Agreement shall in all respects be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflicts or choice of law under which the laws of any other jurisdiction would
apply.

                  SECTION 26. Amendment and Waivers.

                  No amendment, modification, restatement or supplement of this
Agreement shall be valid unless the same is in writing and signed by the
parties. No waiver of any provision of this Agreement shall be valid unless in
writing and signed by the party against whom that waiver is sought to be
enforced. No failure or delay on the part of either party in exercising any
right, power or privilege hereunder, and no course of dealing between the
parties, shall operate as a waiver of any right, power or privilege hereunder.
No single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. No notice to or demand on either party in
any case shall entitle such party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of either
party to any other or further action in any circumstances without notice or
demand.

                  SECTION 27. No Third Party Beneficiary.

                  This Agreement is made solely for the benefit of the Company,
RAM and Investor and their respective permitted assigns, and no other Person
(including, without limitation, employees, customers, suppliers, contract
parties, stockholders and creditors of the Company) shall have any right, claim
or cause of action under or by virtue of this

                                       27
<PAGE>

Agreement, except to the extent such Person is entitled to protection as
contemplated by Section 31.

                  SECTION 28. Assignment.

                  Except as otherwise provided herein and by the terms of the
Investor Securities, RAM may assign all or part of its rights under this
Agreement to any of its Affiliates and may assign any Investor Securities (or
the right to purchase any Investor Securities) to any lawfully qualified Person
or Persons, and the Company may assign this Agreement to any Person with which
it may be merged or consolidated or to whom substantially all of its assets may
be transferred in facilitation of the consummation of the Plan and the
effectuation of the issuance and sale of the Investor Securities as contemplated
hereby. None of such assignments shall relieve the Company, RAM or Investor of
any obligations hereunder.

                  SECTION 29. Counterparts.

                  This Agreement may be executed by the parties hereto in
counterparts and by telecopy, each of which shall be deemed to constitute an
original and all of which together shall constitute one and the same instrument.
With respect to signatures transmitted by telecopy, upon request by either party
to the other party, an original signature of such other party shall promptly be
substituted for its facsimile.

                  SECTION 30. Invalid Provisions.

                  If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future laws, rules or regulations,
and if the rights or obligations of Investor and the Company under this
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
If the rights and obligations of Investor or the Company will be materially and
adversely affected by any such provision held to be illegal, invalid or
unenforceable, then unless such provision is waived in writing by the affected
party in its sole discretion, this Agreement shall be null and void.

                  SECTION 31. Directors' Liability and Indemnification.

                  (a) RAM shall permit the Company to seek to assume, and
         subject to the entry of the Confirmation Order the Plan shall provide
         for the assumption of, the prepetition indemnification agreements
         between the Company and the Designated Directors, Officers and
         Employees. In addition, (i) RAM agrees that the Plan shall include
         releases in favor of the Designated Directors, Officers and Employees
         and the Company's present agents, equity holders, financial advisors,

                                       28
<PAGE>

         representatives, affiliates and professionals (including Professionals
         (as such term is defined in the Plan) retained by the Company) as of
         the Effective Date, excluding, in each case, any Person who has, on or
         before the Effective Date, asserted any claim (other than a Proof of
         Claim as to which the Company has not made any objection on or before
         the Effective Date) or initiated any suit, action or similar proceeding
         against the Company that has not been waived by such Person in its
         entirety on or prior to the Effective Date (the "Releases") and (ii)
         RAM shall permit the Company to enter agreements and take such other
         action as necessary to effectuate the Releases as contemplated under
         the Plan.

                  (b) RAM, on behalf of itself and Investor, agrees that no
         recourse or liability whatsoever shall be had, directly or indirectly,
         against any Person who is a director or executive officer of the
         Company on the date hereof with respect to this Agreement, the Plan or
         the consummation of the transactions contemplated hereby or thereby,
         such recourse and liability, if any, being expressly waived and
         released by RAM, on behalf of itself and Investor, as a condition of,
         and in consideration for, the execution and delivery of this Agreement
         provided, however, that if (i) the Company files an Alternate Plan or
         (ii) RAM terminates this Agreement pursuant to Section 34(a), this
         Section 31(b) shall be null and void and RAM shall retain all of its
         rights, remedies and causes of action.

                  (c) Upon, and at all times after the Effective Date, the
         Certificate of Incorporation and Bylaws of the Company shall contain
         provisions which (i) eliminate the personal liability of the Company's
         present and future directors for monetary damages resulting from
         breaches of their fiduciary duties to the fullest extent permitted by
         applicable law and (ii) require the Company subject to appropriate
         procedures, to indemnify the Designated Directors, Officers and
         Employees and the Debtors' present and future directors, officers and
         other key employees to the fullest extent permitted by applicable law,
         including, without limitation, for pre-Effective Date acts and
         occurrences.

                  (d) The Company shall be permitted to enter into written
         agreements with each person who is a director, officer or member of
         management of the Company as of the Effective Date providing for
         similar indemnification of such person and providing that no recourse
         or liability whatsoever with respect to the Plan, the Investment
         Agreement or the consummation of the transactions contemplated hereby
         or thereby shall be had, directly or indirectly, by or in the right of
         the Company against such person.

                  SECTION 32. Jurisdiction of Bankruptcy Court.

                  The parties agree that the Bankruptcy Court shall have and
retain exclusive jurisdiction to enforce and construe the provisions of this
Agreement.

                                       29
<PAGE>

                  SECTION 33. Interpretation.

                  In this Agreement, unless a contrary intention appears, (a)
the words "herein", "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Section or other
subdivision and (b) reference to any Section means such Section hereof. The
Section headings herein are for convenience only and shall not affect the
construction hereof. No provision of this Agreement shall be interpreted or
construed against either party solely because such party or its legal
representative drafted such provision.

                  SECTION 34. Termination.

                  (a) Notwithstanding anything to the contrary contained in this
         Agreement, this Agreement may be terminated at any time prior to the
         Effective Date:

              (i) by mutual consent of RAM and the Company (with the consent
         of the Creditors Committee Majority and the Unofficial Secured
         Noteholders Committee Majority or their respective advisors);

              (ii) by either RAM or the Company (with the consent of the
         Creditors Committee Majority and the Unofficial Secured Noteholders
         Committee Majority or their respective advisors) if a domestic court of
         competent jurisdiction or a domestic Regulatory Authority of competent
         jurisdiction shall have issued an order, decree or ruling or taken any
         other action, in each case permanently restraining, enjoining or
         otherwise prohibiting the Investment, and such order, decree or ruling
         or other action shall have become final and non-appealable;

              (iii) by RAM if:

                           (A) any of the conditions specified in Sections 9(b)
         or 9(o) hereof has not been satisfied by the respective deadlines (as
         extended from time to time) set forth with respect thereto in such
         clauses for any reason other than a material breach by RAM or Investor
         of any of its express representations, warranties, covenants or
         obligations under this Agreement (regardless of whether Investor is an
         express party hereto);

                           (B) any of the other conditions specified in Section
         9 hereof has not been or, in the reasonable good faith determination of
         RAM, will not be able to be satisfied by the Outside Date for any
         reason other than a material breach by RAM or Investor of any of its
         express representations, warranties, covenants or obligations under
         this Agreement (regardless of whether Investor is an express party
         hereto);

                           (C) the Initial Order is not approved at the hearing
         convened for the purpose of considering the Initial Order and RAM
         provides written notice to the Company of its election to terminate
         this Agreement within 10 (ten) days of such hearing provided, that,
         absent such timely notice, RAM shall not be entitled to terminate this
         Agreement under this Section 34(a)(iii)(C);

                                       30
<PAGE>

                           (D) an order is entered by a court of competent
         jurisdiction reversing or staying the Initial Order;

                           (E) the Company has breached in any material respect
         any of its covenants or obligations hereunder;

                           (F) any of the Company's representations or
         warranties made herein prove to have been inaccurate in any material
         respect when made; or

                           (G) in accordance with Section 17(b) hereof, if the
         Company notifies RAM of its determination to accept an Alternate Bid;

         provided, however, that RAM shall not be entitled to terminate this
         Agreement pursuant to this clause (iii) at a time when RAM (or it
         Affiliates, including Investor) shall be in material breach of any of
         its representations, warranties, covenants or obligations under this
         Agreement (regardless of whether Investor is an express party hereto);
         and, provided further, however, that upon RAM becoming aware of any
         breach by the Company of any of its representations, warranties,
         covenants or obligations under this Agreement, or the failure of
         conditions or the occurrence or nonoccurrence of any other event, in
         any such case which would give RAM the ability to terminate this
         Agreement pursuant to the provisions of this clause (iii), RAM promptly
         shall notify the Company, the Unofficial Secured Noteholders Committee
         and the Creditors Committee in writing of its intention to terminate
         this Agreement, specifying the provision hereof under which RAM is
         exercising such right and, in the case of proposed termination under
         clause (B), (C) or (D) above, shall provide the Company 7 (seven)
         business days to cure such breach or remedy such occurrence or
         nonoccurrence;

              (iv) by the Company if:

                           (A) any of the conditions specified in Sections 10(b)
         or 10(m) hereof has not been satisfied by the respective deadlines (as
         extended from time to time) set forth with respect thereto in such
         clauses for any reason other than a material breach by the Company of
         any of its representations, warranties, covenants or obligations under
         this Agreement;

                           (B) any of the other conditions specified in Section
         10 hereof has not been or, in the reasonable good faith determination
         of the Company, will not be able to be satisfied by the Outside Date
         for any reason other than a material breach by the Company of any of
         its representations, warranties, covenants or obligations under this
         Agreement;

                           (C) RAM has breached in any material respect any of
         its covenants or obligations hereunder; or

                           (D) any of RAM's representations or warranties made
         herein prove to have been inaccurate in any material respect when made;

                                       31
<PAGE>

         provided, however, that the Company shall not be entitled to terminate
         this Agreement pursuant to this clause (iv) at a time when the Company
         shall be in material breach of any of its representations, warranties,
         covenants or obligations under this Agreement; and, provided further,
         however, that upon the Company becoming aware of any breach by Investor
         of any of its representations, warranties, covenants or obligations
         hereunder or under this Agreement, or the failure of conditions or the
         occurrence or nonoccurrence of any other event, in any such case which
         would give the Company the ability to terminate this Agreement pursuant
         to the provisions of this clause (iv), the Company promptly shall
         notify RAM, the Unofficial Secured Noteholders Committee and the
         Creditors Committee in writing of its intention to terminate this
         Agreement, specifying the provision hereof under which the Company is
         exercising such right and, in the case of a proposed termination under
         clause (B), (C) or (D) above, shall provide RAM 7 (seven) business days
         to cure such breach or remedy such occurrence or nonoccurrence; or

              (v) by the Company, with the consent of the Creditors Committee
         Majority and the Unofficial Secured Noteholders Committee Majority or
         their respective advisors, in the event of an acceptance of an
         Alternate Bid as contemplated in Section 17(b);

                           (b) In the event of the termination of this Agreement
         by either party pursuant to paragraph (a) above, written notice thereof
         shall be promptly given to the other party and, subject to paragraph
         (d) below, this Agreement shall terminate and the transactions
         contemplated hereby and thereby shall be abandoned without further
         action by Investor or the Company.

                           (c) This Agreement shall automatically terminate upon
         confirmation of an Alternative Plan.

                           (d) In the event of the termination of this Agreement
         as provided in paragraph (a) or (c) above, (i) this Agreement shall
         forthwith become null and void, (ii) RAM shall have no further
         obligations under the Term Sheet. or any other agreements entered into
         in connection therewith and (iii) there shall be no liability on the
         part of RAM or the Company or any of their respective partners,
         officers, directors, employees, agents or stockholders, except for
         fraud or for willful breach of this Agreement (but only if the
         Confirmation Order is entered) provided, however, that, that the
         parties shall continue to be obligated as set forth in Sections 16,
         21(a), 21(b), 27, 33 and 35, and this Section 34, all of which Sections
         shall survive the termination of this Agreement, and RAM shall retain
         its consent rights under Section 10.4 of the Plan.

                           (e) The termination of this Agreement pursuant to
         paragraph (a) above shall become effective when (i) in the case of a
         termination pursuant to clause (i) of paragraph (a) above, the required
         consent is executed, and (ii) in the case of a termination pursuant to
         any other clause of paragraph (a) above, the required notice is given
         by the terminating party and any applicable cure period

                                       32

<PAGE>

         has passed without cure of the relevant breach or remedy of the
         relevant occurrence or non-occurrence.

                  (f) No termination of this Agreement pursuant to this Section
         34 shall constitute a breach of this Agreement. The termination of this
         Agreement shall not cause or constitute a termination of any existing
         confidentiality agreement between the Company and Investor or one or
         more Affiliates of Investor.

                  SECTION 35. Privileged Communication.

                  The parties hereto anticipate that, being similarly situated
and having a common interest in the Company's chapter 11 case with respect to
the Plan, and in anticipation of potential litigation with other constituents of
the Company, they may share certain documents, information, factual materials,
mental impressions, memoranda, reports and attorney-client communications that
may be privileged from disclosure to adverse or other parties as a result of the
attorney-client privilege, the attorney work product privilege or other
applicable privileges. The parties hereto agree that the sharing of such
information or materials shall not diminish in any way the confidentiality of
such information or materials and shall not constitute a waiver of any
applicable privilege.

                  SECTION 36. Entire Agreement.

                  This Agreement sets forth all of the promises, agreements,
conditions, understandings, warranties and representations between the parties
with respect to the matters contemplated hereby, and supersedes all prior
agreements, arrangements and understandings between the parties with respect
thereto, whether written, oral or otherwise. There are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, between the parties concerning the subject matter hereof
except as set forth herein.

                            [Signature page follows]

                                       33
<PAGE>

                                         RESURGENCE ASSET MANAGEMENT, L.L.C.,
                                         on behalf of itself and its
                                         Affiliates' Managed Funds and Accounts

                                         By:

                                         By:
                                            ------------------------------------

                                         Title:
                                               ---------------------------------

Accepted and Agreed to
this    day of      ,      .
     --        -----  -----

STERLING CHEMICALS HOLDINGS, INC.,
as Debtor and Debtor-in-Possession

By:
    ---------------------------------

Title:
      -------------------------------

STERLING CHEMICALS, INC.,
as Debtor and Debtor-in-Possession.

By:
    ---------------------------------

Title:
      -------------------------------

                                       34

<PAGE>

                                   APPENDIX A

     Term Sheet for Proposed Plan of Reorganization (the "Plan") of Sterling
      Chemicals Holdings, Inc. ("Holdings") and certain of its subsidiaries
     dated as of September 4, 2002 among Resurgence Asset Management, L.L.C.
  ("Resurgence"), the Ad Hoc Committee (the "Ad Hoc Committee") of Holders of
  12-3/8% Senior Secured Notes ("Secured Noteholders"), the Official Committee
   of Unsecured Creditors (the "Unsecured Creditors Committee") and Sterling
                             Chemicals, Inc. ("SCI")

1.       Upon the execution of this Term Sheet by Resurgence, the Ad Hoc
         Committee, the Unsecured Creditors Committee and SCI, SCI shall
         continue to market its pulp chemicals operations ("PulpCo Business")
         for sale, with the goal of closing such sale at the time SCI
         consummates the Plan (the "Effective Date"); provided, however, that in
         no event will the Effective Date be later than June 30, 2003. A motion
         (in form and substance satisfactory to Resurgence, the Unsecured
         Creditors Committee and the Ad Hoc Committee) seeking approval of
         bidding procedures ("Procedures Motion") for the sale of the PulpCo
         Business will be filed with the Bankruptcy Court as soon as is
         reasonably practicable.

         SCI shall regularly inform representatives of Resurgence, the Unsecured
         Creditors Committee and the Ad Hoc Committee as to the status of the
         foregoing sale process, and SCI shall consult with such representatives
         regarding such sale process. If there are no bids for an amount at
         least equal to $300 million of Proceeds (as defined below), this Term
         Sheet shall be null and void unless Resurgence, the Unsecured Creditors
         Committee and the Ad Hoc Committee agree to a revised Term Sheet. If
         there are competing bids received by SCI for an amount of Proceeds in
         excess of $300 million, SCI, Resurgence, the Unsecured Creditors
         Committee and the Ad Hoc Committee shall mutually agree as to the
         highest and best bid for SCI to accept. If SCI, Resurgence, the
         Unsecured Creditors Committee and the Ad Hoc Committee disagree as to
         the highest and best bid, the dispute shall be submitted by any of such
         parties to the Bankruptcy Court to resolve, upon notice to the other of
         such parties and all other parties entitled to notice.

         As of the Effective Date, PulpCo Business net debt will not exceed $25
         million and subsidiaries holding pulp assets will not sell any pulp
         assets outside of the ordinary course of business prior to the
         Effective Date beyond anything contemplated in SCI's business plan.

         On the Effective Date, the PulpCo Business will be sold to a third
         party. The sales proceeds (the "Proceeds") means the net cash and/or
         other consideration acceptable to the Ad Hoc Committee, in each case
         received in connection with the sale of the PulpCo Business. For the
         purposes hereof, "net" means, without limitation, net of all fees and
         expenses associated with the sale, the amount of funded debt of the
         PulpCo Business repaid with the consideration received, and a provision
         for taxes or alternative minimum taxes, if any.

         All petrochemicals assets will be retained by Reorganized SCI. SCI's
         acrylic fibers business will either be retained by Reorganized SCI,
         transferred to a third party (possibly for little or no consideration)
         or converted to a Chapter 7 liquidation, depending on further review of
         the available options and subject to approval by Resurgence and the
         Unsecured Creditors Committee.

2.       At or prior to the Effective Date, $80 million will be set aside from
         the Proceeds and advanced to Reorganized SCI. In consideration of the
         foregoing advance, Reorganized SCI will issue new notes (the "New SCI
         Notes") to the Secured Noteholders (subject to adjustment under
         paragraph 4), with the following terms:

                                       35

<PAGE>

         Principal:            $80 million

         Maturity:             5 years

         Interest:             Payable semi-annually in arrears

         Annual Rate:          10% if cash or 13-3/8% if paid-in-kind at
                               Reorganized SCI's sole option, subject to the
                               PIK Period provision below

         PIK Period:           First 24 months at the option of
                               Reorganized SCI; provided that Reorganized SCI
                               will make interest payments in cash if after any
                               such payment Reorganized SCI would have excess
                               cash of more than $15 million beyond its budgeted
                               requirements

         Security:             Subject to any existing liens, first liens on
                               Texas City fixed assets

         Covenants:            No dividends to be paid from Reorganized SCI
                               while the New SCI Notes are outstanding. Other
                               covenants consistent with usual and customary
                               covenants of typical secured indebtedness
                               including, without limitation, covenants
                               regarding capital expenditures (which will not be
                               inconsistent with Reorganized SCI's business
                               plan) and use of proceeds from asset sales.

         The balance of the Proceeds will be paid to the Secured Noteholders
         subject to the provisions of paragraph 4 and being limited to the
         Secured Noteholders Claim (as defined in paragraph 3).

3.       For purposes of this Term Sheet, the term "Shortfall" means the amount
         by which the sum of the principal of the existing 12-3/8% Senior
         Secured Notes ($295,000,000), plus all accrued pre petition interest
         ($18,253,125) and all accrued post petition interest (including
         interest on interest to be calculated in accordance with the Indenture)
         at a 12-3/8% rate to the Effective Date (the "Secured Noteholders
         Claim"), exceeds the Proceeds.

4.       If there is a Shortfall, the amount of the New SCI Notes will be
         increased by the Shortfall. If the Proceeds exceed the Secured
         Noteholders Claim (any such excess, "Excess Proceeds"), (i) the first
         $80 million of such Excess Proceeds shall be distributed to the Secured
         Noteholders, (ii) the original principal amount of New SCI Notes to be
         issued by Reorganized SCI under paragraph 2 shall be reduced by an
         amount equal to the amount distributed to the Secured Noteholders
         pursuant to clause (i), (iii) Reorganized SCI shall issue new notes to
         the unsecured creditors of Debtors other than Holdings (the "UC Notes")
         having an original principal amount equal to such reduction, and (iv)
         to the extent Excess Proceeds exceed $80 million, such amount shall be
         distributed to the unsecured creditors. The UC Notes shall generally
         have the same terms and conditions as the New SCI Notes as agreed to by
         the Ad Hoc Committee and the Unsecured Creditors Committee; provided,
         however, that the UC Notes shall be expressly subordinated in right of
         payment to the New SCI Notes and shall be secured by liens junior to
         all liens securing the New SCI Notes on terms acceptable to the Ad Hoc
         Committee in its sole discretion.

5.       Unsecured creditors of Debtors other than Holdings will receive (i) any
         amounts payable to them under paragraph 4, (ii) 11.7% of the common
         equity of Reorganized SCI issued and outstanding as of the Effective
         Date (assuming conversion of all Convertible Preferred (as defined
         below) into common equity), (iii) warrants for 15% of the fully diluted
         common equity of Reorganized SCI as of the Effective Date (including
         the maximum number of shares issuable under the management incentive
         plan) and (iv) the right to subscribe for a portion of the Equity
         Investment (as defined below) pursuant to paragraph 6. The warrants
         will have a strike price based on $260 million total equity value and a
         six-year expiration. The Holdings' 13 1/2% Senior Discount Notes due
         2008 (the "Senior Discount Notes") and old equity will be cancelled;
         provided, however, that the holders of the Senior Discount Notes will
         receive 1.3% of the common equity of Reorganized SCI. Securities issued
         to unsecured creditors under the plan will have no restrictions on
         resale other than as may be imposed by applicable law. During the
         period of 18 months after the Effective Date, the Company will cause
         the Common Stock to be registered under Section 12(g) and will timely
         file all required reports under Section 13 of the Securities Exchange
         Act of 1934. Resurgence will have normal and customary demand
         registration rights and other holders of more than 5% of the fully
         diluted Common Stock will have normal and customary piggy back rights.

6.       Reorganized SCI will receive $60 million of new equity capital on the
         Effective Date (the "Equity Investment"). Unsecured creditors will have
         the right to subscribe for up to $30 million of the Equity Investment.
         Reorganized SCI shall issue 43.5% of the common equity of Reorganized
         SCI

                                       36

<PAGE>

         issued and outstanding as of the Effective Date (assuming the
         conversion of all Convertible Preferred into common equity) in exchange
         for the $30 million. Resurgence and/or funds managed by Resurgence will
         invest the remaining $30 million of the Equity Investment in exchange
         for $30 million of liquidation preference convertible preferred stock
         of Reorganized SCI (the "Convertible Preferred"). The Convertible
         Preferred will be initially convertible into 43.5% of the common equity
         of Reorganized SCI issued and outstanding as of the Effective Date
         (assuming the conversion of all Convertible Preferred into common
         equity), and will have a 4% per quarter dividend payable in kind
         quarterly in arrears. Resurgence and/or funds managed by Resurgence
         will underwrite the entire Equity Investment.

         Resurgence and/or funds managed by Resurgence will execute a tag-along
         agreement pursuant to which it agrees to allow the participation of the
         equity issued to the unsecured creditors pursuant to paragraph 5
         (including warrants) in any sale or proposed sale of more than 50% of
         the equity of Reorganized SCI (assuming the conversion of all
         Convertible Preferred into common equity), on a pro rata basis and on
         the same economic terms.

7.       Administrative claims will not exceed $40 million (other than normal
         post-petition trade payables that will be assumed by the respective
         companies owing them), unless otherwise approved by Resurgence, and the
         Plan will require payment of the professional fees and reasonable
         expenses incurred by (i) the Ad Hoc Committee for Houlihan Lokey Howard
         & Zukin ("Houlihan Lokey"), Kramer Levin Naftalis & Frankel LLP, and
         Floyd, Isgur, Rios & Warhlich, P.C. consistent with the engagement
         letters executed by the members of the Ad Hoc Committee, (ii) the
         professional fees, expenses and costs of the Indenture Trustee (or any
         successor Indenture Trustee) for SCI's 12-3/8% Senior Secured Notes up
         to $1.4 million in the aggregate from the Debtors' Estates (the Plan
         will not limit the rights of such Indenture Trustee under the Indenture
         from recovering professional fees, expenses and costs of the Indenture
         Trustee in excess of $1.4 million from sources other than the Debtors'
         Estates); and (iii) the professional fees, expenses and costs of the
         Indenture Trustee (s) for the 11 1/4% and 11 3/4% notes of SCI and the
         Indenture Trustee for the Senior Discount Notes up to $325,000 in the
         aggregate from the Debtors' Estates, provided, however, such amount may
         be increased if a plan is non-consensual or the Effective Date is later
         than March 1, 2003 (in any event, the Plan will not limit the right of
         such Indenture Trustees from recovering in excess of an aggregate of
         $325,000 from sources other than the Debtors' Estates). So long as this
         Term Sheet is effective, neither SCI nor the Unsecured Creditors
         Committee will commence any action or proceeding challenging (i) the
         validity or priority of the liens securing the claims of the Secured
         Noteholders or (ii) the priority and allowability of the claims of the
         Secured Noteholders, and the Unsecured Creditors Committee will hold
         any existing action in abeyance.

8.       Resurgence will have the right to designate a percentage of the Board
         members of Reorganized SCI equivalent to its percentage ownership of
         the outstanding voting stock of Reorganized SCI; provided, however,
         that for so long as Resurgence owns at least 35% of the outstanding
         voting stock of Reorganized SCI, Resurgence will be entitled to appoint
         a majority of the directors of Reorganized SCI. The unsecured
         creditors, through the Unsecured Creditors Committee, will have the
         right to appoint one director to the board of Reorganized SCI in
         conjunction with confirmation of the Plan which director shall serve a
         two-year term. So long as the New SCI Notes are outstanding, the Ad Hoc
         Committee will have the right to appoint one director of Reorganized
         SCI.

9.       Customary releases to current officers and directors, and as to former
         officers and directors as Resurgence, the Unsecured Creditors Committee
         and SCI may mutually agree. Standard exculpation provisions.

10.      Except as SCI and Resurgence may mutually agree in the Definitive
         Agreement (defined below), all of SCI's existing plans, programs and
         policies benefiting SCI's current and former employees ("Existing -
         Plans") will be assumed in connection with the reorganization of SCI;
         provided, however, that the assumption of any Existing Plan will not
         impair or infringe upon the right of Reorganized SCI to thereafter
         terminate or modify the same in accordance with the provisions

                                       37

<PAGE>

         thereof, and provided further, that if Resurgence notifies SCI prior to
         September 13, 2002 that Resurgence desires for SCI to reject, terminate
         or modify any Existing Plan in connection with the reorganization of
         SCI and if SCI thereafter informs Resurgence by September 20, 2002 that
         it is unwilling to take the desired action, then Resurgence shall be
         entitled to terminate its obligations under this Term Sheet by giving
         prompt written notice to the other parties. Notwithstanding the
         foregoing, nothing herein shall prevent Resurgence at any time prior to
         the Effective Date from suggesting revisions to the Existing Plans
         based on prudent business considerations and if such suggestions are
         made SCI will consider such suggestions in good faith. Subject to the
         foregoing, Resurgence will have control over executory contract issues
         of SCI.

11.      As soon as practicable, SCI and Resurgence shall enter into a
         definitive agreement (the "Definitive Agreement") based on and
         reflecting the terms of this Term Sheet. Subsequently, a second amended
         Plan will be filed by as soon as practicable, and the confirmation of
         such Plan shall have occurred by the later of December 4, 2002 or such
         date as soon thereafter as possible that accommodates the schedule of
         the Bankruptcy Court, subject to extension by mutual agreement. The
         amended Plan and all documentation will be satisfactory in form and
         substance to SCI, the Ad Hoc Committee, the Unsecured Creditors
         Committee and Resurgence, with typical confirmation and effective date
         conditions. The amended Plan will contain an agreed upon procedure to
         estimate contingent claims, allowing for a prompt issuance of stock to
         allowed unsecured claims.

12.      The obligations of Resurgence and the Secured Noteholders under this
         Term Sheet and the Definitive Agreement shall not be subject to any due
         diligence or other material and non-customary conditions; provided,
         however, that Resurgence's obligations shall be subject to customary
         closing conditions, including a material adverse change condition for
         the period beginning when the Definitive Agreement is signed and ending
         on the date on which the Plan is confirmed. For purposes hereof, a
         "material adverse change" shall mean any material adverse change in the
         business or financial condition of SCI (excluding the pulp chemical
         business) since the date of the execution of the Definitive Agreement,
         excluding any change (i) resulting from general economic conditions or
         the execution of this Term Sheet or the Definitive Agreement or (ii)
         that affects the chemicals industry as a whole.

13.      Subject to court approval, Resurgence will be reimbursed by SCI for all
         reasonable out-of-pocket expenses as incurred in connection with its
         due diligence (including up to $250,000 as provided for in that certain
         letter from SCI to Resurgence dated May 13, 2002), and Resurgence will
         be entitled to a break-up fee of $3 million cash, plus reimbursement
         for all out-of-pocket expenses in connection with Plan (the "Break-Up
         Fee"), payable by wire transfer of same day funds, if (a) Resurgence
         executes the Definitive Agreement and (b) thereafter, SCI files a plan
         or disclosure statement that does not include Resurgence as the sole
         new money underwriter ("Alternative Plan"). In addition, subject to
         court approval, Resurgence will be reimbursed by SCI for any
         out-of-pocket fees incurred in connection with the sale of the PulpCo
         Business. All Resurgence's out of pocket expenses to be reimbursed will
         not exceed $2,000,000 in the event the Break-Up Fee is payable.

14.      Concurrently with the execution of this Term Sheet, lock-up agreements
         will be entered into by Resurgence, and members of the Ad Hoc Committee
         and the Unsecured Creditors Committee (other than Indenture Trustees
         and trade creditors) substantially in the form annexed hereto. SCI,
         Resurgence, the Ad Hoc Committee and the Unsecured Creditors Committee
         agree to hold information about the specific principal amount of
         securities of SCI owned by each signatory to the lock-up agreements in
         confidence and will not disclose such specific information to third
         parties. Notwithstanding the foregoing, Resurgence and SCI will be
         permitted to disclose the aggregate securities held by all signatories
         thereto. Subject to applicable fiduciary duties, SCI, Resurgence, the
         Ad Hoc Committee and the Unsecured Creditors Committee will not,
         directly or indirectly, solicit or knowingly encourage the initiation
         of (including by way of furnishing information) any inquiries or
         proposals regarding any transaction that if consummated would
         constitute an Alternative Plan or support or accept an Alternative
         Plan; provided that they may answer questions in response to
         unsolicited inquiries. If the Plan is not confirmed within the

                                       38

<PAGE>

         timetable set forth in paragraph 11 or if SCI is required to pay
         Resurgence the Break-Up Fee described in paragraph 13, the restrictions
         in this paragraph will terminate.

15.      The Ad Hoc Committee will use their reasonable best efforts to issue
         written directions to the Indenture Trustee to hold the DIP proceedings
         in abeyance, and if necessary, follow the procedures for the removal
         and replacement of the Indenture Trustee, provided however, that the Ad
         Hoc Committee will not be obliged to initiate any judicial or
         administrative proceeding to enforce any rights or powers under the
         Indenture or otherwise to comply with the terms of this provision. The
         Indenture Trustee for the Secured Noteholders, SCI, Resurgence, and the
         Unsecured Creditors Committee may rely upon instructions from 50% in
         principal amount of the Secured Noteholders executing this Agreement,
         or their transferees, to make any amendments to or to take any action
         or give any consent on behalf of the Ad Hoc Committee with respect to
         this Term Sheet.

AGREED AND ACKNOWLEDGED
ON THIS        DAY OF SEPTEMBER, 2002:
         -----

STERLING CHEMICALS HOLDINGS, INC.

By:
    --------------------------------------
     Name:
     Title:

STERLING CHEMICALS, INC.

By:
    --------------------------------------
     Name:
     Title:

                                       39

<PAGE>

     Term Sheet for Proposed Plan of Reorganization (the "Plan") of Sterling
      Chemicals Holdings, Inc. ("Holdings") and certain of its subsidiaries
     dated as of September 4, 2002 among Resurgence Asset Management, L.L.C.
  ("Resurgence"), the Ad Hoc Committee (the "Ad Hoc Committee") of Holders of
  12-3/8% Senior Secured Notes ("Secured Noteholders"), the Official Committee
   of Unsecured Creditors (the "Unsecured Creditors Committee") and Sterling
                             Chemicals, Inc. ("SCI")

AGREED AND ACKNOWLEDGED
ON THIS       DAY OF SEPTEMBER, 2002:
        -----

RESURGENCE ASSET MANAGEMENT, L.L.C.,
ON BEHALF OF ITSELF AND ITS AFFILIATED FUNDS

By:
    --------------------------------------
     Name:
     Title:

                                       40
<PAGE>

     Term Sheet for Proposed Plan of Reorganization (the "Plan") of Sterling
      Chemicals Holdings, Inc. ("Holdings") and certain of its subsidiaries
     dated as of September 4, 2002 among Resurgence Asset Management, L.L.C.
  ("Resurgence"), the Ad Hoc Committee (the "Ad Hoc Committee") of Holders of
  12-3/8% Senior Secured Notes ("Secured Noteholders"), the Official Committee
   of Unsecured Creditors (the "Unsecured Creditors Committee") and Sterling
                             Chemicals, Inc. ("SCI")

AGREED AND ACKNOWLEDGED
ON THIS       DAY OF SEPTEMBER, 2002:
        -----

OFFICIAL COMMITTEE OF
UNSECURED CREDITORS

By:
    --------------------------------------
     Name:
     Title:

                                       41

<PAGE>

                                   SCHEDULE I

                            [SCHEDULE OF LITIGATION]

                                       42<PAGE>
                                                                     Exhibit 4.1

                            VALERO ENERGY CORPORATION

                              6.700% Notes due 2013

         A series of Securities is hereby established pursuant to Section 301 of
the Indenture dated as of December 12, 1997 (the "Indenture"), between Valero
Energy Corporation, a Delaware corporation (the "Company"), and The Bank of New
York, as Trustee (in such capacity, the "Trustee"), as follows (capitalized
terms used and not defined herein shall have the meanings assigned to them in
the Indenture, and all references herein to a Section shall refer to the
corresponding Section in the Indenture):

1. The title of the 6.700% Notes due 2013 shall be "6.700% Notes due 2013" (the
"Notes").

2. The initial limit upon the aggregate principal amount of the Notes that may
be authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Sections 304, 305, 306, 906 or 1207)
is $180,000,000.

3. The Notes shall be initially issued as Registered Securities in the form of
one or more global securities under the Indenture. The Depository Trust Company
is hereby designated as the Depository for these global Securities under the
Indenture.

         As long as any Note is in global form, then, notwithstanding clause
(11) of Section 301 and the provisions of Section 302, any such global Note
shall represent such of the outstanding Notes as shall be specified therein and
may provide that it shall represent the aggregate amount of outstanding Notes
from time to time endorsed thereon and that the aggregate amount of outstanding
Notes represented thereby may from time to time be reduced to reflect exchanges
or redemptions. Any endorsement of a global Note to reflect the amount, or any
increase or decrease in the amount, of outstanding Notes represented thereby
shall be made by the Trustee in such manner and upon instructions given by such
Person or Persons as shall be specified in such Note or in a Company Order to be
delivered to the Trustee pursuant to Section 303. Subject to the provisions of
Section 303 and, if applicable Section 304, the Trustee shall deliver and
redeliver any Note in permanent global form in the manner and upon instructions
given by the Person or Persons specified in such Note or in the applicable
Company Order. With respect to the Notes of any series that are represented by a
global Note, the Company authorizes the execution and delivery by the Trustee of
a letter of representations or other similar agreement or instrument in the form
customarily provided for by the Depository appointed with respect to such global
Note. Any global Note may be deposited with the Depository or its nominee, or
may remain in the custody of the Trustee pursuant to a FAST Balance Certificate
Agreement or similar agreement between the Trustee and the Depository. If a
Company Order has been, or simultaneously is, delivered, any instructions by the
Company with respect to endorsement or delivery or redelivery of a Note in
global form shall be in writing but need not comply with Section 102 and need
not be accompanied by an Opinion of Counsel.

         Members of, or participants in, the Depository ("Agent Members") shall
have no rights under the Indenture with respect to any global Note held on their
behalf by the Depository, or the Trustee as its custodian, or under such global
Note and the Depository may be treated by the Company, the Trustee and any agent
of the Company or the Trustee as the absolute owner of such global Note for all
purposes whatsoever. Notwithstanding the foregoing, (i) the registered holder of
a global Note may grant proxies and otherwise authorize any Person, including
Agent Members and Persons that may hold interests through an Agent Member, to
take any action that a Holder is entitled to take under the Indenture or the
Notes and (ii) nothing herein shall prevent the Company, the Trustee or any
agent of the Company or the Trustee, from giving effect to any written
certification, proxy or other authorization furnished by the Depository or shall
impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a beneficial owner
of any Note.

         Notwithstanding Section 305, and except as otherwise provided pursuant
to Section 301, transfers of a global Note shall be limited to transfers of such
global Note in whole but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in a global Note may be
transferred in accordance with the rules and procedures of the Depository. In
all other respects, Notes shall be transferred to all

                                      A-1
<PAGE>

beneficial owners in exchange for their beneficial interest in a Global Security
solely as expressly provided in Section 305.

         In connection with any transfer of a portion of the beneficial interest
in a global Note to beneficial owners pursuant hereto and Section 305, the
Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount of the global Note of the applicable series in
an amount equal to the principal amount of the beneficial interest in the global
Note to be transferred, and the Company shall execute, and the Trustee upon
receipt of a Company Order for the authentication and delivery of Notes shall
authenticate and deliver, one or more Notes of like tenor and amount.

         In connection with the transfer of an entire global Note to beneficial
owners pursuant hereto and Section 305, the global Security shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
global Note, an equal aggregate principal amount of Notes of the applicable
series of authorized denominations.

         Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, Notes by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Notes. Neither the Company nor the
Trustee shall be liable for any delay by the related global Note Holder or the
Depository in identifying the beneficial owners, and each such Person may
conclusively rely on, and shall be protected in relying on, instructions from
such global Note Holder or the Depository for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).

         Notwithstanding the provisions of Sections 201 and 307, unless
otherwise specified as contemplated by Section 301, payment of principal of,
premium (if any) or interest on any global Note shall be made to the Person or
Persons specified in such global Note.

4. The dates on which the principal of the Notes is payable shall be January 15,
2013.

5. The rate at which the Notes shall bear interest shall be 6.700% per annum.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The date from which interest shall accrue for the Notes shall be
December 16, 2002. The Interest Payment Dates on which interest on the Notes
shall be payable are January 15 and July 15, commencing July 15, 2003. Interest
on the Notes shall be payable to the persons in whose name the Notes are
registered at the close of business on the Regular Record Date for such interest
payment, except in the case of default interest, which will be payable as
provided in the Indenture. The Regular Record Date for the interest payable on
the Notes on any Interest Payment Date shall be the December 31 and June 30, as
the case may be, immediately preceding such Interest Payment Date. No Additional
Amounts shall be payable with respect to the Notes.

6. The place or places where the principal of, premium (if any) on and interest
on the Notes shall be payable is at the office or agency of the Trustee in New
York, New York or such other offices or agencies maintained for such purpose as
the Company may from time to time and in accordance with the Indenture
designate. If appropriate wire transfer instructions have been received by the
Trustee at its Corporate Trust Office or at its corporate trust facility in the
Borough of Manhattan, The City of New York, not later than 5 Business Days prior
to the record date for an applicable Interest Payment Date, then payments in
respect of the Notes evidenced by a global Security (including principal,
premium, if any, and interest) shall be made by wire transfer of immediately
available funds to the accounts specified by the Holder of such global Note. In
all other cases, payment of interest on the Notes may be made at the option of
the Company by check mailed to the address of the person entitled thereto as
such address shall appear in the Security Register.

7. Each series of Notes will be redeemable, in whole or in part, at the option
of the Company at any time, at a redemption price equal to the greater of (i)
100% of the principal amount of the applicable series of Notes, and (ii) the sum
of the present values of the remaining scheduled payments of principal and
interest thereon (not including any portion of such payments of interest accrued
as of the date of redemption) discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate

                                      A-2
<PAGE>

(as defined below) plus 35 basis points, as calculated by an Independent
Investment Banker plus, in each case, accrued and unpaid interest thereon to the
date of redemption.

         "Adjusted Treasury Rate" means, with respect to any date of redemption,
         (i) the yield, under the heading which represents the average for the
         immediately preceding week, appearing in the most recently published
         statistical release designated "H.15(519)"or any successor publication
         which is published weekly by the Board of Governors of the Federal
         Reserve System and which establishes yields on actively traded United
         States Treasury securities adjusted to constant maturity under the
         caption "Treasury Constant Maturities," for the maturity corresponding
         to the Comparable Treasury Issue (if no maturity is within three months
         before or after the remaining life, yields for the two published
         maturities most closely corresponding to the Comparable Treasury Issue
         shall be determined and the Adjusted Treasury Rate shall be
         interpolated or extrapolated from such yields on a straight line basis,
         rounding to the nearest month); or (ii) if such release (or any
         successor release) is not published during the week preceding the
         calculation date or does not contain such yields, the rate per annum
         equal to the semi-annual equivalent yield to maturity of the Comparable
         Treasury Issue, calculated using a price for the Comparable Treasury
         Issue (expressed as a percentage of its principal amount) equal to the
         Comparable Treasury Price for such date of redemption. The Adjusted
         Treasury Rate shall be calculated on the third Business Day preceding
         the date of redemption.

         "Comparable Treasury Issue" means the United States Treasury security
         selected by an Independent Investment Banker as having a maturity
         comparable to the remaining term of the series of Notes to be redeemed
         that would be utilized, at the time of selection and in accordance with
         customary financial practice, in pricing new issues of corporate debt
         securities of comparable maturity to the remaining term of such Notes.

         "Comparable Treasury Price" means, with respect to any date of
         redemption, (i) the average of five Reference Treasury Dealer
         Quotations for such date of redemption, after excluding the highest and
         lowest such Reference Treasury Dealer Quotations, or (ii) if the
         Independent Investment Banker obtains fewer than five such Reference
         Treasury Dealer Quotations, the average of all such Reference Treasury
         Dealer Quotations.

         "Independent Investment Banker" means one of the Reference Treasury
         Dealers appointed by the Company to act as the independent investment
         banker from time to time.

         "Reference Treasury Dealers" means (i) UBS Warburg LLC and its
         respective successors; provided that, if any of the foregoing shall
         cease to be a primary U.S. Government securities dealer (a "Primary
         Treasury Dealer"), the Company shall substitute therefor another
         Primary Treasury Dealer; and (ii) any other Primary Treasury Dealer
         selected by the Company.

         "Reference Treasury Dealer Quotations" means, with respect to each
         Reference Treasury Dealer and any date of redemption, the average, as
         determined by the Independent Investment Banker, of the bid and asked
         prices for the Comparable Treasury Issue (expressed in each case as a
         percentage of its principal amount) quoted in writing to the
         Independent Investment Banker by such Reference Treasury Dealer at 5:00
         p.m., New York City time, on the third Business Day preceding such date
         of redemption.

Notice of any redemption will be mailed at least 30 days but not more than 60
days before the date of redemption to each Holder of the applicable series of
Notes to be redeemed. Unless the Company defaults in payment of the redemption
price, on and after the date of redemption, interest will cease to accrue on the
Notes or portions thereof called for redemption.

8. The Notes shall not be entitled to the benefit of any sinking fund, any
optional repurchase or redemption right in favor of any holder thereof or other
mandatory repurchase or redemption provisions.

                                      A-3
<PAGE>
9. The Notes shall be in substantially the form of Attachment A hereto (the
"Form of Note").

10. Each Note that is a global Security shall bear the legend set forth on the
face of the Form of Note.

                                      A-4
<PAGE>
                           ATTACHMENT A - FORM OF NOTE

                           [FORM OF FACE OF SECURITY]

         [THIS SECURITY IS A GLOBAL SECURITY AS PROVIDED FOR IN THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO
A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED
CIRCUMSTANCES.]*

         [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]*

                            VALERO ENERGY CORPORATION

                              6.700% NOTES DUE 2013
No. [     ]                                               $[                   ]
REGISTERED                                                CUSIP No. [          ]

                  VALERO ENERGY CORPORATION, a Delaware corporation (the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received promises to pay to Cede & Co. or
registered assigns, the principal sum of       Dollars [or such lesser amount as
indicated on the schedule of exchanges of Securities,]* on January 15, 2013.

                 Interest Payment Dates: January 15 and July 15

                  Regular Record Dates: December 31 and June 30

                  Reference is hereby made to the further provisions of this
Security set forth in the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

--------
* To be included only if the Security is a Global Security.

                                      AA-1
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.

Dated:                ,

                                 VALERO ENERGY CORPORATION

                                By:
                                   ---------------------------------------------
                                   John D. Gibbons, Executive Vice President and
                                   Chief Financial Officer

ATTEST:

By:---------------------------------------------
   Jay D. Browning, Vice President and Secretary

                    TRUSTEE'S CERTIFICATE OF AUTHENTICATION:

This is one of the Securities of the series designated therein referred to in
the within-mentioned Indenture.

                                        THE BANK OF NEW YORK, as Trustee

                                        By:
                                           -------------------------------------
Dated:              ,                      Authorized Signatory

                                      AA-2
<PAGE>

                          [FORM OF REVERSE OF SECURITY]

                            VALERO ENERGY CORPORATION

                              6.700% NOTES DUE 2013

                  This Security is one of a duly authorized issue of debentures,
notes or other evidences of indebtedness of VALERO ENERGY CORPORATION, a
Delaware corporation (the "Company"), issued under the Indenture hereinafter
referred to and is one of a series of such debentures, notes or other evidences
of indebtedness designated pursuant thereto as 6.700% Notes due 2013 (the
"Securities") of the Company.

         1. Interest. The Company promises to pay interest on the principal
amount of this Security at 6.700% per annum from December 16, 2002 until
Maturity of the Securities. The Company will pay interest semiannually on
January 15 and July 15 of each year (each an "Interest Payment Date") and on the
Maturity of the Securities, or if any such day is not a Business Day, on the
next succeeding Business Day. Interest on the Securities will accrue from the
most recent Interest Payment Date on which interest has been paid or, if no
interest has been paid, from December 16, 2002; provided that if there is no
existing Default in the payment of, or provisions for, interest, and if this
Security is authenticated between a Regular Record Date referred to on the face
hereof (whether or not a Business Day) and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be July 15, 2003.
The interest so payable, and punctually paid or provided for, on any Interest
Payment Date will, as provided in the Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest as set forth on
the face hereof, provided, however, that interest payable at Maturity of this
Security will be payable to the Person to whom the principal hereof shall be
payable. Any such interest which is so payable, but is not punctually paid or
duly provided for on any Interest Payment Date, shall forthwith cease to be
payable to the registered Holder on such Regular Record Date, and may be paid as
more fully provided in the Indenture. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.

         2. Method of Payment. Payment of the principal of (and premium, if any)
and interest on this Security will be made at the office or agency of the
Company maintained for that purpose at the Corporate Trust Office of the Trustee
in the Borough of Manhattan, The City of New York, or at such other offices or
agencies maintained for such purpose as the Company may from time to time and in
accordance with the Indenture designate, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that (i) payment of interest may,
at the option of the Company, be made (subject to collection) by check mailed to
the address of the Person entitled thereto as such address shall appear on the
Security Register or, with respect to Securities evidenced by a global Security,
if appropriate wire transfer instructions have been received in writing by the
Trustee at its Corporate Trust Office or at its corporate trust facility in the
Borough of Manhattan, The City of New York, not later than five Business Days
prior to the record date for an applicable Interest Payment Date, be made by
wire transfer of immediately available funds in accordance with such wire
transfer instructions; and (ii) payment of available funds upon surrender of
this Security will be made at the Corporate Trust Office of the Trustee or at
the corporate trust facility of the Trustee located in the Borough of Manhattan,
The City of New York, or at such additional offices or agencies maintained for
such purpose as the Company may from time to time and in accordance with the
Indenture designate.

         3. Certain Office. Initially, The Bank of New York, the Trustee under
the Indenture (in such capacity, the "Trustee"), will, at its Corporate Trust
Office in the Borough of Manhattan, The City of New York, act as the Company's
office or agency where the Securities may be presented or surrendered for
payment, where the Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and the Indenture may be served.

         4. Indenture. The Company issued the Securities under an Indenture
dated as of December 12, 1997 (the "Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture
(including terms defined therein, which terms when used herein, unless the
context requires otherwise, shall have the meanings assigned to such terms in
the Indenture) and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of
execution of the Indenture.

                                      AA-3
<PAGE>

The Securities are subject to all such terms, and Holders are referred to the
Indenture and the TIA for a statement of such terms. The Securities are
unsecured general obligations of the Company initially limited to $180,000,000
in aggregate principal amount and will rank on a parity with all other unsecured
and unsubordinated indebtedness of the Company. The Indenture provides for the
issuance of other series of debentures, notes and other evidences of
Indebtedness (including the Securities, the "Debt Securities") thereunder.

         5. Denominations, Transfer, Exchange. The Securities are in registered
form without coupons and, if not in global form, in denominations of $1,000 and
integral multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Security Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Security Registrar need not exchange or
register the transfer of any Securities during the period beginning on the
opening of business 15 days before the day of mailing of a notice of redemption
of the Securities and ending at the close of business on the day of such mailing
or of any Securities selected for redemption, except the unredeemed portion of
any Securities being redeemed in part.

         6. Persons Deemed Owners. The registered Holder of a Security shall be
treated as its owner for all purposes.

         7. Redemption. The Securities will be redeemable, in whole or in part,
at the option of the Company at any time, at a redemption price equal to the
greater of (i) 100% of the principal amount of such Securities, and (ii) the sum
of the present values of the remaining scheduled payments of principal and
interest thereon (not including any portion of such payments of interest accrued
as of the date of redemption) discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate (as defined below) plus 35 basis points, as
calculated by the Independent Investment Banker (as defined below) plus, in each
case, accrued and unpaid interest thereon to the date of redemption.

         "Adjusted Treasury Rate" means, with respect to any date of redemption,
         (i) the yield, under the heading which represents the average for the
         immediately preceding week, appearing in the most recently published
         statistical release designated "H.15(519)" or any successor publication
         which is published weekly by the Board of Governors of the Federal
         Reserve System and which establishes yields on actively traded United
         States Treasury securities adjusted to constant maturity under the
         caption "Treasury Constant Maturities," for the maturity corresponding
         to the Comparable Treasury Issue (if no maturity is within three months
         before or after the remaining life, yields for the two published
         maturities most closely corresponding to the Comparable Treasury Issue
         shall be determined and the Adjusted Treasury Rate shall be
         interpolated or extrapolated from such yields on a straight line basis,
         rounding to the nearest month); or (ii) if such release (or any
         successor release) is not published during the week preceding the
         calculation date or does not contain such yields, the rate per annum
         equal to the semi-annual equivalent yield to maturity of the Comparable
         Treasury Issue, calculated using a price for the Comparable Treasury
         Issue (expressed as a percentage of its principal amount) equal to the
         Comparable Treasury Price for such date of redemption. The Adjusted
         Treasury Rate shall be calculated on the third Business Day preceding
         the date of redemption.

         "Comparable Treasury Issue" means the United States Treasury security
         selected by an Independent Investment Banker as having a maturity
         comparable to the remaining term of the Notes to be redeemed that would
         be utilized, at the time of selection and in accordance with customary
         financial practice, in pricing new issues of corporate debt securities
         of comparable maturity to the remaining term of such Notes.

         "Comparable Treasury Price" means, with respect to any date of
         redemption, (i) the average of five Reference Treasury Dealer
         Quotations for such date of redemption, after excluding the highest and
         lowest such Reference Treasury Dealer Quotations, or (ii) if the
         Independent Investment Banker obtains fewer than five such Reference
         Treasury Dealer Quotations, the average of all such Reference Treasury
         Dealer Quotations.

         "Independent Investment Banker" means one of the Reference Treasury
         Dealers appointed by the Company to act as the independent investment
         banker from time to time.

                                      AA-4
<PAGE>

         "Reference Treasury Dealers" means (i) UBS Warburg LLC and its
         respective successors; provided that, if any of the foregoing shall
         cease to be a primary U.S. Government securities dealer (a "Primary
         Treasury Dealer"), the Company shall substitute therefor another
         Primary Treasury Dealer; and (ii) any other Primary Treasury Dealer
         selected by the Company.

         "Reference Treasury Dealer Quotations" means, with respect to each
         Reference Treasury Dealer and any date of redemption, the average, as
         determined by the Independent Investment Banker, of the bid and asked
         prices for the Comparable Treasury Issue (expressed in each case as a
         percentage of its principal amount) quoted in writing to the
         Independent Investment Banker by such Reference Treasury Dealer at 5:00
         p.m., New York City time, on the third Business Day preceding such date
         of redemption.

Notice of any redemption will be mailed at least 30 days but not more than 60
days before the date of redemption to each Holder of the Securities to be
redeemed. Unless the Company defaults in payment of the redemption price, on and
after the date of redemption, interest will cease to accrue on the Securities or
portions thereof called for redemption.

         8. Amendments and Waivers. Subject to certain exceptions and
limitations, the Indenture or the Securities may be supplemented with the
consent of the Holders of not less than a majority in aggregate principal amount
of the outstanding Securities, and any past default under the Indenture with
respect to the Securities, and its consequences, may be waived (other than a
default in the payment of the principal of (or premium, if any) or interest on
the Securities or in respect of a covenant or provision of the Indenture which
under Article 9 thereof cannot be modified or amended without the consent of the
Holder of each outstanding Security) by the Holders of not less than a majority
in principal amount of the outstanding Securities in accordance with the terms
of the Indenture. Without the consent of any Holder, the Company and the Trustee
may supplement the Indenture or the Securities (i) to cure any ambiguity,
omission, defect or inconsistency, in each case which shall not be inconsistent
with the provisions of the Indenture and which shall not adversely affect the
interest of the Holders of the Securities in any material respect; (ii) to
evidence the assumption by a successor Person of the obligations of the Company
under the Indenture and this Security; (iii) to change or eliminate any
restrictions on the payment of principal (or premium, if any) on Registered
Securities, to permit Registered Securities to be exchanged for Bearer
Securities or to permit the issuance of Securities in uncertificated form,
provided any such action shall not adversely affect the interest of the Holders
of the Securities in any material respect; (iv) to add to the covenants of the
Company for the benefit of the Holders of the Securities or Holders of other
series of Debt Securities, or to surrender any right or power conferred by the
Indenture upon the Company; (v) to add to, delete from or revise the conditions,
limitations and restrictions on the authorized amount, terms or purpose of
issue, authentication and delivery of the Securities as set forth in the
Indenture; or (vi) to evidence and provide for the acceptance of appointment
under the Indenture by a successor Trustee with respect to the Securities and to
add to or change any of the provisions of the Indenture as shall be necessary to
provide for or facilitate the administration of the trusts thereunder by more
than one Trustee, pursuant to the requirements of the Indenture.

                  The right of any Holder to participate in any consent required
or sought pursuant to any provision of the Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of record
of any Securities with respect to which consent is required or sought as of a
date fixed in accordance with the terms of the Indenture.

                  Subject to certain exceptions and limitations set forth in the
Indenture, without the consent of each Holder affected, the Company may not (i)
change the Stated Maturity of the principal of or any installment of interest on
any Security, (ii) reduce the principal amount of, or any premium or interest
on, any Security, (iii) change any Place of Payment where, or the currency in
which, any Security or any premium or interest thereon is payable, (iv) impair
the right to institute suit for the enforcement of any payment with respect to
any Security after the Stated Maturity thereof (or, in the case of redemption,
on or after the applicable Redemption Date), (v) reduce the percentage in
principal amount of the outstanding Securities whose Holders must consent to a
supplement or waiver, or reduce the requirements in Section 1504 of the
Indenture for quorum or voting, or make any change in the percentage of
principal amount of Securities necessary to waive compliance with certain
provisions of the Indenture or (vi) waive a continuing Default or Event of
Default in the payment of principal of or premium (if any) or interest on the
Securities.

                                      AA-5
<PAGE>

                  A supplemental indenture that changes or eliminates any
covenant or other provision of the Indenture which has expressly been included
solely for the benefit of one or more particular series of Debt Securities under
the Indenture, or which modifies the rights of the Holders of Debt Securities of
such series with respect to such covenant or other provision, shall be deemed
not to affect the rights under the Indenture of the Holders of Debt Securities
of any other series.

         9. Defaults and Remedies. Events of Default are defined in the
Indenture and generally include: (i) failure to pay principal of or any premium
on any Security when due and payable; (ii) failure to pay any interest on any
Security when due and payable, and the continuation of the default for 30 days;
(iii) failure to perform any other covenant, or breach of any warranty, of the
Company in the Indenture, continued for 60 days after written notice is given or
received as provided in the Indenture; (iv) certain events of bankruptcy,
insolvency, or reorganization; and (v) failure to pay at final maturity (after
the expiration of any applicable grace periods) or upon the declaration of
acceleration of payment of indebtedness for borrowed money of the Company or any
Subsidiary in excess of $25 million, if such indebtedness is not discharged, or
such acceleration is not annulled, within 10 days after written notice. If any
Event of Default at any time outstanding occurs and is continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the then
outstanding Securities may declare the principal amount of all Securities to be
due and payable immediately. At any time after a declaration or occurrence of
acceleration with respect to the Securities has been made, but before a judgment
or decree based on acceleration has been obtained, the Holders of a majority in
aggregate principal amount of the then outstanding Securities may, under certain
circumstances, rescind and annul the acceleration.

                  Holders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may require indemnity reasonably
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Securities may direct the Trustee in its exercise of any trust or
power with respect to the Securities. The Trustee may withhold from Holders
notice of any continuing default (except a default in payment of principal,
premium (if any) or interest) if in good faith it determines that withholding
notice is in their interests. The Company must furnish an annual compliance
certificate to the Trustee.

         10. Discharge Prior to Maturity. The Indenture with respect to the
Securities shall be discharged and canceled upon the payment of all Securities
and, as provided in the Indenture, shall be discharged except for certain
obligations upon the irrevocable deposit with the Trustee of funds sufficient
for such payment.

         11. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.

         12. Authentication. This Security shall not be valid until
authenticated by the manual signature of an authorized signer of the Trustee.

         13. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the correctness of such numbers
as printed on the Securities and reliance may be placed only on the other
identification numbers printed thereon.

         14. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform gifts
to Minors Act).

                                      AA-6
<PAGE>

         THE COMPANY WILL FURNISH TO ANY HOLDER UPON WRITTEN REQUEST AND WITHOUT
CHARGE A COPY OF THE INDENTURE. REQUEST MAY BE MADE TO:

                   VALERO ENERGY CORPORATION
                   ONE VALERO PLACE
                   SAN ANTONIO, TEXAS 78212
                   TELEPHONE: (210) 370-2000
                   ATTENTION:  GENERAL COUNSEL

                                      AA-7
<PAGE>

                       SCHEDULE OF EXCHANGES OF SECURITY*

        The following exchanges of a part of this global Security for definitive
Securities have been made:

<TABLE>
<CAPTION>

                                                                            Principal amount of         Signature of
                              Amount of decrease in    Amount of increase  this global Security    authorized officer of
                               principal amount of  in principal amount of      following such      Trustee or Security
     Date of exchange         this global Security   this global Security  decrease (or increase)        Registrar
     ----------------         --------------------   --------------------  ----------------------   ----------------------
<S>                           <C>                    <C>                   <C>                      <C>

</TABLE>

----------------
* This schedule to be included only if the Security is a Global Security.

                                      AA-8
<PAGE>

                                 ASSIGNMENT FORM

     To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to ______________________(Insert assignee's social
security or tax I.D. number)

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

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

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

--------------------------------------------------------------------------------
              (Print or type assignee's name, address and zip code)

and irrevocably appoint
                        --------------------------------------------------------
as agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.

Date:_________________       Your Signature:
                                            ------------------------------------
                                            (Sign exactly as your name appears
                                             on the face of this Security)

Signature Guarantee:
                    ------------------------------------------------------------
                           (Participant in a Recognized Signature
                                Guaranty Medallion Program)

                                      AA-9

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