Document:

<PAGE>   1
                                                                    EXHIBIT 10.1

                                CREDIT AGREEMENT

                            dated as of July 13, 2001

                                 by and between

                            Steel City Products, Inc.

                                       and

                       National City Bank of Pennsylvania

<PAGE>   2

                                TABLE OF CONTENTS

<Table>
<Caption>
Section                                     Title                                                Page
-------                                     -----                                                ----
<S>                <C>                                                                           <C>
Article I          Definitions; Construction...................................................... 1

Article II         The Credits.................................................................... 1

       2.01        Revolving Credit Loans......................................................... 1
       2.02        Revolving Credit Fees.......................................................... 2
       2.03        Making of Revolving Credit Loans............................................... 2
       2.04        Interest Rates................................................................. 3
       2.05        Prepayments.................................................................... 3
       2.06        Interest Payment Dates......................................................... 4
       2.07        Payments Generally; Interest on Overdue Amounts................................ 4
       2.08        Additional Compensation in Certain Circumstances............................... 4
       2.09        Borrowing Base................................................................. 6

Article III        Representations and Warranties................................................. 9

       3.01        Organizational Status.......................................................... 9
       3.02        Power and Authorization........................................................ 9
       3.03        Execution and Binding Effect................................................... 9
       3.04        Governmental Approvals and Filings.............................................10
       3.05        Absence of Conflicts...........................................................10
       3.06        Audited Financial Statements...................................................10
       3.07        Interim Financial Statements...................................................11
       3.08        Absence of Undisclosed Liabilities.............................................11
       3.09        Absence of Material Adverse Changes............................................11
       3.10        Accurate and Complete Disclosure...............................................11
       3.11        Margin Regulations.............................................................11
       3.12        Partnerships, Etc..............................................................11
       3.13        Ownership and Control..........................................................11
       3.14        Litigation.....................................................................12
       3.15        Absence of Events of Default...................................................12
       3.16        Absence of Other Conflicts.....................................................12
       3.17        Insurance......................................................................12
       3.18        Intellectual Property..........................................................12
       3.19        Taxes..........................................................................12
       3.20        Employment Benefits............................................................13
       3.21        Environmental Matters..........................................................13
       3.22        Title to Property..............................................................13

Article IV         Conditions of Lending..........................................................13

       4.01        Conditions to Initial Loans....................................................13
       4.02        Conditions to All Loans........................................................16
</Table>

<PAGE>   3

<Table>
<Caption>
Section                                     Title                                                Page
-------                                     -----                                                ----
<S>                <C>                                                                           <C>
Article V          Affirmative Covenants..........................................................17

       5.01        Basic Reporting Requirements...................................................17
       5.02        Insurance......................................................................19
       5.03        Payment of Taxes and Other Potential
                   Charges and Priority Claims....................................................20
       5.04        Preservation of Organizational Status..........................................20
       5.05        Governmental Approvals and Filings.............................................20
       5.06        Maintenance of Properties......................................................20
       5.07        Avoidance of Other Conflicts...................................................20
       5.08        Financial Accounting Practices.................................................21
       5.09        Use of Proceeds................................................................21
       5.10        Continuation of or Change in Business..........................................21
       5.11        Notice of Certain Changes......................................................21

Article VI         Negative Covenants.............................................................21

       6.01        Financial Covenants............................................................21
       6.02        Liens..........................................................................21
       6.03        Indebtedness...................................................................22
       6.04        Guaranties, Indemnities, Etc...................................................22
       6.05        Loans and Investments..........................................................22
       6.06        Capital Expenditures...........................................................22
       6.07        Merger, Acquisitions, Etc......................................................22
       6.08        Dispositions of Properties.....................................................23
       6.09        Dealings with Affiliates.......................................................23
       6.10        Leases.........................................................................23
       6.11        Distributions..................................................................23
       6.12        Limitation on Other Restrictions on Liens......................................23
       6.13        Limitation on Other Restrictions on
                   Amendment of the Loan Documents, etc...........................................24
       6.14        Limitation on Other Agreements that Conflict
                   with the Loan Documents........................................................24

Article VII        Defaults.......................................................................24

       7.01        Events of Default..............................................................24
       7.02        Consequences of an Event of Default............................................26

Article VIII       Miscellaneous..................................................................27

       8.01        Holidays.......................................................................27
       8.02        Records........................................................................27
       8.03        Amendments and Waivers.........................................................27
       8.04        No Implied Waiver; Cumulative Remedies.........................................27
       8.05        Notices........................................................................27
       8.06        Expenses; Taxes; Indemnity.....................................................27
</Table>

                                       ii
<PAGE>   4

<Table>
<Caption>
Section                                     Title                                                Page
-------                                     -----                                                ----
<S>                <C>                                                                           <C>
       8.07        Severability...................................................................29
       8.08        Prior Understandings...........................................................29
       8.09        Duration; Survival.............................................................29
       8.10        Counterparts...................................................................29
       8.11        Limitation on Payments.........................................................29
       8.12        Set-Off........................................................................29
       8.13        Successors and Assigns.........................................................30
       8.14        Governing Law; Submission to Jurisdiction:
                    Limitation of Liability.......................................................30
       8.15        Waiver of Jury Trial...........................................................31

 Annex A           Definitions; Construction ....................................................A-1
</Table>

Exhibits

Exhibit A          Form of Revolving Credit Note
Exhibit B          Form of Borrowing Base Certificate
Exhibit C          Form of Borrower's Security Agreement
Exhibit D          Form of Leasehold Mortgage
Exhibit E-1        Form of Memorandum of Lease
Exhibit E          Form of Ground Lessor Estoppel
Exhibit F          Form of Landlord's Waiver and Consent
Exhibit G          Form of Quarterly Compliance Certificate

Schedules

Schedule 3.01      Organizational Status
Schedule 3.04      Governmental Approvals and Filings
Schedule 3.05      Conflicts
Schedule 3.13      Ownership and Control
Schedule 3.14      Litigation
Schedule 3.20      Employee Benefit Plans
Schedule 3.21      Environmental Matters
Schedule 6.02      Liens
Schedule 6.03      Indebtedness
Schedule 6.04      Guaranty Equivalents
Schedule 6.05      Investments
Schedule 6.09      Dealings with Affiliates

                                      iii
<PAGE>   5

                                CREDIT AGREEMENT

         THIS AGREEMENT, dated as of July 13, 2001, by and between Steel City
Products, Inc., a Delaware corporation (the "Borrower"), and National City Bank
of Pennsylvania, a national banking association (the "Bank").

                                    RECITALS:

         WHEREAS, the Borrower has requested that the Bank make available to it
certain funds to be used for general working capital purposes and to replace an
existing credit facility with Finova Capital Corporation; and

         WHEREAS, upon all of the terms and conditions herein set forth, the
Bank has agreed to make available to the Borrower a revolving credit facility to
be used by the Borrower for the purposes set forth above.

         NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:

                                    ARTICLE I
                            DEFINITIONS; CONSTRUCTION

         1.01. Certain Definitions. In addition to other words and terms defined
elsewhere in this Agreement, as used in this Agreement the words and terms
defined in Annex A hereto have the meanings given them in such Annex A, and this
Agreement shall be construed in accordance with the provisions of Annex A.

                                   ARTICLE II
                                   THE CREDITS

         2.01. Revolving Credit Loans

         (a) Revolving Credit Commitment. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, the Bank
agrees (such agreement being herein called the Bank's "Revolving Credit
Commitment") to make loans (the "Revolving Credit Loans") to the Borrower at any
time or from time to time on or after the date hereof and to but not including
the Revolving Credit Maturity Date. The Bank shall have no obligation to make
any Revolving Credit Loan to the extent that the aggregate principal amount of
the Revolving Credit Loans outstanding at any time would exceed the lesser of
(i) the Revolving Credit Committed Amount or (ii) the Borrowing Base. The Bank's
"Revolving Credit Committed Amount" shall be equal to Five Million and 00/100
Dollars ($5,000,000.00).

         (b) Nature of Credit. Within the limits of time and amount set forth in
this Section 2.01, and subject to the provisions of this Agreement, the Borrower
may borrow, repay and reborrow Revolving Credit Loans hereunder.

         (c) Revolving Credit Note. The obligations of the Borrower to repay the
unpaid principal amount of the Revolving Credit Loans made to it by the Bank and
to pay interest thereon shall be evidenced in part by a promissory note of the
Borrower to the Bank dated the Closing Date (the "Revolving Credit Note") in
substantially the form attached hereto as Exhibit A, with the blanks
appropriately filled, payable to the order of the Bank in a face amount equal to
the Revolving Credit Committed Amount.

<PAGE>   6

         (d) Maturity. To the extent not due and payable earlier, the entire
principal balance of all outstanding Revolving Credit Loans, together with all
unpaid accrued interest thereon and all other sums and costs owed to the Bank by
the Borrower pursuant to this Agreement, shall be immediately due and payable on
the Revolving Credit Maturity Date, without notice, presentment or demand of any
kind.

         2.02. Revolving Credit Fees

         (a) Revolving Credit Commitment Fee. The Borrower shall pay to the Bank
a commitment fee (the "Revolving Credit Commitment Fee") for each day from and
including the date hereof to but not including the Revolving Credit Maturity
Date, on the amount (not less than zero) of (i) the Revolving Credit Committed
Amount on such day, minus (ii) the aggregate principal amount of the Revolving
Credit Loans outstanding on such day equal to 25 basis points per annum (based
on a year of 360 days and actual days elapsed). Such Revolving Credit Commitment
Fee shall be due and payable for the preceding period for which such fee has not
been paid at the end of each Fiscal Quarter.

         (b) Collateral Monitoring Fee. The Borrower shall pay to the Bank a
monthly fee in the amount of One Thousand and 00/100 Dollars ($1,000.00) (the
"Collateral Monitoring Fee") in respect of the Bank's monitoring of the
Collateral pursuant to this Agreement and the other Loan Documents.

         (c) Closing Fee. The Borrower shall pay to the Bank on the Closing Date
a fee equal to one percent (1%) of the Revolving Credit Committed Amount (the
"Closing Fee").

         2.03. Making of Revolving Credit Loans.

         (a) Cash Collateral Account. The Bank shall maintain in its own name at
its Office a deposit account (the "Cash Collateral Account") over which the Bank
shall have sole dominion and control, and the Borrower shall have no right to
withdraw any funds deposited therein. The Bank shall each Business Day deposit
into the Cash Collateral Account receipts on accounts receivable, credits and
all other operating receipts, if any, collected by the Bank on such Day (the
"Lockbox Receipts Deposit"), pursuant to that certain Lockbox Agreement dated
___________ by and between the Borrower and the Bank.

On the Business Day following each Lockbox Receipts Deposit, the Bank shall make
an amount equal to such Deposit available to the Borrower for withdrawal as
Revolving Credit Loans, in accordance with subsection (b) below.

         (b) Loan Request. Whenever the Borrower desires that the Bank make a
Revolving Credit Loan, the Borrower shall provide Standard Notice to the Bank
setting forth the following information:

                  (i) The date, which shall be a Business Day, on which such
         proposed Loan is to be made;

                  (ii) The aggregate principal amount of such proposed Loan,
         which shall be an integral multiple of $10,000 not less than $10,000;
         and

                  (iii) A Borrowing Base Certificate.

Standard Notice having been so provided and unless any applicable condition
specified in Article IV hereof has not been satisfied, on the same day as such
Standard Notice (unless otherwise specified by the Borrower pursuant to
subsection (a) hereof) the Bank shall make the proceeds of such Loan available
to the Borrower at the Bank's Office as soon as reasonably practicable in
immediately available funds. Notwithstanding the

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<PAGE>   7

foregoing, the Bank shall have no obligation to make available to the Borrower
any funds in excess of the amount set forth in Section 2.01(a) hereof.

         (c) Additional Loan Amounts. In addition to Revolving Credit Loans made
pursuant to subsection (b) above, the Bank may elect in its sole discretion to
make Revolving Credit Loans to the Borrower, which Loans shall be subject to the
repayment and other obligations hereof.

         2.04. Interest Rate.

         (a) Interest Rate. Subject to the terms and conditions of this
Agreement, the aggregate outstanding principal balance of the Revolving Credit
Loans shall bear interest for each day at a rate per annum equal to the Prime
Rate plus one percent (1.0%) (the "Interest Rate").

         (b) Calculation of Interest and Fees; Adjustment to Prime Rate.
Interest on the Revolving Credit Loans, unpaid fees and other sums payable
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days and paid for the actual number of days elapsed. In the event of any change
in the Prime Rate, the rate of interest applicable to each Revolving Credit Loan
shall be adjusted to immediately correspond with such change.

         2.05. Prepayments.

         (a) Generally. Except as provided in subsection (d) below, whenever the
Borrower desires or is required to prepay any part of the Revolving Credit
Loans, the Borrower shall provide Standard Notice to the Bank setting forth the
following information:

                  (i) The date, which shall be a Business Day, on which the
         proposed prepayment is to be made; and

                  (ii) The total principal amount of such prepayment.

Standard Notice having been so provided, on the date specified in such Standard
Notice, the principal amount specified in such notice, together with interest on
each such principal amount to such date, shall be due and payable.

         (b) Optional Prepayments. The Borrower shall have the right at its
option from time to time to prepay the Revolving Credit Loans in whole or part
at any time without premium or penalty. Any such prepayment shall be made in
accordance with Section 2.05(a) hereof.

         (c) Mandatory Prepayments. If on any date any Borrowing Base
Certificate is required to be furnished pursuant to Section 2.09(f) hereof the
aggregate principal amount of the Revolving Credit Loans outstanding on such
date exceeds the Borrowing Base, the Borrower shall immediately prepay after
delivery of such Borrowing Base Certificate a principal amount of Revolving
Credit Loans in an aggregate amount not less than the amount of such excess.

         (d) Automatic Credits; Application of Funds. On the Business Day
following each Lockbox Receipts Deposit, the Bank shall apply an amount equal to
such Deposit (i) on account of the Revolving Credit Loans then outstanding, and
(ii) if no Revolving Credit Loans are then outstanding or if the balance of the
Cash Collateral Account exceeds the outstanding Revolving Credit Loans, the
excess shall be applied on account of the other Obligations secured hereby. If
all Obligations (other than Obligations constituting contingent obligations
under indemnification provisions which survive indefinitely, so long as no
unsatisfied

                                      -3-
<PAGE>   8

claims has been made under any such indemnification provision) have been
indefeasibly paid in full in cash and the Revolving Credit Commitment has
terminated, the Bank shall release to the Borrower all remaining funds in the
Cash Collateral Account.

         (e) Loan Account. The Bank will open and maintain on its books and
records, including computer records, in accordance with its customary
procedures, a loan account (the "Loan Account") for the Borrower in which shall
be recorded the date and amount of each Revolving Credit Loan made by the Bank
and the date and amount of each payment and prepayment in respect thereof;
provided, however, that any failure by the Bank to record any such information
shall not adversely affect the Bank. The Bank shall record in the Loan Account
the principal amount of the Revolving Credit Loans owing to the Bank from time
to time. The Loan Account will be presumptive evidence as to the information
contained therein. Any failure by the Bank to make any such notation or record
shall not affect the obligations of the Borrower to the Bank with respect to the
Revolving Credit Loans.

         2.06. Interest Payment Dates. Interest on the aggregate outstanding
balance of the Revolving Credit Loans shall be due and payable on the last day
of each month. After maturity of any part of the Revolving Credit Loans (whether
upon the occurrence of an Event of Default, by acceleration or otherwise),
interest on such part of the Revolving Credit Loans shall be immediately due and
payable.

         2.07. Payments Generally; Interest on Overdue Amounts.

         (a) Payments Generally. All payments and prepayments to be made by the
Borrower in respect of principal, interest, fees, indemnity, expenses or other
amounts due from it hereunder or under any Loan Document shall be payable to the
Bank at its Office in immediately available funds in Dollars at or before 12:00
o'clock noon, Pittsburgh, PA time, on the day when due without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
and an action therefor shall immediately accrue, without setoff, counterclaim,
withholding or other deduction of any kind or nature.

         (b) Interest on Overdue Amounts. To the extent permitted by law, on and
after 10 days after there shall have become due (whether upon the occurrence of
an Event of Default, by acceleration or otherwise) principal and interest from
the Borrower hereunder or under any other Loan Document, such amounts, together
with any fees or any other sums payable hereunder, shall bear interest for each
day until paid (before and after judgment) at a rate per annum which for each
day shall be equal to the greater of $20.00 or 5% above the rate applicable to
such amounts (the "Default Rate"). To the extent permitted by law, interest
accrued on any amount which has become due hereunder or under any Loan Document
shall compound on a day-by-day basis, and hence shall be added daily to the
overdue amount to which such interest relates.

         2.08. Additional Compensation in Certain Circumstances.

         (a) Yield Protection. If any Law (including, without limitation,
Regulation D), or if any change therein on or after the date hereof, or in the
interpretation thereof by any Governmental Authority charged with the
administration thereof, shall:

                  (i) subject the Bank to any tax, levy, impost, charge, fee,
         duty, deduction or withholding of any kind with respect to payments of
         principal or interest or other amounts due hereunder (other than any
         tax imposed or based upon the income of the Bank and payable to any
         Governmental Authority in the United States of America or any state
         thereof); or

                                      -4-
<PAGE>   9

                  (ii) change the basis of taxation of the Bank with respect to
         payments of principal or interest or other amounts due hereunder (other
         than any change which affects, and only to the extent that if affects,
         the taxation by the United States or any state thereof of the total net
         income of the Bank); or

                  (iii) impose, modify or deem applicable any reserve, special
         deposit or similar requirements against assets held by the Bank
         applicable to the Revolving Credit Commitment or Revolving Credit Loans
         made hereunder (other than such requirements which are included in the
         determination of the applicable rate of interest hereunder); or

                  (iv) impose upon the Bank any other obligation or condition
         with respect to this Agreement,

         and the result of any of the foregoing is to increase the cost to the
         Bank, reduce the income receivable by the Bank, reduce the rate of
         return on the Bank's capital, or impose any expenses upon the Bank, all
         with respect to any of the Revolving Credit Loans (or any portion
         thereof) by an amount which the Bank reasonably deems material, and if
         the Bank is then demanding similar compensation for such occurrences
         from other borrowers who are similarly situated and who have a similar
         relationship with the Bank and from which the Bank has the right to
         demand such compensation then and in any such case:

                  (A) the Bank shall promptly notify the Borrower of the
                  happening of such event;

                  (B) the Borrower shall pay to the Bank, on demand, such amount
                  as will compensate the Bank for such reduction in its rate of
                  return; and

                  (C) the Borrower may pay the affected portion of the Revolving
                  Credit Loans in full without the payment of any additional
                  amount, including prepayment premiums or penalties, other than
                  amounts payable on account of the Bank's out-of-pocket losses
                  which are not otherwise provided for in subparagraph (B)
                  immediately above.

A certificate as to the increased cost or reduced amount as a result of any
event mentioned in this Section 2.08(a)(i) shall be promptly submitted by the
Bank to the Borrower in accordance with the provisions hereof. Such certificate
shall be prima facie evidence as to the amount of such increased cost or reduced
amount.

         (b) Capital Adequacy. If, after the date hereof, (i) any adoption of or
any change in or in the interpretation of any Law by the applicable Governmental
Authority, or (ii) compliance with any Law of any Governmental Authority
exercising control over banks or financial institutions generally or any court
of competent jurisdiction, requires that the Revolving Credit Commitment or the
Revolving Credit Loans (including, without limitation, obligations in respect of
any Revolving Credit Loans) hereunder be treated as an asset or otherwise be
included for purposes of calculating the appropriate amount of capital to be
maintained by the Bank or any corporation controlling the Bank (a "Capital
Adequacy Event"), the result of which is to reduce the rate of return on the
Bank's capital as a consequence of the Revolving Credit Commitment or the
Revolving Credit Loans to a level below that which the Bank could have achieved
but for such Capital Adequacy Event, taking into consideration the Bank's
policies with respect to capital adequacy, by an amount which the Bank
reasonably deems to be material, the Bank shall promptly deliver to the Borrower
a statement of the amount necessary to compensate the Bank or the reduction in
the rate of return on its capital attributable to the Revolving Credit
Commitment or the Revolving Credit Loans (the "Capital Compensation Amount").
The Bank shall determine the Capital Compensation Amount in good faith, using
reasonable attribution and averaging methods. The Bank shall from time to time
notify the

                                      -5-
<PAGE>   10

Borrower of the amount so determined. Each such notification shall be prima
facie evidence of the amount of the Capital Compensation Amount set forth
therein, and such Capital Compensation Amount shall be due and payable by the
Borrower to the Bank thirty (30) days after such notice is given. As soon as
practicable after any Capital Adequacy Event, the Bank shall submit to the
Borrower estimates of the Capital Compensation Amounts that would be payable as
a function of the Revolving Credit Commitment or the Revolving Credit Loans
hereunder. Notwithstanding the foregoing, however, Bank shall not demand Capital
Compensation Amounts hereunder unless it is demanding similar compensation from
other borrowers who are similarly situated.

         2.09 Borrowing Base.

         (a) Borrowing Base. The "Borrowing Base" at any time shall mean the
sum, at the date of the most recent Borrowing Base Certificate required to be
furnished pursuant to Section 2.09(f) hereof, of

                  (i) 75% of the Net Value of Eligible Receivables; provided,
         however, that at no time shall the Net Value of Eligible Receivables
         due and owing from either of Giant Eagle Stores or Krogers Stores
         exceed 30% of the total Net Value of Eligible Receivables of the
         Borrower; and provided further that at no time shall the Net Value of
         Eligible Receivables due and owing from Ames Department Stores exceed
         the lesser of (A) 20% of the total Net Value of Eligible Receivables of
         the Borrower or (B) $600,000.00; and provided further that at no time
         shall the Net Value of Eligible Receivables due and owing from any
         other obligor exceed 20% of the total Net Value of Eligible Receivables
         of the Borrower;

                           Notwithstanding the foregoing, at no time shall the
         Net Value of Eligible Receivables due and owing from Ames Department
         Stores exceed (A) for the Borrowing Base calculated for the month of
         July, 2001, $1,000,000.00, (B) for the Borrowing Base calculated for
         the month of August, 2001, $900,000.00, and (C) for the Borrowing Base
         calculated for the month of September, 2001, the lesser of (I) 23% of
         the total Net Value of Eligible Receivables of the Borrower or (II)
         $700,000.00; plus

                  (ii) 45% of the Net Value of Eligible Inventory; provided,
         however, that the portion of the Borrowing Base attributable to
         Eligible Inventory shall at no time exceed 50% of the Borrowing Base.

         (b) Eligible Receivables. "Eligible Receivable" at any time shall mean
         all rights to payments due and to become due to the Borrower which meet
         each of the following requirements at such time:

                  (i) The Borrower has good title to such Eligible Receivable,
         free and clear of any Lien, except for the Liens in favor of the Bank
         securing the Obligations, and such Eligible Receivable is subject to
         such a valid and perfected Lien in favor of the Bank.

                  (ii) Such Eligible Receivable constitutes an "account" as
         defined in the Uniform Commercial Code as in effect in the Commonwealth
         of Pennsylvania (and, accordingly, without limitation, is not evidenced
         by any promissory note or other instrument).

                  (iii) Such Eligible Receivable arises from the sale of goods
         or rendering of services performed by the Borrower in the ordinary
         course of its business. Such transaction was effected pursuant to the
         Borrower's ordinary and customary policies, practices and procedures,
         including but not limited to credit policies.

                                      -6-
<PAGE>   11

                  (iv) Such Eligible Receivable is good and collectible, is not
         disputed, and represents an unconditional payment obligation in favor
         of the Borrower. All services rendered and merchandise sold in
         connection with such Eligible Receivable has been finally delivered to
         and accepted by the obligor on such Eligible Receivable without return,
         rejection, repossession, dispute, offset, defense or counterclaim
         (including but not limited to any claim for credits, allowances or
         adjustments). No contra account or other obligation, contingent or
         otherwise, exists from the Borrower to such obligor.

                  (v) Such Eligible Receivable has been fully invoiced by the
         Borrower, is an unconditional payment obligation of the obligor
         thereon, is payable by its terms in full in Dollars on ordinary trade
         terms, and in any event is payable no later than 90 days after its
         original invoice date. The due date of such Eligible Receivable has not
         been extended.

                  (vi) Such invoice is not more than 90 days past the invoice
         date; provided, however, that with respect to Eligible Receivables
         reflected on the Borrowing Base Certificates during the months of June
         and July 2001, such invoices due and owing from any of Giant Eagle
         Stores, Kroger Stores or Ames Department Stores shall be not more than
         120 days past the invoice date. Except as provided herein, there are no
         past due invoices from the obligor on such invoice to the Borrower or
         any of its Subsidiaries.

                  (vii) The obligor on such Eligible Receivable (A) is a Person
         whose principal office is located in the United States or Canada
         (unless such receivable is backed by a guaranty by EXIM Bank, credit
         insurance satisfactory to the Bank or a letter of credit in form and
         substance and from a provider satisfactory to the Bank), (B) is not the
         Borrower, any Subsidiary of the Borrower or an Affiliate of the
         Borrower, (C) is not the United States of America, any State,
         municipality or Governmental Authority and (D) is not insolvent,
         subject to any bankruptcy, insolvency or similar proceeding or unable
         to pay its debts as they become due.

                  (viii) Such Eligible Receivable shall not have arisen out of a
         contract or agreement which by its terms purports to forbid or make
         void or unenforceable any assignment thereof or Lien thereon.

The "Net Value" of an Eligible Receivable shall be its face amount, net of any
discount for prompt payment (and net of any other amount representing payment of
finance charges, late charges, or interest (however denominated)), and net of
any portion thereof which constitutes payment of sales, use or other taxes.

         (c) Exclusion of Eligible Receivables.

                  (i) The Bank from time to time may exclude any otherwise
         Eligible Receivables from the class of Eligible Receivables based on
         determinations (in the Bank's discretion) as to the creditworthiness of
         the obligor, or as to the aggregate amount of receivables owing by such
         obligor and its affiliates. The Bank shall give notice to the Borrower
         of the terms of any such exclusion. Except as otherwise expressly
         stated in such notice, all such exclusions shall be continuing and
         cumulative, and an exclusion as to any obligor shall apply in the
         aggregate to all receivables of such obligor and its Affiliates.

                  (ii) If 50% or more of otherwise Eligible Receivables due and
         owing from any obligor are more than 90 days past-the invoice date, the
         aggregate amount of receivables of such obligor and its Affiliates
         shall be excluded until such time as 50% or more of such Receivables
         are no longer more than 90 days past the invoice date.

                                      -7-
<PAGE>   12

                  (iii) The Borrower shall, not later than one Business Day
         after the Bank effects any such exclusion, deliver to the Bank a
         revised Borrowing Base Certificate reflecting the Borrowing Base as
         redetermined in accordance with such exclusion. The making of a
         Revolving Credit Loan in reliance on a Borrowing Base Certificate shall
         not affect the Bank's right later to exclude any receivables in
         accordance with this Section 2.09(c). No Eligible Receivable excluded
         under this Section 2.09(c) shall be included by the Borrower in any
         later Borrowing Base Certificate without prior written permission by
         the Bank.

         (d) Eligible Inventory. "Eligible Inventory" shall mean at any time
finished goods owned by the Borrower and held for sale by the Borrower in the
ordinary course of its business which meet each of the following requirements at
such time:

                  (i) The Borrower has good title to such Eligible Inventory,
         free and clear of any Lien, except for the Liens in favor of the Bank
         securing the Obligations, and such Eligible Inventory and proceeds
         thereof is subject to such a valid and perfected Lien in favor of the
         Bank.

                  (ii) Such Eligible Inventory is in good and merchantable
         condition, is readily saleable by the Borrower in the ordinary course
         of its business and has been held by the Borrower for sale for no more
         than 12 months.

                  (iii) Such Eligible Inventory is located in the United States,
         is in the possession of the Borrower and shall not include any imported
         inventory for which the Borrower has previously paid but which is not
         in the possession of the Borrower.

                  (iv) Such Eligible Inventory is not stored with a bailee,
         warehouseman, consignee or similar party.

                  (v) Such Eligible Inventory is not packaging materials or
         supplies, unless such materials or supplies have already been
         incorporated into the finished goods.

                  (vi) Such Eligible Inventory meets all applicable standards
         imposed by any Governmental Authority having jurisdiction over the
         Inventory.

                  (vii) None of such Eligible Inventory, the manufacturing of
         which is subject to such laws, has been manufactured in violation of
         any Federal minimum wage or overtime laws, including without limitation
         the Fair Labor Standards Act, 29 U.S.C. Section 215(a)(1) or any
         similar or successor legislation.

                  (viii) No covenant, representation or warranty contained in
         this Agreement or any of the other Loan Documents with respect to such
         Eligible Inventory has been breached.

                  (ix) Such Eligible Inventory is not, and should not be,
         disqualified for any other reason generally accepted in the commercial
         finance business.

                  (x) Such Eligible Inventory is not defective, obsolete or
         changeover inventory and is not offered for sale by the Borrower as
         purchase or seasonal show discounted inventory.

The "Net Value" of Eligible Inventory shall be the Borrower's book value at
lower of cost or market, net of all reserves required by GAAP, with "cost"
calculated on a first-in, first-out basis, all determined in accordance with
GAAP.

                                      -8-
<PAGE>   13

         (e) Borrowing Base Certificates. On the Closing Date and from time to
time thereafter as specified herein the Borrower shall furnish to the Bank a
certificate ("Borrowing Base Certificate") substantially in the form of Exhibit
B hereto, appropriately completed, signed by a Responsible Officer of the
Borrower and setting forth the Borrowing Base and the other information required
therein. Each Borrowing Base Certificate shall be accompanied by copies of the
Borrower's sales journals, cash receipts journals and credit adjustment journal
entries, each for the time period corresponding to that of the Borrowing Base
Certificate. Borrowing Base Certificates shall be delivered to the Bank:

                  (i) pursuant to Section 2.03(b) hereof, on the date of each
         request for Revolving Credit Loans hereunder;

                  (ii) on the first Business Day of each week hereafter;

                  (iii) as required by Section 2.09(c) and Section 5.01(b)
         hereof; and

                  (iv) not later than two Business Days after request therefor
         by the Bank from time to time.

To the extent the Borrower is required to deliver a Borrowing Base Certificate
on a particular day, the Eligible Receivables, Eligible Inventory reflected on
such Borrowing Base Certificate, the Net Values applicable thereto, and the
calculation of the Borrowing Base thereunder, shall be determined as of a day
(which shall be specified in the Borrowing Base Certificate) not earlier than
the Business Day before the day the Borrower are required to deliver such
Borrowing Base Certificate. The Borrowing Base set forth in any such Borrowing
Base Certificate shall be effective until delivery of a subsequent Borrowing
Base Certificate.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         The Borrower hereby represents and warrants to the Bank as follows:

         3.01. Organizational Status. The Borrower is duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Borrower has all requisite power and authority to own its property and to
transact the business in which it is engaged or presently proposes to engage.
The Borrower is duly qualified to do business and is in good standing in all
jurisdictions in which the ownership of its properties or the nature of its
activities or both makes such qualification necessary or advisable.

         3.02. Power and Authorization. The Borrower has all requisite power and
authority to execute, deliver, perform, and take all actions contemplated by,
each Loan Document to which it is a party, and all such action has been duly and
validly authorized by all necessary proceedings on its part. Without limitation
of the foregoing, the Borrower has the power and authority to borrow pursuant to
the Loan Documents to the fullest extent permitted hereby and thereby from time
to time, and has taken all necessary action to authorize such borrowings.

         3.03. Execution and Binding Effect. This Agreement and each other Loan
Document to which it is a party and which is required to be delivered on or
before the Closing Date pursuant to Section 4.01 hereof has been duly and
validly executed and delivered by the Borrower. This Agreement and each such
other Loan Document constitutes, and each other Loan Document when executed and
delivered by the Borrower will constitute, the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws of general application affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.

                                      -9-
<PAGE>   14

         3.04. Governmental Approvals and Filings. No approval, order, consent,
authorization, certificate, license, permit or validation of, or exemption or
other action by, or filing, recording or registration with, or notice to, any
Governmental Authority (collectively, "Governmental Action") is or will be
necessary or advisable in connection with execution and delivery of any Loan
Document by the Borrower, consummation by the Borrower of the transactions
herein or therein contemplated, performance of or compliance with the terms and
conditions hereof or thereof by the Borrower or to ensure the legality,
validity, binding effect, enforceability or admissibility in evidence hereof or
thereof, except for (x) filings and recordings in respect of the Liens in favor
of the Bank securing the Obligations, and (y) matters set forth in Schedule 3.04
hereof. With respect to the each of the matters set forth in such Schedule 3.04
the Bank has received a true, correct and complete copy of (a) such Governmental
Action (including each amendment, modification or supplement thereto), (b) all
applications therefor and all exhibits thereto, and (c) all written
communications, and any memoranda relating to conversations, between the
Borrower, its officers, employees, accountants, counsel, consultants, lenders or
representatives, on the one hand, and such Governmental Authority, on the other
hand, pertaining thereto.

         3.05. Absence of Conflicts. Except as set forth in Schedule 3.05
hereof, neither the execution and delivery of any Loan Document by the Borrower,
nor consummation by the Borrower of the transactions herein or therein
contemplated, nor performance of or compliance with the terms and conditions
hereof or thereof by the Borrower does or will

         (a) violate or conflict with any Law, or

         (b) violate, conflict with or result in a breach of any term or
condition of, or constitute a default under, or result in (or give rise to any
right, contingent or otherwise, of any Person to cause) any termination,
cancellation, prepayment or acceleration of performance of, or result in the
creation or imposition of (or give rise to any obligation, contingent or
otherwise, to create or impose) any Lien upon any of property of the Borrower
(except for any Lien in favor of the Bank securing the Obligations) pursuant to,
or otherwise result in (or give rise to any right, contingent or otherwise, of
any Person to cause) any change in any right, power, privilege, duty or
obligation of the Borrower under or in connection with,

                  (i) the Certificate of Incorporation or bylaws of the
         Borrower,

                  (ii) any agreement or instrument creating, evidencing or
         securing any Indebtedness or Guaranty Equivalent to which the Borrower
         is a party or by which any of it or any of its properties (now owned or
         hereafter acquired) may be subject or bound, or

                  (iii) any other agreement or instrument or arrangement to
         which the Borrower is a party or by which it or any of its properties
         (now owned or hereafter acquired) may be subject or bound.

         3.06. Audited Financial Statements. The Borrower has heretofore
furnished to the Bank an audited consolidated and consolidating balance sheet of
the Borrower and its consolidated Subsidiaries as of February 28, 2001 and the
related consolidated and consolidating statements of income, cash flows and
changes in owners' equity for the fiscal year then ended, as examined and
reported on by independent certified public accountants of recognized national
standing selected by the Borrower and satisfactory to the Bank, who have
delivered an unqualified opinion in respect thereof. Such financial statements
(including the notes thereto) present fairly the financial condition of the
Borrower and its consolidated Subsidiaries as of the end of such fiscal year and
the results of its operations and its cash flows for the fiscal year then ended,
all in conformity with GAAP, consistently applied.

                                      -10-
<PAGE>   15

         3.07. Interim Financial Statements. The Borrower has heretofore
furnished to the Bank an interim consolidated and consolidating balance sheet of
the Borrower and its consolidated Subsidiaries, if any, as of the Fiscal Quarter
ending May 31, 2001, together with the related consolidated and consolidating
statements of income, cash flows and changes in owners' equity for such fiscal
period. Such financial statements (including the notes thereto) present fairly
the financial condition of the Borrower and its consolidated Subsidiaries as of
the end of such Fiscal Quarter and the results of its operations and its cash
flows for such fiscal period, all in conformity with GAAP, consistently applied,
subject to normal and recurring year-end audit adjustments.

         3.08. Absence of Undisclosed Liabilities. The Borrower does not have
any liability or obligation of any nature whatever (whether absolute, accrued,
contingent or otherwise, whether or not due), forward or long-term commitments
or unrealized or anticipated losses from unfavorable commitments, except (x) as
disclosed in the financial statements referred to in Sections 3.06 hereof, and
(y) liabilities, obligations, commitments and losses incurred after February 28,
2001 in the ordinary course of business and consistent with past practices.

         3.09. Absence of Material Adverse Change. Since February 28, 2001,
there has been no material adverse change in the business, operations or
condition (financial or otherwise) or prospects of the Borrower.

         3.10. Accurate and Complete Disclosure. All information heretofore,
contemporaneously or hereafter provided (orally or in writing) by or on behalf
of the Borrower to the Bank pursuant to or in connection with any Loan Document
or any transaction contemplated hereby or thereby is or will be (as the case may
be) true and accurate in all material respects on the date as of which such
information is dated (or, if not dated, when received by the Bank) and does not
or will not (as the case may be) omit to state any material fact necessary to
make such information not misleading at such time in light of the circumstances
in which it was provided. The Borrower has disclosed to the Bank in writing
every fact or circumstance which has, or which could have a Material Adverse
Effect.

         3.11. Margin Regulations. No part of the proceeds of any Revolving
Credit Loan hereunder will be used for the purpose of buying or carrying any
"margin stock," as such term is used in Regulation U of the Board of Governors
of the Federal Reserve System, as amended from time to time, or to extend credit
to others for the purpose of buying or carrying any "margin stock." The Borrower
is not engaged in the business of extending credit to others for the purpose of
buying or carrying "margin stock". The Borrower does not own any "margin stock."
Neither the making of any Revolving Credit Loan nor any use of proceeds of any
such Loan will violate or conflict with the provisions of Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System, as amended from time
to time.

         3.12. Partnerships, etc. The Borrower is not a partner (general or
limited) of any partnership, or a party to any joint venture or owns
(beneficially or of record) any equity or similar interest in any Person
(including but not limited to any interest pursuant to which the Borrower has or
may in any circumstance have an obligation to make capital contributions to, or
be generally liable for or on account of the liabilities, acts or omissions of
such other Person).

         3.13. Ownership and Control. Schedule 3.13 hereof states as of the date
hereof the authorized capitalization of the Borrower, the number of shares of
each class of capital stock issued and outstanding of the Borrower and the
number and percentage of outstanding shares of each such class of capital stock
and the names of the record owners of such shares and the direct or indirect
beneficial owners of such shares. The outstanding shares of capital stock of the
Borrower have been duly authorized and validly issued and are fully paid and
nonassessable. There are no options, warrants, calls, subscriptions, conversion
rights, exchange rights, preemptive rights or other rights, agreements or
arrangements (contingent or otherwise)

                                      -11-
<PAGE>   16

which may in any circumstances now or hereafter obligate the Borrower to issue
any shares of its capital stock or any other securities, except for matters set
forth in Schedule 3.13 hereof. Schedule 3.13 hereof describes as of the date
hereof all options, rights, purchase agreements, buy-sell agreements,
restrictions on transfer, pledges, proxies, voting trusts, powers of attorney,
voting agreements and other agreements, instruments or arrangements to which the
Borrower is a party or is subject or bound, or to which any record or beneficial
owner of capital stock of the Borrower is a party or is subject or bound, which
pertain to any shares of capital stock (now or hereafter outstanding) of the
Borrower, including any matter which may affect beneficial or record ownership
thereof or transferability thereof or voting rights with respect thereto.

         3.14. Litigation. There is no pending or threatened action, suit,
proceeding or investigation by or before any Governmental Authority against or
affecting the Borrower, except for (x) matters set forth in Schedule 3.14 hereof
and (y) matters described in the financial statements referred to in Section
3.06 hereof.

         3.15. Absence of Events of Default. No event has occurred and is
continuing and no condition exists which constitutes an Event of Default or
Potential Default.

         3.16. Absence of Other Conflicts. The Borrower is not in violation of
or conflict with, or is subject to any contingent liability on account of any
violation of or conflict with:

         (a) any Law,

         (b) its Certificate of Incorporation,

         (c) its bylaws, or

         (d) any agreement or instrument or arrangement to which it is party or
by which it or any of its properties (now owned or hereafter acquired) may be
subject or bound

         3.17. Insurance. The Borrower maintains with financially sound and
reputable insurers insurance with respect to its properties and business and
against at least such liabilities, casualties and contingencies and in at least
such types and amounts as is customary in the case of businesses engaged in the
same or a similar business or having similar properties similarly situated.

         3.18. Intellectual Property. The Borrower owns, or is licensed or
otherwise has the right to use, all the patents, trademarks, service marks,
names (trade, service, fictitious or otherwise), copyrights, technology
(including but not limited to computer programs and software), processes, data
bases and other rights, free from burdensome restrictions, necessary to own and
operate its properties and to carry on its business as presently conducted and
presently planned to be conducted without conflict with the rights of others.

         3.19. Taxes. All tax and information returns required to be filed by or
on behalf of the Borrower have been properly prepared, executed and filed. All
taxes, assessments, fees and other governmental charges upon the Borrower or
upon any of its properties, incomes, sales or franchises which are due and
payable have been paid other than those not yet delinquent and payable without
premium or penalty, and except for those being diligently contested in good
faith by appropriate proceedings, and in each case adequate reserves and
provisions for taxes have been made on the books of the Borrower. The reserves
and provisions for taxes on the books of the Borrower are adequate for all open
years and for its current fiscal period. The Borrower does not know of any
proposed additional assessment or basis for any material assessment for
additional taxes (whether or not reserved against).

                                      -12-
<PAGE>   17

         3.20. Employee Benefits. A copy of the most recent Annual Report (5500
Series Form) including all attachments thereto as filed with the Internal
Revenue Service for each Plan has been provided to Bank and fairly presents the
funding status of each Plan. Since the date of such Annual Report, there has
been no material deterioration in any Plan's funding status and no Reportable
Event has occurred. Schedule 3.20 hereof sets forth as of the date hereof a list
of all Plans and Multiemployer Plans, and all information available to the
Borrower with respect to the direct, indirect or potential withdrawal liability
to any Multiemployer Plan of the Borrower or any Controlled Group Member. Except
as set forth in Schedule 3.20 hereof, the Borrower does not have any liability
(contingent or otherwise) for or in connection with, and none of its properties
is subject to a Lien in connection with, any Pension-Related Event. The Borrower
does not have any liability (contingent or otherwise) for or in connection with,
any Postretirement Benefits.

         3.21. Environmental Matters. Except as disclosed in Schedule 3.21
hereof, the Borrower and each of its Environmental Affiliates is and has been in
full compliance with all applicable Environmental Laws. There are no
circumstances that may prevent or interfere with such full compliance in the
future. Except as disclosed in Schedule 3.21 hereof, the Borrower and its
Environmental Affiliates have all Environmental Approvals necessary or desirable
for the ownership and operation of their respective properties, facilities and
businesses as presently owned and operated and as presently proposed to be owned
and operated. Except as disclosed in Schedule 3.21 hereof, there is no
Environmental Claim pending or threatened, and there are no past or present
acts, omissions, events or circumstances (including but not limited to any
dumping, leaching, deposition, removal, abandonment, escape, emission, discharge
or release of any Environmental Concern Material at, on or under any facility or
property now or previously owned, operated or leased by the Borrower or any of
its Environmental Affiliates) that could form the basis of any Environmental
Claim, against the Borrower or any of its Environmental Affiliates. Except as
disclosed in Schedule 3.21 hereof, no facility or property now or previously
owned, operated or leased by the Borrower or any of its Environmental Affiliates
is an Environmental Cleanup Site, neither the Borrower nor any of its
Environmental Affiliates has directly transported or directly arranged for the
transportation of any Environmental Concern Materials to any Environmental
Cleanup Site and, no Lien exists, and no condition exists which could result in
the filing of a Lien, against any property of the Borrower or any of its
Environmental Affiliates, under any Environmental Law.

         3.22. Title to Property. The Borrower and each Subsidiary of the
Borrower has good and marketable title in fee simple or leasehold to all real
property owned or purported to be owned by it and good title to all other
property of whatever nature owned or purported to be owned by it, including but
not limited to all property reflected in the most recent audited balance sheet
referred to in Section 3.06 hereof or submitted pursuant to Section 5.01(a)
hereof, as the case may be (except as sold or otherwise disposed of in the
ordinary course of business after the date of such balance sheet) free and clear
of all Liens, other than Permitted Liens.

                                   ARTICLE IV
                              CONDITIONS OF LENDING

         4.01. Conditions to Initial Loans. The obligation of the Bank to make
Revolving Credit Loans on the Closing Date is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loans, of the
following conditions precedent, in addition to the conditions precedent set
forth in Section 4.02 hereof:

         (a) Agreement; Notes. The Bank shall have received an executed
counterpart of this Agreement, duly executed by the Borrower, and the Revolving
Credit Notes each conforming to the requirements hereof, duly executed on behalf
of the Borrower.

                                      -13-
<PAGE>   18

         (b) Security Documents. The Bank shall have received the following,
each of which shall be in form and substance satisfactory to the Bank:

                  (i) Executed copies of a security agreement, duly executed on
         behalf of the Borrower, in substantially the form of Exhibit C hereto
         (as amended, modified or supplemented from time to time, the
         "Borrower's Security Agreement");

                  (ii) Evidence of the completion of all recordings and filings
         of or with respect to, and of all other actions with respect to, the
         above Security Documents as may be necessary or, in the opinion of the
         Bank, desirable to create or perfect the Liens created or purported to
         be created by such Security Documents as valid, continuing and
         perfected Liens in favor of the Bank securing the Obligations, prior to
         all other Liens; and evidence of the payment of any necessary fee, tax
         or expense relating to such recording or filing. Without limitation of
         the foregoing, the Bank shall receive acknowledgment copies of proper
         financing statements duly filed under the Uniform Commercial Code in
         all jurisdictions as may be necessary or, in the opinion of the Bank,
         desirable to create or perfect such Liens in favor of the Bank;

                  (iii) Evidence that all other actions necessary or, in the
         opinion of the Bank, to create, perfect or protect the Liens created or
         purported to be created by the above Security Documents have been
         taken;

                  (iv) A contemporaneous search of UCC, real property, tax,
         judgment and litigation dockets and records and other appropriate
         registers shall have revealed no filings or recordings in effect with
         respect to the Collateral (as defined in the Borrower's Security
         Agreement) purported to be covered by the above Security Documents,
         except such as are acceptable to the Bank (it being understood that
         such acceptance does not limit the obligations of the Borrower with
         respect to the priority of the Liens in favor of the Bank), and the
         Bank shall have received a copy of the search reports received as a
         result of the search and of the acknowledgment copies of the financing
         statements or other instruments required to be filed or recorded
         pursuant to this subsection bearing evidence of the recording of such
         statements or instruments at each of such filing or recording places;
         and

                  (v) An executed copy of a leasehold mortgage and security
         agreement on each parcel of real property leased by the Borrower
         pursuant to (i) that certain lease between the Borrower and Spedd,
         Inc., dated November 21, 2000 (the "Spedd Lease") and (ii) that certain
         lease between the Borrower and the Regional Industrial Development
         Corporation of Southwestern Pennsylvania dated November 11, 1997 (the
         "RIDC Lease") (collectively, the "Mortgaged Property"), each duly
         executed on behalf of the Borrower, in substantially the form of
         Exhibit D hereto (collectively, the "Leasehold Mortgages");

                  (vi) A true, correct and complete copy of the Spedd Lease and
         the RIDC Lease (collectively, the "Leases") relating to the Mortgaged
         Property, which shall have been delivered to the Bank;

                  (vii) A Memorandum of Lease in respect of each of the Leases
         and the Mortgaged Property in substantially the form of Exhibit E-1
         hereto;

                  (viii) An executed copy of a Ground Lessor Estoppel in respect
         of each of the Leases and the Mortgaged Property in substantially the
         form of Exhibit E hereto;

                                      -14-
<PAGE>   19

                  (ix) An executed copy of a Landlord's Waiver and Consent in
         respect of each of the Leases and the Mortgaged Property in
         substantially the form of Exhibit F hereto; and

                  (x) A Subordination Agreement executed by the Redevelopment
         Authority of the City of McKeesport in favor of the Bank evidencing the
         subordination of all of said Authority's liens on the assets of the
         Borrower to the Liens created by the Security Documents.

         (c) Organization. The organizational structure of the Borrower, the
Certificate of Incorporation and bylaws of the Borrower, and the terms,
conditions, amounts and holders of all equity, debt and other indebtedness,
obligations and liabilities of the Borrower, shall be satisfactory to the Bank.

         (d) Governmental Approvals and Filings. The Bank shall have received
true and correct copies (in each case certified as to authenticity on such date
on behalf of the Borrower) of all items referred to in Schedule 3.04 hereof and
such items shall be reasonably satisfactory in form and substance to the Bank
and shall be in full force and effect.

         (e) Other Conflicts. The Bank shall have received true and correct
copies (in each case certified as to authenticity on such date on behalf of the
Borrower) of all items referred to in Schedule 3.05 hereof and such items shall
be satisfactory in form and substance to the Bank and shall be in full force and
effect.

         (f) Organizational Proceedings. The Bank shall have received
certificates by the Secretary or Assistant Secretary of the Borrower dated as of
the Closing Date as to (i) true copies of the Certificate of Incorporation and
bylaws of the Borrower in effect on such date (which, in the case of the
Certificate of Incorporation filed or required to be filed with the Secretary of
State of the State of Delaware, shall be certified to be true, correct and
complete by such Secretary of State not more than 30 days before the Closing
Date), (ii) true copies of all action taken by the Borrower relative to this
Agreement and the other Loan Documents and (iii) the incumbency and signature of
the respective officers of the Borrower executing this Agreement and the other
Loan Documents, together with satisfactory evidence of the incumbency of such
Secretary or Assistant Secretary. The Bank shall have received certificates from
the Secretary of State of the State of Delaware and Commonwealth of Pennsylvania
or other applicable Governmental Authorities dated not more than 30 days before
the Closing Date showing the good standing of the Borrower in Delaware,
Pennsylvania and each other state in which the Borrower does business.

         (g) No Material Adverse Change. Since the date of the balance sheets
and statements of income, cash flows and changes in owners' equity furnished to
the Bank in accordance with Section 3.06 hereof, there has been no material
adverse change in the business, operations or condition (financial or otherwise)
or prospects of the Borrower.

         (h) No Material Litigation. There is no pending or threatened action,
suit, proceeding or investigation before any Governmental Authority affecting or
against the Borrower which would, if adversely decided, have a Material Adverse
Effect.

         (i) Termination of Existing Credit Facilities. All existing bank credit
facilities (other than those credit facilities permitted pursuant to Section
6.03 hereof), shall have been terminated and all amounts outstanding thereunder
shall have been repaid as of the Closing Date.

         (j) Legal Opinion of Counsel to the Borrower. The Bank shall have
received an opinion addressed to the Bank dated the Closing Date, of counsel to
the Borrower, as to such matters as may be requested by the Bank and in form and
substance satisfactory to the Bank.

                                      -15-
<PAGE>   20

         (k) Officers' Certificates. The Bank shall have received certificates
from such officers of the Borrower as to such matters as the Bank may request,
including, without limitation, a statement that the proceeds of the Revolving
Credit Loans are not to be used for the purpose of purchasing or carrying
"margin stock" as such term is used in Regulation U of the Board of Governors of
the Federal Reserve System, as amended from time to time.

         (l) Bank Accounts; Lockbox. The Borrower shall open and maintain with
the Bank a primary deposit account from which it funds its day-to-day
operations. In addition, the Borrower agrees to keep in full force and effect
the Lockbox Agreement described more fully in Section 2.03(a) hereof.

         (m) Secured Credit Audit. The Bank shall have completed a secured
credit audit of the Borrower and the results of such audit shall have been
satisfactory to the Bank.

         (n) Inventory Appraisal. The Bank shall have received from an
independent appraiser satisfactory to the Bank an appraisal dated not earlier
than October 1, 2000 in form and substance satisfactory to the Bank of the
Eligible Inventory.

         (o) Borrowing Base. On the Closing Date the Borrowing Base shall be in
an amount equal to $4,167,880.89.

         (p) Financials. The Borrower shall provide a proforma consolidated and
consolidating balance sheet and income statement for the Borrower and its
consolidated Subsidiaries for fiscal year 2001. Such proforma statements will
illustrate the financial performance of the Borrower and its consolidated
Subsidiaries as at the end of each Fiscal Quarter of such fiscal year.

         (q) Closing Date Balance Sheets. The Bank shall have received from the
Borrower a balance sheet as of the end of the month immediately preceding the
Closing Date in form and substance satisfactory to the Bank.

         (r) Confession of Judgment Waivers. The Borrower shall execute a
confession of judgment waiver and disclosure form in form and substance
satisfactory to the Bank.

         (s) Fees, Expenses, etc. All fees and other compensation required to be
paid to the Bank pursuant hereto or pursuant to any other agreement on or prior
to the Closing Date shall have been paid or received, including, without
limitation, the Closing Fee.

         (t) Additional Matters. The Bank shall have received such other
certificates, opinions, documents and instruments as may be requested by the
Bank. All organizational and other proceedings, and all documents, instruments
and other matters in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be satisfactory in form and
substance to the Bank.

         4.02. Conditions to All Loans. The obligation of the Bank to make any
Revolving Credit Loan is subject to performance by the Borrower of its
obligations to be performed hereunder or under the other Loan Documents on or
before the date of such Loan, satisfaction of the conditions precedent set forth
herein and in the other Loan Documents and to satisfaction of the following
further conditions precedent:

         (a) Notice. Appropriate notice of such Loan shall have been given by
the Borrower as provided in Article II hereof.

                                      -16-
<PAGE>   21

         (b) Covenants. The Borrower shall be in compliance with all covenants
made by it herein on the date of such Loan.

         (c) Representations and Warranties. Each of the representations and
warranties made by the Borrower in Article III hereof and in each other Loan
Document shall be true and correct in all material respects on and as of such
date as if made on and as of such date, both before and after giving effect to
the Loan requested to be made on such date.

         (d) No Defaults. No Event of Default or Potential Default shall have
occurred and be continuing on such date or after giving effect to the Loan
requested to be made on such date.

         (e) No Violations of Law, etc. Neither the making nor use of the Loan
requested to be made on such date shall cause the Bank to violate or conflict
with any Law.

Each request for any Revolving Credit Loan shall constitute a representation and
warranty by the Borrower that the conditions set forth in this Section 4.02 have
been satisfied as of the date of such request. Failure of the Bank to receive
notice from the Borrower to the contrary before such Loan is made shall
constitute a further representation and warranty by the Borrower that the
conditions referred to in this Section 4.02 have been satisfied as of the date
such Loan is made.

                                    ARTICLE V
                              AFFIRMATIVE COVENANTS

         The Borrower hereby covenants to the Bank as follows:

         5.01. Basic Reporting Requirements.

         (a) Annual Audit Reports. As soon as practicable, and in any event
within 120 days after the close of each fiscal year, the Borrower City shall
furnish to the Bank audited consolidated and consolidating statements of income,
cash flows and changes in owners' equity of the Borrower and its consolidated
Subsidiaries for such fiscal year and a consolidated and consolidating balance
sheet of the Borrower and its consolidated Subsidiaries as of the close of such
fiscal year, notes to each, together with management letters, all in reasonable
detail, setting forth in comparative form the corresponding figures for the
preceding fiscal year. Such financial statements shall be accompanied by
opinions of independent certified public accountants of recognized national
standing selected by the Borrower and satisfactory to the Bank. Such opinions
shall be free of exceptions or qualifications not acceptable to the Bank. Such
opinions in any event shall, in the aggregate, contain a written statement of
such accountants substantially to the effect that (i) such accountants examined
such financial statements in accordance with generally accepted auditing
standards and accordingly made such tests of accounting records and such other
auditing procedures as such accountants considered necessary in the
circumstances, (ii) in the opinion of such accountants such financial statements
present fairly the financial position of the Borrower and its consolidated
Subsidiaries as of the end of such fiscal year and the results of its operations
and its cash flows and changes in owners' equity for such fiscal year, in
conformity with GAAP and (iii) in the opinion of such accountants the Borrower
and its consolidated Subsidiaries are in compliance with all financial covenants
contained herein with which the Borrower and its consolidated Subsidiaries are
required to comply.

Such financial statements shall be certified by a Responsible Officer of the
Borrower as presenting fairly the financial position of the Borrower and its
consolidated Subsidiaries as of the end of such fiscal year and the results of
their operations, cash flows and changes in owners' equity for such fiscal year,
in conformity with GAAP, subject to normal and recurring year-end audit
adjustments.

                                      -17-
<PAGE>   22

         (b) Monthly Reports.

                  (i) As soon as practicable, and in any event within 30 days
         after the end of each month, the Borrower shall furnish to the Bank
         unaudited statements of income, cash flows and changes in owners'
         equity of the Borrower for such month and for the period from the
         beginning of such fiscal year to the end of such month and an unaudited
         balance sheet of the Borrower as of the end of such month, all in
         reasonable detail, setting forth in comparative form the corresponding
         figures for the same periods or as of the same date during the
         preceding fiscal year (except for the balance sheet, which shall set
         forth in comparative form the corresponding balance sheet as of the
         prior fiscal year end).

                  (ii) As soon as practicable, and in any event within 10 days
         after the end of each month, the Borrower shall furnish to the Bank a
         report detailing the aging of accounts receivable and payable of the
         Borrower and a summary of the inventory of the Borrower. Such report
         will be accompanied by a Borrowing Base Certificate as of the end of
         such month.

         (c) Quarterly Reports. As soon as practicable, and in any event within
45 days after the close of each Fiscal Quarter, the Borrower will furnish to the
Bank a quarterly financial report including consolidated and consolidating
statements of income and cash flow of the Borrower and its consolidated
Subsidiaries for such Fiscal Quarter and for the portion of the fiscal year to
the end of such Fiscal Quarter, and a consolidated and consolidating balance
sheet of the Borrower and its consolidated Subsidiaries as of the close of such
Fiscal Quarter, all in reasonable detail. All such income statements, statements
of cash flow and balance sheets shall be prepared by the Borrower and certified
by a Responsible Officer of the Borrower as presenting fairly the consolidated
and consolidating financial position of the Borrower and its consolidated
Subsidiaries as of the end of such Fiscal Quarter and the results of its
operations for such periods, in conformity with GAAP (subject to normal and
recurring year-end audit adjustments) applied in a manner consistent with that
of the most recent audited financial statements furnished to the Bank.

         (d) Quarterly Compliance Certificate. The income statements and balance
sheets as of and for the end of each Fiscal Quarter which are delivered pursuant
to Section 5.01(c) hereof shall be accompanied by a compliance certificate,
substantially in the form of Exhibit G attached hereto, executed by a
Responsible Officer of the Borrower, stating that no Event of Default or
Potential Default exists and that the Borrower is in compliance with all
applicable covenants contained in this Agreement. Such certificate shall include
all figures necessary to calculate the Borrower's compliance with all financial
covenants set forth in this Agreement. If an Event of Default or Potential
Default has occurred and is continuing or exists, such certificate shall specify
in detail the nature and period of existence of the Event of Default or
Potential Default and any action taken or contemplated to be taken by the
Borrower with respect thereto.

         (e) Annual Budget and Forecasts. On or before 60 days prior to the end
of each fiscal year of the Borrower, the Borrower shall provide to the Bank an
annual budget and forecasts for the Borrower for the following fiscal year.

         (f) Notice of Certain Events. Promptly upon becoming aware of any of
the following, the Borrower shall give the Bank notice thereof, together with a
written statement of a Responsible Officer of the Borrower setting forth the
details thereof and any action with respect thereto taken or proposed to be
taken by the Borrower:

                  (i) Any Event of Default or Potential Default.

                                      -18-
<PAGE>   23

                  (ii) Any material adverse change in the business, operations
         or condition (financial or otherwise) or prospects of the Borrower.

                  (iii) Any pending or threatened action, suit, proceeding or
         investigation by or before any Governmental Authority against or
         affecting the Borrower, or change in any of the foregoing.

                  (iv) Any material violation, breach or default by the Borrower
         of or under any agreement or instrument material to the business,
         operations, condition (financial or otherwise) or prospects of the
         Borrower.

                  (v) Any material casualty to any of the assets of the
         Borrower;

                  (vi) Any Pension-Related Event. Such notice shall be
         accompanied by: (A) a copy of any notice, request, return, petition or
         other document received by the Borrower or any Controlled Group Member
         from any Person, or which has been or is to be filed with or provided
         to any Person (including without limitation the Internal Revenue
         Service, PBGC or any Plan participant, beneficiary, alternate payee or
         employer representative), in connection with such Pension-Related
         Event, and (B) in the case of any Pension-Related Event with respect to
         a Plan, the most recent Annual Report (5500 Series), with attachments
         thereto, and the most recent actuarial valuation report, for such Plan.

                  (vii) Any Environmental Claim pending or threatened against
         the Borrower or any of its Environmental Affiliates, or any past or
         present acts, omissions, events or circumstances (including but not
         limited to any dumping, leaching, deposition, removal, abandonment,
         escape, emission, discharge or release of any Environmental Concern
         Material at, on or under any facility or property now or previously
         owned, operated or leased by the Borrower or any of its respective
         Environmental Affiliates) that could form the basis of such
         Environmental Claim.

         (g) Visitation; Verification. The Borrower agrees that it shall permit
such Persons as the Bank may designate from time to time to visit and inspect
any of the properties of the Borrower, to examine its books and records and take
copies and extracts therefrom and to discuss its affairs with its directors,
officers, employees and independent accountants at such times and as often as
the Bank may request. The Borrower hereby authorizes such officers, employees
and independent accountants to discuss with the Bank the affairs of the
Borrower. The Bank shall have the right to perform a secured credit audit of the
Borrower no less than each Fiscal Quarter, including, without limitation, the
right to examine and verify accounts, inventory and other properties and
liabilities of the Borrower from time to time, and the Borrower shall cooperate
with the Bank in such verification.

         (h) Further Information. The Borrower agrees that it will promptly
furnish to the Bank such other information and in such form as the Bank may
reasonably request from time to time. The Bank may disclose to any affiliate and
agent, and to actual or potential assignees and participants, all information
concerning the Borrower which comes into the Bank's possession during the term
hereof.

         5.02. Insurance. The Borrower shall maintain with financially sound and
reputable insurers insurance with respect to its properties and business and
against such liabilities, casualties and contingencies and of such types and in
such amounts as is customary in the case of businesses engaged in the same or
similar businesses or having similar assets or properties similarly situated.
The Borrower shall provide to the Bank a long form lender loss payable
endorsement in connection with each such insurance policy. Prior to the
cancellation of any such insurance policy, the Borrower shall give the Bank 30
days prior written notice.

                                      -19-
<PAGE>   24

         5.03. Payment of Taxes and Other Potential Charges and Priority Claims.
The Borrower shall pay or discharge:

         (a) on or prior to the date on which penalties attach thereto, all
taxes, assessments and other governmental charges imposed upon it or any of its
assets or properties;

         (b) on or prior to the date when due, all lawful claims of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons which, if
unpaid, might result in the creation of a Lien upon any such asset or property;
and

         (c) on or prior to the date when due, all other lawful claims which, if
unpaid, might result in the creation of a Lien upon any such asset or property
or which, if unpaid, might give rise to a claim entitled to priority over
general creditors of the Borrower in a case under Title 11 (Bankruptcy) of the
United States Code, as amended;

provided, that unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced the Borrower need not pay or discharge any
such tax, assessment, charge or claim so long as (x) the validity thereof is
contested in good faith and by appropriate proceedings diligently conducted and
(y) such reserves or other appropriate provisions as may be required by GAAP
shall have been made therefor.

         5.04. Preservation of Organizational Status. The Borrower shall
maintain its organizational status and shall remain validly existing and in good
standing under the laws of the State of Delaware, and shall continue to be duly
qualified to do business and in good standing in all jurisdictions in which the
ownership of its assets and properties or the nature of its business or both
make such qualification necessary or advisable.

         5.05. Governmental Approvals and Filings. The Borrower shall keep and
maintain in full force and effect all Governmental Actions necessary or
advisable in connection with execution and delivery of any Loan Document by the
Borrower, consummation by the Borrower of the transactions hereon or therein
contemplated, performance of or compliance with the terms and conditions hereof
or thereof by the Borrower or to ensure the legality, validity, binding effect,
enforceability or admissibility in evidence hereof or thereof.

         5.06. Maintenance of Properties.

         (a) The Borrower shall maintain or cause to be maintained in good
repair, working order and condition the properties now or hereafter owned,
leased or otherwise possessed by it and shall make or cause to be made all
needful and proper repairs, renewals, replacements and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.

         (b) The Borrower shall cause all conditions of renewal of the RIDC
Lease under Section 33 of said Lease to be met and shall exercise its option to
renew said Lease for an additional term of five years.

         5.07. Avoidance of Other Conflicts. The Borrower shall not violate or
conflict with, be in violation of or conflict with, or be or remain subject to
any liability (contingent or otherwise) on account of any violation or conflict
with

         (a) any Law,

         (b) its Certificate of Incorporation or bylaws, or

                                      -20-
<PAGE>   25

         (c) any agreement or instrument to which it is party or by which its
properties (now owned or hereafter acquired) may be subject or bound.

         5.08. Financial Accounting Practices. The Borrower shall make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions and dispositions of its assets and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP and (ii) to maintain
accountability for assets, (c) access to assets is permitted only in accordance
with management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

         5.09. Use of Proceeds. The Borrower shall not use the proceeds of any
Revolving Credit Loans hereunder directly or indirectly for any unlawful
purpose, in any manner inconsistent with Section 3.11 hereof, or inconsistent
with any other provision of any Loan Document.

         5.10. Continuation of or Change in Business. The Borrower shall
continue to engage in its business substantially as conducted and operated
during the present and preceding fiscal year, and the Borrower shall not, engage
in any other line of business.

         5.11. Notice of Certain Changes. Promptly, but in any event within 30
days of any such occurrence, the Borrower shall notify the Bank of any change in
its (a) name, (b) principal place of business, (c) location of records, (d)
offices, (e) registered office, (f) location of Collateral, (g) Certificate of
Incorporation, (h) bylaws, or (i) fiscal year.

                                   ARTICLE VI
                               NEGATIVE COVENANTS

         The Borrower hereby covenants to the Bank as follows:

         6.01. Financial Covenants. The EBITDA/Fixed Charges Ratio of the
Borrower determined as of the end of (i) the first and second Fiscal Quarters
ending on (in the case of the first such Fiscal Quarter) or after the Closing
Date shall be not less than 1.0 to 1.0, (ii) the third Fiscal Quarter ending
after the Closing Date shall be not less than 1.05 to 1.0 and (iii) each Fiscal
Quarter thereafter on a Rolling Four Quarter Basis shall not be less than 1.10
to 1.0.

         6.02. Liens. The Borrower shall not, at any time create, incur, assume
or suffer to exist any Lien on any of its property (now owned or hereafter
acquired), or agree, become or remain liable (contingently or otherwise) to do
any of the foregoing, except for the following ("Permitted Liens"):

         (a)      Liens pursuant to the Security Documents in favor of the Bank;

         (b) Liens existing on the date hereof securing obligations existing on
the date hereof, as such Liens and obligations are listed in Schedule 6.02
hereof;

         (c) Liens arising from taxes, assessments, charges or claims described
in Section 5.03 hereof that are not yet due or that remain payable without
penalty or to the extent permitted to remain unpaid under the proviso to such
Section 5.03;

                                      -21-
<PAGE>   26

         (d) Deposits or pledges of cash or securities in the ordinary course of
business to secure (i) workmen's compensation, unemployment insurance or other
social security obligations, (ii) performance of bids, tenders, trade contracts
(other than for payment of money) or leases, (iii) stay, surety or appeal bonds,
or (iv) other obligations of a like nature incurred in the ordinary course of
business; and

         (e) Liens on property of the Borrower securing all or part of the
purchase price thereof; provided, however, that the amount of Indebtedness
secured by such Liens shall not exceed $350,000.00 in the aggregate.

"Permitted Lien" shall in no event include any Lien imposed by, or required to
be granted pursuant to, ERISA or any Environmental Law. Nothing in this Section
6.02 shall be construed to limit any other restriction on Liens imposed by the
Security Documents or otherwise in the Loan Documents.

         6.03. Indebtedness. The Borrower shall not create, incur, assume or
suffer to exist any Indebtedness, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except:

         (a) Indebtedness to the Bank pursuant to this Agreement and the other
Loan Documents;

         (b) Indebtedness of the Borrower existing on the date hereof and listed
in Schedule 6.03 hereof;

         (c) Accounts payable to trade creditors arising out of purchases of
goods or services in the ordinary course of business; and

         (d) Indebtedness incurred in connection with Liens permitted by Section
6.02(e) hereof.

         6.04. Guaranties, Indemnities, etc. The Borrower shall not be or become
subject to or bound by any Guaranty Equivalent, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, except:

         (a) Guaranty Equivalents existing on the date hereof and listed in
Schedule 6.04 hereof; and

         (b) Contingent liabilities arising from the endorsement of negotiable
or other instruments for deposit or collection or similar transactions in the
ordinary course of business.

         6.05. Loans and Investments. The Borrower shall not purchase, own or
invest in any stock or other securities of any Person, or all or substantially
all of the assets of any Person, or any business or division of any Person
(whether in a single or series of related transactions) or make or permit to
exist any investment or capital contribution to or acquire any interest
whatsoever in any other Person or permit to exist any loans or advances to any
Person except loans and investments (including equity investments in any
Subsidiary of the Borrower) existing on the Closing Date and set forth on
Schedule 6.05 to this Agreement.

         6.06. Capital Expenditures. The Borrower shall not at any time make
non-financed Capital Expenditures in excess of in the aggregate $150,000.00 for
any fiscal year.

         6.07. Mergers, Acquisitions, etc. The Borrower shall not (v) merge with
or into or consolidate with any other Person, (w) liquidate, wind-up, dissolve
or divide, (x) acquire all or any substantial portion of the properties of any
going concern or going line of business, or (y) acquire all or any substantial
portion of the properties of any other Person other than in the ordinary course
of business without the prior written consent of the Bank.

                                      -22-
<PAGE>   27

         6.08. Dispositions of Properties. The Borrower shall not sell, convey,
assign, lease, transfer, abandon or otherwise dispose of, voluntarily or
involuntarily, any of its assets or properties, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, except in the
ordinary course of its business without the prior written consent of the Bank.

         6.09. Dealings with Affiliates. The Borrower shall not enter into or
carry out any transaction with (including, without limitation, purchase or lease
property or services from, sell or lease property or services to, pay cash
dividends to, loan or advance to, or enter into, suffer to remain in existence
or amend any contract, agreement or arrangement with) any Affiliate or employee
of the Borrower, directly or indirectly, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except for:

         (a) The existence and performance of contracts, agreements and
arrangements in existence as of the date hereof and set forth in Schedule 6.09
hereof;

         (b) Other transactions with Affiliates or employees in good faith and
on terms no less favorable to the Borrower than those that could have been
obtained in a comparable transaction on an arm's-length basis from an unrelated
Person.

         (c) With respect to any Affiliate which is a S-corporation or other tax
pass-through entity, distributions of dividends to its shareholders in an amount
not to exceed the aggregate amount of tax owed by such shareholders as a result
of income of the Borrower which is attributed to such shareholders for income
tax purposes.

         6.10. Leases. The Borrower shall not, nor shall it permit any
Subsidiary to, at any time enter into or suffer to remain in effect any lease,
as lessee, of any property, or agree, become or remain liable (contingently or
otherwise) to do any of the foregoing, except:

         (a) Operating leases of data processing equipment, office equipment,
transportation equipment, real estate or office space used by the lessee in the
ordinary course of business, provided that such leases will not result in the
payment or accrual by the Borrower or any of its Subsidiaries of more than
$450,000.00 in the aggregate in any twelve-month period and no such lease has a
term longer than 5 years (other than the Spedd Lease and the RIDC Lease, which
have a term of 7 years and 5 years, respectively);

         (b) Leases by the Borrower as lessor to a Subsidiary as lessee or by a
Subsidiary as lessor to the Borrower as lessee; and

         (c) Capitalized Leases permitted under Section 6.03 hereof.

         6.11. Distributions. The Borrower shall not declare, make, pay, or
agree, become or remain liable to make or pay, any Distributions of any nature
(whether in cash, property, securities or otherwise) on account of or in respect
of any shares of the capital stock of the Borrower on account of the purchase,
redemption, retirement or acquisition of any shares of the capital stock (or
warrants, options or rights for any shares of the capital stock of the Borrower)
other than (i) Distributions declared, made or paid by a Subsidiary of the
Borrower to the Borrower, and (ii) Distributions which, if made, would not
result in the violation of any of the financial covenants contained herein.

         6.12. Limitation on Other Restrictions on Liens. The Borrower shall not
enter into, become or remain subject to any agreement or instrument to which the
Borrower is a party or by which it or any of its respective assets or properties
(now owned or hereafter acquired) may be subject or bound that would

                                      -23-
<PAGE>   28

prohibit the grant of any Lien upon any of its assets or properties (now owed or
hereafter required), except the Loan Documents.

         6.13. Limitation on other Restrictions on Amendment of the Loan
Documents, etc. The Borrower shall not enter into, become or remain subject to
any agreement or instrument to which the Borrower is a party or by which the
Borrower or any of its properties (now owned or hereafter acquired) may be
subject or bound that would prohibit or require the consent of any Person to any
amendment, modification or supplement to any of the Loan Documents, except for
the Loan Documents.

         6.14. Limitation on other Agreements that Conflict with the Loan
Documents. The Borrower shall not enter into, become or remain subject to any
agreement or instrument to which the Borrower is a party or by which the
Borrower or any of its properties or assets (now owned or hereafter acquired)
may be subject or bound that conflicts in any manner whatsoever with the Loan
Documents.

                                   ARTICLE VII
                                    DEFAULTS

         7.01. Events of Default. An Event of Default shall mean the occurrence
or existence of one or more of the following events or conditions (for any
reason, whether voluntary, involuntary or effected or required by Law):

         (a) The Borrower shall fail to pay when due principal of any Loan.

         (b) The Borrower shall fail to pay when due interest on any Loan, any
fees, indemnity or expenses, or any other amount due hereunder or under any
other Loan Document.

         (c) Any representation or warranty made or deemed made by the Borrower
in or pursuant to or in connection with any Loan Document, or any statement made
by the Borrower in any financial statement, certificate, report, exhibit or
document furnished by the Borrower to the Bank pursuant to or in connection with
any Loan Document, shall prove to have been false or misleading in any material
respect as of the time when made or deemed made (including by omission of
material information necessary to make such representation, warranty or
statement not misleading).

         (d) The Borrower shall default in the performance or observance of any
covenant contained in Article VI hereof or any of the covenants contained in
Sections 2.05(c), 5.01(f)(i), 5.09 or 5.10.

         (e) The Borrower shall default in the performance or observance of any
other covenant, agreement or duty under this Agreement or any other Loan
Document and (i) in the case of a default under Section 5.01 hereof, such
default shall have continued for a period of ten days and (ii) in the case of
any other default such default shall have continued for a period of 30 days.

         (f) Any Cross-Default Event shall occur with respect to any
Cross-Default Obligation; provided, that if a Cross-Default Event would have
occurred with respect to a Cross-Default Obligation but for the grant of a
waiver or similar indulgence, a Cross-Default Event shall nevertheless be deemed
to have occurred if the Borrower directly or indirectly gave or agreed to give
any consideration for such waiver or indulgence (including but not limited to a
reduction in maturity, an increase in rates or the granting of collateral). As
used herein, "Cross-Default Obligation" shall mean any indebtedness for borrowed
money (or set of related indebtedness for borrowed money) of the Borrower in
excess of $20,000.00 in aggregate principal amount. As used herein,
"Cross-Default Event" with respect to a Cross-Default Obligation shall mean the
occurrence of any default, event or condition which causes or which would with
the giving of notice or the passage of

                                      -24-
<PAGE>   29

time or both would permit any Person or Persons to cause all or any part of such
Cross-Default Obligation to become due (by acceleration, mandatory prepayment or
repurchase, or otherwise) before its otherwise stated maturity, or failure to
pay all or any part of such Cross-Default Obligation at its stated maturity.

         (g) One or more judgments for the payment of money shall have been
entered against the Borrower, which judgment or judgments exceed $20,000.00 in
the aggregate, and such judgment or judgments shall have remained undischarged
and unstayed for a period of thirty consecutive days.

         (h) One or more writs or warrants of attachment, garnishment,
execution, distraint or similar process exceeding in value the aggregate amount
of $20,000.00 shall have been issued against the Borrower or any of its
respective properties and shall have remained undischarged and unstayed for a
period of thirty consecutive days.

         (i) Any Governmental Action now or hereafter made by or with any
Governmental Authority in connection with any Loan Document is not obtained or
shall have ceased to be in full force and effect or shall have been modified or
amended or shall have been held to be illegal or invalid, and the Bank shall
have determined in good faith (which determination shall be conclusive) that
such event or condition could have a Material Adverse Effect.

         (j) Any Security Document shall cease to be in full force and effect,
or any Lien created or purported to be created in any Collateral pursuant to any
Security Document shall fail to be valid, enforceable and perfected Lien in
favor of the Bank securing the Obligations, prior to all other Liens, or any
Borrower or Governmental Authority shall assert any of the foregoing.

         (k) Any Loan Document or term or provision thereof shall cease to be in
full force and effect (other than by reason of an amendment hereof or a waiver
thereof by the Bank), or the Borrower shall, or shall purport to, terminate,
repudiate, declare voidable or void or otherwise contest, any Loan Document or
term or provision thereof or any obligation or liability of the Borrower
thereunder.

         (l) The Bank shall have determined in good faith (which determination
shall be conclusive) that an event or condition has occurred which could
reasonably be expected to have a Material Adverse Effect.

         (m) Any one or more Pension-Related Events shall have occurred and the
Bank shall determine in good faith (which determination shall be conclusive)
that such Pension-Related Events, individually or in the aggregate, could have a
Material Adverse Effect.

         (n) A Change of Control shall have occurred.

         (o) A proceeding shall have been instituted in respect of the Borrower.

                  (i) seeking to have an order for relief entered in respect of
         such Person, or seeking a declaration or entailing a finding that such
         Person is insolvent or a similar declaration or finding, or seeking
         dissolution, winding-up, charter revocation or forfeiture, liquidation,
         reorganization, arrangement, adjustment, composition or other similar
         relief with respect to such Person, its assets or its debts under any
         Law relating to bankruptcy, insolvency, relief of debtors or protection
         of creditors, termination of legal entities or any other similar Law
         now or hereafter in effect, or

                  (ii) seeking appointment of a receiver, trustee, liquidator,
         assignee, sequestrator or other custodian for such Person or for all or
         any substantial part of its property

                                      -25-
<PAGE>   30

and such proceeding shall result in the entry, making or grant of any such order
for relief, declaration, finding, relief or appointment, or such proceeding
shall remain undismissed and unstayed for a period of sixty consecutive days.

         (p) The Borrower shall become insolvent; shall fail to pay, become
unable to pay, or state that it is or will be unable to pay, its debts as they
become due; shall voluntarily suspend transaction of its business; shall make a
general assignment for the benefit of creditors; shall institute (or fail to
controvert in a timely and appropriate manner) a proceeding described in Section
7.01(o)(i) hereof, or (whether or not any such proceeding has been instituted)
shall consent to or acquiesce in any such order for relief, declaration, finding
or relief described therein; shall institute (or fail to controvert in a timely
and appropriate manner) a proceeding described in Section 7.01(o)(ii) hereof, or
(whether or not any such proceeding has been instituted) shall consent to or
acquiesce in any such appointment or to the taking of possession by any such
custodian of all or any substantial part of its or his property; shall dissolve,
wind-up, revoke or forfeit its charter (or other constituent documents) or
liquidate itself or any substantial part of its property; or shall take any
action in furtherance of any of the foregoing.

         7.02. Consequences of an Event of Default.

         (a) If an Event of Default specified in subsections (a) through (n) of
Section 7.01 hereof shall occur and be continuing or shall exist, then, in
addition to all other rights and remedies which the Bank may have hereunder or
under any other Loan Document, at law, in equity or otherwise, the Bank shall be
under no further obligation to make Revolving Credit Loans hereunder, and the
Bank may, without notice to the Borrower, from time to time do any or all of the
following:

                  (i) Declare the Revolving Credit Commitment terminated,
         whereupon the Revolving Credit Commitment will terminate and any fees
         hereunder shall be immediately due and payable without presentment,
         demand, protest or further notice of any kind, all of which are hereby
         waived, and an action therefor shall immediately accrue.

                  (ii) Declare the unpaid principal amount of the Revolving
         Credit Loans, interest accrued thereon and all other Obligations to be
         immediately due and payable without presentment, demand, protest or
         further notice of any kind, all of which are hereby waived, and an
         action therefor shall immediately accrue.

         (b) If an Event of Default specified in subsection (o) or (p) of
Section 7.01 hereof shall occur or exist, then, in addition to all other rights
and remedies which the Bank may have hereunder or under any other Loan Document,
at law, in equity or otherwise, the Revolving Credit Commitment shall
automatically terminate and the Bank shall be under no further obligation to
make Revolving Credit Loans, and the unpaid principal amount of such Loans,
interest accrued thereon and all other Obligations shall become immediately due
and payable without presentment, demand, protest or notice of any kind, all of
which are hereby waived, and an action therefor shall immediately accrue.

         (c) Upon the occurrence and, as applicable, continuation of any Event
of Default, all amounts due under this Section 7.02 shall bear interest for each
day until paid at the Default Rate, as specified in Section 2.07(b) hereof.

                                      -26-
<PAGE>   31

                                  ARTICLE VIII
                                  MISCELLANEOUS

         8.01. Holidays. Whenever any payment or action to be made or taken
hereunder or under any other Loan Document shall be stated to be due on a day
which is not a Business Day, such payment or action shall be made or taken on
the next following Business Day and such extension of time shall be included in
computing interest or fees, if any, in connection with such payment or action.

         8.02. Records. The unpaid principal amount of the Revolving Credit
Loans owing to the Bank, the unpaid interest accrued thereon, the interest rate
or rates applicable to such unpaid principal amount, the duration of such
applicability, the Revolving Credit Committed Amount, and the accrued and unpaid
fees shall at all times be ascertained from the records of the Bank, which shall
be conclusive absent manifest error.

         8.03. Amendments and Waivers. Neither this Agreement nor any Loan
Document may be amended, modified or supplemented except in accordance with the
provisions of this Section. The Bank and the Borrower may from time to time
amend, modify or supplement the provisions of this Agreement or any other Loan
Document for the purpose of amending, adding to, or waiving any provisions,
releasing any Collateral, or changing in any manner the rights and duties of the
Borrower or the Bank. Any such amendment, modification or supplement made by
Borrower and the Bank in accordance with the provisions of this Section shall be
binding upon the Borrower and the Bank.

         8.04. No Implied Waiver, Cumulative Remedies. No course of dealing and
no delay or failure of the Bank in exercising any right, power or privilege
under this Agreement or any other Loan Document shall affect any other or future
exercise thereof or exercise of any other right, power or privilege; nor shall
any single or partial exercise of any such right, power or privilege or any
abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or of any other right, power or
privilege. The rights and remedies of the Bank under this Agreement and any
other Loan Document are cumulative and not exclusive of any rights or remedies
which the Bank would otherwise have hereunder or thereunder, at law, in equity
or otherwise.

         8.05. Notices.

         (a) Except to the extent otherwise expressly permitted hereunder or
thereunder, all notices, requests, demands, directions and other communications
(collectively "notices") under this Agreement or any Loan Document shall be in
writing (including telexed and telecopied communication) and shall be sent by
first-class mail, or by nationally-recognized overnight courier, or by telex or
telecopier (with confirmation in writing mailed first-class or sent by such an
overnight courier), or by personal delivery. All notices shall be sent to the
applicable party at the address stated on the signature pages hereof or in
accordance with the last unrevoked written direction from such party to the
other parties hereto, in all cases with postage or other charges prepaid. Any
such properly given notice to the Bank or the Borrower shall be effective when
received.

         (b) The Bank may rely on any notice (whether or not such notice is made
in a manner permitted or required by this Agreement or any Loan Document)
purportedly made by or on behalf of the Borrower, and the Bank shall not have
any duty to verify the identity or authority of any Person giving such notice.

         8.06. Expenses, Taxes, Indemnity.

                                      -27-
<PAGE>   32

         (a) The Borrower agrees to pay or cause to be paid and to save the Bank
harmless against liability for the payment of all reasonable out-of-pocket costs
and expenses (including but not limited to reasonable fees and expenses of
counsel, including local counsel, auditors, consulting engineers, appraisers,
and all other professional, accounting, evaluation and consulting costs)
incurred by the Bank from time to time arising from or relating to (i) the
negotiation, preparation, execution, delivery, administration and performance of
this Agreement and the other Loan Documents, (ii) any requested amendments,
modifications, supplements, waivers or consents (whether or not ultimately
entered into or granted) to this Agreement or any Loan Document, and (iii) the
enforcement or preservation of rights under this Agreement or any Loan Document
(including but not limited to any such costs or expenses arising from or
relating to (A) the creation, perfection or protection of the Bank's Lien on any
Collateral, (B) the protection, collection, lease, sale, taking possession of,
preservation of, or realization on, any Collateral, including without limitation
advances for storage, insurance premiums, transportation charges, taxes, filing
fees and the like, (C) collection or enforcement of an outstanding Revolving
Credit Loan or any other amount owing hereunder or thereunder by the Bank, and
(D) any litigation, proceeding, dispute, work-out, restructuring or rescheduling
related in any way to this Agreement or the Loan Documents).

         (b) The Borrower hereby agrees to pay all stamp, document, transfer,
recording, filing, registration, search, sales and excise fees and taxes and all
similar impositions now or hereafter determined by the Bank to be payable in
connection with this Agreement or any other Loan Documents or any other
documents, instruments or transactions pursuant to or in connection herewith or
therewith, and the Borrower agrees to save the Bank harmless from and against
any and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such fees, taxes or
impositions.

         (c) The Borrower hereby agrees to reimburse and indemnify each of the
Indemnified Parties from and against any and all losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements of any kind or nature whatsoever (including, without limitation,
the reasonable fees and disbursements of counsel for such Indemnified Party in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnified Party shall be
designated a party thereto) that may at any time be imposed on, asserted against
or incurred by such Indemnified Party as a result of, or arising out of, or in
any way related to or by reason of, this Agreement or any other Loan Document,
any transaction from time to time contemplated hereby or thereby, or any
transaction financed in whole or in part or directly or indirectly with the
proceeds of any Loan (and without in any way limiting the generality of the
foregoing, including any violation or breach of any Environmental Law or any
other Law by the Borrower; any Environmental Claim arising out of the
management, use, control, ownership or operation of property by any of such
Persons, including all on-site and off-site activities involving Environmental
Concern Materials; any grant of Collateral; or any exercise by the Bank of any
of its rights or remedies under this Agreement or any other Loan Document); but
excluding any such losses, liabilities, claims, damages, expenses, obligations,
penalties, actions, judgments, suits, costs or disbursements resulting solely
from the gross negligence or willful misconduct of such Indemnified Party, as
finally determined by a court of competent jurisdiction. If and to the extent
that the foregoing obligations of the Borrower under this subsection (c), or any
other indemnification obligation of the Borrower hereunder or under any other
Loan Document, are unenforceable for any reason, the Borrower hereby agree to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable Law. Notwithstanding the
foregoing, nothing herein shall be construed to be an indemnity by the Borrower
with respect to any violation by the Bank of any law, rule or regulation
applicable to the Bank.

         (d) The Borrower shall pay to the Bank all amounts referred to in
Sections 8.06(a), (b) and (c) hereof upon demand therefor from the Bank. To the
extent permitted by law, such amounts shall bear interest for each day until
paid (before and after judgment) at a rate per annum (based on a year of 360
days and actual days elapsed) which for each day shall be equal to the Default
Rate.

                                      -28-
<PAGE>   33

         8.07. Severability. The provisions of this Agreement are intended to be
severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.

         8.08. Prior Understandings. This Agreement, together with the other
Loan Documents, constitutes the entire agreement between the parties hereto
relating to this financing transaction and it supersedes all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the transactions provided for herein.

         8.09. Duration, Survival. All representations and warranties of the
Borrower contained herein or in any other in the Loan Document or made in
connection herewith or therewith shall survive the making of, and shall not be
waived by the execution and delivery, of this Agreement or any other Loan
Document, any investigation by or knowledge of the Bank, the making of any Loan,
or any other event or condition whatever. All covenants and agreements of the
Borrower contained herein or in any other Loan Document shall continue in full
force and effect from and after the date hereof so long as the Borrower may
borrow hereunder and until payment in full of all Obligations. Without
limitation, all obligations of the Borrower hereunder or under any other Loan
Document to make payments to or indemnify the Bank or the Bank shall survive the
payment in full of all other Obligations, termination of the Borrower's right to
borrow hereunder, and all other events and conditions whatever. In addition, all
obligations of the Borrower to make payments to or indemnify the Bank shall
survive the payment in full by the Borrower of all Obligations, termination of
the Borrower's right to borrow hereunder, and all other events or conditions
whatever.

         8.10. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.

         8.11. Limitation on Payments. The parties hereto intend to conform to
all applicable Laws in effect from time to time limiting the maximum rate of
interest that may be charged or collected. Accordingly, notwithstanding any
other provision hereof or of any other Loan Document, the Borrower shall not be
required to make any payment to or for the account of the Bank to the extent
that such requirement or such failure to refund would violate or conflict with
nonwaivable provisions of applicable Laws limiting the maximum amount of
interest which may be charged or collected by the Bank.

         8.12. Set-off. To secure the repayment of the Obligations, the Borrower
hereby grants, conveys, assigns, pledges and transfers to the Bank, and creates
in favor of the Bank, a continuing Lien on and security interest in any
property, credits, securities or monies which may at any time be delivered to,
or be in the possession of, or owed by the Bank in any capacity whatever
(exclusive of funds held in trust by the Borrower on behalf of employees or
others by the Bank) including the balance of any deposit account maintained by
the Borrower with the Bank, the Disbursement Account and the Cash Collateral
Account, and all proceeds of the conversion (voluntary or involuntary) thereof
into cash, instruments, securities or other property, and all other proceeds
thereof (the "Secured Property"). The Borrower hereby represents, warrants,
covenants and agrees that such Lien shall at all times be valid and perfected,
prior to all other Liens, and the Borrower shall take or cause to be taken such
actions and execute and deliver such instruments and documents as may be
necessary or, in the Bank's judgment, desirable to perfect or protect such Lien.
The Borrower shall not create or suffer to exist any Lien on any of the Secured
Property other than the Lien in favor of the Bank granted under this Section
8.12.

                                      -29-
<PAGE>   34

The Borrower authorizes the Bank in the case of an Event of Default, at the
Bank's option, at any time and from time to time, to apply, at the discretion of
the Bank, to the payment of Obligations, any and all such property, credits,
securities or monies now or hereafter in the hands of the Bank belonging or owed
to the Borrower. Such right shall be absolute and unconditional in all
circumstances and, without limitation, shall exist whether or not the Bank or
any other Person shall have given notice or made any demand to the Borrower or
any other Person, whether such property, credits, securities or monies owed to
the Borrower is contingent, absolute, matured or unmatured (it being agreed that
the Bank may deem such indebtedness, obligation or liability to be then due and
payable at the time of such setoff), and regardless of the existence or adequacy
of any collateral, guaranty or any other security, right or remedy available to
the Bank or any other Person.

         8.13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Bank, all future holders of the Notes,
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights hereunder or interests herein without the
prior written consent of the Bank, and any purported assignment without such
consent shall be void.

         8.14. Governing Law; Submission to Jurisdiction:, Limitation of
Liability.

         (a) Governing Law. This Agreement and all other Loan Documents (except
to the extent, if any, otherwise expressly stated therein) shall be governed by,
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to choice of law principles.

         (b) Certain Waivers. The Borrower hereby irrevocably and
unconditionally:

                  (i) agrees that any action;, suit or proceeding by any person
         arising from or relating to this Agreement or any other Loan Document
         or any statement, course of conduct, act, omission or event occurring
         in connection herewith or therewith (collectively, "Related
         Litigation") may be brought in any state or federal court of competent
         jurisdiction sitting in Allegheny County, Pennsylvania, submits to such
         jurisdiction of such courts, and, to the fullest extent permitted by
         law, agrees that it will not bring any related litigation in any other
         forum "but nothing herein shall affect the right of the Bank to bring
         any action, suit or proceeding in any other forum);

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

                  (iii) consents and agrees to service of any summons, complain
         or other legal process in any related litigation by registered or
         certified U.S. Mail, postage prepaid, to the Borrower at the address
         for notices described in Section 8.05 hereof, and consents and agrees
         that such service shall constitute in every respect valid and effective
         service (but nothing herein shall affect the validity or effectiveness
         of process served in any other manner permitted by law).

         (c) Limitation of Liability. To the fullest extent permitted by law, no
claim may be made by the Borrower against the Bank or any affiliate, director,
officer, employee, or attorney of the Bank for any special, incidental,
indirect, consequential or punitive damages in respect of any claim arising from
or relating to this Agreement or any other Loan Document or any statement,
course of conduct, act, omission or event occurring in connection herewith or
therewith (whether for breach of contract, tort or any other theory of
liability). The Borrower hereby waives, releases and agrees not to sue upon any
claim for any such

                                      -30-
<PAGE>   35

damages, whether such claim presently exists or arises hereafter and whether or
not such claim is known or suspected to exist in its favor.

         8.15. WAIVER OF TRIAL BY JURY. THE BORROWER             INITIALS:
AND THE BANK EXPRESSLY, KNOWINGLY AND VOLUNTARILY
WAIVE ALL BENEFIT AND ADVANTAGE OF ANY RIGHT TO A       /s/ TA
TRIAL BY JURY, AND NO PARTY HERETO WILL AT ANY TIME     ------------------------
INSIST UPON, OR PLEAD OR IN ANY MANNER WHATSOEVER       Borrower
CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF A TRIAL BY
JURY IN AN ACTION ARISING IN CONNECTION WITH THIS       /s/ LS
AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN            ------------------------
DOCUMENTS.                                              Bank

                           [Intentionally left blank]

                                      -31-
<PAGE>   36

         IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, by their officers thereunto duly authorized, have executed and delivered
this Agreement as of the date first above written.

ATTEST:                                  STEEL CITY PRODUCTS, INC.

By: /s/ Donna Jean Golling               By: /s/ Terrance W. Allan
   ---------------------------------        ----------------------
     Title  Paralegal                       Title  President, COO

(Seal)                                      Address for Notices:

                                            Attn:
                                            Telephone:
                                            Telecopier:

ATTEST:                                     NATIONAL CITY BANK OF PENNSYLVANIA

By: /s/ Donna Jean Golling                  By: /s/ Lori B. Shure
   ---------------------------------        ----------------------
     Title  Paralegal                       Title  Vice President

                                            Address for Notices:
(Seal)                                      20 Stanwix Street
                                            Pittsburgh, PA  15225
                                            Attn:  Lori B. Shure
                                            Telephone: (412) 644-7751
                                            Telex: (412) 471-4883

                                      -32-
<PAGE>   37

                                     ANNEX A
                                       TO
                                CREDIT AGREEMENT

                            DEFINITIONS; CONSTRUCTION

         1.01. Certain Definitions. In addition to other words and terms defined
elsewhere in this Agreement, as used in this Agreement the following words and
terms defined have the meanings given them below, unless the context of this
Agreement otherwise clearly requires.

         "Affiliate" of a Person (the "Specified Person") shall mean (a) any
Person which directly or indirectly controls, or is controlled by, or is under
common control with, the Specified Person , (b) any director or officer (or, in
the case of a Person which is not a corporation, any individual having analogous
powers) of the Specified Person or of a Person who is an Affiliate of the
Specified Person within the meaning of the preceding clause (a), and (c) for
each individual who is an Affiliate of the Specified Person within the meaning
of the foregoing clauses (a) or (b), any other individual related to such
Affiliate by consanguinity within the third degree or in a step or adoptive
relationship within such third degree or related by affinity with such Affiliate
or any such individual. For purposes of the preceding sentence, "control" of a
Person means (a) the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by contract or otherwise and (b) in
any case shall include direct or indirect ownership (beneficially or of record)
of, or direct or indirect power to vote, 5% or more of the outstanding shares of
any class of capital stock of such Person (or in the case of a Person that is
not a corporation, 5% or more of any class of equity interest).

         "Bank" shall have the meaning set forth in the preamble hereto.

         "Borrower" shall have the meaning set forth in the preamble hereto.

         "Borrower's Security Agreement" shall have the meaning set forth in
Section 4.01(b) hereof.

         "Borrowing Base" shall have the meaning set forth in Section 2.09(a)
hereof.

         "Borrowing Base Certificate" shall have the meaning set forth in
Section 2.09(f) hereof

         "Business Day" shall mean any day other than a Saturday, Sunday, public
holiday under the laws of the Commonwealth of Pennsylvania or other day on which
banking institutions are authorized or obligated to close in the city in which
is located the Bank's Office.

         "Capital Adequacy Event" shall have the meaning set forth in Section
2.08(b) hereof.

         "Capital Compensation Amount" shall have the meaning set forth in
Section 2.08(b) hereof.

         "Capital Expenditures" of a Person shall mean, for any period, all
expenditures (whether paid in cash or accrued as liabilities during such period)
of such Person during such period which would be classified as capital
expenditures for purposes of GAAP (including, without limitation, expenditures
for maintenance and repairs which are capitalized, and Capitalized Leases to the
extent an asset is recorded in connection therewith in accordance with GAAP).

<PAGE>   38

         "Capitalized Lease" shall mean at any time any lease which is, or is
required under GAAP to be, capitalized on the balance sheet of the lessee at
such time, and "Capitalized Lease Obligation" of any Person at any time shall
mean the aggregate amount which is, or is required under GAAP to be, reported as
a liability on the balance sheet of such Person at such time as lessee under a
Capitalized Lease.

         "Cash Collateral Account" shall have the meaning set forth in Section
2.03(a) hereof.

         "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and any successor statute of similar
import, and regulations thereunder, in each case as in effect from time to time.

         "CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List, as the same may be amended
from time to time.

         "Change of Control" shall mean Oakhurst Company, Inc., a ____________
corporation, shall cease to own a majority of the common stock and Series "A"
Preferred Stock necessary to elect a majority of the board of directors of the
Borrower.

         "Closing Date" shall mean the date of the first Loan hereunder.

         "Closing Fee" shall have the meaning set forth in Section 2.02(c)
hereof.

         "Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, and regulations thereunder, in each case as
in effect from time to time. References to sections of the Code shall be
construed also to refer to any successor sections.

         "Collateral" shall have the meaning set forth in the Borrower's
Security Agreement.

         "Collateral Monitoring Fee" shall have the meaning set forth in Section
2.02(b) hereof

         "Controlled Group Member" shall mean each trade or business (whether or
not incorporated) which together with the Borrower is treated as a single
employer under Sections 4001(a)(14) or 4001(b)(1) of ERISA or Sections 414(b),
(c), (m) or (o) of the Code.

         "Cross-Default Event" shall have the meaning set forth in Section
7.01(f) hereof.

         "Cross-Default Obligation" shall have the meaning set forth in Section
7.01(f) hereof.

         "Default Rate" shall have the meaning set forth in Section 2.07(b)
hereof.

         "Distributions' shall mean, for the period of determination, (a) all
distributions of cash, securities or other property (other than capital stock)
on or in respect of any shares of any class of capital stock of the Borrower;
and (b) all purchases, redemptions or other acquisitions by the Borrower of any
shares of any class of capital stock of the Borrower, in each case determined
and consolidated for the Borrower and its Subsidiaries in accordance with GAAP.

         "Dollar," "Dollars" and the symbol "$" shall mean lawful money of the
United States of America.

         "EBITDA" for any Person for any period, shall mean the sum of (a) Net
Income for such period, (b) Interest Expense for such period, (c) charges
against income for foreign, federal, state and local income taxes for such
period, (d) depreciation expense for such period, (e) amortization expense for
such period and (f)

                                      A-2
<PAGE>   39

non-cash intercompany royalty and management fees during such period minus (x)
non-cash interest income for such period and (y) gains with respect to asset
sales or other non-cash income during such period, all as determined on a
consolidated basis for such Person in accordance with GAAP.

         "EBITDA/Fixed Charges Ratio" shall mean the ratio of the EBITDA of the
Borrower City to Fixed Charges of the Borrower at such time determined on a
Rolling Four Quarter Basis (other than the first three Fiscal Quarters ending on
or after the Closing Date) and in accordance with GAAP.

         "Eligible Inventory" shall have the meaning set forth in Section
2.09(d) hereof.

         "Eligible Receivables" shall have the meaning set forth in Section
2.09(b) hereof.

         "Environmental Affiliate" shall mean, with respect to any Person, any
other Person whose liability (contingent or otherwise) for any Environmental
Claim such Person has retained, assumed or otherwise is liable for (by Law,
agreement or otherwise).

         "Environmental Approvals" shall mean any Governmental Action pursuant
to or required under any Environmental Law.

         "Environmental Claim" shall mean, with respect to any Person, any
action, suit, proceeding, investigation, notice, claim, complaint, demand,
request for information or other communication (written or oral) by any other
Person (including but not limited to any Governmental Authority, citizens' group
or present or former employee of such Person) alleging, asserting or claiming
any actual or potential (a) violation of any Environmental Law, (b) liability
under any Environmental Law or (c) liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property damages,
personal injuries, fines or penalties arising out of, based on or resulting from
the presence, or release into the environment, of any Environmental Concern
Materials at any location, whether or not owned by such Person.

         "Environmental Cleanup Site" shall mean any location which is listed or
proposed for listing on the National Priorities List, on CERCLIS or on any
similar state list of sites requiring investigation or cleanup, or which is the
subject of any pending or threatened action, suit, proceeding or investigation
related to or arising from any alleged violation of any Environmental Law.

         "Environmental Concern Materials" shall mean (a) any flammable
substance, explosive, radioactive material, hazardous material, hazardous waste,
toxic substance, solid waste, pollutant, contaminant or any related material,
raw material, substance, product or by-product of any substance specified in or
regulated or otherwise affected by any Environmental Law (including but not
limited to any "hazardous substance" as defined in CERCLA or any similar state
Law), (b) any toxic chemical or other substance from or related to industrial,
commercial or institutional activities, and (c) asbestos, gasoline, diesel fuel,
motor oil, waste and used oil, heating oil and other petroleum products or
compounds, polychlorinated biphenyls, radon and urea formaldehyde.

         "Environmental Law" shall mean any Law, whether now existing or
subsequently enacted or amended, relating to (a) pollution or protection of the
environment, including natural resources, (b) exposure of Persons, including but
not limited to employees, to Environmental Concern Materials, (c) protection of
the public health or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of Environmental Concern Materials or (d)
regulation of the manufacture, use or introduction into commerce of
Environmental Concern Materials including their manufacture, formulation,
packaging, labeling,

                                      A-3
<PAGE>   40

distribution, transportation, handling, storage or disposal. Without limitation,
"Environmental Law" shall also include any Environmental Approval and the terms
and conditions thereof.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.

         "Event of Default" shall mean any of the Events of Default described in
Section 7.01 hereof.

         "EXIM Bank" shall mean Export-Import Bank of the United States, an
agency of the United States of America.

         "Fiscal Quarter(s)" shall mean the period(s) of March 1 through May 31,
June 1 through August 31, September 1 through November 30 and December 1 through
February 28 of each year.

         "Fixed Charges" for any period for any Person shall mean the sum of
Interest Expense paid in cash by such Person during such period, the current
maturities of long-term Indebtedness paid by such Person during such period,
taxes paid in cash by such Person during such period, unfunded Capital
Expenditures of such Person during such period, payments on Capitalized Lease
Obligations during such period, Distributions during such period, increases in
intercompany receivables during such period (including, without limitation,
increases in accounts receivable, notes receivable, loans or other distribution
of funds from such Person to its Parent, any Subsidiary of the Borrower or an
Affiliate of the Borrower) and payments by such Person during such period
permitted by Section 6.09(c) hereof, all as determined on a consolidated basis
in accordance with GAAP.

         "GAAP" shall have the meaning set forth in Section 1.03 of this Annex
A.

         "Governmental Action" shall have the meaning set forth in Section 3.04
hereof.

         "Governmental Authority" shall mean any government or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.

         "Guaranty Equivalent": A Person (the "Deemed Guarantor") shall be
deemed to be subject to a Guaranty Equivalent in respect of any indebtedness,
obligation or liability (the "Assured Obligation") of another Person (the
"Deemed Obligor") if the Deemed Guarantor directly or indirectly guarantees,
becomes surety for, endorses, assumes, agrees to indemnify the Deemed Obligor
against, or otherwise agrees, becomes or remains liable (contingently or
otherwise) for, such Assured Obligation. Without limitation, a Guaranty
Equivalent shall be deemed to exist if a Deemed Guarantor agrees, becomes or
remains liable (contingently or otherwise), directly or indirectly: (a) to
purchase or assume, or to supply funds for the payment, purchase or satisfaction
of, an Assured Obligation, (b) to make any loan, advance, capital contribution
or other investment in, or to purchase or lease any property or services from, a
Deemed Obligor (i) to maintain the solvency of the Deemed Obligor, (ii) to
enable the Deemed Obligor to meet any other financial condition, (iii) to enable
the Deemed Principal to satisfy any Assured Obligation or to make any
Distribution or any other payment, or (iv) to assure the holder of such Assured
Obligation against loss, (c) to purchase or lease property or services from the
Deemed Obligor regardless of the non-delivery of or failure to furnish of such
property or services, (d) in a transaction having the characteristics of a
take-or-pay or throughput contract or as described in paragraph 6 of FASB
Statement of Financial Accounting Standards No. 47, or (e) in respect of any
other transaction the effect of which is to assure the payment or performance

                                      A-4
<PAGE>   41

(or payment of damages or other remedy in the event of nonpayment or
nonperformance) of any Assured Obligation.

         "Indebtedness" of a Person shall mean:

                  (a) All obligations on account of money borrowed by, or credit
         extended to or on behalf of, or for or on account of deposits with or
         advances to, such Person;

                  (b) All obligations of such Person evidenced by bonds,
         debentures, notes or similar instruments;

                  (c) All obligations of such Person for the deferred purchase
         price of property or services;

                  (d) All obligations secured by a Lien on property owned by
         such Person (whether or not assumed); and all obligations of such
         Person under Capitalized Leases (without regard to any limitation of
         the rights and remedies of the holder of such Lien or the lessor under
         such Capitalized Lease to repossession or sale of such property);

                  (e) The face amount of all letters of credit issued for the
         account of such Person and, without duplication, the unreimbursed
         amount of all drafts drawn thereunder, and all other obligations of
         such Person associated with such letters of credit or draws thereon;

                  (f) All obligations of such Person in respect of acceptances
         or similar obligations issued for the account of such Person;

                  (g) All obligations of such Person under a product financing
         or similar arrangement described in paragraph 8 of FASB Statement of
         Accounting Standards No. 49 or any similar requirement of GAAP; and

                  (h) All obligations of such Person under any interest rate or
         currency protection agreement, interest rate or currency future,
         interest rate or currency option, interest rate or currency swap or cap
         or other interest rate or currency hedge agreement.

         "Indemnified Parties" shall mean the Bank and its affiliates, and the
directors, officer, employees, attorneys and agents of the Bank.

         "Interest Expense" for any Person for any period shall mean the total
interest expense of such Person for such Period determined on a consolidated
basis in accordance with GAAP.

         "Interest Rate" shall have the meaning set forth in Section 2.04(a)
hereof.

         "Law" shall mean any law (including common law), constitution, statute,
treaty, convention, regulation, rule, ordinance, order, injunction, writ, decree
or award of any Governmental Authority.

         "Leases" shall have the meaning set forth in Section 4.01(b) hereof.

         "Leasehold Mortgages" shall have the meaning set forth in Section
4.01(b) hereof.

         "Lien" shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any conditional

                                      A-5
<PAGE>   42

sale or title retention arrangement, and any assignment, deposit arrangement or
lease intended as, or having the effect of, security.

         "Loan Account" shall have the meaning set forth in Section 2.05(e)
hereof.

         "Loan Documents" shall mean this Agreement, the Note, and the Security
Documents, and all other agreements and instruments extending, renewing,
refinancing or refunding any indebtedness, obligation or liability arising under
any of the foregoing, in each case as the same may be amended, modified or
supplemented from time to time hereafter.

         "Lockbox Receipts Deposit" shall have the meaning set forth in Section
2.03(a) hereof.

         "Material Adverse Effect" shall mean: (a) a material adverse effect on
the business, operations, condition (financial or otherwise) or prospects of the
Borrower (b) a material adverse effect on the ability of the Borrower to perform
or comply with any of the terms and conditions of any Loan Document, or (c) an
adverse effect on the legality, validity, binding effect, enforceability or
admissibility into evidence of any Loan Document, or the ability of the Bank to
enforce any rights or remedies under or in connection with any Loan Document.

         "Mortgaged Property" shall have the meaning set forth in Section
4.01(b) hereof.

         "Multiemployer Plan" shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any Controlled Group Member has or had an obligation to
contribute.

         "Net Income" for any Person for any period shall mean the net earnings
(or losses) after taxes of such Person for such period determined on a
consolidated basis in accordance with GAAP.

         "Net Value" shall have the meaning set forth in Section 2.09(b) hereof.

         "Obligations" shall mean, with respect to the Borrower, all
indebtedness, obligations and liabilities of the Borrower (whether as a Borrower
or a Guarantor) to the Bank from time to time arising under or in connection
with or related to or evidenced by or secured by or under color of this
Agreement or any other Loan Document, and all extensions, renewals or
refinancings thereof, whether such indebtedness, obligations or liabilities are
direct or indirect, otherwise secured or unsecured, joint or several, absolute
or contingent, due or to become due, whether for payment or performance, now
existing or hereafter arising. Without limitation of the foregoing, such
indebtedness, obligations and liabilities include the principal amount of all
Loans, interest, fees, indemnities, expenses under or in connection with this
Agreement or any other Loan Document, and all extensions, renewals and
refinancings thereof, whether or not such Loans were made in compliance with the
terms and conditions of this Agreement or in excess of the obligation of the
Bank to lend. Obligations shall remain Obligations notwithstanding any
assignment or transfer or any subsequent assignment or transfer of any of the
Obligations or any interest therein.

         "Office" when used in connection with the Bank, shall mean its office
located at National City Center, 20 Stanwix Street, Pittsburgh, Pennsylvania
15222, or at such other office or offices of the Bank or any branch, subsidiary
or affiliate thereof as may be designated in writing from time to time by the
Bank to the Borrower.

         "Parent" shall have the meaning set forth within the definition of
"Subsidiary" herein.

                                      A-6
<PAGE>   43

         "PBGC" means the Pension Benefit Guaranty Corporation established under
Title IV of ERISA or any other governmental agency, department or
instrumentality succeeding to the functions of said corporation.

         "Pension-Related Event" shall mean any of the following events or
conditions:

                  (a) Any action is taken by any Person (i) to terminate, or
         which would result in the termination of, a Plan, either pursuant to
         its terms or by operation of law (including, without limitation, any
         amendment of a Plan which would result in a termination under Section
         4041(e) of ERISA), or (ii) to have a trustee appointed for a Plan
         pursuant to Section 4042 of ERISA;

                  (b) PBGC notifies any Person of its determination that an
         event described in Section 4042 of ERISA has occurred with respect to a
         Plan, that a Plan should be terminated, or that a trustee should be
         appointed for a Plan;

                  (c) Any Reportable Event occurs with respect to a Plan;

                  (d) Any action occurs or is taken which could result in the
         Borrower becoming subject to liability for a complete or partial
         withdrawal by any Person from a Multiemployer Plan (including, without
         limitation, seller liability incurred under Section 4204(a)(2) of
         ERISA), or the Borrower or any Controlled Group Member receives from
         any Person a notice or demand for payment on account of any such
         alleged or asserted liability; or

                  (e) (i) There occurs any failure to meet the minimum funding
         standard under Section 302 of ERISA or Section 412 of the Code with
         respect to a Plan, or any tax return is filed showing any tax payable
         under Section 4971(a) of the Code with respect to any such failure, or
         the Borrower or any Controlled Group Member receives a notice of
         deficiency from the Internal Revenue Service with respect to any
         alleged or asserted such failure, or (ii) any request is made by any
         Person for a variance from the minimum funding standard, or an
         extension of the period for amortizing unfunded liabilities, with
         respect to a Plan.

         "Permitted Liens" shall have the meaning set forth in Section 6.02
hereof.

         "Person" shall mean an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, Governmental
Authority or any other entity.

         "Plan" means any employee pension benefit plan within the meaning of
Section 3(2) of ERISA (other than a Multiemployer Plan) covered by Title IV of
ERISA by reason of Section 4021 of ERISA, of which the Borrower or any
Controlled Group Member is or has been within the preceding five years a
"contributing sponsor" within the meaning of Section 4001(a)(13) of ERISA, or
which is or has been within the preceding five years maintained for employees of
the Borrower or any Controlled Group Member.

         "Postretirement Benefits" shall mean any benefits, other than
retirement income, provided by the Borrower to retired employees, or to their
spouses, dependents or beneficiaries, including, without limitation, group
medical insurance or benefits, or group life insurance or death benefits.

         "Potential Default" shall mean any event or condition which with
notice, passage of time or a determination by the Bank, or any combination of
the foregoing, would constitute an Event of Default.

                                      A-7
<PAGE>   44

         "Prime Rate" as used herein, shall mean the interest rate per annum
announced from time to time by the Bank as its prime rate of interest, which
rate may not be the lowest rate then being charged to commercial borrowers of
the Bank and which rate shall change automatically and without notice from time
to time effective as of the effective date of change in such prime rate of
interest.

         "Related Litigation" shall have the meaning set forth in Section
8.14(b) hereof.

         "Reportable Event" means (i) a reportable event described in Section
4043 of ERISA and regulations thereunder, (ii) a withdrawal by a substantial
employer from a Plan to which more than one employer contributes, as referred to
in Section 4063(b) of ERISA, (iii) a cessation of operations at a facility
causing more than twenty percent (20%) of Plan participants to be separated from
employment, as referred to in Section 4068(f) of ERISA, or (iv) a failure to
make a required installment or other payment with respect to a Plan when due in
accordance with Section 412 of the Code or Section 302 of ERISA which causes the
total unpaid balance of missed installments and payments (including unpaid
interest) to exceed $750,000.

         "Responsible Officer" shall mean the President, Chief Financial Officer
or Treasurer of the Borrower.

         "Revolving Credit Commitment" shall have the meaning set forth in
Section 2.01(a) hereof.

         "Revolving Credit Commitment Fee" shall have the meaning set forth in
Section 2.02(a) hereof.

         "Revolving Credit Committed Amount" shall have the meaning set forth in
Section 2.01(a) hereof.

         "Revolving Credit Loans" shall have the meaning set forth in Section
2.01(a) hereof.

         "Revolving Credit Maturity Date" shall mean July 30, 2003.

         "Revolving Credit Note" shall have the meaning set forth in Section
2.01(c) hereof.

         "RIDC Lease" shall have the meaning set forth in Section 4.01(b)
hereof.

         "Rolling Four Quarter Basis" shall mean with respect to any component
of any ratio, the sum of such component for each of the four Fiscal Quarters
immediately preceding the date with respect to which such ratio is to be
determined.

         "Secured Property" shall have the meaning set forth in Section 8.12
hereof.

         "Security Documents" shall mean the Borrower's Security Agreement, the
Leasehold Mortgages and any other agreements or instruments from time to time to
time granting or purporting to grant the Bank a Lien in any property to secure
the Obligations.

         "Spedd Lease" shall have the meaning set forth in Section 4.01(b)
hereof.

         "Standard Notice" shall mean an irrevocable notice provided by the
Borrower no later than 2:00 p.m., Pittsburgh, PA time on a Business Day
requesting that the Bank make one or more Revolving Credit Loans.

         "Subsidiary" or "Subsidiaries" of a Person ("Parent") shall mean,
singularly or collectively as the context may require, (i) any corporation more
than fifty percent (50%) of whose capital stock of any class or classes having
by the terms thereof ordinary voting power to elect a majority of the directors
of such

                                      A-8
<PAGE>   45

corporation is owned (directly or indirectly) by such Parent and/or one or more
Subsidiaries of such Parent, and (ii) any partnership, association, joint
venture or other entity in which such Parent and/or one or more Subsidiaries of
such Parent has more than a fifty percent (50%) equity interest.

         1.02. Construction. Unless the context of this Agreement otherwise
clearly requires, references to the plural include the singular, the singular
the plural and the part the whole; "or" has the inclusive meaning represented by
the phrase "and/or"; and "property" includes all properties and assets of any
kind or nature, tangible or intangible, real, personal or mixed. References in
this Agreement to "determination" (and similar terms) by the Bank include good
faith estimates by the Bank (in the case of quantitative determinations) and
good faith beliefs by the Bank (in the case of qualitative determinations). The
words "hereof," "herein," "hereunder" and similar terms in this Agreement refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References herein to "out-of-pocket expenses" of a Person (and
similar terms) include, but are not limited to, the fees of in-house counsel and
other in-house professionals of such Person to the extent that such fees are
routinely identified and specifically charged under such Person's normal cost
accounting system. The section and other headings contained in this Agreement
and the Table of Contents preceding this Agreement are for reference purposes
only and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection and exhibit
references are to this Agreement unless otherwise specified.

         1.03. Accounting Principles.

         (a) As used herein, "GAAP" shall mean generally accepted accounting
principles as such principles shall be in effect at the Relevant Date, subject
to the provisions of this Section 1.03. As used herein, "Relevant Date" shall
mean the date a relevant computation or determination is to be made or the date
of relevant financial statements, as the case may be.

         (b) Except as otherwise provided in this Agreement, all computations
and determinations as to accounting or financial matters shall be made, and all
financial statements to be delivered pursuant to this Agreement shall be
prepared, in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP.

         (c) If any change in GAAP after the date of this Agreement is or shall
be required to be applied to transactions then or thereafter in existence, and a
violation of one or more provisions of this Agreement shall have occurred or in
the opinion of the Borrower would likely occur which would not have occurred or
be likely to occur if no change in accounting principles had taken place,

                  (i) The parties agree that such violation shall not be
         considered to constitute an Event of Default or a Potential Default for
         a period of 10 days from the date the Borrower notifies the Bank of the
         application of this Section 1.03(c);

                  (ii) The parties agree in such event to negotiate in good
         faith an amendment of this Agreement which shall approximate to the
         extent possible the economic effect of the original financial covenants
         after taking into account such change in GAAP; and

                  (iii) If the parties are unable to negotiate such an amendment
         within 10 days, the Borrower shall have the option of (A) prepaying the
         Loan (pursuant to applicable provisions hereof) or (B) submitting the
         drafting of such an amendment to a firm of independent certified public
         accountants of nationally recognized standing acceptable to the
         parties, which shall complete its draft of such amendment within 90
         days of submission; if the Borrower and the Bank cannot agree, the firm
         shall be selected by binding arbitration in the City of Pittsburgh,
         Pennsylvania in accordance with

                                      A-9
<PAGE>   46

         the rules then obtaining of the American Arbitration Association. If
         the Borrower does not exercise either such option within said period,
         then as used in this Agreement, "GAAP" shall mean generally accepted
         accounting principles in effect at the Relevant Date. The parties agree
         that if the Borrower elects the option in clause (B) above, until such
         firm has been selected and completes drafting such amendment, no such
         violation shall constitute an Event of Default or a Potential Default.

         (d) If any change in GAAP after the date of this Agreement is required
to be applied to transactions or conditions then or thereafter in existence, and
the Bank shall assert that the effect of such change is or shall likely be to
distort materially the effect of any of the definitions of financial terms in
Article I hereof or any of the covenants of the Borrower in Section 6.01 hereof
(the "Financial Provisions"), so that the intended economic effect of any of the
Financial Provisions will not in fact be accomplished,

                  (i) The Bank shall notify the Borrower of such assertion,
         specifying the change in GAAP which is objected to, and until otherwise
         determined as provided below, the specified change in GAAP shall not be
         made by the Borrower in its financial statements for the purpose of
         applying the Financial Provisions; and

                  (ii) The parties shall follow the procedures set forth in
         paragraph (ii) and the first sentence of paragraph (iii) of subsection
         (b) of this Section. If the parties are unable to agree on an amendment
         as provided in said paragraph (ii) and if the Borrower does not
         exercise either option set forth in the first sentence of said
         paragraph (iii) within the specified period, then as used in this
         Agreement "GAAP" shall mean generally accepted accounting principles in
         effect at the Relevant Date, except that the specified change in GAAP
         which is objected to be the Bank shall not be made in applying the
         Financial Provisions. The parties agree that if the Borrower elects the
         option in clause (B) of the first sentence of said paragraph (iii),
         until such independent firm has been selected and completes drafting
         such amendment, the specified change in GAAP shall not be made in
         applying the Financial Provisions.

         (e) All expenses of compliance with this Section 1.03 shall be paid for
by the Borrower.

                                      A-10
<PAGE>   47

                                    EXHIBIT A

                         [Form of Revolving Credit Note]

<PAGE>   48

                                    EXHIBIT B

                      [Form of Borrowing Base Certificate]

<PAGE>   49

                                    EXHIBIT C

                     [Form of Borrower's Security Agreement]

<PAGE>   50

                                    EXHIBIT D

                          [Form of Leasehold Mortgage]

<PAGE>   51

                                   EXHIBIT E-1

                          [Form of Memorandum of Lease]

<PAGE>   52

                                    EXHIBIT E

                        [Form of Ground Lessor Estoppel]

<PAGE>   53

                                    EXHIBIT F

                     [Form of Landlord's Waiver and Consent]

<PAGE>   54

                                    EXHIBIT G

                   [Form of Quarterly Compliance Certificate]

<PAGE>   55
                              Revolving Credit Note

$5,000,000.00                                           Pittsburgh, Pennsylvania
                                                                   July 13, 2001

FOR VALUE RECEIVED, the undersigned, Steel City Products, Inc., a Delaware
corporation (the "Borrower"), promises to pay to the order of National City Bank
of Pennsylvania (the "Bank") on or before July 30, 2003, the Revolving Credit
Maturity Date, and at such earlier dates as may be required by the Agreement (as
defined below), the lesser of (i) the principal sum of FIVE MILLION AND 00/100
DOLLARS ($5,000,000.00) or (ii) the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Bank to the Borrower from time to time
pursuant to the Agreement. The Borrower further promises to pay to the order of
the Bank interest on the unpaid principal amount hereof from time to time
outstanding at the rate or rates per annum determined pursuant to the Agreement,
payable on the dates set forth in the Agreement.

This Note is a "Revolving Credit Note" as referred to in, and is entitled to the
benefits of, the Revolving Credit Agreement, dated as of July 13, 2001, between
the Borrower and the Bank (as the same may be amended, modified or supplemented
from time to time, the "Agreement"), which among other things provides for the
acceleration of the maturity hereof upon the occurrence of certain events and
for prepayments in certain circumstances and upon certain terms and conditions.
Terms defined in the Agreement have the same meanings herein.

This Note is secured by and is entitled to the benefits of the Liens granted by
the Security Documents referred to in the Agreement.

The Borrower hereby expressly waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and the Agreement, and upon the
occurrence of certain events specified in the Agreement, an action for amounts
due hereunder or thereunder shall immediately accrue.

The Borrower shall have the right to prepay the Loans in whole or in part at any
time or from time to time without premium or penalty except as specifically
provided otherwise in Article II of the Agreement.

Upon the occurrence of an Event of Default and the expiration of all applicable
cure periods, Borrower does hereby empower the Prothonotary or any attorney of
any court of record within the Commonwealth of Pennsylvania to appear for
Borrower and, with or without one or more complaints filed, confess judgment or
judgments against Borrower in any court of record within the Commonwealth of
Pennsylvania at any time after the date of this note, so long as an uncured
Event of Default shall continue to exist, in favor of the Bank, its successors
and assigns, for the unpaid principal balance of this note and all interest
accrued hereon, together with costs of suit and an attorney's commission of 10%
for collection of such sums, and Borrower hereby forever waives and releases any
and all errors in said proceedings and waives stay of execution and stay,
continuance or adjournment of sale on execution. The authority and power to
appear for and enter judgment against Borrower shall not be exhausted by one or
more exercises thereof, and may be exercised from time to time and as often as
lender or its successors and assigns shall deem necessary or desirable.

<PAGE>   56

This Note shall be governed by, construed and enforced in accordance with the
laws of the Commonwealth of Pennsylvania, without regard to principles of choice
of law.

                                        STEEL CITY PRODUCTS, INC.

                                        By   /s/ Terrance W. Allan
                                             ----------------------------------

                                             Title:  President, COO
<PAGE>   57

                               SECURITY AGREEMENT

                  THIS AGREEMENT, dated as of July 13, 2001, made by Steel City
Products, Inc., a Delaware corporation ("Grantor"), in favor of National City
Bank of Pennsylvania, a national banking association (the "Bank").

                                    Recitals:

                  A. The Grantor has entered into a Credit Agreement dated as of
July 13, 2001 (as amended from time to time, the "Credit Agreement") with the
Bank pursuant to which the Bank has agreed to make certain a credit facility
available to the Grantor.

                  B. It is a condition precedent to the extension of credit
under the Credit Agreement that the Grantor execute and deliver this Agreement.
This Agreement is made by Grantor among other things to induce the Bank to enter
into the Loan Documents (as defined below), and to induce the Bank to extend
credit under the Credit Agreement.

                  NOW, THEREFORE, in consideration of the premises, and
intending to be legally bound, Grantor hereby agrees as follows:

                                    ARTICLE I
                                   DEFINITIONS

                  1.1. Definitions.

                  (a) Certain Definitions. Capitalized terms not otherwise
         defined herein shall have the meanings given in the Credit Agreement.
         In addition to the other terms defined elsewhere in this Agreement, as
         used herein the following terms shall have the following meanings:

                  "Distributions" shall mean all property, rights and interests
         of any kind or nature (whether cash, securities or other) from time to
         time received, receivable or otherwise distributed with respect to or
         in exchange for any Collateral, including all cash, securities or other
         property received or receivable as dividends, or as a result of any
         stock splits, reclassifications, mergers or consolidations, or as any
         other distributions (whether similar or dissimilar to the foregoing),
         or as a result of exercise of any options or warrants, or as principal,
         interest or premium.

                  "Loan Documents" shall mean the Credit Agreement, this
         Agreement, and all agreements and instruments from time to time
         delivered under or in connection with any of the foregoing, in each
         case as the same may be amended from time to time.

                  "Secured Obligations" shall mean, with respect to Grantor, all
         obligations from time to time of Grantor to the Bank under or in
         connection with any Loan Document.

                  "UCC" shall mean the Uniform Commercial Code as in effect in
         the Commonwealth of Pennsylvania from time to time.

                  (b) Certain Cross-References. The following terms are defined
         in this Agreement in the Section or other place indicated:

<Table>
<S>                                                              <C>
  Bank                                                      Preamble
  Collateral                                                2.1
  Credit Agreement                                          Recitals
  Equipment                                                 2.1(a)
  Grantor                                                   Preamble
</Table>

<PAGE>   58

<Table>
<S>                                                              <C>
  Inventory                                                 2.1(b)
  Bank                                                      Preamble
  Notices                                                   6.3
  Receivables                                               2.1(c)
  Related Contracts                                         2.1(c)
</Table>

                  1.2. UCC Definitions. Unless otherwise defined herein, terms
defined in Articles 8 or 9 of the UCC shall have the same meanings in this
Agreement.

                                   ARTICLE II
                                  THE SECURITY

                  2.1. Grant of Security. As security for the full and timely
payment and performance of the Secured Obligations, Grantor hereby assigns and
pledges to the Bank, and grants to the Bank a security interest in, all right,
title and interest of Grantor in, to and under all personal and fixture property
of every kind and nature, including, without limitation, the following, whether
now or hereafter existing or acquired (the "Collateral"):

                  (a) all equipment in all of its forms, all fixtures, and all
         accessions, additions, attachments, parts, substitution, replacements
         and documents of title to or for any of the foregoing, in each case
         wherever located (collectively, the "Equipment");

                  (b) all inventory in all of its forms (including, without
         limitation, (i) all raw materials and work in progress therefor,
         finished goods thereof and materials used or consumed in the
         manufacture or production thereof, (ii) all goods in which Grantor has
         an interest in mass or a joint or other interest or right of any kind
         (including, without limitation, goods in which Grantor has an interest
         or right as consignee), and (iii) all goods which are returned to or
         repossessed by Grantor, and all accessions to, products of and
         documents for any of the foregoing, in each case wherever located
         (collectively, the "Inventory");

                  (c) all accounts, contract rights, chattel paper, instruments,
         documents, deposit accounts, general intangibles and rights to proceeds
         of letters of credit, whether or not arising out of or in connection
         with the sale or lease of goods or the rendering of services (and
         specifically including, without limitation, all insurance refund
         claims, insurance claims, tort claims and tax refund claims; all rights
         in respect of any pension plan or similar arrangement; all patents,
         trademarks (together with the goodwill of the business relating
         thereto), trade names, service marks and copyrights, and all
         applications for any of the foregoing; all trade secrets and other
         proprietary information, all unpatented inventions (whether or not
         patentable), and all other intellectual property of any kind or nature;
         all licenses, permits and agreements of any type by which Grantor uses
         or possesses or has authority to use or possess property or rights of
         others, or by which others use, possess or have authority to use or
         possess any property or rights of Grantor; all other licenses, permits
         and consents of any kind or nature; and all computer software,
         including source code and documentation; and all rights now or
         hereafter existing in and to all security agreements, guaranties and
         other agreements securing or otherwise relating to any such accounts,
         contract rights, chattel paper, instruments, documents, deposit
         accounts, general intangibles or rights to proceeds of letters of
         credit (such accounts, contract rights, chattel paper, instruments,
         documents, deposit accounts, and general intangibles and rights to
         proceeds of letters of credit being collectively the "Receivables," and
         such security agreements, guaranties and other agreements being
         collectively the "Related Contracts");

                  (d) all books and records in whatever form (together with all
         related software) relating to, or used or useful in connection with,
         any Collateral;

                                      -2-
<PAGE>   59

                  (e) all other goods of any kind or nature, wherever located;
         all money; and all other personal property of any kind or nature,
         tangible or intangible, wherever located; and

                  (f) all proceeds of any of the foregoing (including, without
         limitation, proceeds which constitute property of the types described
         in the foregoing clauses (a) through (e)) and, to the extent not
         otherwise included, all payments under insurance (whether or not the
         Bank is the loss payee thereof), or any indemnity, warranty or
         guaranty, payable by reason of loss or damage to or otherwise with
         respect to any of the foregoing Collateral.

                  2.2. Grantor Remains Liable. Notwithstanding anything to the
contrary herein or in any other Loan Document, (a) Grantor shall remain liable
under the contracts and agreements included in the Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by the
Bank of any rights or remedies under or in connection with this Agreement or any
other Loan Document shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Bank shall not have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement or any other
Loan Document, nor shall the Bank be obligated to perform any of the obligations
or duties of Grantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.

                  2.3. Continuing Agreement. This Agreement creates a continuing
security interest in the Collateral and shall continue in full force and effect
until all Secured Obligations have been paid in cash and performed in full, and
all commitments to extend credit under the Loan Documents have terminated. Upon
the payment in cash and performance in full of all Secured Obligations and
termination of all commitments to extend credit under the Loan Documents, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination, the Bank will, at
Grantor's request and expense, return to Grantor, without any representations,
warranties or recourse of any kind whatsoever, such of the Collateral as then
may be held by the Bank hereunder, and execute and deliver to Grantor such
documents as Grantor may reasonably request to evidence such termination.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

                  Grantor hereby represents and warrants to the Bank as follows:

                  3.1. Title. The Grantor is the legal and beneficial owner of
the Collateral, free and clear of any lien, security interest, option or other
charge or encumbrance, except for the security interest under this Agreement in
favor of the Bank securing the Secured Obligations and except for Permitted
Liens. No financing statement or other item similar in effect covering any
Collateral is on file in any recording office, except such as may be filed in
favor of the Bank relating to this Agreement.

                  3.2. Validity, Perfection and Priority. This Agreement creates
a valid security interest in the Collateral in favor of the Bank securing the
Secured Obligations, which security interest has been duly perfected and is
prior to all other liens, security interests, options or other charges or
encumbrances except for Permitted Liens. All filings and other actions necessary
or desirable to perfect and protect such security interest in favor of the Bank
have been duly made and taken.

                  3.3. Governmental Approvals and Filings. No authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is or will be necessary (a) for the grant by the
Grantor of the security interest in the Collateral hereunder or for the
execution, delivery or performance of this Agreement by the Grantor, (b) to
ensure the validity, perfection or priority of the security interest in the
Collateral granted hereunder, or (c) for the exercise by the Bank of any of its
rights or remedies hereunder, except for the filing of financing statements and
continuation

                                      -3-
<PAGE>   60

statements in appropriate jurisdictions pursuant to the Uniform Commercial Code
as in effect in such jurisdictions and except as to such Collateral as to which
perfection can be obtained solely by means other than by filing a financing
statement.

                  3.4. State of Incorporation; Offices, etc. The Grantor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Schedule 3.4 identifies as of the date hereof the
address of the chief executive office of Grantor, of each office (whether
maintained by Grantor or otherwise) where books and records relating to the
Collateral are kept, and of each place of business of Grantor. Schedule 3.4 also
identifies all changes in the foregoing information during the one year period
ending on the date hereof.

                  3.5. Location of Equipment and Inventory. Schedule 3.5
identifies as of the date hereof the address of each place at which Equipment or
Inventory of Grantor is located. Schedule 3.5 also identifies all changes in the
foregoing information during the one year period ending on the date hereof.

                  3.6. Names, etc. During the one year period ending on the date
hereof, neither Grantor nor any of its direct or indirect predecessors by
merger, consolidation or other corporate reorganization is or has been known by
or used any corporate or fictitious name or trade name (other than the corporate
names of the Grantor as of the date hereof), nor has Grantor or any such
predecessor been the subject of any merger, consolidation or other corporate
reorganization, nor has Grantor or any such predecessor otherwise changed its
name, identity or corporate structure, except as set forth in Schedule 3.6. For
each such direct and indirect predecessor of Grantor, Schedule 3.6 also
identifies the respective addresses referred to in Sections 3.4 and 3.5 for all
times during such period.

                  3.7. [Reserved]

                  3.8. Possession and Control. Grantor has exclusive possession
and control of its Equipment and Inventory.

                  3.9. Certain Receivables. Grantor has delivered to the Bank
possession of all originals of all promissory notes or other instruments,
chattel paper and negotiable documents constituting Collateral. None of the
Receivables is evidenced by a promissory note or other instrument, chattel paper
or negotiable document.

                  3.10. Compliance with Laws, etc. All Inventory has been
produced in compliance with all requirements of the Fair Labor Standards Act.
Grantor is in compliance with all laws, the noncompliance with which might have
a material adverse effect on the value of the Collateral or the value of the
security interest in favor of the Bank under this Agreement in the Collateral.

                                   ARTICLE IV
                                    COVENANTS

                  4.1. Books and Records; Inspection. Grantor shall (a) keep
complete and accurate books and records concerning the Collateral and, at the
request of the Bank from time to time, permit the Bank or its representatives to
inspect and copy such books and records, (b) at the request of the Bank from
time to time, permit the Bank or its representatives to inspect any Collateral
not in the possession of the Bank, and (c) furnish to the Bank such information
and reports in connection with the Collateral at such times and in such form as
the Bank may reasonably request. The Bank shall have the right to examine and
verify the Collateral from time to time, and the Grantor shall cooperate with
the Bank in such examination and verification.

                                      -4-
<PAGE>   61

                  4.2. Transfers and Other Liens, etc.

                  (a) Transfers. Grantor shall not sell, assign, transfer or
         otherwise dispose of any Collateral (voluntarily or involuntarily, by
         operation of law or otherwise), except (i) Inventory in the ordinary
         course of business, and (ii) Equipment that is worn-out, obsolete or no
         longer useful in the business of any Grantor, all in the ordinary
         course of business.

                  (b) Other Liens. Grantor shall not create or permit to exist
         any lien, security interest, option or other charge or encumbrance on
         any Collateral (voluntarily or involuntarily, by operation of law or
         otherwise), except for the security interest under this Agreement in
         favor of the Bank securing the Secured Obligations and Permitted Liens.

                  4.3. Change in State of Incorporation or Name, etc. Grantor
shall not change the state of its incorporation without the Bank's prior written
consent. Grantor shall not have, use or be known by any corporate or fictitious
name or trade name (other than its corporate name as of the date hereof and
names set forth in Schedule 3.6), nor be the subject of any merger,
consolidation or other corporate reorganization, nor otherwise change its name,
identity or corporate structure.

                  4.4. Certain Covenants Relating Primarily to Equipment and
Inventory.

                  (a) Location. Grantor shall keep all Equipment and Inventory
         at its addresses identified in Schedule 3.5, or upon 60 days' written
         notice to the Bank (specifically referring to this Section 4.4(a)), at
         such other locations in jurisdictions where all actions referred to in
         Section 4.8(a) have been completed; provided, that the foregoing
         restriction shall not apply to the following: (i) Inventory in transit
         to purchasers from Grantor in the ordinary course of business, (ii)
         Equipment and Inventory purchased by Grantor in the ordinary course of
         business but not yet received, (iii) Equipment temporarily removed in
         the ordinary course of business for repair, refurbishment, work at job
         sites or routine service and (iv) Equipment constituting motor
         vehicles, aircraft, shipping vessels, rolling stock or other mobile
         goods and relocated in the ordinary course of business. Grantor agrees
         that it shall keep all Equipment and Inventory in the 48 contiguous
         United States (except for Equipment and Inventory described in the
         proviso to the foregoing sentence).

                  (b) Maintenance and Repair. Grantor shall cause the Equipment
         to be maintained and preserved in the same condition, repair and
         working order as when new, ordinary wear and tear excepted; and Grantor
         shall forthwith, or in the case of any loss or damage to any of the
         Equipment as promptly as practicable after the occurrence thereof, make
         or cause to be made all repairs, replacements and other improvements in
         connection therewith which are necessary or desirable to such ends.
         Grantor shall promptly notify the Bank of any material loss or damage
         to any of the Equipment.

                  (c) Possession and Control. Grantor shall at all times retain
         exclusive possession and control of all of its Equipment and Inventory.

                  (d) Negotiable Documents. Grantor will not permit any
         Collateral to constitute or be covered by a negotiable document. If any
         negotiable documents exists in violation of the foregoing prohibition,
         Grantor will immediately deliver such negotiable documents to the Bank
         in accordance with Section 4.8.

                  (e) Taxes, Claims; FLSA. Grantor shall pay promptly when due
         all property and other taxes, assessments and governmental charges or
         levies imposed upon, and all claims (including claims for labor,
         materials and supplies) against, the Equipment and Inventory. In
         producing Inventory, Grantor shall comply with all requirements of the
         Fair Labor Standards Act.

                                      -5-
<PAGE>   62

                  (f) Certificate of Title. Grantor shall cause the security
         interests in favor of the Bank hereunder to be duly noted on any
         certificate of title with respect to any Collateral (except for
         Collateral which is subjected to a Permitted Lien), and shall promptly
         (and in any event within 10 days after the acquisition of any property
         subject to any certificate of title), deliver or cause to be delivered
         to the Bank each such certificate of title.

                  4.5. Certain Covenants Relating Primarily to Receivables

                  (a) Offices. Grantor shall keep its chief executive office,
         and the offices (whether maintained by Grantor or otherwise) where
         books and records relating to the Collateral are kept, and its places
         of business, at the respective addresses identified in Schedule 3.5 or,
         upon 60 days' written notice (specifically referring to this Section
         4.5(a)) to the Bank, at such other locations in jurisdictions where all
         actions referred to in Section 4.9(a) have been completed. Grantor
         shall maintain its chief executive office in the 48 contiguous United
         States.

                  (b) Collection; Servicing. Except as otherwise provided in
         this Section 4.5(b) or as provided in that certain Lockbox Agreement
         dated ______________ between Grantor and the Bank, Grantor shall
         continue to collect, at its own expense, all amounts due or to become
         due Grantor under the Receivables. In connection with such collections,
         Grantor may take (and, at the Bank's direction, shall take) such action
         as Grantor or the Bank may deem necessary or advisable to enforce
         collection of the Receivables; provided, however, that the Bank shall
         have the right at any time upon the occurrence and during the
         continuance of an Event of Default or Potential Default to notify (or
         require Grantor to notify) the account debtors or obligors under any
         Receivables of the security interest in favor of the Bank in the
         Receivables and to direct such account debtors or obligors to make
         payments of all amounts due or to become due to Grantor thereunder
         directly to the Bank and, upon such notification and at the expense of
         Grantor, to enforce collection of any such Receivables, and to adjust,
         settle or compromise the amount or payment thereof, in the same manner
         and to the same extent as Grantor may have done. After receipt by
         Grantor of the notice from the Bank referred to in the proviso to the
         preceding sentence, (i) all amounts and proceeds (including
         instruments) received by Grantor in respect of the Receivables shall be
         received in trust for the benefit of the Bank hereunder, shall be
         segregated from other funds of Grantor and shall be forthwith paid over
         or delivered to the Bank in the same form as so received (with any
         necessary endorsement) to be held as collateral hereunder and either
         (A) released to Grantor so long as no Event of Default or Potential
         Default shall have occurred and be continuing, or (B) if any Event of
         Default or Potential Default shall have occurred and be continuing,
         applied as provided in Section 5.6, and (ii) Grantor shall not adjust,
         settle or compromise the amount or payment of any Receivable, release
         wholly or partly any account debtor or obligor thereof, or allow any
         credit or discount thereon.

                  4.6 [Reserved]

                  4.7. Insurance.

                  (a) Maintenance, etc. Grantor shall, at its own expense,
         maintain or cause to be maintained insurance of the type referred to in
         Section 5.02 of the Credit Agreement.

                  (b) Reimbursement Generally. Reimbursement under any liability
         insurance policy maintained by Grantor pursuant to Section 4.7(a) may
         be paid directly to the Person who has incurred liability covered by
         such insurance. Subject to Section 18 of the Leasehold Mortgage, in
         case of any loss involving damage to Equipment or Inventory to which
         Section 4.7(c) does not apply, Grantor shall make the necessary repairs
         to or replacement of such Equipment or Inventory, and any proceeds of
         insurance maintained by Grantor for such purpose shall be payable to
         Grantor as reimbursement for the costs of such repairs or replacements.

                                      -6-
<PAGE>   63

                  (c) Reimbursement in Certain Cases. Subject to Section 18 of
         the Leasehold Mortgage, upon the occurrence and during the continuance
         of any Event of Default or Potential Default, all insurance payments in
         respect of Equipment or Inventory shall be paid to the Bank and applied
         as specified in Section 5.6 or, if the Bank so elects, applied to
         repair or replace such lost Equipment or Inventory.

                  4.8. Further Assurances.

                  (a) General. Grantor shall from time to time, at its expense,
         promptly execute and deliver all further instruments and agreements,
         and take all further actions, that may be necessary or appropriate, or
         that the Bank may reasonably request, in order to perfect or protect
         any assignment, pledge or security interest granted or purported to be
         granted hereby or to enable the Bank to exercise or enforce its rights
         and remedies hereunder. Without limiting the generality of the
         foregoing, Grantor will:

                           (i) if any Collateral shall be evidenced by a
                  promissory note or other instrument, chattel paper or
                  negotiable document, immediately deliver to the Bank such
                  promissory note or instrument or chattel paper or negotiable
                  document, duly endorsed and accompanied by duly executed
                  instruments of transfer or assignment, all in form and
                  substance satisfactory to the Bank,

                           (ii) execute and file such financing or continuation
                  statements, or amendments thereto, and such other instruments
                  or notices, as may be necessary or desirable, or as the Bank
                  may request, in order to perfect and preserve any assignment,
                  pledge or security interest granted or purported to be granted
                  hereby, and

                           (iii) mark conspicuously each copy of all chattel
                  paper and negotiable documents included in the Collateral and,
                  at the request of the Bank, each Related Contract and each of
                  its records pertaining to the Collateral with a legend, in
                  form and substance satisfactory to the Bank, indicating that
                  such chattel paper, negotiable document, Related Contract or
                  Collateral is subject to the security interest granted
                  pursuant hereto.

                  (b) Financing Statements, etc. Grantor hereby authorizes the
         Bank to file one or more financing or continuation statements, and
         amendments thereto, relating to any Collateral without the signature of
         Grantor where permitted by law. A photocopy or other reproduction of
         this Agreement or any financing statement covering any Collateral shall
         be sufficient as a financing statement where permitted by law.

                  (c) Waiver by Landlords, Mortgagees, etc. To the extent that
         any Collateral (other than Equipment and Inventory described in any of
         clauses (i) through (v) of Section 4.4(a)) at any time is located on
         premises that is leased from, or otherwise belonging to, any Person
         other than Grantor, or that is subject to a mortgage or other lien in
         favor of any Person other than Grantor, Grantor shall provide the Bank
         with a waiver agreement in form and substance satisfactory to the Bank,
         duly executed by such landlord, mortgagee or other Person.

                                      -7-
<PAGE>   64

                                    ARTICLE V
                     CERTAIN RIGHTS AND REMEDIES OF THE BANK

                  5.1. Bank May Perform. If Grantor fails to perform any
obligation under or in connection with this Agreement, the Bank may (but shall
have no duty to) itself perform or cause performance of such obligation, and the
expenses of the Bank incurred in connection therewith shall be payable by
Grantor pursuant to Section 6.4. The Bank may from time to time take any other
action which the Bank deems necessary or appropriate for the maintenance,
preservation or protection of any of the Collateral or of its security interest
therein.

                  5.2. No Duty to Exercise Powers. The powers of the Bank under
and in connection with this Agreement are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.

                  5.3. Duties of Bank. Except for exercise of reasonable care in
the custody and preservation of any Collateral in its possession and accounting
for moneys received by it pursuant to this Agreement, the Bank shall have no
duty as to any Collateral. In any event the Bank (a) shall have no duty to take
any steps to preserve rights against prior parties or any other rights
pertaining to any Collateral, (b) shall have no duty as to ascertaining or
taking action with respect to calls, conversions, exchanges, tenders, maturities
or other matters pertaining to any Collateral, whether or not the Bank has any
knowledge of such matters, and (c) shall not be liable for any action, omission,
insolvency or default on the part of any agent or custodian (other than the
Bank) appointed by the Bank in good faith. The Bank shall be deemed to have
exercised reasonable care in the custody and preservation of Collateral in its
possession if it takes such action for such purpose as Grantor requests in
writing from time to time (but failure to take any such action shall not in
itself be deemed a failure to exercise reasonable care or evidence of such
failure). Subject only to the performance by the Bank of its duties set forth in
this Section 5.3, risk of loss, damage and diminution in value of the
Collateral, of whatever nature and however caused, shall be on Grantor.

                  5.4. Power of Attorney. Grantor hereby irrevocably appoints
the Bank, with full power of substitution, to be the attorney-in-fact of
Grantor, with full authority in the place and stead of Grantor and in the name
of Grantor or otherwise, from time to time in the Bank's discretion, to take any
action and to execute any instruments and agreements which the Bank may deem
necessary or advisable to accomplish the purposes of this Agreement, including
the following:

                  (a) to demand, collect, enforce, file claims for, sue for,
         recover, compromise, release, and take any action or institute any
         proceedings to collect or enforce, all rights to payments due or to
         become due and all other rights of Grantor under or in connection with
         any Collateral,

                  (b) to receive, endorse and collect any checks, notes or other
         instruments, documents, chattel paper or any other payment media in
         connection with the foregoing clause (a), and

                  (c) to perform all obligations of Grantor hereunder;

provided, that except for taking actions referred to in Section 4.8(a), such
power of attorney may be exercised only so long as an Event of Default or
Potential Default has occurred and is continuing. Such power of attorney is
irrevocable and coupled with an interest. All third parties are entitled to rely
conclusively on a representation by the Bank that it is entitled to exercise
such power of attorney.

                  5.5. Certain Remedies. If any Event of Default shall have
occurred and be continuing, the Bank may exercise all rights and remedies which
it may have under this Agreement, any other agreement, at law or otherwise, and
in addition, the following provisions shall apply:

                                      -8-
<PAGE>   65

                  (a) The Bank may exercise all rights and remedies with respect
         to the Collateral and each part thereof as are provided by the UCC to a
         secured party on default (whether or not the UCC applies to the
         affected Collateral). To the extent, if any, the Bank does not
         otherwise have the right to do so, the Bank may (i) take absolute
         possession and control of the Collateral or any part thereof, (ii)
         transfer any Collateral into the name of the Bank or its nominees,
         (iii) notify the parties obligated on the Collateral to make to the
         Bank any payments due or to become due, (iv) receive any payments made
         under or in connection with the Collateral, (v) exercise and enforce
         all rights and remedies of Grantor under or in connection with the
         Collateral, (vi) demand, collect, enforce, file claims for, sue for,
         recover, compromise, release, and take any action or institute any
         proceedings to collect or enforce, all rights to payments due or to
         become due and all other rights of Grantor under or in connection with
         any Collateral, and (vii) otherwise deal in and act with respect to the
         Collateral in all respects as though it were the outright owner
         thereof;

                  (b) Upon the request of the Bank, Grantor will, at its
         expense, forthwith assemble all or part of the Collateral as directed
         by the Bank and make it available to the Bank at a place to be
         designated by the Bank that is reasonably convenient to both parties.
         The Bank may enter into, occupy and take possession of any premises
         where any Collateral is located, without obligation to Grantor;

                  (c) All payments received by Grantor in respect of any
         Collateral shall be received in trust for the benefit of the Bank,
         shall be segregated from other funds of Grantor and shall be forthwith
         paid over to the Bank in the same form as so received (with any
         necessary endorsement);

                  (d) The Bank may, without notice except to the extent required
         by law, sell the Collateral or any part thereof, in one or more
         parcels, at public or private sale, at any of the Bank's offices or
         elsewhere, for cash, on credit or for future delivery, and upon such
         other terms as the Bank may deem commercially reasonable. Grantor
         agrees that, to the extent notice of sale is required by law, at least
         10 days' notice to Grantor of the time and place of any public sale or
         the time after which any private sale is to be made, shall constitute
         reasonable notification. The Bank shall not be obligated to make any
         sale, regardless of notice of sale having been given. The Bank shall
         not be obligated to clean-up or otherwise prepare the Collateral for
         sale. The Bank may comply with any applicable state or federal law
         requirements in connection with a disposition of the Collateral and
         compliance will not be considered adversely to affect the commercial
         reasonableness of any sale of Collateral. The Bank may specifically
         disclaim any warranties of title or the like in connection with any
         such sale. If Bank sells any of the Collateral upon credit, the Grantor
         will be credited only with payments actually made by purchaser,
         received by the Bank and applied to the indebtedness of purchaser. In
         the event the purchaser fails to pay for the Collateral, the Bank may
         resell the Collateral and Grantor shall be credited with proceeds of
         the sale. The Bank may adjourn any public or private sale from time to
         time by announcement at the time and place fixed therefor, and such
         sale may, without further notice, be made at the time and place to
         which it was so adjourned; and

                  (e) Grantor agrees that the Bank may comply with any
         limitation or restriction in connection with any sale of any Collateral
         as the Bank may deem be necessary or advisable in order to comply with
         any law, or in order to obtain or make, or avoid the need to obtain or
         make, any approval or registration of the offering, sale or purchase by
         or with any governmental agency or regulatory body. Without limitation,
         the Bank may, for the purpose of complying with applicable securities
         laws, sell only by private sales to members of a restricted group of
         offerees who will be obliged, among other things, to acquire such
         Collateral for their own accounts for investment and not with a view to
         distribution or resale. Grantor agrees that (i) the Bank may make sales
         in compliance with such limitations and restrictions, even though such
         sales may be at prices and on other terms less favorable to the seller
         than if such approvals or registrations

                                      -9-
<PAGE>   66

         were obtained or made, (ii) the Bank shall have no obligation to delay
         sale of any Collateral in order to obtain or make any such approval or
         registration, and (iii) it shall not be commercially unreasonable to
         make sales in compliance with such limitations and restrictions.

                  5.6. Application of Payments. All cash held by the Bank as
Collateral and all cash proceeds received by the Bank in respect of any sale of,
collection from, or other realization upon any of the Collateral, may in the
discretion of the Bank be held by the Bank as collateral for the Secured
Obligations, or then or at any time thereafter applied (after payment of any
amounts payable to the Bank pursuant to Section 6.4) in whole or part by the
Bank to the Secured Obligations (whether or not then due) in such order as the
Bank may elect. If and when all Secured Obligations shall have been paid in cash
in full and all commitments to extend credit under Loan Documents shall have
terminated, any surplus of such cash or cash proceeds held by the Bank shall be
paid over to Grantor or as otherwise required by law. Grantor shall remain
liable for any deficiency.

                                   ARTICLE VI
                                  MISCELLANEOUS

                  6.1. Amendments, etc. No amendment to or waiver of any
provision of this Agreement, and no consent to any departure by Grantor
herefrom, shall in any event be effective unless in a writing manually signed by
or on behalf of the Bank. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

                  6.2. No Implied Waiver; Remedies Cumulative. No delay or
failure of the Bank in exercising any right or remedy under this Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the Bank under
this Agreement are cumulative and not exclusive of any other rights or remedies
available hereunder, under any other agreement, at law, or otherwise.

                  6.3. Notices. Except to the extent, if any, otherwise
expressly provided herein, all notices and other communications (collectively,
"notices") under this Agreement shall be given, shall be effective, and may be
relied upon, in the same way as notices under the Credit Agreement.

                  6.4. Indemnity and Expenses.

                  (a) Indemnity. Grantor agrees to indemnify the Bank from and
         against any and all claims, losses, liabilities and expenses (including
         reasonable attorneys' fees) arising out of or resulting from this
         Agreement (including, without limitation, enforcement of this
         Agreement), except claims, losses, liabilities and expenses resulting
         solely from the gross negligence or willful misconduct of the Bank.

                  (b) Expenses. Grantor will upon demand pay to the Bank the
         amount of all reasonable expenses, including the reasonable fees and
         expenses of its counsel and of any experts and agents, which the Bank
         may incur in connection with (i) the administration of this Agreement,
         (ii) the custody, preservation, use or operation of, or the sale of,
         collection of or other realization upon, any Collateral, (iii) the
         exercise or enforcement of any of the rights of the Bank hereunder, or
         (iv) the failure by Grantor to perform or observe any of the provisions
         hereof.

                  6.5. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous understandings and agreements.

                  6.6. Survival. The obligations of Grantor under Section 6.4
shall survive termination of this Agreement and all other events and conditions
whatever. All representations and warranties of

                                      -10-
<PAGE>   67

Grantor contained in or made in connection with this Agreement shall survive,
and shall not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Bank, any extension of credit, termination
of this Agreement, or any other event or circumstance whatever.

                  6.7. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute but one and the same agreement.

                  6.8. Construction. In this Agreement, unless the context
otherwise clearly requires, references to the plural include the singular, the
singular the plural, and the part the whole; the neuter case includes the
masculine and feminine cases; and "or" is not exclusive. In this Agreement, any
references to property (and similar terms) include an interest in such property
(or other item referred to); "include," "includes," "including" and similar
terms are not limiting; and "hereof," "herein," "hereunder" and similar terms
refer to this Agreement as a whole and not to any particular provision; and
"expenses," "costs," "out-of-pocket expenses" and similar terms include the
charges of in-house counsel, auditors and other professionals of the relevant
Person to the extent that such amounts are routinely identified and charged
under such Person's cost accounting system. Section and other headings in this
Agreement, and any table of contents herein, are for reference only and shall
not affect the interpretation of this Agreement in any respect. Section and
other references in this Agreement are to this Agreement unless otherwise
specified. This Agreement has been fully negotiated between the applicable
parties, each party having the benefit of legal counsel, and accordingly neither
any doctrine of construction of security agreements in favor of the grantor, nor
any doctrine of construction of ambiguities against the party controlling the
drafting, shall apply to this Agreement.

                  6.9. Successors and Assigns. This Agreement shall be binding
upon Grantor and its successors and assigns, and shall inure to the benefit of
and be enforceable by the Bank and its successors and assigns. Without
limitation of the foregoing, the Bank (and any successive assignee or
transferee) from time to time may assign or otherwise transfer all or any
portion of its rights or obligations under the Loan Documents (including all or
any portion of any commitment to extend credit), or any Secured Obligations, to
any other Person, and such Secured Obligations (including any Secured
Obligations resulting from extension of credit by such other Person under or in
connection with the Loan Documents) shall be and remain Secured Obligations
entitled to the benefit of this Agreement, and to the extent of its interest in
such Secured Obligations such other Person shall be vested with all the benefits
in respect thereof granted to the Bank in this Agreement or otherwise.

                  6.10. Certain Legal Matters.

                  (a) Governing Law. This Agreement shall be governed by and
         construed in accordance with the laws of the Commonwealth of
         Pennsylvania, exclusive of choice of law principles.

                  (b) Conflict. In the event of any conflict between this
         Agreement and the Credit Agreement, the terms of this Agreement shall
         control.

                           [Intentionally left blank]

                                      -11-
<PAGE>   68

                  IN WITNESS WHEREOF, the Grantor has executed and delivered
this Agreement as of the date first above written.

                                    STEEL CITY PRODUCTS, INC.

                                    By   /s/ Terrance W. Allan
                                       -----------------------------------------
                                    Name:  Terrance W. Allan
                                           -------------------------------------
                                    Title: President, COO
                                           -------------------------------------

                                      -12-
<PAGE>   69

                                                                Schedule 3.4
                                                                     to
                                                             Security Agreement

                            Location of Offices, etc.

A. Address (including street address and county) of the chief executive office
of the Grantor:

                                200 Center Street

               McKeesport, County of Allegheny, Pennsylvania 15132

B. Address (including street address and county) of each office (whether
maintained by the Grantor or otherwise) where books and records relating to
Collateral are kept:

                                200 Center Street

               McKeesport, County of Allegheny, Pennsylvania 15132

C. Address (including street address and county) of each place of business of
the Grantor other than in the jurisdiction containing its chief executive
office:

                               39 Allegheny Square

                    Glassport Industrial Center, Ninth Street

               Glassport, County of Allegheny, Pennsylvania 15045

D. Changes in the foregoing information during the one year period ending on the
date of the Security Agreement:

The Glassport lease was entered into on on November 21, 2000.

<PAGE>   70

                                                                Schedule 3.5
                                                                     to
                                                             Security Agreement

                       Location of Equipment and Inventory

Address (including street address and county) of each location where Equipment
or Inventory is located:

                                200 Center Street

               McKeesport, County of Allegheny, Pennsylvania 15132

                                       and

                               39 Allegheny Square

                    Glassport Industrial Center, Ninth Street

               Glassport, County of Allegheny, Pennsylvania 15045

<PAGE>   71

                                                                Schedule 3.6
                                                                     to
                                                             Security Agreement

                                   Names, etc.<PAGE>   1
                                                                  EXHIBIT 10.2

                                                                EXECUTION COPY

                              TRANSACTION AGREEMENT

                                  BY AND AMONG

                             OAKHURST COMPANY, INC.,

                          STERLING CONSTRUCTION COMPANY

                                       AND

                             CERTAIN STOCKHOLDERS OF

                          STERLING CONSTRUCTION COMPANY

                            DATED AS OF JULY 18, 2001

<PAGE>   2

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               PAGE
                                                                                                               ----
<S>      <C>                                                                                                   <C>
Article I. The Transactions.......................................................................................2
         Section 1.1. Initial Purchase of Sterling Common Stock by the Purchaser..................................2
         Section 1.2. Put Option..................................................................................2
         Section 1.3. Determination of Earnout Amount.............................................................4
         Section 1.4. Subordination of Earnout Payments...........................................................5
         Section 1.5. The Sterling Repurchase; Sterling Options...................................................8
         Section 1.6. Election of Directors and Executive Officers of the Purchaser...............................8
         Section 1.7. Steel City Board Seat.......................................................................9

Article II. The Closing...........................................................................................9
         Section 2.1. Closing.....................................................................................9
         Section 2.2. Closing Deliveries of the Selling Stockholders and Sterling.................................9
         Section 2.3. Closing Deliveries of the Purchaser........................................................10

Article III. Representations and Warranties of Sterling..........................................................11
         Section 3.1. Due Organization...........................................................................11
         Section 3.2. Authorization..............................................................................12
         Section 3.3. No Conflicts; Approvals....................................................................12
         Section 3.4. Capital Stock of Sterling..................................................................13
         Section 3.5. Subsidiaries...............................................................................14
         Section 3.6. Financial Statements.......................................................................14
         Section 3.7. Balance Sheet Liabilities and Obligations..................................................14
         Section 3.8. Accounts and Notes Receivable..............................................................15
         Section 3.9. Permits....................................................................................15
         Section 3.10. Real and Personal Property................................................................15
         Section 3.11. Material Contracts and Commitments........................................................17
         Section 3.12. Labor.....................................................................................18
         Section 3.13. Title to Owned Real Property..............................................................18
         Section 3.14. Insurance.................................................................................18
         Section 3.15. Compensation..............................................................................19
         Section 3.16. Employee Benefit Plans....................................................................19
         Section 3.17. No Multiemployer Plans....................................................................21
         Section 3.18. Conformity with Law; Governmental Claims..................................................21
         Section 3.19. Taxes and Tax Returns.....................................................................21
         Section 3.20. Intellectual Property.....................................................................23
         Section 3.21. Governmental Contracts....................................................................23
         Section 3.22. Absence of Changes........................................................................23
         Section 3.23. Brokers and Finders.......................................................................24
         Section 3.24. Environmental Matters.....................................................................24
         Section 3.25. No Underground Storage Tanks..............................................................25
         Section 3.26. Accounting Records........................................................................25
         Section 3.27. Litigation and Claims.....................................................................25
         Section 3.28. Related Party Transactions................................................................26
</Table>

                                      -ii-

<PAGE>   3

<Table>
<S>      <C>                                                                                                   <C>
         Section 3.29. No Misstatements or Omissions.............................................................26

Article IV. Representations and Warranties of the Purchaser......................................................26
         Section 4.1.  Due Organization..........................................................................26
         Section 4.2.  Authorization.............................................................................26
         Section 4.3.  No Conflicts; Approvals...................................................................27
         Section 4.4.  Capital Stock of the Purchaser............................................................27
         Section 4.5.  Subsidiaries..............................................................................28
         Section 4.6.  Purchaser SEC Reports.....................................................................29
         Section 4.7.  Balance Sheet Liabilities and Obligations.................................................29
         Section 4.8.  Accounts and Notes Receivable.............................................................30
         Section 4.9.  Permits...................................................................................30
         Section 4.10. Real and Personal Property................................................................30
         Section 4.11. Material Contracts and Commitments........................................................32
         Section 4.12. Labor.....................................................................................32
         Section 4.13. Acquisition of Sterling Purchased Stock...................................................33
         Section 4.14. Insurance.................................................................................33
         Section 4.15. Compensation..............................................................................33
         Section 4.16. Employee Benefit Plans....................................................................33
         Section 4.17. No Multiemployer Plans....................................................................35
         Section 4.18. Conformity with Law; Governmental Claims..................................................35
         Section 4.19. Taxes and Tax Returns.....................................................................36
         Section 4.20. Intellectual Property.....................................................................37
         Section 4.21. Governmental Contracts....................................................................37
         Section 4.22. Absence of Changes........................................................................37
         Section 4.23. Brokers and Finders.......................................................................38
         Section 4.24. Environmental Matters.....................................................................38
         Section 4.25. No Underground Storage Tanks..............................................................39
         Section 4.26. Accounting Records........................................................................39
         Section 4.27. Litigation and Claims.....................................................................39
         Section 4.28. Related Party Transactions................................................................39
         Section 4.29. Consummation of the Casella Exchange Transaction..........................................40
         Section 4.30. No Misstatements or Omissions.............................................................40

Article V. Representations and Warranties of the Selling Stockholders............................................40
         Section 5.1.  Authority.................................................................................40
         Section 5.2.  No Conflicts; Approvals...................................................................40
         Section 5.3.  Title to the Sterling Common Stock........................................................41
         Section 5.4.  Acquisition of Purchaser Securities.......................................................41

Article VI. Covenants of the Parties.............................................................................42
         Section 6.1.  Exchange of Sterling Convertible Notes; Inter-Company Transfer of Sterling
                  Common Stock...................................................................................42
         Section 6.2.  Certain Matters Regarding Oakhurst Promissory Notes.......................................42
         Section 6.3.  Sterling and Purchaser Employment Agreements..............................................43
         Section 6.4.  Tax Matters...............................................................................43
</Table>

                                     -iii-
<PAGE>   4

<Table>
<S>      <C>                                                                                                   <C>
Article VII. Conditions Precedent to the Obligations of the Parties..............................................45
         Section 7.1.  No Litigation; Consents...................................................................45
         Section 7.2.  Opinion of the Purchaser's Tax Advisor....................................................45
         Section 7.3.  Consummation of Institutional Investors Transaction.......................................45
         Section 7.4.  Sterling Credit Facility..................................................................45
         Section 7.5.  Refinancing of the Purchaser's Credit Facility............................................45
         Section 7.6.  NASCIT Short-Term Note....................................................................46

Article VIII. Conditions Precedent to the Obligations of Sterling and the Selling Stockholders...................46
         Section 8.1.  Representations and Warranties; Performance of Obligations................................46
         Section 8.2.  Closing Documents.........................................................................46
         Section 8.3.  Opinions of Counsel.......................................................................46
         Section 8.4.  Good Standing Certificates................................................................47
         Section 8.5.  Nasdaq Authorization......................................................................48

Article IX. Conditions Precedent to the Obligations of the Purchaser.............................................48
         Section 9.1.  Representations and Warranties; Performance of Obligations................................48
         Section 9.2.  Closing Documents.........................................................................48
         Section 9.3.  Opinion of Counsel........................................................................48
         Section 9.4.  Good Standing Certificates................................................................49

Article X. Survival; Indemnification.............................................................................49
         Section 10.1. Survival of Representations and Warranties................................................49
         Section 10.2. Indemnification by the Selling Stockholders...............................................50
         Section 10.3. Third Person Claims.......................................................................50

Article XI. Miscellaneous........................................................................................51
         Section 11.1. Cooperation...............................................................................51
         Section 11.2. Successors and Assigns....................................................................51
         Section 11.3. Entire Agreement..........................................................................51
         Section 11.4. Counterparts..............................................................................52
         Section 11.5. Expenses..................................................................................52
         Section 11.6. Notices...................................................................................52
         Section 11.7. No Third-Party Beneficiaries..............................................................53
         Section 11.8. Governing Law.............................................................................53
         Section 11.9. Consent to Jurisdiction...................................................................54
         Section 11.10. Waiver of Jury Trial.....................................................................54
         Section 11.11. Exercise of Rights and Remedies..........................................................54
         Section 11.12. Reformation and Severability.............................................................54
         Section 11.13. Attorney's Fees..........................................................................54
         Section 11.14. Interpretation...........................................................................55
</Table>

                                      -iv-
<PAGE>   5

EXHIBITS

<Table>
<S>               <C>
EXHIBIT A         Selling Stockholders
EXHIBIT B         Form of Notes
EXHIBIT C         Form of Warrants
EXHIBIT D         Form of Sterling Notes
EXHIBIT E         Repurchased Shares
EXHIBIT F         [Intentionally Omitted]
EXHIBIT G         Form of Intercompany Note
EXHIBIT H         Form of Sterling Intercompany Note
EXHIBIT I         Form of Manning Note
EXHIBIT J         Form of Davies First Note
EXHIBIT K         Form of Davies Second Note
EXHIBIT L         Form of Hemsley Note
EXHIBIT M         Form of Patrick T. Manning Employment Agreement with Texas-Sterling
EXHIBIT N         Form of Joseph P. Harper, Sr. Employment Agreement with Texas-Sterling
EXHIBIT O         Form of Terry D. Williamson Employment Agreement with Texas-Sterling
EXHIBIT P         Form of Patrick T. Manning Employment Agreement with the Purchaser
EXHIBIT Q         Form of Joseph P. Harper, Sr. Employment Agreement with the Purchaser
EXHIBIT R         Form of McDermott, Will & Emery Tax Opinion
EXHIBIT S         Form of NASCIT Short-Term Note
</Table>

                                      -v-
<PAGE>   6

INDEX OF DEFINED TERMS

<Table>
<S>                                                                                                           <C>
Agreement.........................................................................................................1
Casella Exchange Transaction.....................................................................................40
CERCLA...........................................................................................................25
Change of Control.................................................................................................3
Closing...........................................................................................................9
Closing Date......................................................................................................9
Code.............................................................................................................19
Comerica.........................................................................................................10
Commission.......................................................................................................29
Damages..........................................................................................................50
Davies First Note................................................................................................43
Davies Notes.....................................................................................................43
Davies Second Note...............................................................................................43
Earnout Payment...................................................................................................4
Earnout Pool Amount...............................................................................................4
Environmental Laws...............................................................................................25
Environmental Permits............................................................................................25
ERISA............................................................................................................19
Exchange Act......................................................................................................3
Exercise Price....................................................................................................3
GAAP..............................................................................................................5
Hambro Funds......................................................................................................1
Hazardous Substances.............................................................................................25
Hemsley Note.....................................................................................................43
Indemnified Party................................................................................................51
Indemnifying Party...............................................................................................51
Insolvency or Liquidation Proceeding..............................................................................5
Institutional Investors...........................................................................................1
Institutional Purchase Agreement..................................................................................2
Intercompany Note................................................................................................10
Intercompany Note Purchase Amount................................................................................10
Invesco Fund......................................................................................................1
Liens.............................................................................................................2
Manning Note.....................................................................................................42
Manning Securities...............................................................................................43
NASCIT............................................................................................................1
NASCIT Short-Term Note...........................................................................................46
New Board Member..................................................................................................9
NOL..............................................................................................................37
Notes.............................................................................................................1
Obligations.......................................................................................................5
Original Manning Note............................................................................................42
OTI..............................................................................................................10
Person...........................................................................................................13
Proceeding.......................................................................................................26
</Table>

                                      -vi-
<PAGE>   7

<Table>
<S>                                                                                                              <C>
Purchaser.........................................................................................................1
Purchaser Audited Financial Statements...........................................................................29
Purchaser Board...................................................................................................8
Purchaser Common Stock............................................................................................1
Purchaser Contracts..............................................................................................32
Purchaser Controlled Group Member................................................................................34
Purchaser Financial Statements...................................................................................29
Purchaser Insurance..............................................................................................33
Purchaser Interim Financial Statements...........................................................................29
Purchaser Leased Real Property...................................................................................31
Purchaser Material Adverse Effect................................................................................27
Purchaser Option Plan.............................................................................................8
Purchaser Pension Plan...........................................................................................34
Purchaser Permits................................................................................................30
Purchaser Plans..................................................................................................34
Purchaser Real Property Leases...................................................................................31
Purchaser SEC Reports............................................................................................29
Purchaser Securities..............................................................................................1
Purchaser Shares..................................................................................................1
Purchaser's Indemnified Persons..................................................................................50
Put Elected Shares................................................................................................2
Put Election Date.................................................................................................4
Put Notice........................................................................................................4
Put Option........................................................................................................2
Put Payment Amount................................................................................................4
Put Payment Date..................................................................................................4
Put Shares........................................................................................................3
Put Threshold Share Amount........................................................................................3
RCRA.............................................................................................................25
Representative....................................................................................................5
Repurchased Stock.................................................................................................8
SCPI..............................................................................................................9
Securities Act...................................................................................................33
Selling Stockholder...............................................................................................1
Senior Obligations................................................................................................5
Sterling..........................................................................................................1
Sterling Audited Financial Statements............................................................................14
</Table>

                                     -vii-
<PAGE>   8

<Table>
<S>                                                                                                              <C>
Sterling Common Stock.............................................................................................1
Sterling Contracts...............................................................................................18
Sterling Controlled Group Member.................................................................................19
Sterling Convertible Notes.......................................................................................10
Sterling EBITDA...................................................................................................5
Sterling Financial Statements....................................................................................14
Sterling Insurance...............................................................................................19
Sterling Intercompany Note.......................................................................................10
Sterling Interim Financial Statements............................................................................14
Sterling Leased Real Property....................................................................................16
Sterling Material Adverse Effect.................................................................................12
Sterling Notes....................................................................................................1
Sterling Options..................................................................................................8
Sterling Owned Real Property.....................................................................................16
Sterling Pension Plan............................................................................................20
Sterling Permits.................................................................................................15
Sterling Plans...................................................................................................20
Sterling Purchased Stock..........................................................................................2
Sterling Real Property Leases....................................................................................16
Straddle Period..................................................................................................44
subsidiary.......................................................................................................12
Tax Returns......................................................................................................23
Tax Sharing Agreement............................................................................................10
Taxes............................................................................................................23
Texas-Sterling...................................................................................................10
Third Person.....................................................................................................51
Transaction Documents............................................................................................11
Triggering Transaction............................................................................................3
TS Intercompany Amount...........................................................................................10
WARN Act.........................................................................................................18
Warrants..........................................................................................................1
</Table>

                                     -viii-
<PAGE>   9

                              TRANSACTION AGREEMENT

         THIS TRANSACTION AGREEMENT (this "Agreement") is entered into as of
July 18, 2001, by and among Oakhurst Company, Inc., a Delaware corporation (the
"Purchaser"), Sterling Construction Company, a Delaware corporation
("Sterling"), and the stockholders of Sterling listed on Exhibit A hereto (each
a "Selling Stockholder" and collectively the "Selling Stockholders").

         WHEREAS, the Selling Stockholders are the owners of four hundred eight
thousand nine hundred fifty-two (408,952) shares of common stock, par value
$0.01 per share, of Sterling (the "Sterling Common Stock"), constituting
approximately fifty-two percent (52%) of the total shares of Sterling Common
Stock (i) issued and outstanding and (ii) reserved for issuance upon conversion
of the Sterling Convertible Notes (as defined in Section 2.2(k) hereof) into
Sterling Common Stock;

         WHEREAS, the Purchaser desires to purchase from the Selling
Stockholders, and the Selling Stockholders desire to sell to the Purchaser, a
portion of the Sterling Common Stock owned by the Selling Stockholders, in
exchange for the issuance by the Purchaser to the Selling Stockholders of (i)
shares (the "Purchaser Shares") of the common stock, par value $0.01 per share,
of the Purchaser (the "Purchaser Common Stock"), (ii) zero-coupon subordinated
promissory notes of the Purchaser, substantially in the form attached hereto as
Exhibit B (together with those zero-coupon subordinated promissory notes of the
Purchaser issued to James D. Manning in accordance with Section 6.2(a)(ii)
hereof, the "Notes"), duly executed by the Purchaser in favor of the Selling
Stockholders, and (iii) warrants to purchase shares of Purchaser Common Stock,
substantially in the form attached hereto as Exhibit C (together with those
warrants to purchase shares of Purchaser Common Stock issued to James D. Manning
in accordance with Section 6.2(a)(iii) hereof, the "Warrants" and collectively
with the Purchaser Shares and the Notes to be purchased pursuant to this
Agreement, the "Purchaser Securities"), duly executed by the Purchaser in favor
of the Selling Stockholders;

         WHEREAS, Sterling desires to purchase from the Selling Stockholders,
and the Selling Stockholders desire to sell to Sterling, a portion of the
Sterling Common Stock owned by the Selling Stockholders, in exchange for the
issuance by Sterling of subordinated promissory notes of Sterling, substantially
in the form attached hereto as Exhibit D (the "Sterling Notes"), duly executed
by Sterling in favor of the Selling Stockholders;

         WHEREAS, simultaneously with the closing of the transactions
contemplated by this Agreement, the Purchaser will purchase from J O Capital
Management Ltd A/c A, J O Capital Management Ltd A/c B, J O Capital Management
Ltd A/c C and Oryx International Growth Fund Limited (collectively, the "Hambro
Funds"), Invesco English & International Trust Plc (the "Invesco Fund") and
North Atlantic Small Companies Investment Trust Plc ("NASCIT" and, collectively
with the Hambro Funds and the Invesco Fund, the "Institutional Investors") all
of the shares of Sterling Common Stock held by the Institutional Investors
pursuant to that certain Stock Purchase Agreement, dated as of the date hereof,
by and between the Purchaser, Sterling and the Institutional Investors (the
"Institutional Purchase Agreement"); and

                                      -1-
<PAGE>   10

         WHEREAS, the Purchaser, Sterling and the Selling Stockholders desire to
consummate certain other transactions in order to cause Sterling to become a
majority-owned subsidiary of the Purchaser.

         NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:

                                   Article I.
                                The Transactions

         Section 1.1. Initial Purchase of Sterling Common Stock by the
Purchaser.

         (a) Upon the terms and subject to the conditions set forth in this
Agreement, on the Closing Date (as defined in Section 2.1(a) hereof), the
Selling Stockholders severally will sell, assign, transfer and deliver to the
Purchaser, and the Purchaser will purchase and acquire from the Selling
Stockholders an aggregate of eighty-seven thousand six hundred ninety-seven
(87,697) shares of Sterling Common Stock (the "Sterling Purchased Stock"), free
and clear of all mortgages, pledges, security interests, encumbrances, liens
(statutory or other), conditional sale agreements, claims, charges, limitations
or similar restrictions ("Liens"). The respective number of shares of the
Sterling Purchased Stock to be sold by each of the several Selling Stockholders
is set forth on Exhibit A hereto next to each such Selling Stockholder's name.

         (b) On the Closing Date, as consideration for its purchase of the
Sterling Purchased Stock from the Selling Stockholders, the Purchaser (X) will
issue and deliver to each of the Selling Stockholders, in the respective amounts
indicated on Exhibit A hereto next to each such Selling Stockholder's name, the
following: (i) one million one hundred twenty-four thousand five hundred
thirty-six (1,124,536) shares of Purchaser Common Stock in the aggregate, free
and clear of all Liens, (ii) Notes with principal and interest payable at
maturity in the aggregate of three million eight hundred twenty-four thousand
dollars ($3,824,000.00), and (iii) Warrants to purchase three hundred three
thousand nine hundred forty-two (303,942) shares of Purchaser Common Stock in
the aggregate, (Y) will grant the Put Option to the Selling Stockholders, as
provided in, and pursuant to Section 1.2 hereof, and (Z) will grant the right to
earn the Earnout Pool Amount (as defined in Section 1.3 hereof), as provided in
and pursuant to Section 1.3 hereof.

         Section 1.2. Put Option.

         (a) Except as set forth in Section 1.2(b), at any time after the third
anniversary of the Closing Date and prior to the fourth anniversary of the
Closing Date, the Selling Stockholders shall have the right (the "Put Option")
to compel the Purchaser and/or Sterling to purchase the remaining shares of
Sterling Common Stock that such Selling Stockholders own after the Closing (the
"Put Elected Shares"), at a price of one hundred five dollars and twenty-six
cents ($105.26) per share of Sterling Common Stock (the "Exercise Price");
provided, however, that the Purchaser shall not be required to purchase such Put
Elected Shares until the number of Put Elected Shares exceeds 50% of those
114,000 shares of Sterling Common Stock owned by all of the Selling Stockholders
immediately following the Closing (the "Put Threshold Share

                                      -2-
<PAGE>   11

Amount"), in which event the Purchaser shall be required to purchase all of the
shares of Sterling Common Stock held by all of the Selling Stockholders at such
time (the "Put Shares") at the Exercise Price.

         (b) Notwithstanding Section 1.2(a), the Selling Stockholders shall be
entitled to immediately exercise the Put Option at any time prior to the fourth
anniversary of the Closing Date in the event that (i) the Purchaser enters into
a binding agreement to sell its entire interest in Sterling or its stock in SCPI
(as defined in Section 1.7 hereof), whether pursuant to a stock sale, merger,
consolidation or sale of all or substantially all of the assets of Sterling
other than to an "affiliate" (within the meaning of Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision), (ii) the Purchaser enters into a binding agreement to sell
any Sterling Common Stock or SCPI stock or any security convertible into,
exchangeable for or granting the right to purchase, any Sterling Common Stock or
SCPI stock other than a transfer to an "affiliate" (within the meaning of Rule
12b-2 under the Exchange Act) of the Purchaser that does not affect the
Purchaser's ability to consolidate with Sterling and SCPI for federal income tax
purposes, (iii) there is a binding agreement for the sale, lease or transfer,
directly or indirectly, of all or substantially all of the assets of the
Purchaser to any "Person" or "group" (within the meaning of Sections 13(d)(3)
and 14(d)(2) of the Exchange Act, or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), (iv) there is a binding agreement for a Change of Control, or (v)
there is a Change of Control (clauses (i), (ii), (iii) and (iv) are referred to
herein as a "Triggering Transaction"). For purposes of this Agreement, "Change
of Control" means (A) the approval by the requisite stockholders of the
Purchaser of a plan of liquidation or dissolution of the Purchaser, (B) any
"Person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act, or any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d- 5(b)(1) under the Exchange Act)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of more than 50% of the total voting power of all classes of the voting stock of
the Purchaser and/or warrants or options to acquire such voting stock,
calculated on a fully diluted basis, unless, as a result of such transaction,
the ultimate direct or indirect ownership of the Purchaser is substantially the
same immediately after such transaction as it was immediately prior to such
transaction, or (C) the adoption by the Purchaser's Board of Directors or by the
Purchaser's stockholders, of a plan of consolidation or merger of the Purchaser
pursuant to which the Purchaser Common Stock is converted into cash, securities
or other property, in each case other than a consolidation or merger of the
Purchaser in which the holders of Purchaser Common Stock and other capital stock
of the Purchaser entitled to vote in the election of directors of the Purchaser,
immediately prior to the consolidation or merger have, directly or indirectly,
at least a majority of the total aggregate voting power of capital stock
entitled to vote in the election of directors of the continuing or surviving
corporation immediately after the consolidation or merger. Notwithstanding the
foregoing, it is agreed and understood that a sale of assets of SCPI shall not
be deemed to result in a Change of Control.

         (c) In order to exercise a Put Option pursuant to Section 1.2(a) or
(b), as the case may be, Selling Stockholders holding shares of Sterling Common
Stock in excess of the Put Threshold Share Amount shall provide the Purchaser
with a written notice in accordance with Section 11.6 hereof specifying that the
Selling Stockholders wish to sell all of their remaining shares of

                                       -3-
<PAGE>   12

Sterling Common Stock pursuant to Section 1.2(a) or (b), as the case may be (a
"Put Notice"). The date on which such Put Notice is received by the Purchaser
from the Selling Stockholders holding shares of Sterling Common Stock in excess
of the Put Threshold Share Amount shall be the "Put Election Date". In the event
the Selling Stockholders holding shares of Sterling Common Stock in excess of
the Put Threshold Share Amount exercise their Put Option pursuant to Section
1.2(a), the Purchaser shall, within ninety (90) days of the Put Election Date,
pay to each of the Selling Stockholders, whether or not such stockholder elected
to exercise the Put Option, the Exercise Price and any applicable Earnout
Payment (as defined in Section 1.3 hereof) for each of the Put Shares owned by
such Selling Stockholder ("Put Payment Amount") in immediately available funds;
provided, however, that the Purchaser shall not be required to purchase such Put
Shares from any Selling Stockholder until such Selling Stockholder has delivered
to the Purchaser certificates representing the Put Shares free and clear of all
Liens, which shall be duly endorsed for transfer or accompanied by a stock power
duly executed in blank. In the event the Selling Stockholders holding shares of
Sterling Common Stock in excess of the Put Threshold Share Amount exercise their
Put Option pursuant to Section 1.2(b), the Purchaser shall pay the Put Payment
Amount upon the earlier of (i) the ninetieth (90th) day after the Put Election
Date and (ii) the closing of the Triggering Transaction. The date required for
payment of the Put Payment Amount pursuant to this Section 1.2(c) is hereinafter
referred to as the "Put Payment Date". To the extent the Purchaser does not pay
the Put Payment Amount and the Earnout Payment in full to the Selling
Stockholders in immediately available funds upon delivery and receipt of the Put
Notice and upon tender of delivery of the Put Shares in the manner described in
this Section 1.2(c), the Purchaser agrees to enter into appropriate documents to
secure the Purchaser's obligation to pay the Put Payment Amount in full with a
first priority security interest in the Put Shares and shall take such steps to
create evidence of and perfect such security interest, which steps may include
but shall not be limited to permitting the Selling Stockholders to retain
possession of the Put Shares.

         Section 1.3. Determination of Earnout Amount. At the Put Payment Date
or the Call Payment Date, as the case may be, to the extent that (i) 19.9% of
the product of (a) 5.6 and (b) Sterling EBITDA (as defined below) exceeds (ii)
twelve million dollars ($12,000,000.00) (such excess, the "Earnout Pool
Amount"), the Selling Stockholders who sell Put Shares shall receive for each
Put Share purchased by the Purchaser in accordance with Section 1.2 hereof, in
addition to the Exercise Price, a payment per share (the "Earnout Payment")
equal to:

         (x)      the Earnout Pool Amount (which shall, for purposes of this
                  Section 1.3(x), notwithstanding the amount determined in
                  accordance with the first sentence of this Section 1.3, not
                  exceed five million dollars ($5,000,000.00)), divided by

         (y)      one hundred fourteen thousand (114,000).

For purposes of this Agreement, "Sterling EBITDA" shall mean the consolidated
net income of Sterling

         (i)      less any extraordinary or non-recurring non-cash gains plus
                  any extraordinary or non-recurring non-cash losses,

                                      -4-
<PAGE>   13

         (ii)     plus, to the extent deducted from such consolidated net
                  income, net interest expenses, income taxes, and depreciation
                  and amortization expenses and inter-company fees or charges,
                  including, without limitation, all Purchaser corporate
                  overhead charges (except to the extent paid by the Purchaser
                  or any subsidiary or "affiliate" (within the meaning of Rule
                  12b-2 under the Exchange Act) for the benefit of Sterling),

all as determined in accordance with generally accepted accounting principles in
the United States ("GAAP"), consistently applied for the twelve months ending on
the last day of the month prior to the month in which the Put Election Date
occurs.

         Section 1.4. Subordination of Earnout Payments.

         (a) For purposes of this Section 1.4, the following terms shall have
the meaning ascribed to them below:

         "Insolvency or Liquidation Proceeding" means (i) any voluntary or
involuntary insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding, relative to the
Purchaser or the creditors of the Purchaser, as such, or to the assets of the
Purchaser, or (ii) any liquidation, dissolution, reorganization or winding up of
the Purchaser, whether voluntary or involuntary and whether involving insolvency
or bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Purchaser.

         "Obligations" shall mean any principal, interest, penalties, expenses,
fees, indemnifications, reimbursements, damages and other liabilities payable.

         "Representative" means a trustee, agent or representative for any
Senior Obligations.

         "Senior Obligations" shall mean the Obligations of the Purchaser
pursuant to the Notes, the Manning Note (as defined in Section 6.2(a)(i)
hereof), the note issued by the Purchaser to Casella Waste Systems, Inc. as part
of the Casella Exchange Transaction (as defined in Section 4.29 hereof) and the
zero coupon subordinated notes of the Purchaser issued to NASCIT pursuant to the
Institutional Purchase Agreement.

         (b) The Purchaser and the Selling Stockholders agree that the
obligations of the Purchaser to make Earnout Payments pursuant to this Agreement
are subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Obligations (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed), and that the subordination is for the benefit of the holders of
Senior Obligations.

         (c) Upon any payment or distribution of assets of the Purchaser of any
kind or character, whether in cash, property or securities, to creditors in any
Insolvency or Liquidation Proceeding with respect to the Purchaser, all amounts
due or to become due under or with respect to all Senior Obligations shall first
be paid indefeasibly in full in cash before any Earnout Payment is made on
account of this Agreement. Upon any such Insolvency or Liquidation Proceeding,
any payment or distribution of assets of the Purchaser of any kind or character,
whether in cash, property or

                                      -5-
<PAGE>   14

securities, to which the Selling Stockholder would be entitled on account of any
Earnout Payment shall be paid by the Purchaser or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, or by the Selling Stockholder if received by it, directly to the
holders of Senior Obligations (pro rata to such holders on the basis of the
amount of Senior Obligations held by each such holder) or their Representative,
as their interests may appear, for application to the payment of the Senior
Obligations remaining unpaid until all such Senior Obligations have been paid
indefeasibly in full in cash, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of Senior Obligations.

         (d) In the event of and during the continuation of any default in the
payment of principal of, interest or premium, if any, on any Senior Obligations,
or in the event that any event of default (other than a payment default) with
respect to any Senior Obligations shall have occurred and be continuing and
shall have resulted in such Senior Obligation becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable, or (b) if any event of default other than as described in clause (a)
above with respect to any Senior Obligations shall have occurred and be
continuing permitting the holders of such Senior Obligations (or their
Representative or Representatives) to declare such Senior Obligations due and
payable prior to the date on which it would otherwise have become due and
payable, then no Earnout Payment shall be made by or on behalf of the Purchaser
on account of this Agreement, unless and until such default shall have been
cured or waived in writing in accordance with the instruments governing such
Senior Obligations or such acceleration shall have been rescinded or annulled.

         (e) In the event that a Selling Stockholder receives any Earnout
Payment at a time when such payment is prohibited by the provisions hereof, such
payment shall be held by the Selling Stockholder, in trust for the benefit of,
and shall be paid forthwith over and delivered, upon written request to the
holders of Senior Obligations, as their interests may appear, or their
Representative under the agreements (if any) pursuant to which Senior
Obligations may have been issued, as their respective interests may appear, for
application to the payment of all Senior Obligations remaining unpaid to the
extent necessary to pay such Senior Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Obligations.

         (f) After all Senior Obligations are paid in full and until any Earnout
Payments are paid in full in accordance with this Agreement, the Selling
Stockholders shall be subrogated to the rights of holders of Senior Obligations
to receive distributions applicable to Senior Obligations to the extent that
distributions otherwise payable to the Selling Stockholders have been applied to
the payment of Senior Obligations. A distribution made under this Agreement to
holders of Senior Obligations that otherwise would have been made to the Selling
Stockholders is not, as between the Purchaser and the Selling Stockholders, an
Earnout Payment by the Purchaser under this Agreement.

         (g) No right of any holder of Senior Obligations to enforce the
subordination of the indebtedness evidenced by this Agreement shall be impaired
by any act or failure to act by the Purchaser or the Selling Stockholders or by
the failure of the Purchaser or the Selling Stockholders to comply with this
Section 1.4.

                                      -6-
<PAGE>   15

         (h) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Obligations, or any of them, may, at any time
and from time to time, without the consent of or notice to the Selling
Stockholders, without incurring any liabilities to the Selling Stockholders and
without impairing or releasing the subordination and other benefits provided in
this Section 1.4 or the Obligations of the Purchaser to the holders of the
Senior Obligations, even if any right of reimbursement or subrogation or other
right or remedy of the Selling Stockholders is affected, impaired or
extinguished thereby, take in good faith any action with respect to the Senior
Obligations, including, without limitation, any one or more of the following:

                  (1) with the consent of the Purchaser, change the manner,
         place or terms of payment or change or extend the time of payment of,
         or renew, exchange, amend, increase or alter, the terms of any Senior
         Obligations, any security therefor or guaranty thereof or any liability
         of any obligor thereon (including any guarantor) to such holder, or any
         liability incurred directly or indirectly in respect thereof, or
         otherwise amend, renew, exchange, extend, modify, increase or
         supplement in any manner any Senior Obligations or any instrument
         evidencing or guaranteeing or securing the same or any agreement under
         which Senior Obligations are outstanding;

                  (2) sell, exchange, release, surrender, realize upon, enforce
         or otherwise deal with in any manner and in any order any property
         pledged, mortgaged or otherwise securing Senior Obligations or any
         liability of any obligor thereon, to such holder, or any liability
         incurred directly or indirectly in respect thereof;

                  (3) settle or compromise any Senior Obligations or any other
         liability of any obligor of the Senior Obligations to such holder or
         any security therefor or any liability incurred directly or indirectly
         in respect thereof and apply any sums by whomsoever paid and however
         realized to any liability (including, without limitation, Senior
         Obligations) in any manner or order; and

                  (4) fail to take or to record or to otherwise perfect, for any
         reason or for no reason, any Lien or security interest securing Senior
         Obligations by whomsoever granted; exercise or delay in or refrain from
         exercising any right or remedy against any obligor or any guarantor or
         any other person; and elect any remedy and otherwise deal freely with
         any obligor and any security for the Senior Obligations or any
         liability of any obligor to such holder or any liability incurred
         directly or indirectly in respect thereof.

         (i) Whenever a distribution is to be made or a notice given to holders
of Senior Obligations, the distribution may be made and the notice given to
their Representative. Upon any payment or distribution of assets of the
Purchaser referred to in this Section 1.4, the Selling Stockholders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any distribution to the
Selling Stockholders for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Obligations and
other indebtedness of the Purchaser, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 1.4.

                                      -7-
<PAGE>   16

         (j) This Section 1.4 defines the relative rights of the Selling
Stockholders and holders of Senior Obligations. Nothing in this Section 1.4
shall impair, as between the Purchaser and the Selling Stockholders, the
obligations of the Purchaser to pay any Earnout Amounts due in accordance with
the terms of Section 1.3 hereof or affect the relative rights of the Selling
Stockholders and creditors of the Purchaser other than their rights to the
Earnout Amounts in relation to holders of Senior Obligations.

         Section 1.5. The Sterling Repurchase; Sterling Options.

         (a) Upon the terms and subject to the conditions set forth in this
Agreement, on the Closing Date the Selling Stockholders severally will sell,
assign, transfer and deliver to Sterling, and Sterling will purchase and acquire
from the Selling Stockholders an aggregate of two hundred seven thousand two
hundred fifty-five (207,255) shares of Sterling Common Stock (the "Repurchased
Stock"), free and clear of all Liens. The respective number of shares of the
Repurchased Stock to be sold by each of the several Selling Stockholders is set
forth on Exhibit E attached hereto next to each such Selling Stockholder's name.

         (b) On the Closing Date, as consideration for its purchase of the
Repurchased Stock from the Selling Stockholders, Sterling will issue and deliver
to each of the Selling Stockholders, in the respective amounts indicated on
Exhibit E attached hereto next to each such Selling Stockholder's name, Sterling
Notes with an initial principal amount in the aggregate of six million dollars
($6,000,000.00).

         (c) Sterling and the Selling Stockholders hereby represent and warrant
to the Purchaser that, as of the Closing Date, there will be outstanding options
to purchase twenty-three thousand four hundred four (23,404) shares of Sterling
Common Stock (the "Sterling Options"). All Sterling Options outstanding
immediately prior to the Closing shall be cancelled, and in full satisfaction of
such cancellation each holder thereof shall be entitled to receive from
Sterling, at or immediately after the Closing, an amount equal to four dollars
($4.00) per each share of Sterling Common Stock subject to his or her Sterling
Options, subject to reduction for any applicable withholding taxes. From and
after the date hereof, Sterling hereby agrees not to issue any additional
Sterling Options. In consideration of the foregoing, the Purchaser hereby agrees
after the Closing to establish for the benefit of the employees of Sterling and
its subsidiaries a plan for the issuance of options to purchase shares of
Purchaser Common Stock (the "Purchaser Option Plan") to be administered by the
Compensation Committee of the Board of Directors of the Purchaser (the
"Purchaser Board").

         Section 1.6. Election of Directors and Executive Officers of the
Purchaser.

         (a) As of the Closing Date, the Purchaser shall cause (i) all of the
current members of the Purchaser Board, other than Robert M. Davies and Maarten
D. Hemsley, to resign from the Purchaser Board and (ii) the Purchaser Board to
consist of seven (7) directors, including Mr. Davies, Mr. Hemsley, Joseph P.
Harper, Sr., Patrick T. Manning, Christopher Mills, Robert W. Frickel and Robert
Affholder (Mr. Harper, Mr. P. Manning, Mr. Mills, Mr. Frickel and Mr. Affholder
are each referred to as a "New Board Member"). The Purchaser shall propose to
its stockholders at the next meeting of the Purchaser's stockholders the
reelection of the New Board Members, Mr. Davies and Mr. Hemsley, and the
division of the above directors among the Class

                                      -8-
<PAGE>   17

I Directors, Class II Directors and Class III Directors, as defined in the
Purchaser's Certificate of Incorporation, as set forth on Schedule 1.6(a). After
such reelection, each such New Board Member shall hold office, subject to the
applicable provisions of the Purchaser's Certificate of Incorporation and
Bylaws, until such director's respective successor shall be duly elected or
appointed and qualified.

         (b) As of the Closing Date, the Purchaser shall cause Patrick T.
Manning and Joseph P. Harper, Sr. to be elected Chief Executive Officer and
President, respectively, of the Purchaser. The responsibilities of each such
officer shall be as set forth in the By-laws of the Purchaser.

         Section 1.7. Steel City Board Seat. As of the Closing Date, the
Purchaser shall cause Joseph P. Harper, Sr. to be elected to the Board of
Directors of Steel City Products, Inc. ("SCPI"), and Mr. Harper shall serve in
such capacity until the earlier of (i) the termination of his Employment
Agreement described in Section 6.3 hereof and (ii) the sale of all of the equity
interest in SCPI owned by the Purchaser, and until his successor shall be duly
elected or appointed and qualified.

                                   Article II.
                                   The Closing

         Section 2.1. Closing.

         (a) The consummation of the purchase and sale of the Sterling Purchased
Stock pursuant to Section 1.1(a) hereof, and the issuance, purchase and sale of
the Purchaser Securities pursuant to Section 1.1(b) hereof, and the other
transactions that are to take place at that time as contemplated by this
Agreement (the "Closing"), shall take place at the offices of Mayor, Day,
Caldwell & Keeton, L.L.P., 700 Louisiana, Suite 1900, Houston, Texas, at 10:00
a.m. on July 18, 2001, or at such other time and place as the parties may
mutually agree upon. The date and time of the Closing is referred to as the
"Closing Date".

         (b) At or prior to the Closing, provided that the conditions set forth
in Article VII, Article VIII and Article IX of this Agreement have been
satisfied or waived, the Selling Stockholders and Sterling shall tender for
delivery, or cause to be tendered for delivery, each of the instruments and
documents described in Section 2.2 hereof and the Purchaser shall tender for
delivery, or cause to be tendered for delivery, each of the payments,
instruments and documents described in Section 2.3 hereof.

         Section 2.2. Closing Deliveries of the Selling Stockholders and
Sterling. Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing:

         (a) The Selling Stockholders shall deliver to the Purchaser
certificates representing the Sterling Purchased Stock to be sold to the
Purchaser in accordance with Section 1.1(a) hereof;

         (b) The Selling Stockholders shall deliver to Sterling certificates
representing the Repurchased Stock to be sold to Sterling in accordance with
Section 1.5(a) hereof;

         (c) Sterling shall issue and deliver to the Selling Stockholders duly
executed Sterling Notes in accordance with Section 1.5(b) hereof;

                                      -9-
<PAGE>   18

         (d) Sterling shall borrow one million five hundred thousand dollars
($1,500,000.00) from NASCIT pursuant to the Institutional Purchase Agreement;

         (e) Sterling shall deliver to NASCIT the NASCIT Short-Term Note (as
defined in Section 7.6 hereof) in accordance with Section 7.6 hereof;

         (f) Sterling shall pay to the Purchaser six million four hundred
thousand dollars ($6,400,000.00) (the "Intercompany Note Purchase Amount") in
exchange for a promissory note of the Purchaser in favor of Sterling,
substantially in the form attached hereto as Exhibit G (the "Intercompany
Note");

         (g) Sterling shall cause Sterling Construction Company, a Michigan
corporation doing business in Texas under the name Texas-Sterling Construction,
Inc. and a wholly owned subsidiary of Sterling ("Texas-Sterling"), to pay to
Sterling four million nine hundred thousand dollars ($4,900,000.00) (the "TS
Intercompany Amount") in exchange for a note of Sterling in favor of
Texas-Sterling, substantially in the form attached hereto as Exhibit H (the
"Sterling Intercompany Note");

         (h) Sterling shall cause Texas-Sterling to borrow the TS Intercompany
Amount from Comerica Bank-Texas ("Comerica");

         (i) Sterling shall deliver evidence, reasonably satisfactory to the
Purchaser that the termination of the Sterling Options has been provided for;

         (j) Sterling and each of Patrick T. Manning, Joseph P. Harper, Sr. and
Terry D. Williamson will deliver duly executed employment agreements for such
individuals with Texas-Sterling, and Mr. P. Manning and Mr. Harper will deliver
duly executed employment agreements with the Purchaser, all in accordance with
Section 6.3 hereof;

         (k) Sterling shall deliver to Oakhurst Technology, Inc. ("OTI") duly
executed certificates representing forty-three thousand two hundred thirty-two
(43,232) shares of Sterling Common Stock in exchange for all of the 8%
Convertible Senior Subordinated Notes due 2005 (the "Sterling Convertible
Notes") issued by Texas-Sterling which are held by OTI in accordance with
Section 6.1(a) hereof;

         (l) Sterling shall deliver a duly executed copy of the Tax Sharing
Agreement, by and among Sterling, the Purchaser and certain subsidiaries of the
Purchaser (the "Tax Sharing Agreement"); and

         (m) Sterling and the Selling Stockholders shall duly execute and
deliver the other instruments, documents and certificates contemplated to be
delivered by them under Article VII, Article VIII and Article IX of this
Agreement.

         Section 2.3. Closing Deliveries of the Purchaser. Upon the terms and
subject to the conditions set forth in this Agreement, at the Closing:

         (a) the Purchaser will issue and deliver to the Selling Stockholders
duly executed certificates representing the Purchaser Common Stock;

                                      -10-
<PAGE>   19

         (b) the Purchaser will issue and deliver to the Selling Stockholders
duly executed Notes;

         (c) the Purchaser will issue and deliver to the Selling Stockholders
duly executed Warrants;

         (d) the Purchaser will issue and deliver to Sterling a duly executed
Intercompany Note in exchange for the payment of the Intercompany Note Purchase
Amount by Sterling to the Purchaser;

         (e) the Purchaser shall cause OTI to exchange and deliver all of its
Sterling Convertible Notes to Sterling upon the issuance and delivery to OTI by
Sterling of forty-three thousand three hundred twenty-three (43,323) shares of
Sterling Common Stock in accordance with Section 6.1(a) hereof;

         (f) the Purchaser will issue and deliver to James D. Manning the duly
executed Manning Securities in accordance with Section 6.2(a) hereof;

         (g) the Purchaser will issue and deliver to Robert M. Davies the duly
executed Davies Notes (as defined in Section 6.2(b) hereof) in accordance with
Section 6.2(b) hereof;

         (h) the Purchaser will issue and deliver to Maarten D. Hemsley the duly
executed Hemsley Note (as defined in Section 6.2(c) hereof) in accordance with
Section 6.2(c) hereof;

         (i) the Purchaser will deliver duly executed employment agreements with
Mr. P. Manning and Mr. Harper, in accordance with Section 6.3 hereof;

         (j) the Purchaser will deliver a duly executed copy of the Tax Sharing
Agreement; and

         (k) the Purchaser shall duly execute and deliver the other instruments,
documents and certificates contemplated to be delivered by it under Article VII,
Article VIII and Article IX of this Agreement.

This Agreement and the agreements, certificates, documents and other instruments
delivered pursuant to Section 2.2 and Section 2.3 hereof, together with the
Institutional Purchase Agreement and the agreements, certificates, documents and
other instruments delivered pursuant thereto are hereinafter referred to
collectively as the "Transaction Documents".

                                  Article III.
                   Representations and Warranties of Sterling

         Sterling makes the representations and warranties set forth in this
Article III to the Purchaser as of the date hereof.

         Section 3.1. Due Organization. Each of Sterling and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the state or jurisdiction of its incorporation, and has all requisite
corporate power and authority to own or lease its properties and assets and
conduct its business as now conducted. Each of Sterling and its subsidiaries is
duly authorized and qualified to carry on its business as a foreign corporation
in the places and in

                                      -11-
<PAGE>   20

the manner as now conducted except where the failure to be so authorized or
qualified would not be reasonably expected, individually or in the aggregate, to
have a material adverse effect on the business, assets, condition (financial or
other), properties or results of operations of Sterling and its subsidiaries
taken as a whole (a "Sterling Material Adverse Effect"). Copies of the Articles
or Certificate of Incorporation, Bylaws, stock records and minute books of
Sterling and each of its subsidiaries, with all amendments thereto on the date
hereof, have been furnished or made available to the Purchaser or its
representatives, and such copies are correct and complete. As used in this
Agreement, the word "subsidiary" when used with respect to any party means any
corporation, partnership or other organization, whether incorporated or
unincorporated, of which at least a majority of the securities or other
interests having by their terms voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly beneficially owned
or controlled by such party or by any one or more of its subsidiaries, or by
such party and one or more of its subsidiaries.

         Section 3.2. Authorization. Sterling has all necessary corporate power
and authority to execute and deliver this Agreement and the other Transaction
Documents to be executed and delivered by Sterling and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Sterling of this Agreement and the other Transaction Documents to be executed
and delivered by Sterling and all instruments, documents and agreements
contemplated hereby and thereby to be executed by or on behalf of Sterling have
been or will be at the Closing duly and validly authorized by all necessary
corporate action on the part of Sterling. This Agreement, the other Transaction
Documents to which Sterling is a party and all other instruments, documents and
agreements contemplated hereby to be executed and delivered by Sterling have
been or will be at the Closing duly and validly executed and delivered by
Sterling and constitute, or will constitute, the legal, valid and binding
obligation of Sterling, enforceable against Sterling, except to the extent
enforceability is limited by applicable bankruptcy, reorganization, insolvency
and similar laws from time to time in effect and subject to general principles
of equity and judicial discretion.

         Section 3.3. No Conflicts; Approvals. Neither the execution, delivery
or performance by Sterling of this Agreement and the other Transaction Documents
to which Sterling is a party, nor the consummation by Sterling of the
transactions contemplated hereby and thereby, will (a) conflict with or result
in a breach of any provision of the Articles or Certificate of Incorporation, as
applicable, or Bylaws of Sterling and its subsidiaries, (b) result in any
conflict with, breach of, or constitute (with or without notice or lapse of time
or both) a default under, or give rise to any right to termination, amendment,
cancellation or acceleration or loss of any right or benefit under or require
any consent or approval which has not been obtained with respect to any of the
terms, conditions or provisions of any material contract, lease, loan agreement,
mortgage, security agreement, trust indenture or other agreement or instrument
to which Sterling or its subsidiaries are a party or by which any of their
respective properties or assets may be bound (except for those consents or
approvals set forth on Schedule 3.3), or result in the creation or imposition of
any Lien upon any of the assets or properties of Sterling or its subsidiaries,
or result in the cancellation, modification, revocation or suspension of any of
the Sterling Permits (as defined in Section 3.9 hereof), or (c) violate any
order, decree, law, rule or regulation applicable to Sterling or any of its
subsidiaries or by which any of their respective properties or assets may be
bound, except in the case of the foregoing clauses (b) or (c) for such
violations,

                                      -12-
<PAGE>   21

breaches, defaults, terminations, amendments, cancellations, accelerations or
Liens which would not reasonably be expected, individually or in the aggregate,
to have a Sterling Material Adverse Effect. Except as set forth on Schedule 3.3,
no action, consent, authorization, waiver or approval by, or filing or
registration by Sterling or any of its subsidiaries with, any federal, state,
municipal, foreign or other court or governmental body or agency, or any other
regulatory body or Person (as defined below), is required in connection with the
execution, delivery or performance by Sterling of this Agreement and the other
Transaction Documents to which the Purchaser is a party and the other
transactions contemplated hereby and thereby. For purposes of this Agreement,
"Person" shall mean any individual, partnership, corporation, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity.

         Section 3.4. Capital Stock of Sterling.

         (a) The authorized capital stock of Sterling consists of 1,000,000
shares of Sterling Common Stock, of which 650,100 shares are issued and
outstanding and owned by the Selling Stockholders and the other persons as set
forth on Schedule 3.4, and 10,000 shares of preferred stock, par value $0.01 per
share, of which no shares are issued or outstanding. As of the date hereof and
as of the Closing Date, there are issued and outstanding Sterling Options to
acquire 23,404 shares of Sterling Common Stock. Except as set forth in this
Section 3.4 and Schedule 3.4, there are no other outstanding shares of Sterling
Common Stock and neither Sterling nor any of its subsidiaries have outstanding
(i) any securities convertible into or exchangeable for any share of capital
stock, (ii) any rights or warrants to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any other
character relating to the issuance of, any capital stock, or (iii) any stock or
securities convertible into or exchangeable for any of the securities set forth
in clauses (i) or (ii) of this sentence. All of the issued and outstanding
shares of Sterling Common Stock have been duly authorized and are validly
issued, fully paid, nonassessable and free of preemptive rights (other than as
disclosed on Schedule 3.4), and are owned beneficially and of record by the
Selling Stockholders and other individuals as set forth on Schedule 3.4. The
Selling Stockholders have, as of the Closing Date and prior to the sale thereof
pursuant to this Agreement, good and marketable title to all shares of Sterling
Common Stock that they own, free and clear of all Liens. All issued and
outstanding shares of Sterling Common Stock were offered, issued, sold and
delivered by Sterling in compliance with (or pursuant to exemptions from) all
applicable state and federal laws governing the offer and sale of securities.
None of such shares was issued in violation of the preemptive rights of any
stockholder. Except as set forth on Schedule 3.4, there are no bonds,
debentures, notes or other indebtedness of Sterling having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of Sterling may vote and there are no
stockholders agreements, voting trusts or other agreements or understandings to
which Sterling or any subsidiary is a party or by which it is bound relating to
the issued or unissued capital stock of Sterling or granting to any person or
group of persons the right to elect, or to designate or nominate for election, a
director to the Board of Directors of Sterling.

         (b) The Sterling Notes and the NASCIT Short-Term Notes have been duly
authorized and, when issued in accordance with the terms of this Agreement, will
be validly issued, fully paid, nonassessable and not subject to any preemptive
rights.

                                      -13-
<PAGE>   22

         Section 3.5. Subsidiaries. Except as set forth in Schedule 3.5,
Sterling owns, directly or indirectly, all of the issued and outstanding shares
of capital stock of each of its subsidiaries, free and clear of any Liens, and
all of such shares have been duly authorized and are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Schedule
3.5, none of Sterling's subsidiaries has, or is bound by, any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any security of such
subsidiary, including any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such subsidiary. There are no outstanding contractual obligations of Sterling or
any of its subsidiaries to vote any shares of the capital stock of any of the
subsidiaries of Sterling. Except as set forth in Schedule 3.5, neither Sterling
nor any of its subsidiaries is under any current or prospective obligation to
provide funds to, make a capital contribution or investment in or loan to, or to
assume any liability or obligation of, any corporation, partnership, joint
venture or the business association or entity.

         Section 3.6. Financial Statements.

         (a) The Selling Stockholders have furnished or made available to the
Purchaser true and complete copies of: (i) the audited balance sheets of
Sterling and its subsidiaries as of September 30, 2000 and September, 30, 1999
audited by Grant Thornton LLP and as of September 30, 1998 audited by R.W.
Frickel & Company, P.C., and in each case the related audited statements of
earnings and changes in stockholders' equity and cash flows of Sterling and its
subsidiaries for the fiscal years then ended and the notes thereto, accompanied
by the reports thereon of such public accountants (collectively, the "Sterling
Audited Financial Statements"); and (ii) the unaudited balance sheet of Sterling
and its subsidiaries as of April 30, 2001 and April 30, 2000 and the related
unaudited statements of earnings and changes in stockholders' equity and cash
flows of Sterling and its subsidiaries for the seven months then ended
(collectively, the "Sterling Interim Financial Statements" and, together with
the Sterling Audited Financial Statements, the "Sterling Financial Statements").

         (b) The Sterling Financial Statements are in all material respects
accurate, complete and in accordance with the books and records of Sterling and
present fairly in all material respects, the financial position of Sterling and
its subsidiaries as of their respective dates and the results of its operations
and changes in financial position of Sterling and its subsidiaries for the
periods then ended, in conformity with GAAP, consistently applied (subject, in
the case of the Sterling Interim Financial Statements to (i) normal year-end and
audit adjustments, the effects of which, individually or in the aggregate, will
not be materially adverse, and (ii) the fact that they do not contain all of the
footnote disclosures required by GAAP).

         Section 3.7. Balance Sheet Liabilities and Obligations. Except as set
forth on Schedule 3.7, there are no material liabilities or obligations of
Sterling or its subsidiaries of any kind, character and description, whether
accrued, absolute, secured or unsecured, determined, determinable, contingent or
otherwise, except for those reflected in the Sterling Financial Statements and
those incurred after September 30, 2000 in the ordinary course of business
consistent with past practice that are required to be reflected on a balance
sheet of Sterling and its subsidiaries prepared in accordance with GAAP.

                                      -14-
<PAGE>   23

         Section 3.8. Accounts and Notes Receivable. Except to the extent
reflected on Schedule 3.8, all accounts and notes receivable payable to or for
the benefit of Sterling or its subsidiaries reflected in the Sterling Financial
Statements arose from the sale of products and services in the ordinary course
of business consistent with past practice or reflect advances to employees or
affiliates and are legal, valid and binding claims of Sterling or its
subsidiaries and the reserves with respect thereto reflected in the Sterling
Financial Statements were reasonable and adequate in accordance with GAAP as of
the date of issuance of the Sterling Financial Statements.

         Section 3.9. Permits. Schedule 3.9 sets forth an accurate list of all
material permits (excluding permits for particular construction projects or
other jobs for customers), authorizations, consents, registrations, licenses,
franchises and certificates (collectively, the "Sterling Permits") held by
Sterling or its subsidiaries or, if applicable, by their employees that are used
to conduct the business of Sterling and its subsidiaries. Such Sterling Permits
(i) are valid, in good standing and in full force and effect, (ii) are not
subject to any pending or threatened administrative or judicial proceeding to
revoke, cancel, suspend or declare such Sterling Permits invalid in any respect,
and (iii) are in all material respects adequate for the operation of the
business of Sterling and its subsidiaries as it is presently being conducted and
has been proposed by Sterling and its subsidiaries to be conducted. None of the
operations of Sterling and its subsidiaries are being conducted in a manner that
violates in any material respect any of the terms or conditions under which any
Sterling Permit was granted. Neither the execution and delivery by the Selling
Stockholders or Sterling of this Agreement and the other Transaction Documents
to which they are a party, nor the consummation of the sale of the Sterling
Purchased Stock and the other transactions contemplated hereby and pursuant to
the other Transaction Documents by the Selling Stockholders and Sterling, as the
case may be, will require transfer or reissuance of, or cause a default,
termination or suspension under, or alter or impair any rights under, such
Sterling Permits.

         Section 3.10. Real and Personal Property. Except as set forth on
Schedule 3.10, Sterling and its subsidiaries do not and have not at any time
since January 1, 1996 owned or leased any real property (other than property
previously or currently leased on a temporary basis for particular construction
projects or other jobs for customers), and true, correct and complete copies of
all current lease agreements of Sterling and its subsidiaries relating to real
property leased by Sterling and its subsidiaries ("Sterling Leased Real
Property") have been furnished or made available to the Purchaser (the "Sterling
Real Property Leases"). The Sterling Real Property Leases are in full force and
effect and constitute valid, legal and binding agreements of the parties (and
their successors) thereto. All tangible assets used by Sterling and its
subsidiaries in the operation of their businesses are either owned by Sterling
or its subsidiaries or leased under agreements that have been furnished or made
available to the Purchaser, or, in the case of certain tools and immaterial
tangible assets, are owned and used by the relevant employees. Subject to normal
maintenance, repair, reconditioning and replacement, except as set forth on
Schedule 3.10, all of the vehicles, machinery and equipment of Sterling and its
subsidiaries are in reasonably good working order and condition, ordinary wear
and tear excepted. True, correct and complete copies of the most recent real
estate title report and each title insurance policy held by Sterling and its
subsidiaries relating to the real property owned by Sterling and its
subsidiaries ("Sterling Owned Real Property") have been furnished or made
available to the Purchaser.

                                      -15-
<PAGE>   24

         (a)      Owned Real Property and Leased Real Property:

                  (i)      The Sterling Owned Real Property and the Sterling
                           Leased Real Property constitute all of the real
                           property necessary for Sterling and its subsidiaries
                           to operate their businesses as they are currently
                           being conducted other than property to be leased on a
                           temporary basis for particular construction projects
                           or other jobs for customers.

                  (ii)     None of the Sterling Owned Real Property is subject
                           to any right or option of any Person to purchase,
                           lease or otherwise obtain title to such property,
                           except in connection with the mortgage liens
                           reflected on Schedule 3.10. No Person other than
                           Sterling and its subsidiaries has any right to use,
                           occupy or lease all or any portion of the Sterling
                           Owned Real Property.

         (b) Real Property Leases - No Default: Neither Sterling nor any of its
subsidiaries nor, to Sterling's and the Selling Stockholders' knowledge, any of
the other parties to the Sterling Real Property Leases, is in material default
under any of the Sterling Real Property Leases, and no material amount due under
the Sterling Real Property Leases remains unpaid, no material controversy,
claim, dispute or disagreement exists between the parties to the Sterling Real
Property Leases, and to Sterling's and the Selling Stockholders' knowledge no
event has occurred which with the passage of time or giving of notice, or both,
would constitute a material default thereunder.

         (c) Restrictive Covenants: To Sterling's and the Selling Stockholders'
knowledge, there is no violation of a condition or agreement contained in any
covenant, easement or any similar agreement affecting the Sterling Owned Real
Property or the Sterling Leased Real Property. The covenants, easements or
rights-of-way affecting the Sterling Owned Real Property or the Sterling Leased
Real Property do not, with respect to each Sterling Owned Real Property or
Sterling Leased Real Property, materially impair Sterling's or any of its
subsidiaries' ability to use any such Sterling Owned Real Property or Sterling
Leased Real Property in the operation of their businesses as currently
conducted. Sterling and its subsidiaries have access to public roads, streets or
the like or valid perpetual easements over private streets, roads or other
private property for such ingress to and egress from the Sterling Owned Real
Property and the Sterling Leased Real Property, except as would not materially
impair the ability to use any such Sterling Owned Real Property or Sterling
Leased Real Property in the operation of their businesses as currently
conducted.

         (d) Eminent Domain: There is no pending or, to Sterling's and the
Selling Stockholders' knowledge, threatened condemnation of any part of the
Sterling Owned Real Property by any governmental authority and to Sterling's and
the Selling Stockholders' knowledge there is no pending or threatened
condemnation of any part of the Sterling Leased Real Property by any
governmental authority.

         (e) Utilities: Sterling and its subsidiaries have not received any
notice from any utility company or municipality of any fact or condition which
could result in the discontinuation of currently available or otherwise
necessary sewer, water, electric, gas, telephone or other utilities or services
for the Sterling Owned Real Property or Sterling Leased Real Property. The
Sterling

                                      -16-
<PAGE>   25

Owned Real Property has adequate water, sewer, sanitary sewer and storm drain
facilities for its current use. All public utilities necessary or convenient to
the use, occupancy, disposition and enjoyment of the Sterling Owned Real
Property (as currently used and occupied) are available to serve the Sterling
Owned Real Property.

         (f) No Commissions: All brokerage commissions and other compensation
and fees payable by reason of the Sterling Real Property Leases or the Sterling
Owned Real Property have been paid in full, except to the extent that such may
result from the extension or renewal of any Sterling Real Property Leases.

         (g) Improvements: To Sterling's and the Selling Stockholders'
knowledge, all improvements on the Sterling Owned Real Property and the Sterling
Leased Real Property (for which Sterling and its subsidiaries are responsible)
conform in all material respects to all applicable federal, state and local
laws, zoning, land use and building ordinances and health and safety ordinances
(including, without limitation, the Americans with Disabilities Act), and
neither Sterling nor any of its subsidiaries or affiliates has received any
notice of any violation of any such laws or ordinances which violation has not
been cured. The Sterling Owned Real Property and the Sterling Leased Real
Property are zoned for the various purposes for which the real estate and
improvements have been used in connection with the normal operation of
Sterling's and its subsidiaries' businesses. To Sterling's and the Selling
Stockholders' knowledge, there is no material patent structural, mechanical or
other significant defect, soil condition or deficiency in the improvements
located on the Sterling Owned Real Property or Sterling Leased Real Property
(for which Sterling is responsible).

         (h) Insurance: There are no outstanding requirements or recommendations
by any insurance company which has issued to Sterling or any of it subsidiaries
a policy covering the Sterling Owned Real Property or Sterling Leased Real
Property, or as to the Sterling Owned Real Property by any board of fire
underwriters or other body exercising similar functions, requiring or
recommending any repairs or work to be done on such property.

         Section 3.11. Material Contracts and Commitments. Except to the extent
set forth on Schedule 3.11, Sterling and each of its subsidiaries: (i) has
performed all material obligations required to be performed by it under, and has
complied in all material respects with all written and oral contracts,
commitments and similar agreements or arrangements that as of the date of this
Agreement are material to Sterling and its subsidiaries taken as a whole, to
which Sterling or any of its subsidiaries is a party or by which Sterling or any
of its subsidiaries or any of their properties may be bound (including, but not
limited to, municipal contracts, joint venture or partnership agreements,
contracts with any labor organizations, loan agreements, indemnity or guaranty
agreements, bonds, mortgages, options to purchase land, liens, pledges or other
security agreements) (collectively, the "Sterling Contracts"); and (ii) is not
in material default under any such Sterling Contract and no notice of default or
delinquency has been received, nor has any event occurred which, with due notice
or lapse of time or both, would constitute such a default. To the knowledge of
Sterling and the Selling Stockholders, no other party to any Sterling Contract
is in default in respect thereof, and no event has occurred which, with due
notice or lapse of time or both, would constitute such a default. Except for
oral contracts for materials and contracts with subcontractors or material
suppliers made in the ordinary course of business, Schedule 3.11 sets forth an
accurate list of all Sterling Contracts which as of the date of this

                                      -17-
<PAGE>   26

Agreement (i) commit Sterling or any of its subsidiaries to a commitment
involving in any one case $50,000 or more or (ii) by their terms do not
terminate and cannot be terminated within six (6) months, and Sterling has
furnished or made available to the Purchaser copies of all Sterling Contracts
listed on Schedule 3.11. Each of the Sterling Contracts listed on Schedule 3.11
is a valid and binding obligation of Sterling or its subsidiaries, as the case
may be, and is in full force and effect and enforceable against the parties
thereto in accordance with its terms and, except to the extent breached by the
other party, or unless it expires by its terms prior thereto, or except as set
forth on Schedule 3.11, will continue in such force and effect following the
Closing Date and requires no consent of any party to the execution of this
Agreement and the other Transaction Documents or the consummation of the
transactions contemplated hereby and thereby.

         Section 3.12. Labor. Except as set forth on Schedule 3.12, (i) Sterling
and its subsidiaries are not bound by or subject to (and none of their assets or
properties is bound by or subject to) any arrangement with any labor union, (ii)
no employees of Sterling or its subsidiaries are represented by a labor union or
covered by any collective bargaining agreement, and (iii) no organizational
campaign to establish such representation is in progress. There is no pending or
threatened labor dispute involving Sterling or its subsidiaries and any group of
its employees nor has Sterling or its subsidiaries experienced any labor
interruptions since January 1, 1996. Sterling and its subsidiaries are in
compliance in all material respects with all laws, regulations and orders
relating to the employment of labor, including all such laws, regulations and
orders relating to wages, hours, collective bargaining, discrimination, civil
rights, safety and health, workers' compensation and the collection and payment
of withholding and/or social security taxes and any similar employment tax.
There has been no "mass layoff" or "plant closing" as defined by the Worker
Adjustment and Retraining Notification Act (the "WARN Act") or any similar state
or local "plant closing" law with respect to the current or former employees of
Sterling and its subsidiaries.

         Section 3.13. Title to Owned Real Property. The Seller and its
subsidiaries have good and indefeasible fee simple title to the Sterling Owned
Real Property and own all of the improvements located thereon, free and clear of
all Liens except as indicated on the title reports and title insurance policies
furnished or made available to the Purchaser pursuant to Section 3.10 hereof and
except for:

         (a) the mortgage liens reflected on Schedule 3.13;

         (b) liens for current taxes and assessments not delinquent; and

         (c) easements for utilities serving the property only.

         Section 3.14. Insurance. Schedule 3.14 sets forth an accurate list of
all insurance policies, fidelity bonds or other insurance service contracts (the
"Sterling Insurance") in force with respect to Sterling and its subsidiaries or
their properties, assets, employees, officers, directors and business. The
Sterling Insurance carried by Sterling and its subsidiaries with respect to
their properties, assets, employees, officers, directors and business is in
amounts consistent with past practice and, to the knowledge of Sterling and the
Selling Stockholders, in accordance with industry standards and as required by
legal requirements and the Sterling Contracts. Such Sterling Insurance is
currently in full force and effect, is sufficient for all

                                      -18-
<PAGE>   27

applicable requirements of law and will not be affected by or terminated or
lapsed by reason of the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents. All premiums due and payable
under all Sterling Insurance have been paid or are being paid in accordance with
payment plans approved by the carriers. Except as set forth on Schedule 3.14,
Sterling and its subsidiaries are not in default under any provisions of any
such Sterling Insurance, such Sterling Insurance has never been canceled and,
since January 1, 1996, no insurer has ever refused to issue any Sterling
Insurance requested to be issued to Sterling and its subsidiaries. There are no
claims by Sterling or its subsidiaries pending under any of such Sterling
Insurance as to which coverage has been questioned, denied or disputed by the
underwriters of such Sterling Insurance.

         Section 3.15. Compensation. Schedule 3.15 sets forth the names of all
officers, directors and key employees of Sterling and its subsidiaries who
received total compensation for the fiscal year ended September 30, 2000 in
excess of $75,000 and their current rates of compensation.

         Section 3.16. Employee Benefit Plans.

         (a) Schedule 3.16 sets forth an accurate list of all employee benefit
or welfare plans, including without limitation any "employee welfare benefit
plans" and "employee pension benefit plans" as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), benefits under any
collective bargaining agreement or employment contracts, pension,
profit-sharing, bonus, stock option, incentive, deferred compensation, dependent
care, medical reimbursement, hospitalization, medical, or life insurance,
severance benefits or any other plan, arrangement, or program and any employment
agreement containing "golden parachute" provisions, and a description of such
plans, programs or arrangements for which Sterling, or any entity that together
with Sterling is treated as a single employer (collectively, "Sterling
Controlled Group Member") under Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended (the "Code"), has any obligation or liability,
contingent or otherwise (collectively, the "Sterling Plans"). To the knowledge
of Sterling and the Selling Stockholders after due inquiry, all Sterling Plans
listed on Schedule 3.16 are in substantial compliance in all material respects
with all applicable provisions of ERISA, the Code and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations, except only in those instances where such
failure to do so does not result in a Sterling Material Adverse Effect. Sterling
has previously provided the Purchaser with copies of or access to all such
Sterling Plans and any trusts, insurance contracts, investment management
agreements or any other funding arrangement related thereto, annual reports
(Form 5500) and all schedules related thereto filed for the last three years (if
required to be filed), the most recent Internal Revenue Service determination
letter for any Sterling Plan intended to qualify under Section 401(a) of the
Code, and the most recent summary plan description for each Sterling Plan,
arrangement, or program and classifications of employees covered thereby that
are in effect on the date hereof as to which a summary plan description is
required. With respect to any Sterling Plan listed on Schedule 3.16,
individually and in the aggregate, no event has occurred, and no set of
circumstances have occurred in connection with which Sterling is reasonably
likely to be subject to any liability that could have a Sterling Material
Adverse Effect.

                                      -19-
<PAGE>   28

         (b) None of the Sterling Plans is a "single-employer plan" as defined
in Section 4001(a)(15) of ERISA ("Sterling Pension Plan"). Neither Sterling nor
any Sterling Controlled Group Member has any outstanding liability under Section
4062 of ERISA to the Pension Benefit Guaranty Corporation or to a trustee
appointed under Section 4042 of ERISA with respect to any Sterling Pension Plan,
and no events have occurred and no circumstances exist that could reasonably be
expected to result in any such liability to Sterling or any Sterling Controlled
Group Member.

         (c) Each Sterling Plan that is intended to qualify under Section 401(a)
of the Code and the trust maintained pursuant thereto that is intended to be
exempt from federal income taxation under Section 501(a) of the Code are so
qualified and exempt from federal income taxation under Section 501(a) of the
Code, and to the knowledge of Sterling and the Selling Stockholders, nothing has
occurred with respect to the operation of any such Sterling Plan that could
reasonably result in the loss of such qualification or tax exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.

         (d) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Sterling Plans or by law (without regard to any waivers granted under
Section 412 of the Code) to any funds or trusts established thereunder or in
connection therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before the Closing
Date which are not yet due will have been paid or accrued.

         (e) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Sterling Plans, the assets of any of the
trusts under the Sterling Plans or the Sterling Plan sponsor or the Sterling
Plan administrator, or against any fiduciary of the Sterling Plans with respect
to the operation of the Sterling Plans (other than routine benefit claims), nor
does Sterling nor any of the Selling Stockholders have any knowledge of facts
which could reasonably form the basis for any such claim or lawsuit.

         (f) The Sterling Plans have been maintained, in all material respects,
in accordance with their terms and with all provisions of ERISA and the Code
(including rules and regulations thereunder) and other applicable federal and
state laws and regulations, and neither Sterling nor, to the knowledge of
Sterling and the Selling Stockholders, any "party in interest" or "disqualified
person" with respect to the Sterling Plans has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or 4975 of the Code. To
the knowledge of Sterling and the Selling Stockholders, no fiduciary has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any Sterling
Plan.

         (g) None of the Sterling Plans provide retiree life or retiree health
benefits except as may be required under Section 4980B of the Code or Sections
601 through 608 of ERISA and at the expense of the participant or the
participant's beneficiary.

         (h) Neither the execution and delivery of this Agreement or any other
Transaction Document to which Sterling is a party nor the consummation of the
transactions contemplated hereby or thereby, (i) result in any payment becoming
due to any employee (current, former or

                                      -20-
<PAGE>   29

retired) of Sterling, (ii) increase any benefits otherwise payable under any
Sterling Plan, (iii) result in the acceleration of the time of payment or
vesting of any benefits under any Sterling Plan or (iv) constitute a "change in
control" or similar event under any Sterling Plan or fail to be deductible by
reason of Section 280G of the Code.

         (i) No stock or other security issued by Sterling or any affiliate
forms or has formed a material part of the assets of any Sterling Plan.

         Section 3.17. No Multiemployer Plans. Neither Sterling nor any Sterling
Controlled Group Member has ever sponsored or contributed to, or had an
obligation to contribute to, a Multiemployer Plan as such term is defined in
Section 4001(a)(3) of ERISA.

         Section 3.18. Conformity with Law; Governmental Claims. Sterling and
its subsidiaries are not in violation or breach of, or default under, any
federal, state, municipal or foreign statutes, laws, ordinances, rules,
regulations, judgments, decrees or orders or under any order of any court or
federal, state, municipal, foreign or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them,
which default would reasonably be expected to, individually or in the aggregate,
have a Sterling Material Adverse Effect; and except to the extent set forth in
Schedule 3.18, there are no material claims, actions, suits, investigations or
proceedings pending or, to the knowledge of Sterling and the Selling
Stockholders, threatened against Sterling or any of its subsidiaries, at law or
in equity, by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. Except to the extent set forth in Schedule 3.18,
Sterling and its subsidiaries have conducted and are conducting their businesses
in substantial compliance in all material respects with the requirements,
standards, criteria and conditions set forth in applicable federal, state, local
and foreign statutes, ordinances, permits, licenses, orders, approvals,
variances, rules and regulations and are not in violation in any material
respect of any of the foregoing.

         Section 3.19. Taxes and Tax Returns.

         (a) Tax Returns of Sterling that are required (so as to avoid
delinquency) to be filed on or before the Closing Date have been (or will have
been by the Closing Date) timely filed (subject to any extensions that have been
obtained) with the appropriate governmental authorities. Purchaser will be given
a reasonable opportunity to review any Tax Returns that will be filed pursuant
to the preceding sentence before they are filed. All Tax Returns filed, or to be
filed, pursuant to the first sentence of this subparagraph (a) are true, correct
and complete in all material respects as of the time of such filing.

         (b) All Taxes of any kind whatsoever (whether payable directly or via
withholding) that are shown on the Tax Returns described in Section 3.19(a)
hereof as due from Sterling have been (or will have been by the Closing Date)
properly paid or deposited. Any Taxes attributable to the operations of Sterling
payable as a result of an audit shall be deemed to have accrued in the period to
which such Taxes are attributable.

                                      -21-
<PAGE>   30

         (c) Except as set forth on Schedule 3.19, Sterling has not, to the
knowledge of Sterling and the Selling Stockholders, received any notice of
deficiency or assessment in connection with any Tax Returns, and there are not
any pending Tax examinations of, or Tax claims asserted against, Sterling.
Sterling has not extended, or waived the application of, any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Taxes. There are no requests for rulings or determinations in respect of any
Taxes pending between Sterling and the Internal Revenue Service or any other Tax
authority. There is no lien for Taxes (other than any lien for current Taxes not
yet delinquent) on or with respect to any assets of Sterling.

         (d) Sterling has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Sterling has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code.

         (e) Sterling is not and has not been a party to any Tax allocation or
sharing agreement other than the Tax Sharing Agreement.

         (f) Neither Sterling nor any of the Selling Stockholders is a "foreign
person" for purposes of U.S. income taxation. Except as set forth on Schedule
3.19, Sterling has never been a member of an affiliated group within the meaning
of Section 1504(a) of the Code.

         (g) Sterling has made all deposits required by law to be made with
respect to employees' withholding and other employment Taxes. Sterling has
withheld and paid all material Taxes required to be withheld in connection with
any amounts paid or owing to any employee, creditor, independent contractor or
other third party.

         (h) To the knowledge of Sterling and the Selling Stockholders, no claim
has been made by a Tax authority in a jurisdiction in which Sterling does not
file Tax Returns that Sterling may be subject to taxation in such jurisdiction.
Sterling has not carried on business or performed any acts either directly or
indirectly that would give rise to a liability for Taxes or a requirement of
filing Tax Returns in a jurisdiction in which Sterling does not file Tax
Returns.

         (i) For purposes of this Agreement, "Taxes" shall mean any and all
federal, state, local, foreign and other taxes, levies, fees, imposts, duties
and charges of whatever kind (including any interest, penalties or additions to
the tax imposed in connection therewith or with respect thereto), whether or not
imposed on Sterling or the Purchaser, as the case may be, including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, and also value added, sales, use, service, real property,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes and customs duties; and "Tax Returns" shall mean returns, reports,
information statements and other documentation (including any additional or
supporting material) filed or maintained, or required to be filed or maintained,
in connection with the calculation, determination, assessment or collection of
any Tax and shall include any amended returns required as a result of
examination adjustments made by the Internal Revenue Service or other Tax
authority.

                                      -22-
<PAGE>   31

         Section 3.20. Intellectual Property. All material patents, patent
applications, copyrights, trademarks, trade names, service marks and other
intellectual property which are used in the business of Sterling and its
subsidiaries are listed on Schedule 3.20. Schedule 3.20 also lists, where
applicable, the state and federal registration numbers relating to such
intellectual property and the class of services to which such intellectual
property relates. Except as set forth in Schedule 3.27, (i) there are no claims
or proceedings pending or threatened against Sterling and its subsidiaries
asserting that the use of any of such intellectual property infringes the rights
of any other Person and (ii) Sterling and its subsidiaries have adequate rights
to use all material patents, patent applications, inventions, know-how,
technical information and other intellectual property used in the conduct of
their respective businesses.

         Section 3.21. Governmental Contracts. Sterling and its subsidiaries are
not a party to any governmental contract subject to price redetermination or
renegotiation.

         Section 3.22. Absence of Changes. Since September 30, 2000, except as
set forth in Schedule 3.22 or except as otherwise expressly contemplated hereby,
there has not been:

         (a) any changes in the financial condition, assets, liabilities
(contingent or otherwise), or business of Sterling and its subsidiaries that
would reasonably be expected to, individually or in the aggregate, have a
Sterling Material Adverse Effect;

         (b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties, assets or business of
Sterling and its subsidiaries, taken as a whole;

         (c) any change in the authorized, issued or outstanding capital stock
of Sterling or any of its subsidiaries, except for stock purchases by employees
of Sterling pursuant to Sterling's existing employee stock purchase program;

         (d) any declaration, setting aside or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of
Sterling or any of its subsidiaries;

         (e) any increase in the compensation, bonus, benefits, sales
commissions or fee arrangements payable or to become payable by Sterling or its
subsidiaries to any of their respective officers, directors, the Selling
Stockholders, employees, consultants or agents, except in the normal course of
business consistent with past practices;

         (f) any work interruption or any similar event or condition materially
and adversely affecting the business of Sterling and its subsidiaries taken as a
whole;

         (g) any sale or transfer of, or any agreement to sell or transfer,
outside the ordinary course of business, any material assets, property or rights
of Sterling or its subsidiaries to any person, including, without limitation,
the Selling Stockholders or any affiliates thereof;

         (h) any cancellation, or agreement to cancel, any material indebtedness
or other material obligation owing to Sterling or its subsidiaries, including
without limitation any indebtedness or obligation of the Selling Stockholders or
any affiliates thereof;

                                      -23-
<PAGE>   32

         (i) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any assets, property or rights of
Sterling or its subsidiaries or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;

         (j) any purchase or acquisition, or agreement, plan or arrangement to
purchase or acquire, any material property, rights or assets of Sterling or its
subsidiaries other than in the normal course of business consistent with past
practices;

         (k) any material breach, or (other than in the normal course of
business or as expressly contemplated by this Agreement) any amendment or
termination, of any Sterling Contract or Sterling Permit;

         (l) any change in any method of accounting or accounting practice of
Sterling and its subsidiaries;

         (m) any loss of the employment, services or benefits of any key
employee of Sterling or its subsidiaries;

         (n) any material default on any material obligation of Sterling or its
subsidiaries;

         (o) any write down of the value of any inventory or any write off as
uncollectible of any of Sterling's or its subsidiaries' accounts receivable or
any portion thereof, in any such case not reflected on the balance sheet as of
September 30, 2000 of Sterling and its subsidiaries included in the Sterling
Audited Financial Statements; or

         (p) any agreement by Sterling, its subsidiaries or the Selling
Stockholders (whether or not in writing) to effect any of the changes set forth
in clauses (a) through (o) above.

         Section 3.23. Brokers and Finders. Except as set forth on Schedule
3.23, none of the Selling Stockholders or Sterling has employed any broker,
agent or finder or incurred any liability for any brokerage fees, commissions or
finders' fees in cash for the sale of the Purchased Stock or the consummation of
the other transactions contemplated by the Agreement or the other Transaction
Documents. Neither Sterling nor any of its subsidiaries, nor any of their
officers, directors, or employees on behalf of Sterling or its subsidiaries, has
incurred any liabilities for any financial advisory fees, brokerage fees,
commissions or finders' fees that remain unpaid in connection with any
transaction or proposed transaction other than the transactions contemplated
hereby.

         Section 3.24. Environmental Matters. Except as disclosed on Schedule
3.24, Sterling and its subsidiaries have not disposed of, or arranged for the
disposal of, hazardous wastes, hazardous substances, petroleum, petroleum
products, or infectious or medical waste, as those terms are defined by the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), or any comparable state laws, rules or regulations
("Hazardous Substances"). Except as disclosed on Schedule 3.24, there has been
no generation, storage or treatment of solid wastes or Hazardous Substances by
Sterling or its subsidiaries at any site or other facility in material violation
of any applicable law, rule, regulation, order, judgment or permit or that would
require any material ongoing or future removal, remedial or other response

                                      -24-
<PAGE>   33

action under any applicable law. Based upon all of the facts known to Sterling
and the Selling Stockholders, including but not limited to all of the facts set
forth in Schedule 3.24 with respect to any and all real property owned, operated
or leased by Sterling or any of its subsidiaries, Sterling and the Selling
Stockholders after due inquiry do not believe and have no reasonable basis to
believe that any or all of Sterling, its subsidiaries or the owner or operator
of such properties could reasonably be expected to incur any material
remediation or other liability with respect to such properties under any law,
rule, regulation, order, judgment or permit relating to human health, natural
resources or the environment (collectively "Environmental Laws"). Sterling and
its subsidiaries have not received any notice of any violation of, or potential
liability under, any Environmental Law, and Sterling and the Selling
Stockholders have no knowledge after due inquiry that there has been any spill,
discharge, leak, emission, injection, escape, emptying, dumping or release of
any kind onto any property owned, operated or leased by Sterling or its
subsidiaries or into the environment surrounding any such property of any
Hazardous Substances such as would result in any material violation of, or
require any material removal, remediation or other response action under, any
applicable Environmental Law. Sterling and its subsidiaries have been and are in
compliance with all applicable Environmental Laws and have obtained, and have
been and are in compliance with all permits, licenses, franchises, certificates,
registrations, consents, and authorizations required under all applicable
Environmental Laws ("Environmental Permits"), including such required for
particular construction projects or other jobs for customers. Neither the
execution and delivery by Sterling and the Selling Stockholders of this
Agreement and the other Transaction Documents to which Sterling and the Selling
Stockholders, as the case may be, are a party nor the consummation by the
Selling Stockholders and Sterling, as the case may be, of the other transactions
contemplated hereby and thereby, will require transfer or reissuance of, or
cause a default under, or alter or impair any rights under, such Environmental
Permits. There are no claims, actions, suits or other proceedings involving
Environmental Laws pending, or to the knowledge of Sterling and the Selling
Stockholders after due inquiry, threatened against Sterling or its subsidiaries.
Sterling and its subsidiaries have not entered into any agreements relating to
any removal, remedial or other response action required under Environmental Laws
or relating to any claims arising under any Environmental Law.

         Section 3.25. No Underground Storage Tanks. None of the real property
owned, operated or leased by Sterling and its subsidiaries has in the past had
(to the knowledge of Sterling and the Selling Stockholders) any underground
storage tanks located thereon containing Hazardous Substances.

         Section 3.26. Accounting Records. The books of account and other
accounting records of Sterling and its subsidiaries are [complete and] correct
in all material respects, and have been maintained in accordance with Sterling's
and its subsidiaries' normal business practices.

         Section 3.27. Litigation and Claims. Except as set forth on Schedule
3.27, there are no actions, suits, claims or other proceedings at law or in
equity before any foreign, federal, state, municipal, or other governmental
court, department, commission, board, bureau, agency, governmental authority, or
other instrumentality or Person or any board of arbitration or similar entity (a
"Proceeding") pending or, to the knowledge of Sterling and the Selling
Stockholders after due inquiry, threatened against Sterling, its subsidiaries or
any of their respective employees, officers or directors or involving any of
their respective assets, properties or rights.

                                      -25-
<PAGE>   34

         Section 3.28. Related Party Transactions. Except as set forth on
Schedule 3.28, neither the Selling Stockholders nor any member of their
immediate families are a party to any contract, agreement, understanding, or
business arrangement with Sterling or its subsidiaries. Except for the Sterling
Plans and except as set forth on Schedule 3.28, no director, officer or employee
(nor any member of any such person's immediate family) of Sterling or its
subsidiaries is a party to any written contract or agreement with Sterling or
its subsidiaries. Except as set forth on Schedule 3.28, Sterling and its
subsidiaries do not employ as an employee or engage as a consultant any family
member of any of the directors or officers of Sterling or the Selling
Stockholders. Except as set forth on Schedule 3.28, during the past three years
none of the directors or officers of Sterling or any of its subsidiaries or the
Selling Stockholders, or any family member of any of such persons, has been a
director or officer of, or has had any direct or indirect interest in, any
person which during such period has been a supplier, customer or sales agent of
Sterling or its subsidiaries or has competed with or been engaged in any
business of the kind being conducted by Sterling and its subsidiaries. Except as
set forth on Schedule 3.28, no person who, directly or indirectly, controls, is
controlled by or is under common control with Sterling or its subsidiaries owns
or has any rights in or to any of the assets, properties or rights used by
Sterling and its subsidiaries in the ordinary course of their business.

         Section 3.29. No Misstatements or Omissions. Each of the
representations and warranties of Sterling contained in this Article III do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make such representation and warranty not misleading.

                                  Article IV.
                 Representations and Warranties of the Purchaser

         The Purchaser makes the representations and warranties set forth in
this Article IV to Sterling and the Selling Stockholders as of the date hereof.

         Section 4.1. Due Organization. Each of the Purchaser and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its incorporation, and
has all requisite corporate power and authority to own or lease its properties
and assets and conduct its business as now conducted. Each of the Purchaser and
its subsidiaries is duly authorized and qualified to carry on its business as a
foreign corporation in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not be reasonably
expected, individually or in the aggregate, to have a material adverse effect on
the business, assets, condition (financial or other), properties or results of
operations of the Purchaser and its subsidiaries taken as a whole (a "Purchaser
Material Adverse Effect"). Copies of the Articles or Certificate of
Incorporation, Bylaws, stock records and minute books of the Purchaser and each
of its subsidiaries, with all amendments thereto on the date hereof, have been
furnished or made available to Sterling or its representatives, and such copies
are correct and complete.

         Section 4.2. Authorization. The Purchaser has all necessary corporate
power and authority to execute and deliver this Agreement and the other
Transaction Documents to be executed and delivered by the Purchaser and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by the Purchaser of this Agreement and the

                                      -26-
<PAGE>   35

other Transaction Documents to be executed and delivered by the Purchaser and
all instruments, documents and agreements contemplated hereby and thereby to be
executed by or on behalf of the Purchaser have been or will be at the Closing
duly and validly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement, the other Transaction Documents to which the
Purchaser is a party and all other instruments, documents and agreements
contemplated hereby to be executed and delivered by the Purchaser have been or
will be at the Closing duly and validly executed and delivered by the Purchaser
and constitute, or will constitute, the legal, valid and binding obligation of
the Purchaser, enforceable against the Purchaser, except to the extent
enforceability is limited by applicable bankruptcy, reorganization, insolvency
and similar laws from time to time in effect and subject to general principles
of equity and judicial discretion.

         Section 4.3. No Conflicts; Approvals. Neither the execution, delivery
or performance by the Purchaser of this Agreement and the other Transaction
Documents to which the Purchaser is a party, nor the consummation by the
Purchaser of the transactions contemplated hereby and thereby, will (a) conflict
with or result in a breach of any provision of the Articles or Certificate of
Incorporation, as applicable, or Bylaws of the Purchaser and its subsidiaries,
(b) result in any conflict with, breach of, or constitute (with or without
notice or lapse of time or both) a default under, or give rise to any right to
termination, amendment, cancellation or acceleration or loss of any right or
benefit under or require any consent or approval which has not been obtained
with respect to any of the terms, conditions or provisions of any material
contract, lease, loan agreement, mortgage, security agreement, trust indenture
or other agreement or instrument to which the Purchaser or its subsidiaries are
a party or by which any of their respective properties or assets may be bound
(except for those consents or approvals set forth on Schedule 4.3), or result in
the creation or imposition of any Lien upon any of the assets or properties of
the Purchaser or its subsidiaries, or result in the cancellation, modification,
revocation or suspension of any of the Purchaser Permits (as defined in Section
4.9 hereof), or (c) violate any order, decree, law, rule or regulation
applicable to the Purchaser or any of its subsidiaries or by which any of their
respective properties or assets may be bound, except in the case of the
foregoing clauses (b) or (c) for such violations, breaches, defaults,
terminations, amendments, cancellations, accelerations or Liens which would not
reasonably be expected, individually or in the aggregate, to have a Purchaser
Material Adverse Effect. Except as set forth on Schedule 4.3, no action,
consent, authorization, waiver or approval by, or filing or registration by the
Purchaser or any of its subsidiaries with, any federal, state, municipal,
foreign or other court or governmental body or agency, or any other regulatory
body or Person, is required in connection with the execution, delivery or
performance by the Purchaser of this Agreement and the other Transaction
Documents to which the Purchaser is a party and the other transactions
contemplated hereby and thereby.

         Section 4.4. Capital Stock of the Purchaser.

         (a) The authorized capital stock of the Purchaser consists of (A)
fourteen million (14,000,000) shares of Purchaser Common Stock, of which,
immediately prior to the Closing, three million two hundred twelve thousand nine
hundred sixty-two (3,212,962) shares were issued and outstanding and one million
seven hundred thirty thousand two hundred sixty-three (1,730,263) shares were
held in the Purchaser's treasury, and (B) and one million (1,000,000) shares of
preferred stock, par value $0.01 per share, of which no shares are issued or
outstanding.

                                      -27-
<PAGE>   36

As of the Closing Date, but without giving effect to the transactions
contemplated under the Transaction Documents, there will be issued and
outstanding options to acquire one million seven hundred sixty thousand four
hundred fifty-four (1,760,454) shares of Purchaser Common Stock and issued and
outstanding warrants to acquire three hundred twenty-one thousand two hundred
ninety-six (321,296) shares of Purchaser Common Stock. Except as set forth in
this Section 4.4 or Schedule 4.4, immediately prior to the Closing, neither the
Purchaser nor any of its subsidiaries have outstanding (i) any securities
convertible into or exchangeable for any share of capital stock, (ii) any rights
or warrants to subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of, or
any calls, commitments or claims of any other character relating to the issuance
of, any capital stock, or (iii) any stock or securities convertible into or
exchangeable for any of the securities set forth in clauses (i) or (ii) of this
sentence. All of the issued and outstanding shares of Purchaser Common Stock
have been duly authorized and are validly issued, fully paid, nonassessable and
free of preemptive rights (other than as disclosed on Schedule 4.4). All issued
and outstanding shares of Purchaser Common Stock were offered, issued, sold and
delivered by the Purchaser in compliance with (or pursuant to exemptions from)
all applicable state and federal laws governing the offer and sale of
securities. None of such shares was issued in violation of the preemptive rights
of any stockholder. Except as set forth on Schedule 4.4, there are no bonds,
debentures, notes or other indebtedness of the Purchaser having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of the Purchaser may vote and there
are no stockholders agreements, voting trusts or other agreements or
understandings to which the Purchaser or any subsidiary is a party or by which
it is bound relating to the issued or unissued capital stock of the Purchaser or
granting to any person or group of persons the right to elect, or to designate
or nominate for election, a director to the Board of Directors of the Purchaser.

         (b) The Purchaser Securities, together with the shares of Purchaser
Common Stock to be issued upon exercise of the Warrants and the Manning
Securities, have been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid, nonassessable and
not subject to any preemptive rights. The shares of Purchaser Common Stock to be
issued upon exercise of the Warrants have been duly authorized and validly
reserved for issuance in contemplation of the exercise of the Warrants and, when
issued and delivered in accordance with the terms of the Purchaser's Certificate
of Incorporation, will have been validly issued and will be fully paid and
nonassessable, and the issuance thereof will not have been subject to any
preemptive rights.

         Section 4.5. Subsidiaries. Except as set forth in Schedule 4.5, the
Purchaser owns, directly or indirectly, all of the issued and outstanding shares
of capital stock of each of its subsidiaries, free and clear of any Liens, and
all of such shares have been duly authorized and are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Schedule
4.5, none of the Purchaser's subsidiaries has, or is bound by, any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any security of such
subsidiary, including any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such subsidiary. There are no outstanding contractual obligations of the
Purchaser or any of its subsidiaries to vote any shares of the capital stock of
any of the subsidiaries of the Purchaser. Except as set forth in Schedule 4.5,
neither the Purchaser nor any of its subsidiaries is under any

                                      -28-
<PAGE>   37

current or prospective obligation to provide funds to, make a capital
contribution or investment in or loan to, or to assume any liability or
obligation of, any corporation, partnership, joint venture or the business
association or entity.

         Section 4.6. Purchaser SEC Reports.

         (a) The Purchaser has filed all reports required to be filed by it with
the Securities and Exchange Commission (the "Commission") since December 31,
1998 pursuant to the Exchange Act. The Purchaser has delivered or made available
to Sterling and the Selling Stockholders: (i) the Purchaser's annual reports on
Form 10-K for its fiscal years ended February 28, 2001, February 29, 2000 and
February 28, 1999; (ii) its proxy statements relating to meetings of the
stockholders of the Purchaser held since February 28, 1999; and (iii) all of its
other reports, statements, schedules and registration statements filed with the
Commission since February 28, 1999 (the documents referred to in this Section
4.6, collectively, the "Purchaser SEC Reports"). As of their respective dates
and as amended, the Purchaser SEC Reports complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the
Commission thereunder applicable to such Purchaser SEC Reports. As of their
respective dates, the Purchaser SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

         (b) The audited consolidated financial statements of the Purchaser as
of and for the years ended February 28, 2001, February 29, 2000 and February 28,
1999 (collectively, the "Purchaser Audited Financial Statements") and the
unaudited interim financial statements of the Purchaser as of and for the three
months ended May 31, 2001 and May 31, 2000 (collectively, the "Purchaser Interim
Financial Statements" and, together with the Purchaser Audited Financial
Statements, the "Purchaser Financial Statements"), in each case included in the
Purchaser SEC Reports, comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto.

         (c) The Purchaser Financial Statements are in all material respects
accurate, complete and in accordance with the books and records of the Purchaser
and its subsidiaries and present fairly in all material respects, the financial
position of the Purchaser and its subsidiaries as of their respective dates and
the results of their operations and changes in financial position of the
Purchaser and its subsidiaries for the periods then ended, in conformity with
GAAP, consistently applied (subject, in the case of the Purchaser Interim
Financial Statements to (i) normal year-end and audit adjustments, the effects
of which, individually or in the aggregate, will not be materially adverse, (ii)
the fact that they do not contain all of the footnote disclosures required by
GAAP and (iii) the fact that certain information and notes have been condensed
or omitted in accordance with the Exchange Act and the rules promulgated
thereunder).

         Section 4.7. Balance Sheet Liabilities and Obligations. Except as set
forth on Schedule 4.7, there are no material liabilities or obligations of the
Purchaser or its subsidiaries of any kind, character and description, whether
accrued, absolute, secured or unsecured, determined, determinable, contingent or
otherwise, except for those reflected in the Purchaser Financial Statements and
those incurred after February 28, 2001 in the ordinary course of

                                      -29-
<PAGE>   38

business consistent with past practice that are required to be reflected on a
balance sheet of the Purchaser and its subsidiaries prepared in accordance with
GAAP.

         Section 4.8. Accounts and Notes Receivable. Except to the extent
reflected on Schedule 4.8, all accounts and notes receivable payable to or for
the benefit of the Purchaser or its subsidiaries reflected in the Purchaser
Financial Statements arose from the sale of products and services in the
ordinary course of business consistent with past practice or reflect advances to
employees or affiliates and are legal, valid and binding claims of the Purchaser
or its subsidiaries and the reserves with respect thereto reflected in the
Purchaser Financial Statements were reasonable and adequate in accordance with
GAAP as of the date of issuance of the Purchase Financial Statements.

         Section 4.9. Permits. Schedule 4.9 sets forth an accurate list of all
material permits (excluding permits for particular construction projects or
other jobs for customers), authorizations, consents, registrations, licenses,
franchises and certificates (collectively, the "Purchaser Permits") held by the
Purchaser or its subsidiaries or, if applicable, by their employees that are
used to conduct the business of the Purchaser and its subsidiaries. Such
Purchaser Permits (i) are valid, in good standing and in full force and effect,
(ii) are not subject to any pending or threatened administrative or judicial
proceeding to revoke, cancel, suspend or declare such Purchaser Permits invalid
in any respect, and (iii) are in all material respects adequate for the
operation of the business of the Purchaser and its subsidiaries as it is
presently being conducted and has been proposed by the Purchaser and its
subsidiaries to be conducted. None of the operations of the Purchaser and its
subsidiaries are being conducted in a manner that violates in any material
respect any of the terms or conditions under which any Purchaser Permit was
granted. Neither the execution and delivery by the Purchaser of this Agreement
and the other Transaction Documents to which it is a party, nor the consummation
of the sale of the Purchaser Securities and the other transactions contemplated
hereby and pursuant to the other Transaction Documents by the Purchaser will
require transfer or reissuance of, or cause a default, termination or suspension
under, or alter or impair any rights under, such Purchaser Permits.

         Section 4.10. Real and Personal Property. Except as set forth on
Schedule 4.10, the Purchaser and its subsidiaries do not and have not at any
time since January 1, 1996 owned or leased any real property (other than
property previously or currently leased on a temporary basis for particular
construction projects or other jobs for customers), and true, correct and
complete copies of all current lease agreements of the Purchaser and its
subsidiaries relating to real property leased by the Purchaser and its
subsidiaries ("Purchaser Leased Real Property") have been furnished or made
available to Sterling (the "Purchaser Real Property Leases"). The Purchaser Real
Property Leases are in full force and effect and constitute valid, legal and
binding agreements of the parties (and their successors) thereto. All tangible
assets used by the Purchaser and its subsidiaries in the operation of their
businesses are either owned by the Purchaser or its subsidiaries or leased under
agreements that have been furnished or made available to the Purchaser, or, in
the case of certain tools and immaterial tangible assets, are owned and used by
the relevant employees. Subject to normal maintenance, repair, reconditioning
and replacement, except as set forth on Schedule 4.10, all of the vehicles,
machinery and equipment of the Purchaser and its subsidiaries are in reasonably
good working order and condition, ordinary wear and tear excepted. Neither the
Purchaser nor any of its subsidiaries owns any real property.

                                      -30-
<PAGE>   39

         (a) Leased Real Property: The Purchaser Leased Real Property
constitutes all of the real property necessary for the Purchaser and its
subsidiaries to operate their businesses as they are currently being conducted.

         (b) Real Property Leases - No Default: Neither the Purchaser nor any of
its subsidiaries nor, to the Purchaser's knowledge, any of the other parties to
the Purchaser Real Property Leases, is in material default under any of the
Purchaser Real Property Leases, and no material amount due under the Purchaser
Real Property Leases remains unpaid, no material controversy, claim, dispute or
disagreement exists between the parties to the Purchaser Real Property Leases,
and to the Purchaser's knowledge no event has occurred which with the passage of
time or giving of notice, or both, would constitute a material default
thereunder.

         (c) Restrictive Covenants: To the Purchaser's knowledge, there is no
violation of a condition or agreement contained in any covenant, easement or any
similar agreement affecting the Purchaser Leased Real Property. The covenants,
easements or rights-of-way affecting the Purchaser Leased Real Property do not,
with respect to the Purchaser Leased Real Property, materially impair the
Purchaser's or any of its subsidiaries' ability to use any such Purchaser Leased
Real Property in the operation of their businesses as currently conducted. The
Purchaser and its subsidiaries have access to public roads, streets or the like
or valid perpetual easements over private streets, roads or other private
property for such ingress to and egress from the Purchaser Leased Real Property,
except as would not materially impair the ability to use any such Purchaser
Leased Real Property in the operation of their businesses as currently
conducted.

         (d) Eminent Domain: To the Purchaser's knowledge there is no pending or
threatened condemnation of any part of the Purchaser Leased Real Property by any
governmental authority.

         (e) Utilities: The Purchaser and its subsidiaries have not received any
notice from any utility company or municipality of any fact or condition which
could result in the discontinuation of currently available or otherwise
necessary sewer, water, electric, gas, telephone or other utilities or services
for the Purchaser Leased Real Property.

         (f) No Commissions: All brokerage commissions and other compensation
and fees payable by reason of the Purchaser Real Property Leases have been paid
in full, except to the extent that such may result from the extension or renewal
of any Purchaser Real Property Leases.

         (g) Improvements: To the Purchaser's knowledge, all improvements on the
Purchaser Leased Real Property (for which the Purchaser and its subsidiaries are
responsible) conform in all material respects to all applicable federal, state
and local laws, zoning, land use and building ordinances and health and safety
ordinances (including, without limitation, the Americans with Disabilities Act),
and neither the Purchaser nor any of its subsidiaries or affiliates has received
any notice of any violation of any such laws or ordinances which violation has
not been cured. The Purchaser Leased Real Property is zoned for the various
purposes for which the real estate and improvements have been used in connection
with the normal operation of the Purchaser's and its subsidiaries' businesses.
To the Purchaser's knowledge, there is no material patent structural, mechanical
or other significant defect, soil condition or deficiency in the improvements
located on the Purchaser Leased Real Property (for which the Purchaser is
responsible).

                                      -31-
<PAGE>   40

         (h) Insurance: There are no outstanding requirements or recommendations
by any insurance company which has issued to the Purchaser or any of its
subsidiaries a policy covering the Purchaser Leased Real Property, by any board
of fire underwriters or other body exercising similar functions, requiring or
recommending any repairs or work to be done on such property.

         Section 4.11. Material Contracts and Commitments. Except to the extent
set forth on Schedule 4.11, the Purchaser and each of its subsidiaries: (i) has
performed all material obligations required to be performed by it under, and has
complied in all material respects with all written and oral contracts,
commitments and similar agreements or arrangements that as of the date of this
Agreement are material to the Purchaser and its subsidiaries taken as a whole,
to which the Purchaser or any of its subsidiaries is a party or by which the
Purchaser or any of its subsidiaries or any of their properties may be bound
(including, but not limited to, municipal contracts, joint venture or
partnership agreements, contracts with any labor organizations, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) (collectively, the "Purchaser
Contracts"); and (ii) is not in material default under any such Purchaser
Contract and no notice of default or delinquency has been received, nor has any
event occurred which, with due notice or lapse of time or both, would constitute
such a default. To the knowledge of the Purchaser, no other party to any
Purchaser Contract is in default in respect thereof, and no event has occurred
which, with due notice or lapse of time or both, would constitute such a
default. Except for oral contracts for materials and contracts with
subcontractors or material suppliers made in the ordinary course of business,
Schedule 4.11 sets forth an accurate list of all Purchaser Contracts which as of
the date of this Agreement (i) commit the Purchaser or any of its subsidiaries
to a commitment involving in any one case $50,000 or more or (ii) by their terms
do not terminate and cannot be terminated within six (6) months, and the
Purchaser has furnished or made available to Sterling copies of all Purchaser
Contracts listed on Schedule 4.11. Each of the Purchaser Contracts listed on
Schedule 4.11 is a valid and binding obligation of the Purchaser or its
subsidiaries, as the case may be, and is in full force and effect and
enforceable against the parties thereto in accordance with its terms and, except
to the extent breached by the other party, or unless it expires by its terms
prior thereto, or except as set forth on Schedule 4.11, will continue in such
force and effect following the Closing Date and requires no consent of any party
to the execution of this Agreement and the other Transaction Documents or the
consummation of the transactions contemplated hereby and thereby.

         Section 4.12. Labor. Except as set forth on Schedule 4.12, (i) the
Purchaser and its subsidiaries are not bound by or subject to (and none of their
assets or properties is bound by or subject to) any arrangement with any labor
union, (ii) no employees of the Purchaser or its subsidiaries are represented by
a labor union or covered by any collective bargaining agreement, and (iii) no
organizational campaign to establish such representation is in progress. There
is no pending or threatened labor dispute involving the Purchaser or its
subsidiaries and any group of its employees nor has the Purchaser or its
subsidiaries experienced any labor interruptions since January 1, 1996. The
Purchaser and its subsidiaries are in compliance in all material respects with
all laws, regulations and orders relating to the employment of labor, including
all such laws, regulations and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security taxes and any similar employment tax. There has been no "mass layoff"
or "plant

                                      -32-
<PAGE>   41

closing" as defined by the WARN Act or any similar state or local "plant
closing" law with respect to the current or former employees of the Purchaser
and its subsidiaries.

         Section 4.13. Acquisition of Sterling Purchased Stock.

         (a) The Purchaser is acquiring the Sterling Purchased Stock for its own
account for investment and not with a view towards the resale, transfer or
distribution thereof, nor with any present intention of distributing such
shares.

         (b) The Purchaser understands that the Sterling Purchased Stock has not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or any state securities law, but is being sold in a transaction exempt
from the registration requirements of the Securities Act and such laws, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. The Purchaser also
understands that such securities must be held indefinitely unless they are
subsequently registered under the Securities Act and any applicable state
securities laws, or a subsequent disposition thereof is exempt from
registration.

         Section 4.14. Insurance. Schedule 4.14 sets forth an accurate list of
all insurance policies, fidelity bonds or other insurance service contracts (the
"Purchaser Insurance") in force with respect to the Purchaser and its
subsidiaries or their properties, assets, employees, officers, directors and
business. The Purchaser Insurance carried by the Purchaser and its subsidiaries
with respect to their properties, assets, employees, officers, directors and
business is in amounts consistent with past practice and, to the knowledge of
the Purchaser, in accordance with industry standards and as required by legal
requirements and the Purchaser Contracts. Such Purchaser Insurance is currently
in full force and effect, is sufficient for all applicable requirements of law
and will not be affected by or terminated or lapsed by reason of the
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents. All premiums due and payable under all Purchaser
Insurance have been paid or are being paid in accordance with the payment plans
approved by the carriers. Except as set forth on Schedule 4.14, the Purchaser
and its subsidiaries are not in default under any provisions of any such
Purchaser Insurance, such Purchaser Insurance has never been canceled and, since
January 1, 1996, no insurer has ever refused to issue any Purchaser Insurance
requested to be issued to the Purchaser and its subsidiaries. There are no
claims by the Purchaser or its subsidiaries pending under any of such Purchaser
Insurance as to which coverage has been questioned, denied or disputed by the
underwriters of such Purchaser Insurance.

         Section 4.15. Compensation. Schedule 4.15 sets forth the names of all
officers, directors and key employees of the Purchaser and its subsidiaries who
received total compensation for the year ended December 31, 2000 in excess of
$75,000 and their current rates of compensation.

         Section 4.16. Employee Benefit Plans.

         (a) Schedule 4.16 sets forth an accurate list of all employee benefit
or welfare plans, including without limitation any "employee welfare benefit
plans" and "employee pension benefit plans" as defined in ERISA, benefits under
any collective bargaining agreement or employment contracts, pension,
profit-sharing, bonus, stock option, incentive, deferred

                                      -33-
<PAGE>   42

compensation, dependent care, medical reimbursement, hospitalization, medical,
or life insurance, severance benefits or any other plan, arrangement, or program
and any employment agreement containing "golden parachute" provisions, and a
description of such plans, programs or arrangements, that are currently
maintained, or contributed to, or required to be maintained or contributed to,
by the Purchaser or any entity that together with the Purchaser is treated as a
single employer (collectively, "Purchaser Controlled Group Member") under
Section 414(b), (c), (m) or (o) of the Code, for the benefit of any current or
former employees, officers or directors of Sterling or any of its predecessors
(collectively, the "Purchaser Plans"). To the knowledge of the Purchaser after
due inquiry, all Purchaser Plans listed on Schedule 4.16 are in substantial
compliance in all material respects with all applicable provisions of ERISA, the
Code and the regulations issued thereunder, as well as with all other applicable
federal, state and local statutes, ordinances and regulations, except only in
those instances where such failure to do so does not result in a Purchaser
Material Adverse Effect. The Purchaser has previously provided Sterling with
copies of or access to all such Purchaser Plans and any trusts, insurance
contracts, investment management agreements or any other funding arrangement
related thereto, annual reports (Form 5500) and all schedules related thereto
filed for the last three years (if required to be filed), and the most recent
summary plan description for each Purchaser Plan, arrangement, or program and
classifications of employees covered thereby that are in effect on the date
hereof as to which a summary plan description is required. With respect to any
Purchaser Plan listed on Schedule 4.16, individually and in the aggregate, no
event has occurred, and no set of circumstances have occurred in connection with
which the Purchaser is reasonably likely to be subject to any liability that
could have a Purchaser Material Adverse Effect.

         (b) None of the Purchaser Plans is a "single-employer plan" as defined
in Section 4001(a)(15) of ERISA (a "Purchaser Pension Plan"). Neither Purchaser
nor any Purchaser Controlled Group Member has any outstanding liability under
Section 4062 of ERISA to the Pension Benefit Guaranty Corporation or to a
trustee appointed under Section 4042 of ERISA with respect to any Purchaser
Pension Plan, and no events have occurred and no circumstances exist that could
reasonably be expected to result in any such liability to the Purchaser or any
Purchaser Controlled Group Member.

         (c) Each Purchaser Plan that is intended to qualify under Section
401(a) of the Code and the trust maintained pursuant thereto that is intended to
be exempt from federal income taxation under Section 501(a) of the Code are so
qualified and exempt from federal income taxation under Section 501(a) of the
Code, and to the knowledge of the Purchaser, nothing has occurred with respect
to the operation of any such Purchaser Plan that could reasonably result in the
loss of such qualification or tax exemption or the imposition of any material
liability, penalty or tax under ERISA or the Code.

         (d) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Purchaser Plans or by law (without regard to any waivers granted under
Section 412 of the Code) to any funds or trusts established thereunder or in
connection therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before the Closing
Date which are not yet due will have been paid or accrued.

                                      -34-
<PAGE>   43

         (e) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Purchaser Plans, the assets of any of the
trusts under the Purchaser Plans or the Purchaser Plan sponsor or the Purchaser
Plan administrator, or against any fiduciary of the Purchaser Plans with respect
to the operation of the Purchaser Plans (other than routine benefit claims), nor
does the Purchaser have any knowledge of facts which could reasonably form the
basis for any such claim or lawsuit.

         (f) The Purchaser Plans have been maintained, in all material respects,
in accordance with their terms and with all provisions of ERISA and the Code
(including rules and regulations thereunder) and other applicable federal and
state laws and regulations, and neither the Purchaser nor, to the knowledge of
the Purchaser, any "party in interest" or "disqualified person" with respect to
the Purchaser Plans has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or 4975 of the Code. To the knowledge of the Purchaser,
no fiduciary has any liability for breach of fiduciary duty or any other failure
to act or comply in connection with the administration or investment of the
assets of any Purchaser Plan.

         (g) None of the Purchaser Plans provide retiree life or retiree health
benefits except as may be required under Section 4980B of the Code or Sections
601 through 608 of ERISA and at the expense of the participant or the
participant's beneficiary.

         (h) Neither the execution and delivery of this Agreement or any other
Transaction Document to which the Purchaser is a party nor the consummation of
the transactions contemplated hereby or thereby will, (i) result in any payment
becoming due to any employee (current, former or retired) of the Purchaser, (ii)
increase any benefits otherwise payable under any Purchaser Plan, (iii) result
in the acceleration of the time of payment or vesting of any benefits under any
Purchaser Plan or (iv) constitute a "change in control" or similar event under
any Purchaser Plan or fail to be deductible by reason of Section 280G of the
Code.

         (i) No stock or other security issued by the Purchaser or any affiliate
forms or has formed a material part of the assets of any Purchaser Plan.

         Section 4.17. No Multiemployer Plans. Neither the Purchaser nor any
Purchaser Controlled Group Member has ever sponsored or contributed to, or had
an obligation to contribute to, a Multiemployer Plan, as such term is defined in
Section 4001(a)(3) of ERISA.

         Section 4.18. Conformity with Law; Governmental Claims. The Purchaser
and its subsidiaries are not in violation or breach of, or default under, any
federal, state, municipal or foreign statutes, laws, ordinances, rules,
regulations, judgments, decrees or orders or under any order of any court or
federal, state, municipal, foreign or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them,
which default would reasonably be expected to, individually or in the aggregate,
have a Purchaser Material Adverse Effect; and except to the extent set forth in
Schedule 4.18, there are no material claims, actions, suits, investigations or
proceedings pending or, to the knowledge of the Purchaser, threatened against
the Purchaser or any of its subsidiaries, at law or in equity, by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over it and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Except to the extent set forth in

                                      -35-
<PAGE>   44

Schedule 4.18, the Purchaser and its subsidiaries have conducted and are
conducting their businesses in substantial compliance in all material respects
with the requirements, standards, criteria and conditions set forth in
applicable federal, state, local and foreign statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations and are not in
violation in any material respect of any of the foregoing.

         Section 4.19. Taxes and Tax Returns.

         (a) Tax Returns of the Purchaser and its subsidiaries that are required
(so as to avoid delinquency) to be filed on or before the Closing Date have been
(or will have been by the Closing Date) timely filed (subject to any extensions
that have been obtained) with the appropriate governmental authorities. All such
Tax Returns were true, correct and complete in all material respects as of the
time of such filing.

         (b) All Taxes of any kind whatsoever (whether payable directly or via
withholding) that are shown on the Tax Returns described in Section 4.19(a)
hereof as due from the Purchaser have been (or will have been by the Closing
Date) properly paid or deposited. Any liability for taxes owed by the Purchaser
and not yet due and payable, or which are being contested in good faith, has
been provided for on the financial statements of the Purchaser in accordance
with GAAP.

         (c) Except as set forth on Schedule 4.19-1, the Purchaser has not, to
the knowledge of the Purchaser, received any notice of deficiency or assessment
in connection with any Tax Returns, and there are not any pending Tax
examinations of, or Tax claims asserted against, the Purchaser. The Purchaser
has not extended, or waived the application of, any statute of limitations of
any jurisdiction regarding the assessment or collection of any Taxes. There are
no requests for rulings or determinations in respect of any taxes pending
between the Purchaser and the Internal Revenue Service or any other Tax
authority. There is no lien for Taxes (other than any lien for current Taxes not
yet delinquent) on or with respect to any assets of the Purchaser.

         (d) The Purchaser has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Purchaser has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Section 280G of the Code.

         (e) The Purchaser is not a "foreign person" for purposes of U.S. income
taxation. The Purchaser is a member of an affiliated group within the meaning of
Section 1504(a) of the Code.

         (f) The Purchaser has made all deposits required by law to be made with
respect to employees' withholding and other employment Taxes. The Purchaser has
withheld and paid all material Taxes required to be withheld in connection with
any amounts paid or owing to any employee, creditor, independent contractor or
other third party.

         (g) Set forth on Schedule 4.19-2 is a complete list of all of the net
operating losses (each an "NOL") of Purchaser and its "affiliated group" (as
defined in Section 1504(a) of the Code) including, for each such NOL the amount
for federal income tax purposes, the amount for alternative minimum tax purposes
and the expiration date. Schedule 4.19-2 is a true and correct representation of
the NOLs in all material respects.

                                      -36-
<PAGE>   45

         (h) The NOLs will be available to Purchaser after the Closing through
their applicable expiration dates as set forth on Schedule 4.19-2 to offset
taxable income generated by Sterling and/or Texas-Sterling after the Closing.

         (i) All of the representations set forth in Purchaser's representation
letters to Deloitte & Touche and McDermott, Will & Emery in order for them to
issue the opinions referenced in Sections 7.2(a) and 7.2(b), respectively, are
true and correct in all material respects.

         Section 4.20. Intellectual Property. All material patents, patent
applications, copyrights, trademarks, trade names, service marks and other
intellectual property which are used in the business of the Purchaser and its
subsidiaries are listed on Schedule 4.20. Schedule 4.20 also lists, where
applicable, the state and federal registration numbers relating to such
intellectual property and the class of services to which such intellectual
property relates. Except as set forth in Schedule 4.27, (i) there are no claims
or proceedings pending or threatened against the Purchaser and its subsidiaries
asserting that the use of any of such intellectual property infringes the rights
of any other Person and (ii) the Purchaser and its subsidiaries have adequate
rights to use all material patents, patent applications, inventions, know-how,
technical information and other intellectual property used in the conduct of
their respective businesses.

         Section 4.21. Governmental Contracts. The Purchaser and its
subsidiaries are not a party to any governmental contracts.

         Section 4.22. Absence of Changes. Since February 28, 2001, except as
set forth in Schedule 4.22 or except as otherwise expressly contemplated hereby,
there has not been:

         (a) any changes in the financial condition, assets, liabilities
(contingent or otherwise), or business of the Purchaser and its subsidiaries
that would reasonably be expected to, individually or in the aggregate, have a
Purchaser Material Adverse Effect;

         (b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties, assets or business of
the Purchaser and its subsidiaries, taken as a whole;

         (c) any change in the authorized, issued or outstanding capital stock
of the Purchaser or any of its subsidiaries, except for stock purchases by
employees of the Purchaser pursuant to the Purchaser's existing employee stock
purchase program;

         (d) any declaration, setting aside or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of the
Purchaser or any of its subsidiaries;

         (e) any increase in the compensation, bonus, benefits, sales
commissions or fee arrangements payable or to become payable by the Purchaser or
its subsidiaries to any of their respective officers, directors, employees,
consultants or agents, except in the normal course of business consistent with
past practices;

         (f) any work interruption or any similar event or condition materially
and adversely affecting the business of the Purchaser and its subsidiaries taken
as a whole;

                                      -37-
<PAGE>   46

         (g) any sale or transfer of, or any agreement to sell or transfer,
outside the ordinary course of business, any material assets, property or rights
of the Purchaser or its subsidiaries to any person;

         (h) any cancellation, or agreement to cancel, any material indebtedness
or other material obligation owing to the Purchaser or its subsidiaries;

         (i) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any assets, property or rights of the
Purchaser or its subsidiaries or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;

         (j) any purchase or acquisition, or agreement, plan or arrangement to
purchase or acquire, any material property, rights or assets of the Purchaser or
its subsidiaries other than in the normal course of business consistent with
past practices;

         (k) any material breach, or (other than in the normal course of
business or as expressly contemplated by this Agreement) any amendment or
termination, of any Purchaser Contract or Purchaser Permit;

         (l) any change in any method of accounting or accounting practice of
the Purchaser and its subsidiaries;

         (m) any loss of the employment, services or benefits of any key
employee of the Purchaser or its subsidiaries;

         (n) any material default on any material obligation of the Purchaser or
its subsidiaries;

         (o) any write down of the value of any inventory or any write off as
uncollectible of any of the Purchaser's or its subsidiaries' accounts receivable
or any portion thereof, in any such case not reflected on the balance sheet as
of February 28, 2001 of the Purchaser and its subsidiaries included in the
Purchaser Audited Financial Statements; or

         (p) any agreement by the Purchaser or its subsidiaries (whether or not
in writing) to effect any of the changes set forth in clauses (a) through (o)
above.

         Section 4.23. Brokers and Finders. Except as set forth on Schedule
4.23, the Purchaser has not employed any broker, agent or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in cash for the
sale of the Purchaser Securities or the consummation of the other transactions
contemplated by the Agreement or the other Transaction Documents. Neither the
Purchaser nor any of its subsidiaries, nor any of their officers, directors, or
employees on behalf of the Purchaser or its subsidiaries, has incurred any
liabilities for any financial advisory fees, brokerage fees, commissions or
finders' fees that remain unpaid in connection with any transaction or proposed
transaction other than the transactions contemplated hereby.

         Section 4.24. Environmental Matters. Except as disclosed on Schedule
4.24, the Purchaser and its subsidiaries have not disposed of, or arranged for
the disposal of, Hazardous

                                      -38-
<PAGE>   47

Substances. Except as disclosed on Schedule 4.24, there has been no generation,
storage or treatment of solid wastes or Hazardous Substances by the Purchaser or
its subsidiaries at any site or other facility in material violation of any
applicable law, rule, regulation, order, judgment or permit or that would
require any material ongoing or future removal, remedial or other response
action under any applicable law. Based upon all of the facts known to the
Purchaser, including but not limited to all of the facts set forth in Schedule
4.24 with respect to any and all real property owned, operated or leased by the
Purchaser or any of its subsidiaries, the Purchaser after due inquiry does not
believe and has no reasonable basis to believe that any or all of the Purchaser,
its subsidiaries or the owner or operator of such properties could reasonably be
expected to incur any material remediation or other liability with respect to
such properties under any Environmental Law. The Purchaser and its subsidiaries
have not received any notice of any violation of, or potential liability under,
any Environmental Law, and the Purchaser has no knowledge after due inquiry that
there has been any spill, discharge, leak, emission, injection, escape,
emptying, dumping or release of any kind onto any property owned, operated or
leased by the Purchaser or its subsidiaries or into the environment surrounding
any such property of any Hazardous Substances such as would result in any
material violation of, or require any material removal, remediation or other
response action under, any applicable Environmental Law. The Purchaser and its
subsidiaries have been and are in compliance with all applicable Environmental
Laws and have obtained, and have been and are in compliance with all
Environmental Permits, including such required for particular construction
projects or other jobs for customers. Neither the execution and delivery by the
Purchaser of this Agreement and the other Transaction Documents to which the
Purchaser is a party nor the consummation by the Purchaser of the other
transactions contemplated hereby and thereby, will require transfer or
reissuance of, or cause a default under, or alter or impair any rights under,
such Environmental Permits. There are no claims, actions, suits or other
proceedings involving Environmental Laws pending, or to the knowledge of the
Purchaser after due inquiry, threatened against the Purchaser or its
subsidiaries. the Purchaser and its subsidiaries have not entered into any
agreements relating to any removal, remedial or other response action required
under Environmental Laws or relating to any claims arising under any
Environmental Law.

         Section 4.25. No Underground Storage Tanks. None of the real property
owned, operated or leased by the Purchaser and its subsidiaries has in the past
had (to the knowledge of the Purchaser) any underground storage tanks located
thereon containing Hazardous Substances.

         Section 4.26. Accounting Records. The books of account and other
accounting records of the Purchaser and its subsidiaries are correct in all
material respects, and have been maintained in accordance with the Purchaser's
and its subsidiaries' normal business practices.

         Section 4.27. Litigation and Claims. Except as set forth on Schedule
4.27, there are no Proceedings pending or, to the knowledge of the Purchaser
after due inquiry, threatened against the Purchaser, its subsidiaries or any of
their respective employees, officers or directors or involving any of their
respective assets, properties or rights.

         Section 4.28. Related Party Transactions. Except for the Purchaser
Plans and except as set forth on Schedule 4.28, no director, officer or employee
(nor any member of any such person's immediate family) of the Purchaser or its
subsidiaries is a party to any written contract or agreement with the Purchaser
or its subsidiaries. Except as set forth on Schedule 4.28, the

                                      -39-
<PAGE>   48

Purchaser and its subsidiaries do not employ as an employee or engage as a
consultant any family member of any of the directors or officers of the
Purchaser. Except as set forth on Schedule 4.28, during the past three years
none of the directors or officers of the Purchaser or any of its subsidiaries,
or any family member of any of such persons, has been a director or officer of,
or has had any direct or indirect interest in, any person which during such
period has been a supplier, customer or sales agent of the Purchaser or its
subsidiaries or has competed with or been engaged in any business of the kind
being conducted by the Purchaser and its subsidiaries. Except as set forth on
Schedule 4.28, no person who, directly or indirectly, controls, is controlled by
or is under common control with the Purchaser or its subsidiaries owns or has
any rights in or to any of the assets, properties or rights used by the
Purchaser and its subsidiaries in the ordinary course of their business.

         Section 4.29. Consummation of the Casella Exchange Transaction. The
Purchaser and all other parties thereto have executed and delivered that certain
Windup Agreement, dated as of April 19, 2001, as amended, by and among the
Purchaser, OTI, KTI, Inc. and Casella Waste Systems, Inc., and have consummated
all of the transactions contemplated thereunder (the "Casella Exchange
Transaction").

         Section 4.30. No Misstatements or Omissions. Each of the
representations and warranties of the Purchaser contained in this Article IV do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make such representation and warranty not
misleading.

                                   Article V.
           Representations and Warranties of the Selling Stockholders

         Each Selling Stockholder, severally with respect to itself, and not
jointly, makes the representations and warranties set forth in this Article V to
the Purchaser as of the date hereof.

         Section 5.1. Authority. Such Selling Stockholder has full legal
capacity and authority to enter into this Agreement, the other Transaction
Documents to which it is a party and all instruments, documents and agreements
contemplated hereby and thereby to be executed by or on behalf of it and to
carry out such Selling Stockholder's obligations hereunder and thereunder. This
Agreement, the other Transaction Documents to which it is a party and all
instruments, documents and agreements contemplated hereby and thereby to be
executed by or on behalf of it have been or will be at the Closing duly executed
and delivered by such Selling Stockholder and constitute, or will constitute,
the legal, valid and binding obligation of such Selling Stockholder, enforceable
against such Selling Stockholder, except to the extent enforceability is limited
by applicable bankruptcy, reorganization, insolvency and similar laws from time
to time in effect and subject to general principles of equity and judicial
discretion.

         Section 5.2. No Conflicts; Approvals. Neither the execution, delivery
and performance by such Selling Stockholder of this Agreement and the other
Transaction Documents to which such Selling Stockholder is a party, nor the
consummation by such Selling Stockholder of the transactions contemplated hereby
and thereby, will (a) violate, conflict with or result in a breach of any
agreement, contract or other instrument to which such Selling

                                      -40-
<PAGE>   49

Stockholder is a party, (b) violate or conflict with any order, decree, law,
rule or regulation applicable to such Selling Stockholder or by which any
property or asset of such Selling Stockholder is bound or (c) require any
consent, approval, authorization or other order of, action by, filing with, or
notification to, any federal, state, municipal, foreign or other court or
governmental body or agency, or any other regulatory body or Person by such
Selling Stockholder.

         Section 5.3. Title to the Sterling Common Stock. Such Selling
Stockholder has, and will have at the Closing, valid and marketable title to all
of the shares of Sterling Common Stock set forth opposite his name on Exhibit A
and Exhibit E hereto, free and clear of any Liens.

         Section 5.4. Acquisition of Purchaser Securities.

         (a) Each Selling Stockholder is acquiring the Purchaser Securities (and
James D. Manning is acquiring the Manning Securities) for such person's own
account for investment and not with a view towards the resale, transfer or
distribution thereof, nor with any present intention of distributing such shares
or securities.

         (b) Each Selling Stockholder (and James D. Manning with regard to the
Manning Securities) has such knowledge and experience in financial and business
matters that such Selling Stockholder (and James D. Manning with regard to the
Manning Securities) is capable of evaluating the merits and risks of such
person's investment in the Purchaser Securities as contemplated by this
Agreement, and is able to bear the economic risk of such investment for an
indefinite period of time. Each Selling Stockholder (and James D. Manning with
regard to the Manning Securities) has been furnished copies of or access to the
Purchaser SEC Reports which have been filed prior to the date of this Agreement
and has been afforded an opportunity to ask questions of and receive answers
from representatives of the Purchaser concerning the terms and conditions of
this Agreement and the acquisition of the Purchaser Securities contemplated
hereby.

         (c) Each Selling Stockholder (and James D. Manning with regard to the
Manning Securities) understands that the Purchaser Securities (including the
Manning Securities) have not been registered under the Securities Act or any
state securities law, but are being issued and sold in a transaction exempt from
the registration requirements of the Securities Act and such laws, which
exemption depends upon, among other things, the bona fide nature of such
person's investment intent as expressed herein. Each Selling Stockholder (and
James D. Manning with regard to the Manning Securities) also understands that
such securities must be held indefinitely unless they are subsequently
registered under the Securities Act and any applicable state securities laws or
a subsequent disposition thereof is exempt from registration. Each Selling
Stockholder (and James D. Manning with regard to the Manning Securities) also
understands that the exemption from registration afforded by Rule 144 (the
provisions of which are known to the Selling Stockholder (and James D. Manning
with regard to the Manning Securities)) promulgated under the Securities Act
depends upon the satisfaction of various conditions and that, if applicable,
Rule 144 may afford the basis for sales only in limited amounts.

                                      -41-
<PAGE>   50

                                   Article VI.
                            Covenants of the Parties

         Section 6.1. Exchange of Sterling Convertible Notes; Inter-Company
Transfer of Sterling Common Stock.

         (a) At the Closing, the Purchaser shall cause OTI to exchange all of
the Sterling Convertible Notes held by OTI for forty-three thousand two hundred
thirty-two (43,232) shares of Sterling Common Stock, which when issued in
accordance with the terms of the Note Purchase Agreement, dated as of January
19, 1999, by and among Sterling, Texas-Sterling and the purchasers named
therein, will be duly authorized, validly issued, fully paid, nonassessable and
not subject to any preemptive rights.

         (b) At the Closing, the Purchaser shall cause OTI to duly transfer all
Sterling Common Stock currently owned by OTI, including those shares issued upon
the exchange referred to in Section 6.1(a) above, to the Purchaser.

         Section 6.2. Certain Matters Regarding Oakhurst Promissory Notes.

         (a) At the Closing, in order to modify that certain promissory note for
eight hundred thousand dollars ($800,000.00) in aggregate principal amount
issued by the Purchaser to James D. Manning on October 19, 2000 (the "Original
Manning Note"), the Purchaser shall issue to Mr. Manning, (i) an amendment to
the Original Manning Note, with the terms and in the form attached hereto as
Exhibit I (the "Manning Note"), (ii) additional Notes, substantially in the form
attached hereto as Exhibit B, with principal and interest payable at maturity in
the aggregate amount of two hundred seventeen thousand dollars ($217,000.00) and
(iii) Warrants, substantially in the form attached hereto as Exhibit C, to
purchase one hundred twenty-three thousand three hundred ninety-seven (123,397)
shares of Purchaser Common Stock. The securities delivered pursuant to clauses
(i), (ii) and (iii) of this Section 6.2(a) are collectively referred to herein
as the "Manning Securities".

         (b) At the Closing, in order to modify that certain promissory note for
five hundred thirty-nine thousand one hundred seventeen dollars ($539,117.00) in
aggregate principal amount issued by OTI to Robert M. Davies on October 18,
1999, OTI shall issue to Mr. Davies an amendment to that promissory note to
increase the principal payable at maturity to the aggregate amount of six
hundred seventy-two thousand three dollars ($672,003.00), with the terms and in
the form attached hereto as Exhibit J (the "Davies First Note"). In addition, at
the Closing, the Purchaser shall issue to Mr. Davies, as payment in full for
certain accrued fees, compensation, expenses and other amounts, a promissory
note for two hundred forty-three thousand six hundred fifteen dollars
($243,615.00) in aggregate principal amount, with the terms and in the form
attached hereto as Exhibit K (the "Davies Second Note" and, together with the
Davies First Note, the "Davies Notes").

         (c) At the Closing, the Purchaser shall issue to Mr. Hemsley, as
payment in full for certain accrued fees, compensation, expenses and other
amounts, a promissory note for one hundred twenty-six thousand seven hundred
twenty-nine dollars ($126,729.00) in aggregate

                                      -42-
<PAGE>   51

principal amount, with the terms and in the form attached hereto as Exhibit L
(the "Hemsley Note").

         Section 6.3. Sterling and Purchaser Employment Agreements.

         (a) At the Closing, Sterling shall cause Texas-Sterling to enter into
(i) an employment agreement with Patrick T. Manning with the terms and in the
form attached hereto as Exhibit M, which shall replace and supersede any current
employment agreement that Texas-Sterling may have with Mr. P. Manning, (ii) an
employment agreement with Joseph P. Harper, Sr. with the terms and in the form
attached hereto as Exhibit N, which shall replace and supersede any current
employment agreement that Texas-Sterling may have with Mr. Harper, and (iii) an
employment agreement with Terry D. Williamson with the terms and in the form
attached hereto as Exhibit O, which shall replace and supersede any current
employment agreement that Texas-Sterling may have with Mr. Williamson.

         (b) At the Closing, the Purchaser shall enter into (i) an employment
agreement with Patrick T. Manning with the terms and in the form attached hereto
as Exhibit P, and (ii) an employment agreement with Joseph P. Harper, Sr. with
the terms and in the form attached hereto as Exhibit Q.

         Section 6.4. Tax Matters.

         (a) Notwithstanding anything to the contrary contained in this
Agreement, each party herein shall be liable for any transfer Taxes imposed on
such party as a result of the transactions contemplated herein.

         (b) The Purchaser and the Selling Stockholders shall furnish or cause
to be furnished to each other, upon request, as promptly as reasonably
practicable, such information (including access to books and other records) and
assistance as is reasonably necessary for the filing of any Tax Return, claim
for refund, for the preparation for or conduct of any audit, and for the
prosecution or defense of any claim relating to any proposed Tax adjustment. The
Purchaser and the Selling Stockholders shall cooperate with each other in the
conduct of any audit or other similar proceedings and each shall execute and
deliver such powers of attorney and other documents as are necessary to carry
out this intent. The Purchaser shall keep in its possession Tax records relating
to Taxes until the expiration of any applicable statute of limitations and
otherwise required by law. The Purchaser and Sterling shall provide each other
with the relevant portions of Tax Returns which each files for any period which
is reasonably requested to the extent reasonably required by the other party.
The Purchaser, Sterling and the Selling Stockholders agree that any information
furnished one another is confidential and, except as, and to the extent,
required during the course of resolving a dispute, an audit, or a claim, shall
not be disclosed to Persons other than their own Tax advisors, or Persons
entitled to such information.

         (c) Any amended income Tax Returns that are required as a result of
examination adjustments made by the Internal Revenue Service or by the
applicable Tax authorities for any taxable years of Sterling ending on or prior
to the Closing Date, as finally determined, shall be prepared by the Selling
Stockholders and furnished to the Purchaser for approval (which shall

                                      -43-
<PAGE>   52

not be unreasonably withheld), signature and filing at least ten days before the
due date for filing such amended income Tax Returns.

         (d) The income of Sterling will be apportioned to the period up to and
including the Closing Date and the period after the Closing Date by closing the
books of Sterling as of the end of the Closing Date. Taxes attributable to the
operations of Sterling for periods up to and including the Closing Date shall be
allocated to Sterling and Taxes attributable to the operations of Sterling for
periods subsequent to the Closing Date shall be allocated to the Purchaser. For
purposes of the preceding sentence, in the case of Taxes attributable to a
taxable period of Sterling that includes the Closing Date, Taxes for the period
up to and including the Closing Date shall be determined on the basis of a
closing of the books as of the Closing Date (except that exemptions, allowances,
and depreciation that are otherwise calculated on an annual basis (such as
deductions for real and personal property Taxes, depreciation and depletion)
shall be apportioned on a per diem basis); provided, however, that in the case
of any Taxes that are imposed on a periodic basis and are payable for a taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such taxable period ending on the Closing
Date shall, in the case of any Taxes other than Taxes based upon or related to
income or receipts, be deemed to be the amount of such Tax for the entire
taxable period multiplied by a fraction the numerator of which is the number of
days in the taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire taxable period.

         (e) The Purchaser shall cause to be prepared and duly filed all Tax
Returns (including separate state and local income and franchise Tax Returns)
for the periods commencing before and ending after the Closing Date (the
"Straddle Period"). Any Straddle Period Tax Return shall be prepared in
accordance with the prior Tax accounting practices used with respect to such Tax
Returns, to the extent in accordance with applicable law.

         (f) The Selling Stockholders will allow the Purchaser and its counsel
to participate at its own expense in any audits of the Selling Stockholders Tax
Returns to the extent that such returns relate to Sterling. The Selling
Stockholders will not settle any such audit in a manner that would adversely
affect Sterling after the Closing Date without the prior written consent of the
Purchaser, which consent shall not be unreasonably withheld. The Purchaser shall
promptly notify the Selling Stockholders in writing, upon receipt by the
Purchaser or any affiliate of notice of (i) any pending or threatened Tax audits
of, or assessments against, Sterling, (ii) any pending or threatened Tax audits
of, or assessments against, the Purchaser, or any affiliate which may affect the
liability of Sterling for Taxes, or (iii) any pending or threatened Tax audits
of, or assessments against Sterling which may affect the liability of Sterling
for Taxes, in each case for taxable periods ending on or prior to or including
the Closing Date. The Purchaser shall have exclusive control of all
administrative and judicial proceedings related to the Taxes of Sterling other
than for those periods for which Sterling was an "S corporation" (as defined in
Section 1361 of the Code) in which case the Purchaser shall not approve a
settlement without consulting the Selling Stockholders.

         (g) Neither the Purchaser nor Sterling will make an election under
Section 338 of the Code with respect to the transactions contemplated by this
Agreement.

                                      -44-
<PAGE>   53

                                  Article VII.
             Conditions Precedent to the Obligations of the Parties

         The obligations of the parties hereunder are subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions, any of which may be waived in writing by the Purchaser and Sterling
(for Sterling and the Selling Stockholders).

         Section 7.1. No Litigation; Consents.

         (a) No action or proceeding before a court or any other governmental
agency or body shall have been instituted or threatened by any Person not a
party to this Agreement to restrain or prohibit the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents.

         (b) All consents, waivers, authorizations and approvals of any
governmental agency or body and of any other Person required in connection with
the execution, delivery and performance of this Agreement shall have been duly
obtained and shall be in full force and effect on the Closing Date.

         Section 7.2. Opinion of the Purchaser's Tax Advisor.

         (a) The Purchaser Board shall have received an opinion from Deloitte &
Touche opining as to whether the Purchaser has undergone an "ownership change,"
as that term is defined in Section 382 of the Code, as a result of the
transactions contemplated hereunder and under the Casella Exchange Transaction
(as defined in Section 4.29 hereof), which opinion shall be satisfactory to the
Purchaser.

         (b) The Purchaser Board shall have received an opinion from McDermott,
Will & Emery as to certain other federal tax matters set forth in Exhibit R with
respect to which the Selling Stockholders shall be entitled to rely.

         Section 7.3. Consummation of Institutional Investors Transaction. The
Purchaser and all other parties thereto shall have executed and delivered the
Institutional Purchase Agreement and shall have executed all other agreements,
certificates, instruments and documents contemplated thereby and consummated all
of the transactions contemplated thereunder.

         Section 7.4. Sterling Credit Facility. Sterling shall have obtained an
increase in the total amount of its revolving credit bank facility sufficient to
fund the amount of not less than four million nine hundred thousand dollars
($4,900,000.00) from Comerica pursuant to the terms of that certain Amended and
Restated Credit Agreement, dated as of the date hereof, by and between Sterling
and Comerica.

         Section 7.5. Refinancing of the Purchaser's Credit Facility. The
Purchaser and SCPI shall have refinanced the credit facility under that certain
Credit Agreement, dated as of March 28, 1996, by and among the Purchaser, SCPI
and Finova Capital Corp. on terms reasonably acceptable to the Purchaser and
Sterling.

                                      -45-
<PAGE>   54

         Section 7.6. NASCIT Short-Term Note. At the Closing, Sterling shall
have borrowed one million five hundred thousand dollars ($1,500,000.00) from
NASCIT pursuant to the Institutional Purchase Agreement and in accordance with
the terms of that certain promissory note in the form attached hereto as Exhibit
S (the "NASCIT Short-Term Note").

                                 Article VIII.
Conditions Precedent to the Obligations of Sterling and the Selling Stockholders

         The obligations of Sterling and the Selling Stockholders hereunder are
subject to the fulfillment, at or prior to the Closing Date, of each of the
following conditions, any of which may be waived in writing by Sterling (for
Sterling and the Selling Stockholders).

         Section 8.1. Representations and Warranties; Performance of
Obligations. The representations and warranties of the Purchaser set forth in
this Agreement shall be accurate as of the Closing Date, except to the extent a
representation or warranty is made as of a specified date, in all respects. All
of the terms, covenants and conditions of this Agreement to be complied with and
performed by the Purchaser on or before the Closing Date shall have been duly
complied with and performed in all material respects. A certificate to the
foregoing effect dated the Closing Date and signed by the an authorized officer
of the Purchaser shall have been delivered to Sterling and the Selling
Stockholders.

         Section 8.2. Closing Documents. Sterling and the Selling Stockholders
shall have been tendered delivery of each of the payments and documents to be
delivered to them by the Purchaser at the Closing pursuant to Section 2.3
hereof.

         Section 8.3. Opinions of Counsel.

         (a) Sterling and the Selling Stockholders shall have received an
opinion of counsel for the Purchaser, dated as of the Closing Date,
substantially to the effect that:

                  (i) the Purchaser is duly organized and validly existing in
         good standing under the laws of its jurisdiction of organization;

                  (ii) the Purchaser has the requisite power and authority to
         enter into this Agreement, the other Transaction Documents to which the
         Purchaser is a party and each of the other documents to be delivered by
         the Purchaser pursuant to Section 2.3 hereof, and to perform its
         obligations hereunder and thereunder, and that this Agreement, the
         other Transaction Documents to which the Purchaser is a party and each
         of the other documents delivered by the Purchaser pursuant to Section
         2.3 hereof has been duly authorized, executed and delivered by the
         Purchaser and constitutes a valid and binding agreement of the
         Purchaser enforceable in accordance with its terms, subject to
         applicable bankruptcy, reorganization, insolvency and similar laws from
         time to time in effect and subject to general principles of equity and
         judicial discretion;

                  (iii) to the knowledge of such counsel, no notice to, consent,
         authorization, approval or order of any court or governmental agency or
         body is required in connection with the execution, delivery or
         performance of this Agreement and the other Transaction Documents to
         which the Purchaser is a party;

                                      -46-
<PAGE>   55

                  (iv) the execution and delivery of this Agreement and the
         other Transaction Documents to which the Purchaser is a party and the
         performance by the Purchaser of its obligations hereunder and
         thereunder will not violate or result in a breach or constitute a
         default under any of the terms or provisions of the Purchaser's
         certificate of incorporation or bylaws;

                  (v) assuming the representations and warranties of the Selling
         Stockholders in Section 5.4 hereof are true, complete and correct, the
         offer and sale of the Purchaser Securities to the Selling Stockholders
         on the Closing Date is exempt from the registration and prospectus
         delivery requirements of the Securities Act;

                  (vi) the Purchaser Securities issued on the Closing Date
         pursuant to this Agreement have been duly and validly authorized and
         are validly issued, fully paid and nonassessable and not subject to
         preemptive or other similar rights; and

                  (vii) the shares of Purchaser Common Stock to be issued upon
         exercise of the Warrants have been duly and validly authorized and
         validly reserved for issuance upon exercise of the Warrants and, when
         issued and delivered in accordance with the terms of the Purchaser's
         Certificate of Incorporation, this Agreement and the resolutions
         authorizing such issuance and delivery, will have been validly issued
         and will be fully paid and nonassessable.

         (b) Sterling and the Selling Stockholders shall have received an
opinion of the general counsel for the Purchaser, dated as of the Closing Date,
substantially to the effect that:

                  (i) the Purchaser is duly authorized, qualified or licensed to
         do business as a foreign corporation in the places where such is
         required, except where the failure to be so authorized, qualified or
         licensed would not have a Purchaser Material Adverse Effect;

                  (ii) the authorized and outstanding capital stock of the
         Purchaser is as set forth in Section 4.4 hereof, and each outstanding
         share of Purchaser Common Stock has been duly authorized and validly
         issued, and is fully paid and nonassessable; and

                  (iii) the execution and delivery of this Agreement and the
         other Transaction Documents to which the Purchaser is a party and the
         performance by the Purchaser of its obligations hereunder and
         thereunder will not violate or result in a breach or constitute a
         default under any material Purchaser Permit or Purchaser Contract, to
         which the Purchaser is a party or by which it may be bound and which is
         listed on Schedule 4.9 or Schedule 4.11.

The opinions set forth in Section 8.3(a) and (b) above may be subject to normal
and customary assumptions, qualifications, limitations and exceptions.

         Section 8.4. Good Standing Certificates. The Purchaser shall have
delivered to Sterling and the Selling Stockholders certificates, dated as of a
date not more than 5 days prior to the Closing Date, (a) duly issued by the
Secretary of State of Delaware as to the good standing of the Purchaser, and (b)
duly issued by the appropriate governmental authority in each state in which the
Purchaser is authorized to do business, showing the Purchaser to be in good
standing and

                                      -47-
<PAGE>   56

authorized to do business and that all state franchise and/or income Tax Returns
and Taxes required to have been filed or paid by the Purchaser for all periods
prior to the Closing Date have been filed and paid.

         Section 8.5. Nasdaq Authorization. Each of the Purchaser Shares
issuable pursuant to this Agreement and the shares of Purchaser Common Stock
issuable upon exercise of the Warrants shall, subject to official notice of
issuance, have been duly authorized for trading on the OTC Bulletin Board and
shall be an "active" (as defined in NASD Rule 6540, as amended or superceded)
"OTCBB - eligible security" (as defined in NASD Rule 6530, as amended or
superceded), with at least two market makers displaying two-sided markets as of
the date of issuance and not subject to any trading or quotation halt.

                                  Article IX.
            Conditions Precedent to the Obligations of the Purchaser

         The obligations of the Purchaser hereunder are subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions, any of which may be waived in writing by Purchaser.

         Section 9.1. Representations and Warranties; Performance of
Obligations. The representations and warranties of Sterling and the Selling
Stockholders set forth in this Agreement shall be accurate as of the Closing
Date, except to the extent a representation or warranty is made as of a
specified date, in all respects. All of the terms, covenants and conditions of
this Agreement to be complied with and performed by Sterling and the Selling
Stockholders on or before the Closing Date shall have been duly complied with
and performed in all material respects. Certificates to the foregoing effect
dated the Closing Date and signed by Sterling and the Selling Stockholders, as
the case may be, shall have been delivered to the Purchaser.

         Section 9.2. Closing Documents. The Purchaser shall have been tendered
delivery of each of the payments and documents to be delivered to it by Sterling
and the Selling Stockholders at the Closing pursuant to Section 2.2 hereof.

         Section 9.3. Opinion of Counsel. The Purchaser shall have received an
opinion of counsel to Sterling and the Selling Stockholders, dated as of the
Closing Date, substantially to the effect that:

         (a) Sterling has been duly organized and is validly existing in good
standing under the laws of its state of organization;

         (b) Sterling is duly authorized, qualified or licensed to do business
as a foreign corporation in the places where such is required, except where the
failure to be so authorized, qualified or licensed would not have a Sterling
Material Adverse Effect;

         (c) the authorized and outstanding capital stock of Sterling is as set
forth in Section 3.4 hereof, and each outstanding share of Sterling Common Stock
has been duly authorized and validly issued, and is fully paid and
nonassessable;

                                      -48-
<PAGE>   57

         (d) Sterling and the Selling Stockholders have the requisite corporate
power and authority to enter into this Agreement and the other Transaction
Documents, as applicable, and to perform their obligations hereunder and
thereunder, as applicable; each of this Agreement and the other Transaction
Documents, as applicable, has been duly authorized, executed and delivered by
Sterling, and assuming the legal capacity and competency of the Selling
Stockholders and assuming that this Agreement and the other Transaction
Documents have been duly authorized, executed and delivered by the Selling
Stockholders, this Agreement and the other Transaction Documents, as applicable,
and each of the other documents delivered by the Sterling and the Selling
Stockholders each constitute a valid and binding agreement of Sterling or the
Selling Stockholders, as the case may be, enforceable in accordance with its
terms, subject to applicable bankruptcy, reorganization, insolvency and similar
laws from time to time in effect and subject to general principles of equity and
judicial discretion;

         (e) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or body is
required in connection with the execution, delivery or performance of this
Agreement and the other Transaction Documents, as applicable, by Sterling and
the Selling Stockholders;

         (f) the execution and delivery of this Agreement and the other
Transaction Documents, as applicable, and the performance by the Selling
Stockholders and Sterling of their obligations, respectively, hereunder and
thereunder will not violate or result in a breach or constitute a default under
any of the terms or provisions of the Certificate of Incorporation or Bylaws of
Sterling or, to the knowledge of such counsel, any material Sterling Permit or
Sterling Contract, to which Sterling is a party or by which it may be bound and
which is listed on Schedule 3.9 or Schedule 3.11; and

         (g) Assuming the representations and warranties of the Selling
Stockholders in Section 5.4 of this Agreement are true, complete and correct,
the offer and sale of the Sterling Notes to the Selling Stockholders on the
Closing Date is exempt from the registration and prospectus delivery
requirements of the Securities Act;

Such opinion may be subject to normal and customary assumptions, qualifications,
limitations and exceptions.

         Section 9.4. Good Standing Certificates. Sterling shall have delivered
to Purchaser certificates, dated as of a date not more than 5 days prior to the
Closing Date, (a) duly issued by the appropriate authority of the State of
Michigan as to the good standing of Sterling, and (b) duly issued by the
appropriate governmental authority in each state in which Sterling is authorized
to do business, showing Sterling to be in good standing and authorized to do
business and that all state franchise and/or income Tax Returns and Taxes
required to have been filed or paid by Sterling for all periods prior to the
Closing Date have been filed and paid.

                                   Article X.
                            Survival; Indemnification

         Section 10.1. Survival of Representations and Warranties. The
representations and warranties of Sterling and the Purchaser in this Agreement
will survive the Closing Date for a

                                      -49-
<PAGE>   58

period of two (2) years; provided, however that Section 3.19 and Section 4.19
shall survive for the applicable statute of limitations. The representations and
warranties of the Selling Stockholders in Article V of this Agreement or in the
Schedules or certificates delivered by or on behalf of the Selling Stockholders
in connection herewith will survive indefinitely. The covenants and agreements
in this Agreement and other instruments and documents delivered pursuant to this
Agreement that by their terms are to be performed in whole or in part after the
Closing Date will survive the Closing Date for a period of five (5) years.

         Section 10.2. Indemnification by the Selling Stockholders. The Selling
Stockholders covenant and agree that they will severally and not jointly, on the
terms and subject to the conditions and limitations set forth in this Agreement,
indemnify, defend, protect and hold harmless the Purchaser and its officers,
directors, principals, members, affiliates, agents, successors and assigns (the
Purchaser and all such persons or other entities are collectively referred to as
the "Purchaser's Indemnified Persons") at all times from and after the date of
this Agreement from and against all claims, losses, damages, actions, suits,
proceedings, demands, assessments, adjustments, interest, fines, penalties,
costs and expenses, including specifically, but without limitation, reasonable
attorneys', consultants', experts' and accountants' fees and expenses incurred
in the investigation of such claims (collectively, "Damages"), incurred by
Purchaser's Indemnified Persons resulting from (a) any breach of the
representations and warranties of the Selling Stockholders set forth herein or
on the Schedules or certificates delivered by or on behalf of the Selling
Stockholders in connection herewith, or (b) any nonfulfillment of any agreement
or covenant on the part of the Selling Stockholders under this Agreement. The
Purchaser shall have the right to set-off the amount of any and all Damages for
which any of the Selling Stockholders shall become liable to the Purchaser
hereunder against any amounts otherwise payable by the Purchaser hereunder to
such Selling Stockholder. Except as otherwise expressly provided herein, all
payments for Damages under this Article X shall be paid in cash immediately as
incurred.

         Section 10.3. Third Person Claims. Promptly after any of Purchaser's
Indemnified Persons (hereinafter the "Indemnified Party"") has received notice
of or has knowledge of any claim by a person not a party to this Agreement
("Third Person") or the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against the party obligated to provide
indemnification pursuant to Section 10.2 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and, to the extent practicable, a reasonable
estimate of the potential amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. Notwithstanding the
foregoing, the Indemnified Party shall have the right to participate in any
matter through counsel of its own choosing at its own expense (unless there is a
conflict of interest that prevents counsel for the Indemnifying Party from
representing Indemnified Party, in

                                      -50-
<PAGE>   59

which case the Indemnifying Party will reimburse the Indemnified Party for the
expenses of its counsel); provided that the Indemnifying Party's counsel shall
always be lead counsel and shall determine all litigation and settlement steps,
strategy and the like; and provided further that, unless otherwise provided, the
Indemnifying Party shall not be liable for the costs of more than one counsel
for all Indemnified Parties in any action or proceeding. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party or there exists a
conflict of interest as described above, in which event the Indemnified Party
shall be reimbursed, promptly as such expenses are incurred, by the Indemnifying
Party for reasonable additional legal expenses, out-of-pocket expenses and
allocable share of employee compensation incurred in connection with such
participation for any employee whose participation is so requested. The
Indemnifying Party will not settle any such Third Person claim without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party will reimburse, promptly as such expenses are incurred,
the Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that the Indemnified Party will not settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.

                                  Article XI.
                                  Miscellaneous

         Section 11.1. Cooperation. Sterling, the Selling Stockholders and the
Purchaser shall each deliver or cause to be delivered to the other on the
Closing Date, and at such other times and places thereafter as shall be
reasonably agreed to, such additional instruments as the other may reasonably
request for the purpose of consummating the transactions contemplated by this
Agreement. After the Closing Date, Sterling and the Selling Stockholders will
cooperate with the Purchaser, and the Purchaser will cooperate with Sterling and
the Selling Stockholders, in furnishing information, evidence, testimony and
other assistance in connection with any actions, proceedings, arrangements or
disputes of any nature with respect to matters pertaining to all periods at or
prior to the Closing Date. Such cooperation shall be without charge.

         Section 11.2. Successors and Assigns. This Agreement and the rights of
the parties hereunder may not be assigned (except by operation of law) without
the written consent of the other parties hereto and shall be binding upon and
shall inure solely and exclusively to the benefit of the parties hereto except
as otherwise expressly provided herein, their successors, heirs, personal
representatives and permitted assigns.

         Section 11.3. Entire Agreement. This Agreement (which shall for all
purposes hereof be deemed to include the Schedules and Exhibits referred to
herein), the other Transaction

                                      -51-
<PAGE>   60

Documents and, when delivered, the documents and instruments delivered pursuant
hereto constitute the entire agreement and understanding among Sterling, the
Selling Stockholders and the Purchaser, and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written instrument executed by Sterling,
the Selling Stockholders and the Purchaser.

         Section 11.4. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

         Section 11.5. Expenses. Whether or not the transactions herein
contemplated shall be consummated, each party to this Agreement shall pay the
fees, expenses and disbursements of such party and its agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement or any amendments hereto and other documents to be delivered pursuant
to the terms herein, and all costs and expenses related to such party's due
diligence investigation.

         Section 11.6. Notices. All notices or communications required or
permitted hereunder shall be in writing and may be given (i) by a reputable
overnight courier service, (ii) by electronically confirmed facsimile, or (iii)
by delivering the same in person to an officer or agent of such party against a
written receipt therefor. Notices shall be deemed to have been given (a) if sent
by overnight courier, on the business day following delivery by the sending
party to the courier service and (b) if sent by facsimile, on the day the
facsimile is confirmed as having been received. Notices shall be addressed as
follows:

         (a)      If to the Purchaser, to:

                           Robert D. Davies
                           Maarten D. Hemsley
                           Oakhurst Company, Inc.
                           c/o Oakhurst Management Corporation
                           3365 Spruce Lane
                           Grapevine, Texas 76051
                                    Attention: Karen A. Stempinski

                           with copies (which shall not constitute notice) to:

                                      -52-
<PAGE>   61

                           Roger M. Barzun
                           60 Hubbard Street
                           P.O. Box 767
                           Concord, Massachusetts 01742
                                    Telephone: (978) 287-4275
                                    Telecopy:  (978) 287-4276

                           and

                           Willkie Farr & Gallagher
                           787 Seventh Avenue
                           New York, New York 10019
                                    Attention: Christopher E. Manno, Esq.
                                    Telephone: (212) 728-8000
                                    Telecopy:  (212) 728-8111

        (b)      If to Sterling, to:

                           James D. Manning, Chief Executive Officer
                           Patrick T. Manning, President
                           Joseph Harper, Chief Financial Officer
                           Texas-Sterling Construction, Inc.
                           20810 Fernbush Lane
                           Houston, Texas 77073
                                    Telephone: (281) 821-9091
                                    Telecopy:  (281) 821-2995

                           with a copy (which shall not constitute notice) to:

                           Mayor, Day, Caldwell & Keeton, L.L.P.
                           700 Louisiana, Suite 1900
                           Houston, Texas 77002
                                    Attention: Geoffrey K. Walker, Esq.
                                    Telephone: (713) 225-7023
                                    Telecopy:  (713) 225-7047

                  (c) if to any Selling Stockholder, to such Selling
         Stockholder's address set forth on Exhibit A, and to Sterling as set
         forth above.

         Section 11.7. No Third-Party Beneficiaries. This Agreement is for the
benefit of the parties hereto and is not intended to confer upon any other
Person any rights or remedies hereunder except to the holders of the Senior
Obligations.

         Section 11.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its conflict of law principles.

                                      -53-
<PAGE>   62

         Section 11.9. Consent to Jurisdiction. Except as otherwise expressly
provided in this Agreement, the parties hereto agree that any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby shall be brought in the United States District Court of Delaware or Texas
or any Delaware or Texas state court, and each of the parties hereby consents to
the exclusive jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
in any such court or that any such suit, action or proceeding which is brought
in any such court has been brought in an inconvenient forum. Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court. Without limiting
the foregoing, each party agrees that service of process on such party as
provided in this Section 11.9 shall be deemed effective service of process on
such party.

         Section 11.10. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

         Section 11.11. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay of or omission in the exercise of any right, power or
remedy accruing to any party as a result of any breach or default by any other
party under this Agreement shall impair any such right, power or remedy, nor
shall it be construed as a waiver of or acquiescence in any such breach or
default, or of or in any similar breach or default occurring later; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.

         Section 11.12. Reformation and Severability. In case any provision of
this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties, and if
such modification is not possible, then such provision shall be severed from
this Agreement, and in either case, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.

         Section 11.13. Attorney's Fees. Should it become necessary for any
party to bring an action or cross-action against any other party to resolve any
claim or controversy arising under this Agreement, the prevailing party shall be
entitled to recover from the other party its reasonable attorneys' fees and
expenses, including fees incurred in connection with enforcing any decision of a
court or arbitration panel, in addition to the costs of any such action. For
purposes of this section, the "prevailing party" shall be determined by the
court or arbitration panel, taking into consideration all aspects of the
litigation the court may deem appropriate, including but not limited to matters
of liability and extent of damages both as claimed before trial and proven
during trial; the court or arbitration panel may determine that different
parties prevailed on different aspects of the litigation and allocate the
responsibility to pay fees and costs reasonably as a result thereof.

                                      -54-
<PAGE>   63

         Section 11.14. Interpretation.

         (a) This Agreement is the result of arms-length negotiations between
the parties hereto and has been prepared jointly by the parties. In applying and
interpreting the provisions of this Agreement, there shall be no presumption
that the Agreement was prepared by any one party or that the Agreement shall be
construed in favor of or against any one party.

         (b) Descriptive headings are for convenience only and shall not control
or affect the meaning or construction of any provision of this Agreement. Any
matter disclosed in any Schedule or other disclosure furnished or made available
in connection with this Agreement shall be deemed to be disclosed in each other
Schedule or other disclosure furnished or made available in connection with this
Agreement where such disclosure may be relevant.

         (c) Except as may be otherwise specified in this Agreement: (a) the
singular includes the plural and the plural includes the singular; (b) "or" and
"any" are not exclusive and "include" and "including" are not limiting; (c) a
reference to any agreement or contract includes supplements and amendments; (d)
a reference to a law includes any amendment or modification to such law and any
rules or regulations thereunder; (e) a reference to a "person" includes any
individual or entity of any kind and its successors and assigns; and (f) a
reference in this Agreement to a Section, Exhibit or Schedule refers to the
Section, Exhibit or Schedule of this Agreement.

                            [SIGNATURE PAGES FOLLOW]

                                      -55-
<PAGE>   64

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

PURCHASER:                            OAKHURST COMPANY, INC.
                                      a Delaware corporation

                                      By:  /s/ Robert M. Davies
                                         --------------------------------------
                                      Name:  Robert M. Davies
                                      Title: Chief Executive Officer

STERLING:                             STERLING CONSTRUCTION COMPANY
                                      a Delaware corporation

                                      By:  /s/ Patrick T. Manning
                                         --------------------------------------
                                      Name:  Patrick T. Manning
                                      Title: President & Chief Executive Officer

SELLING STOCKHOLDERS:
                                      /s/ James D. Manning
                                      -----------------------------------------
                                      JAMES D. MANNING

                                      /s/ Patrick T. Manning
                                      -----------------------------------------
                                      PATRICK T. MANNING

                                      /s/ Joseph P. Harper, Sr.
                                      -----------------------------------------
                                      JOSEPH P. HARPER, SR.

                                      /s/ Terry D. Williamson
                                      -----------------------------------------
                                      TERRY D. WILLIAMSON

                                      /s/ Anthony F. Colombo
                                      -----------------------------------------
                                      ANTHONY F. COLOMBO

                                      /s/ Kevin J. Manning
                                      -----------------------------------------
                                      KEVIN J. MANNING

                                      /s/ Joseph P. Harper, Jr.
                                      -----------------------------------------
                                      JOSEPH P. HARPER, JR.

                             [TRANSACTION AGREEMENT]

<PAGE>   65

                                      /s/ Julie M. Crump
                                      -----------------------------------------
                                      JULIE M. CRUMP

                                      /s/ Gary D. Hadfield
                                      -----------------------------------------
                                      GARY D. HADFIELD

                                      /s/ Brian R. Manning
                                      -----------------------------------------
                                      BRIAN R. MANNING

                                      /s/ Jeffrey Manning
                                      -----------------------------------------
                                      JEFFREY MANNING

                             [TRANSACTION AGREEMENT]
<PAGE>   66

                                                                  EXECUTION COPY

                          SECURITIES PURCHASE AGREEMENT

                                  BY AND AMONG

                        J O CAPITAL MANAGEMENT LTD A/C A,

                        J O CAPITAL MANAGEMENT LTD A/C B,

                        J O CAPITAL MANAGEMENT LTD A/C C,

                     ORYX INTERNATIONAL GROWTH FUND LIMITED,

                   INVESCO ENGLISH & INTERNATIONAL TRUST PLC,

              NORTH ATLANTIC SMALL COMPANIES INVESTMENT TRUST PLC,

                           OAKHURST COMPANY, INC., AND

                          STERLING CONSTRUCTION COMPANY

                            DATED AS OF JULY 18, 2001

<PAGE>   67

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                              <C>
Article I. The Transactions.......................................................................................2
         Section 1.1. Exchange of Sterling Convertible Notes by Selling Funds.....................................2
         Section 1.2. Purchase of Sterling Common Stock by the Purchaser..........................................2
         Section 1.3. Purchase of Purchaser Securities by NASCIT..................................................3
         Section 1.4. Purchase of Sterling Short-Term Note by NASCIT..............................................3

Article II. The Closing...........................................................................................3
         Section 2.1. Closing.....................................................................................3
         Section 2.2. Closing Deliveries of the Parties...........................................................3

Article III. Representations and Warranties of Sterling...........................................................4
         Section 3.1. Transaction Agreement Representations and Warranties........................................4
         Section 3.2. Authorization of Shares Upon Exchange.......................................................4
         Section 3.3. Authorization of Sterling Short-Term Loan...................................................4

Article IV. Representations and Warranties of the Purchaser.......................................................5
         Section 4.1. Transaction Agreement Representations and Warranties........................................5
         Section 4.2. Authorization of the Purchaser Securities...................................................5

Article V. Representations and Warranties of the Selling Funds....................................................5
         Section 5.1. Representations and Warranties of the Selling Funds.........................................5
         Section 5.2. Representations and Warranties of NASCIT....................................................6

Article VI. [Intentionally Omitted]...............................................................................7

Article VII. Conditions Precedent to the Obligations of the Parties...............................................7
         Section 7.1. No Litigation; Consents.....................................................................7
         Section 7.2. Consummation of the Management Transaction..................................................7

Article VIII. Conditions Precedent to the Obligations of the Selling Funds........................................7
         Section 8.1. Representations and Warranties; Performance of Obligations..................................7
         Section 8.2. Closing Documents...........................................................................8
         Section 8.3. Nasdaq Authorization........................................................................8

Article IX. Conditions Precedent to the Obligations of the Purchaser and Sterling.................................8
         Section 9.1. Representations and Warranties; Performance Obligations.....................................8
         Section 9.2. Closing Documents...........................................................................8

Article X. Survival; Indemnification..............................................................................9
         Section 10.1. Survival of Representations and Warranties.................................................9
         Section 10.2. Indemnification............................................................................9
         Section 10.3. Third Person Claims.......................................................................10
         Section 10.4. Right of Set-Off; Payments for Damages....................................................10
</Table>

<PAGE>   68

<Table>
<S>                                                                                                             <C>
Article XI. Miscellaneous........................................................................................11
         Section 11.1. Cooperation...............................................................................11
         Section 11.2. Successors and Assigns....................................................................11
         Section 11.3. Entire Agreement..........................................................................11
         Section 11.4. Counterparts..............................................................................11
         Section 11.5. Expenses..................................................................................11
         Section 11.6. Notices...................................................................................11
         Section 11.7. No Third-Party Beneficiaries..............................................................13
         Section 11.8. Governing Law.............................................................................13
         Section 11.9. Consent to Jurisdiction...................................................................13
         Section 11.10. Waiver of Jury Trial.....................................................................13
         Section 11.11. Exercise of Rights and Remedies..........................................................14
         Section 11.12. Reformation and Severability.............................................................14
         Section 11.13. Attorney's Fees..........................................................................14
         Section 11.14. Interpretation...........................................................................14
</Table>

                                     -iii-
<PAGE>   69

EXHIBITS

EXHIBIT A     Form of Purchaser Note
EXHIBIT B     Form of Purchaser Warrant
EXHIBIT C     Form of Sterling Short-Term Note
EXHIBIT D     Sterling Convertible Notes Held by Selling Funds
EXHIBIT E     Sterling Common Stock Sold by Selling Funds

                                      -iv-
<PAGE>   70

INDEX OF DEFINED TERMS

<Table>
<S>                                                                                                            <C>
Agreement.......................................................................................................1
Closing.........................................................................................................3
Closing Date....................................................................................................3
Damages.........................................................................................................9
Exchange........................................................................................................1
Hambro Funds....................................................................................................1
Indemnified Party..............................................................................................10
Indemnifying Party.............................................................................................10
Invesco Fund....................................................................................................1
Liens...........................................................................................................2
NASCIT..........................................................................................................1
Note Purchase Agreement.........................................................................................2
Purchaser.......................................................................................................1
Purchaser Common Stock..........................................................................................1
Purchaser Note..................................................................................................1
Purchaser Securities............................................................................................1
Purchaser Shares................................................................................................1
Securities Act..................................................................................................7
Selling Funds...................................................................................................1
Sterling........................................................................................................1
Sterling Common Stock...........................................................................................1
Sterling Convertible Notes......................................................................................1
Sterling Shares.................................................................................................2
Sterling Short-Term Note........................................................................................2
Texas-Sterling..................................................................................................1
Third Person...................................................................................................10
Transaction Agreement...........................................................................................2
Warrant.........................................................................................................1
</Table>

                                      -v-
<PAGE>   71

                          SECURITIES PURCHASE AGREEMENT

         THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered into
as of July 18, 2001, by and among J O Capital Management Ltd A/c A, J O Capital
Management Ltd A/c B, J O Capital Management Ltd A/c C and Oryx International
Growth Fund Limited (collectively, the "Hambro Funds"), Invesco English &
International Trust Plc (the "Invesco Fund"), North Atlantic Small Companies
Investment Trust Plc ("NASCIT" and, collectively with the Hambro Funds and the
Invesco Fund, the "Selling Funds"), Oakhurst Company, Inc., a Delaware
corporation (the "Purchaser") and Sterling Construction Company, a Delaware
corporation ("Sterling").

         WHEREAS, the Selling Funds are the owners, collectively, of (A) one
hundred sixty thousand four hundred seventeen (160,417) shares of common stock,
par value $0.01 per share, of Sterling (the "Sterling Common Stock") and (B) two
million six hundred seventy thousand dollars ($2,670,000.00) of 8% Convertible
Senior Subordinated Notes due 2005 (the "Sterling Convertible Notes") issued by
Sterling Construction Company, a Michigan corporation doing business in Texas
under the name Texas-Sterling Construction, Inc. and a wholly owned subsidiary
of Sterling ("Texas-Sterling"), which are exchangeable for eighty-six thousand
seven hundred eighty-eight (86,788) shares of Sterling Common Stock;

         WHEREAS, the Selling Funds desire to exchange their Sterling
Convertible Notes for eighty-six thousand seven hundred eighty-eight (86,788)
shares of Sterling Common Stock (the "Exchange");

         WHEREAS, the Purchaser desires to purchase from the Selling Funds, and
the Selling Funds desire to sell to the Purchaser, the Sterling Common Stock
owned by them, including those shares of Sterling Common Stock acquired in the
Exchange, in exchange for an aggregate of nine million eight hundred
eighty-eight thousand two hundred dollars ($9,888,200.00);

         WHEREAS, NASCIT desires to purchase from the Purchaser, and the
Purchaser desires to sell to NASCIT, (i) six hundred five thousand five hundred
twenty (605,520) shares (the "Purchaser Shares") of the common stock, par value
$0.01 per share, of the Purchaser (the "Purchaser Common Stock"), (ii) a
zero-coupon subordinated promissory note of the Purchaser for an aggregate
amount of principal and interest due at maturity of four million sixty thousand
dollars ($4,060,000.00), substantially in the form attached hereto as Exhibit A
(the "Purchaser Note"), duly executed by the Purchaser in favor of NASCIT, and
(iii) a warrant to purchase three hundred twenty-two thousand six hundred
sixty-one (322,661) shares of the Purchaser Common Stock, substantially in the
form attached hereto as Exhibit B (the "Purchaser Warrant" and, collectively
with the Purchaser Shares and the Purchaser Note to be purchased by NASCIT
pursuant to this Agreement, the "Purchaser Securities"), duly executed by the
Purchaser in favor of NASCIT, in exchange for an aggregate of three million four
hundred eighty-eight thousand two hundred eighty dollars ($3,488,280.00);

         WHEREAS, NASCIT desires to purchase from Sterling, and Sterling desires
to sell to NASCIT, a promissory note of Sterling with an initial principal
amount of one million five hundred thousand dollars ($1,500,000.00),
substantially in the form attached hereto as Exhibit C

                                      -1-
<PAGE>   72

(the "Sterling Short-Term Note"), duly executed by Sterling in favor of NASCIT,
in exchange for one million five hundred thousand dollars ($1,500,000.00); and

         WHEREAS, simultaneously with the closing of the transactions
contemplated by this Agreement, the Purchaser will purchase a portion of the
shares of Sterling Common Stock held by certain shareholders of Sterling
pursuant to that certain Transaction Agreement, dated as of the date hereof, by
and among the Purchaser, Sterling and the shareholders of Sterling listed
therein (the "Transaction Agreement").

         NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:

                                   Article I.
                                The Transactions

         Section 1.1. Exchange of Sterling Convertible Notes by Selling Funds.

         (a) Pursuant to the terms of the Note Purchase Agreement, dated as of
January 19, 1999, by and among Sterling, Texas-Sterling, the Selling Funds and
Oakhurst Technology, Inc. (the "Note Purchase Agreement"), each of the several
Selling Funds hereby gives notice to Sterling and Texas-Sterling of its desire
to exchange, and on the Closing Date (as defined in Section 2.1(a) hereof) will
deliver to Sterling for exchange, all of the Sterling Convertible Notes held by
such Selling Fund for shares of Sterling Common Stock. The respective aggregate
principal amounts of the Sterling Convertible Notes to be delivered for exchange
by each of the several Selling Funds is set forth on Exhibit D hereto next to
each such Selling Fund's name.

         (b) Pursuant to the terms of the Note Purchase Agreement, on the
Closing Date, Sterling will upon receipt of the Sterling Convertible Notes
deliver to the Selling Funds an aggregate of eighty-six thousand seven hundred
eighty-eight (86,788) shares of Sterling Common Stock, free and clear of all
mortgages, pledges, security interests, encumbrances, liens (statutory or
other), conditional sale agreements, claims, charges, limitations or similar
restrictions ("Liens"). The respective number of shares of Sterling Common Stock
to be acquired by each of the several Selling Funds is set forth on Exhibit D
hereto next to each such Selling Fund's name.

         Section 1.2. Purchase of Sterling Common Stock by the Purchaser.

         (a) Upon the terms and subject to the conditions set forth in this
Agreement, on the Closing Date and after the Exchange, the Selling Funds
severally will sell, assign, transfer and deliver to the Purchaser, and the
Purchaser will purchase and acquire from the Selling Funds an aggregate of two
hundred forty-seven thousand two hundred five (247,205) shares of Sterling
Common Stock (the "Sterling Shares"), free and clear of all Liens. The
respective number of Sterling Shares to be sold by each of the several Selling
Funds is set forth on Exhibit E hereto next to each such Selling Fund's name.

         (b) On the Closing Date, as consideration for its purchase of the
Sterling Shares from the Selling Funds, the Purchaser will upon receipt of the
Sterling Shares pay to each of the Selling Funds in cash by wire transfer of
immediately available funds to an account designated in

                                      -2-
<PAGE>   73

writing by the Selling Funds at least three days prior to the Closing Date the
respective amounts indicated on Exhibit E hereto next to each such Selling
Fund's name, which in the aggregate will be nine million eight hundred
eighty-eight thousand two hundred dollars ($9,888,200.00).

         Section 1.3. Purchase of Purchaser Securities by NASCIT. Upon the terms
and subject to the conditions set forth in this Agreement, on the Closing Date,
the Purchaser will sell, assign, transfer and deliver to NASCIT the Purchaser
Securities, free and clear of all Liens, upon receipt of three million four
hundred eighty-eight thousand two hundred eighty dollars ($3,488,280.00) by wire
transfer of immediately available funds to an account designated by the
Purchaser at least three days prior to the Closing Date.

         Section 1.4. Purchase of Sterling Short-Term Note by NASCIT. Upon the
terms and subject to the conditions set forth in this Agreement, on the Closing
Date, Sterling will sell, assign, transfer and deliver to NASCIT the Sterling
Short-Term Note upon receipt of one million five hundred thousand dollars
($1,500,000.00) by wire transfer of immediately available funds to an account
designated by Sterling at least three days prior to the Closing Date.

                                   Article II.
                                   The Closing

         Section 2.1. Closing.

         (a) The consummation of (i) the Exchange pursuant to Section 1.1
hereof, (ii) the purchase and sale of the Sterling Shares pursuant to Section
1.2 hereof, (iii) the issuance, purchase and sale of the Purchaser Securities
pursuant to Section 1.3 hereof and (iv) the issuance, purchase and sale of the
Sterling Short-Term Note pursuant to Section 1.4 hereof (the "Closing"), shall
take place at the offices of Mayor, Day, Caldwell & Keeton, L.L.P., 700
Louisiana, Suite 1900, Houston, Texas, at 10:00 a.m. on July 18, 2001, or at
such other time and place as the parties may mutually agree upon. The date and
time of the Closing is referred to as the "Closing Date".

         (b) At or prior to the Closing, provided that the conditions set forth
in Article VII, Article VIII and Article IX of this Agreement have been
satisfied or waived, the parties shall tender for delivery, or cause to be
tendered for delivery, each of the instruments and documents described in
Section 2.2 hereof.

         Section 2.2. Closing Deliveries of the Parties. Upon the terms and
subject to the conditions set forth in this Agreement, at the Closing:

         (a) The Selling Funds shall deliver to Sterling for cancellation the
Sterling Convertible Notes to be exchanged by them for Sterling Common Stock in
accordance with Section 1.1(a) hereof;

         (b) Sterling shall issue and deliver to the Selling Funds duly executed
certificates representing the Sterling Common Stock to be acquired by the
Selling Funds in exchange for the Sterling Convertible Notes in accordance with
Section 1.1(b);

                                      -3-
<PAGE>   74

         (c) The Selling Funds shall deliver to the Purchaser certificates
representing the Sterling Shares to be sold to the Purchaser in accordance with
Section 1.2(a) hereof, together with duly executed stock powers;

         (d) The Purchaser will deliver to the Selling Funds by wire transfer
nine million eight hundred eighty-eight thousand two hundred dollars
($9,888,200.00) in accordance with Section 1.2(b) hereof.

         (e) The Purchaser will issue and deliver to NASCIT duly executed
certificates representing the Purchaser Securities to be sold to NASCIT in
accordance with Section 1.3 hereof;

         (f) NASCIT will deliver to the Purchaser by wire transfer three million
four hundred eighty-eight thousand two hundred eighty dollars ($3,488,280.00) in
accordance with Section 1.3 hereof;

         (g) Sterling will issue and deliver to NASCIT the duly executed
Sterling Short-Term Note to be sold to NASCIT in accordance with Section 1.4
hereof;

         (h) NASCIT will deliver to Sterling by wire transfer one million five
hundred thousand dollars ($1,500,000.00) in accordance with Section 1.4 hereof;
and

         (i) The parties shall duly execute and deliver the other instruments,
documents and certificates contemplated to be delivered by them under Article
VII, Article VIII and Article IX of this Agreement.

                                  Article III.
                   Representations and Warranties of Sterling

         Sterling makes the representations and warranties set forth in this
Article III to NASCIT as of the date hereof.

         Section 3.1. Transaction Agreement Representations and Warranties. The
representations and warranties contained in Article III of the Transaction
Agreement are hereby included by reference and remade herein by Sterling to the
Selling Funds, mutatis mutandis.

         Section 3.2. Authorization of Shares Upon Exchange. The shares of
Sterling Common Stock to be issued upon the Exchange of the Sterling Convertible
Notes have been duly authorized and validly reserved for issuance in
contemplation of the Exchange and, when issued and delivered in accordance with
the terms of the Note Purchase Agreement and this Agreement, will be validly
issued, fully paid, nonassessable and not subject to any preemptive rights.

         Section 3.3. Authorization of Sterling Short-Term Loan. The Sterling
Short-Term Note has been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid, nonassessable and
not subject to any preemptive rights.

                                      -4-
<PAGE>   75

                                   Article IV.
                 Representations and Warranties of the Purchaser

         The Purchaser makes the representations and warranties set forth in
this Article IV to NASCIT as of the date hereof.

         Section 4.1. Transaction Agreement Representations and Warranties. The
representations and warranties contained in Article IV of the Transaction
Agreement are hereby included by reference and remade herein by the Purchaser to
the Selling Funds, mutatis mutandis.

         Section 4.2. Authorization of the Purchaser Securities. The Purchaser
Securities, together with the shares of Purchaser Common Stock to be issued upon
exercise of the Purchaser Warrant, have been duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid,
nonassessable and not subject to any preemptive rights. The shares of Purchaser
Common Stock to be issued upon exercise of the Purchaser Warrant have been duly
authorized and validly reserved for issuance in contemplation of the exercise of
the Purchaser Warrant and, when issued and delivered in accordance with the
terms of the Purchaser's Certificate of Incorporation, will have been validly
issued and will be fully paid and nonassessable, and the issuance thereof will
not have been subject to any preemptive rights.

                                   Article V.
               Representations and Warranties of the Selling Funds

         Section 5.1. Representations and Warranties of the Selling Funds. Each
of the Selling Funds, severally with respect to itself, and not jointly, makes
the representations and warranties set forth in this Section 5.1 to the
Purchaser and Sterling as of the date hereof.

         (a) Due Organization. Such Selling Fund is an entity duly organized,
validly existing and in good standing under the laws of the state or
jurisdiction of its incorporation, and has all requisite corporate power and
authority to own or lease its properties and assets and conduct its business as
now conducted. Such Selling Fund is duly authorized and qualified to carry on
its business as a foreign corporation in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not be
reasonably expected, individually or in the aggregate, to have a material
adverse effect on the business, assets, condition (financial or other),
properties or results of operations of such Selling Fund.

         (b) Authority. Such Selling Fund has all necessary corporate power and
authority to execute and deliver this Agreement and the other Transaction
Documents (as defined in the Transaction Agreement) to be executed and delivered
by such Selling Fund and to consummate the transactions contemplated hereby. The
execution and delivery by such Selling Fund of this Agreement and the other
Transaction Documents to be executed and delivered by such Selling Fund and all
instruments, documents and agreements contemplated hereby to be executed by or
on behalf of such Selling Fund have been or will be at the Closing duly and
validly authorized by all necessary corporate action on the part of such Selling
Fund. This Agreement, the other Transaction Documents to which such Selling Fund
is a party and all other instruments,

                                      -5-
<PAGE>   76

documents and agreements contemplated hereby to be executed and delivered by
such Selling Fund have been or will be at the Closing duly and validly executed
and delivered by such Selling Fund and constitute, or will constitute, the
legal, valid and binding obligation of such Selling Fund, enforceable against
such Selling Fund, except to the extent enforceability is limited by applicable
bankruptcy, reorganization, insolvency and similar laws from time to time in
effect and subject to general principles of equity and judicial discretion.

         (c) No Conflicts; Approvals. Neither the execution, delivery and
performance by such Selling Fund of this Agreement and the other Transaction
Documents to which such Selling Fund is a party, nor the consummation by such
Selling Fund of the transactions contemplated hereby, will (a) violate, conflict
with or result in a breach of any agreement, contract or other instrument to
which such Selling Fund is a party, (b) violate or conflict with any order,
decree, law, rule or regulation applicable to such Selling Fund or by which any
property or asset of such Selling Fund is bound, or (c) require any consent,
approval, authorization or other order of, action by, filing with, or
notification to, any federal, state, municipal, foreign or other court or
governmental body or agency, or any other regulatory body or Person by such
Selling Fund.

         (d) Title to the Sterling Convertible Notes and Common Stock. Such
Selling Fund has valid and marketable title to all of the Sterling Convertible
Notes and all of the shares of Sterling Common Stock it now owns, free and clear
of any Liens, and after the Exchange and at the Closing will have valid and
marketable title to all of the Sterling Shares set forth opposite its name on
Exhibit E hereto, free and clear of any Liens.

         Section 5.2. Representations and Warranties of NASCIT. NASCIT makes the
representations and warranties set forth in this Section 5.2 to the Purchaser
and Sterling as of the date hereof.

         (a) NASCIT is acquiring the Purchaser Securities and the Sterling
Short-Term Note for its own account for investment and not with a view towards
the resale, transfer or distribution thereof, nor with any present intention of
distributing such Purchaser Securities and Sterling Short-Term Note.

         (b) NASCIT has such knowledge and experience in financial and business
matters that NASCIT is capable of evaluating the merits and risks of its
investment in the Purchaser Securities and the Sterling Short-Term Note as
contemplated by this Agreement, and is able to bear the economic risk of such
investment for an indefinite period of time. NASCIT has been furnished copies of
or access to the Purchaser SEC Reports which have been filed prior to the date
of this Agreement and has been afforded an opportunity to ask questions of and
receive answers from representatives of the Purchaser and Sterling concerning
the terms and conditions of this Agreement and the acquisition of the Purchaser
Securities and the Sterling Short-Term Note contemplated hereby.

         (c) NASCIT understands that neither the Purchaser Securities nor the
Sterling Short-Term Note have been registered under the Securities Act of 1933,
as amended (the "Securities Act") or any state securities law, but are being
issued and sold in a transaction exempt from the registration requirements of
the Securities Act and such laws, which exemption depends upon, among other
things, the bona fide nature of NASCIT's investment intent as expressed herein.

                                      -6-
<PAGE>   77

NASCIT also understands that such securities must be held indefinitely unless
they are subsequently registered under the Securities Act and any applicable
state securities laws or a subsequent disposition thereof is exempt from
registration. NASCIT also understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to NASCIT) promulgated
under the Securities Act depends upon the satisfaction of various conditions and
that, if applicable, Rule 144 may afford the basis for sales only in limited
amounts.

                                   Article VI.
                             [Intentionally Omitted]

                                  Article VII.
             Conditions Precedent to the Obligations of the Parties

         The obligations of the parties hereunder are subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions, any of which may be waived in writing by the Selling Funds, the
Purchaser and Sterling.

         Section 7.1. No Litigation; Consents.

         (a) No action or proceeding before a court or any other governmental
agency or body shall have been instituted or threatened by any Person not a
party to this Agreement to restrain or prohibit the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents.

         (b) All consents, waivers, authorizations and approvals of any
governmental agency or body and of any other Person required in connection with
the execution, delivery and performance of this Agreement shall have been duly
obtained and shall be in full force and effect on the Closing Date.

         Section 7.2. Consummation of the Management Transaction. The Purchaser,
Sterling and all other parties thereto shall have executed and delivered the
Transaction Agreement and shall have executed all other agreements,
certificates, instruments and documents contemplated thereby and consummated all
of the transactions contemplated thereunder (other than consummation of the
transactions contemplated by this Agreement).

                                 Article VIII.
          Conditions Precedent to the Obligations of the Selling Funds

         The obligations of the Selling Funds hereunder are subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions, any of which may be waived in writing by agreement of the Selling
Funds.

         Section 8.1. Representations and Warranties; Performance of
Obligations.

         (a) The representations and warranties of the Purchaser set forth in
this Agreement shall be accurate as of the Closing Date, except to the extent a
representation or warranty is made as of a specified date, in all respects. All
of the terms, covenants and conditions of this Agreement to

                                      -7-
<PAGE>   78

be complied with and performed by the Purchaser on or before the Closing Date
shall have been duly complied with and performed in all material respects. A
certificate to the foregoing effect dated the Closing Date and signed by an
authorized officer of the Purchaser shall have been delivered to the Selling
Funds.

         (b) The representations and warranties of Sterling set forth in this
Agreement shall be accurate as of the Closing Date, except to the extent a
representation or warranty is made as of a specified date, in all respects. All
of the terms, covenants and conditions of this Agreement to be complied with and
performed by Sterling on or before the Closing Date shall have been duly
complied with and performed in all material respects. A certificate to the
foregoing effect dated the Closing Date and signed by an authorized officer of
Sterling shall have been delivered to the Selling Funds.

         Section 8.2. Closing Documents. The Selling Funds shall have been
tendered delivery of each of the payments and documents to be delivered to them
by the Purchaser and Sterling, as the case may be, at the Closing pursuant to
Section 2.2 hereof.

         Section 8.3. Nasdaq Authorization. Each of the Purchaser Shares
issuable pursuant to this Agreement and the shares of Purchaser Common Stock
issuable upon exercise of the Purchaser Warrant shall, subject to official
notice of issuance, have been duly authorized for trading on the OTC Bulletin
Board and shall be an "active" (as defined in NASD Rule 6540, as amended or
superceded) "OTCBB - eligible security" (as defined in NASD Rule 6530, as
amended or superceded), with at least two market makers displaying two-sided
markets as of the date of issuance and not subject to any trading or quotation
halt.

                                  Article IX.
      Conditions Precedent to the Obligations of the Purchaser and Sterling

         The obligations of the Purchaser and Sterling hereunder are subject to
the fulfillment, at or prior to the Closing Date, of each of the following
conditions, any of which may be waived in writing by agreement of the Purchaser
and Sterling.

         Section 9.1.Representations and Warranties; Performance Obligations.
The representations and warranties of the Selling Funds set forth in this
Agreement shall be accurate as of the Closing Date, except to the extent a
representation or warranty is made as of a specified date, in all respects. All
of the terms, covenants and conditions of this Agreement to be complied with and
performed by the Selling Funds on or before the Closing Date shall have been
duly complied with and performed in all material respects. Certificates to the
foregoing effect dated the Closing Date and signed by authorized officers of the
Selling Funds, as the case may be, shall have been delivered to the Purchaser
and Sterling.

         Section 9.2. Closing Documents. The Purchaser and Sterling shall have
been tendered delivery of each of the payments and documents to be delivered to
it by the Selling Funds at the Closing pursuant to Section 2.2 hereof.

                                      -8-
<PAGE>   79

                                   Article X.
                            Survival; Indemnification

         Section 10.1. Survival of Representations and Warranties. The
representations and warranties of the Purchaser and Sterling in this Agreement
(other than those made by the Purchaser in Section 4.2 hereof and Sterling in
Sections 3.2 and 3.3 hereof) shall not survive the Closing. The representations
and warranties of the Selling Funds made in Article V of this Agreement or the
certificates delivered by or on behalf of the Selling Funds in connection
herewith, the representations and warranties of the Purchaser made in Section
4.2 hereof, and the representations and warranties of Sterling made in Sections
3.2. and 3.3 hereof will survive indefinitely. The covenants and agreements in
this Agreement and other instruments and documents delivered pursuant to this
Agreement that by their terms are to be performed in whole or in part after the
Closing Date will survive the Closing Date and continue in full force and effect
without limitation.

         Section 10.2. Indemnification.

         (a) Each of the Selling Funds covenants and agrees that it will
severally and not jointly, on the terms and subject to the conditions and
limitations set forth in this Agreement, indemnify, defend, protect and hold
harmless the Purchaser and Sterling and their respective officers, directors,
principals, members, affiliates, agents, successors and assigns at all times
from and after the date of this Agreement from and against all claims, losses,
damages, actions, suits, proceedings, demands, assessments, adjustments,
interest, fines, penalties, costs and expenses, including specifically, but
without limitation, reasonable attorneys', consultants', experts' and
accountants' fees and expenses incurred in the investigation of such claims
(collectively, "Damages"), incurred by any such entities or persons resulting
from (a) any breach of the representations and warranties of such Selling Fund
set forth herein or on the certificates delivered by or on behalf of such
Selling Fund in connection herewith, or (b) any nonfulfillment of any agreement
or covenant on the part of such Selling Fund under this Agreement.

         (b) The Purchaser covenants and agrees that it will, on the terms and
subject to the conditions and limitations set forth in this Agreement,
indemnify, defend, protect and hold harmless the Selling Funds and their
respective officers, directors, principals, members, affiliates, agents,
successors and assigns at all times from and after the date of this Agreement
from and against all Damages incurred by any such entities or persons resulting
from (a) any breach of the representations and warranties of the Purchaser set
forth in Section 4.2 hereof, or (b) any nonfulfillment of any agreement or
covenant on the part of the Purchaser under this Agreement.

         (c) Sterling covenants and agrees that it will, on the terms and
subject to the conditions and limitations set forth in this Agreement,
indemnify, defend, protect and hold harmless the Selling Funds and their
respective officers, directors, principals, members, affiliates, agents,
successors and assigns at all times from and after the date of this Agreement
from and against all Damages incurred by any such entities or persons resulting
from (a) any breach of the representations and warranties of Sterling set forth
in Sections 3.2 and 3.3 hereof, or (b) any nonfulfillment of any agreement or
covenant on the part of Sterling under this Agreement.

                                      -9-
<PAGE>   80

         Section 10.3. Third Person Claims. Promptly after any entity or person
entitled to indemnification under Section 10.2 hereof (hereinafter the
"Indemnified Party"") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person") or the commencement of any
action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against the party
from which the Indemnified Party is entitled to indemnification (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and, to the extent practicable, a reasonable
estimate of the potential amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. Notwithstanding the
foregoing, the Indemnified Party shall have the right to participate in any
matter through counsel of its own choosing at its own expense (unless there is a
conflict of interest that prevents counsel for the Indemnifying Party from
representing Indemnified Party, in which case the Indemnifying Party will
reimburse the Indemnified Party for the expenses of its counsel); provided that
the Indemnifying Party's counsel shall always be lead counsel and shall
determine all litigation and settlement steps, strategy and the like; and
provided further that, unless otherwise provided, the Indemnifying Party shall
not be liable for the costs of more than one counsel for all Indemnified Parties
in any action or proceeding. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except to the extent such
participation is requested by the Indemnifying Party or there exists a conflict
of interest as described above, in which event the Indemnified Party shall be
reimbursed, promptly as such expenses are incurred, by the Indemnifying Party
for reasonable additional legal expenses, out-of-pocket expenses and allocable
share of employee compensation incurred in connection with such participation
for any employee whose participation is so requested. The Indemnifying Party
will not settle any such Third Person claim without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. If the
Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party will
reimburse, promptly as such expenses are incurred, the Indemnified Party for the
amount paid in such settlement and any other liabilities or expenses incurred by
the Indemnified Party in connection therewith, provided, however, that the
Indemnified Party will not settle any Third Person claim without the written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld.

         Section 10.4. Right of Set-Off; Payments for Damages. Any Indemnified
Party

                                      -10-
<PAGE>   81

shall have the right to set-off the amount of any and all Damages for which any
Indemnifying Party shall become liable to such Indemnified Party hereunder
against any amounts otherwise payable by such Indemnified Party hereunder to
such Indemnifying Party. Except as otherwise expressly provided herein, all
payments for Damages under this Article X shall be paid in cash immediately as
incurred.

                                  Article XI.
                                  Miscellaneous

         Section 11.1. Cooperation. The Selling Funds, the Purchaser and
Sterling shall each deliver or cause to be delivered to the other on the Closing
Date, and at such other times and places thereafter as shall be reasonably
agreed to, such additional instruments as the other may reasonably request for
the purpose of consummating the transactions contemplated by this Agreement.
After the Closing Date, the Selling Funds will cooperate with the Purchaser and
Sterling, and the Purchaser and Sterling will cooperate with the Selling Funds,
in furnishing information, evidence, testimony and other assistance in
connection with any actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods at or prior to the Closing
Date. Such cooperation shall be without charge.

         Section 11.2. Successors and Assigns. This Agreement and the rights of
the parties hereunder may not be assigned (except by operation of law) without
the written consent of the other parties hereto and shall be binding upon and
shall inure solely and exclusively to the benefit of the parties hereto except
as otherwise expressly provided herein, their successors, heirs, personal
representatives and permitted assigns.

         Section 11.3. Entire Agreement. This Agreement (which shall for all
purposes hereof be deemed to include the Exhibits referred to herein), the other
Transaction Documents and, when delivered, the documents and instruments
delivered pursuant hereto constitute the entire agreement and understanding
among the Selling Funds, the Purchaser and Sterling, and supersede any prior
agreement and understanding relating to the subject matter of this Agreement.
This Agreement may be modified or amended only by a written instrument executed
by the Selling Funds, the Purchaser and Sterling.

         Section 11.4. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

         Section 11.5. Expenses. Whether or not the transactions herein
contemplated shall be consummated, each party to this Agreement shall pay the
fees, expenses and disbursements of such party and its agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement or any amendments hereto and other documents to be delivered pursuant
to the terms herein, and all costs and expenses related to such party's due
diligence investigation.

         Section 11.6. Notices. All notices or communications required or
permitted hereunder shall be in writing and may be given (i) by a reputable
overnight courier service, (ii) by electronically confirmed facsimile, or (iii)
by delivering the same in person to an officer or agent of such party against a
written receipt therefor. Notices shall be deemed to have been given (a) if

                                      -11-
<PAGE>   82

sent by overnight courier, on the business day following delivery by the sending
party to the courier service and (b) if sent by facsimile, on the day the
facsimile is confirmed as having been received. Notices shall be addressed as
follows:

         (a)      If to the Selling Funds, to:

                           Christopher Mills
                           J O Hambro Capital Management Limited
                           14 Ryder Street
                           Ryder Court SW1Y 6QB
                           London, England
                                    Telephone:  011 44 207 747 5678
                                    Telecopy:   011 44 207 747 5647

         (b)      If to the Purchaser, to:

                           Robert D. Davies
                           Maarten D. Hemsley
                           Oakhurst Company, Inc.
                           Oakhurst Company, Inc.
                           c/o Oakhurst Management Corporation
                           3365 Spruce Lane
                           Grapevine, Texas 76051
                                    Attention:  Karen A. Stempinski

                           with copies (which shall not constitute notice) to:

                           Roger M. Barzun
                           60 Hubbard Street
                           P.O. Box 767
                           Concord, Massachusetts 01742
                                    Telephone:  (978) 287-4275
                                    Telecopy:   (978) 287-4276

                           and

                           Willkie Farr & Gallagher
                           787 Seventh Avenue
                           New York, New York 10019
                                    Attention:  Christopher E. Manno, Esq.
                                    Telephone:  (212) 728-8000
                                    Telecopy:   (212) 728-8111

                                      -12-
<PAGE>   83

         (c)      If to Sterling, to:

                           James D. Manning, Chief Executive Officer
                           Patrick T. Manning, President
                           Joseph Harper, Chief Financial Officer
                           Texas-Sterling Construction, Inc.
                           20810 Fernbush Lane
                           Houston, Texas 77073
                                    Telephone:  (281) 821-9091
                                    Telecopy:   (281) 821-2995

                           with a copy (which shall not constitute notice) to:

                           Mayor, Day, Caldwell & Keeton, L.L.P.
                           700 Louisiana, Suite 1900
                           Houston, Texas 77002
                                    Attention:  Geoffrey K. Walker, Esq.
                                    Telephone:  (713) 225-7023
                                    Telecopy:   (713) 225-7047

         Section 11.7. No Third-Party Beneficiaries. This Agreement is for the
benefit of the parties hereto and is not intended to confer upon any other
Person any rights or remedies hereunder.

         Section 11.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its conflict of law principles.

         Section 11.9. Consent to Jurisdiction. Except as otherwise expressly
provided in this Agreement, the parties hereto agree that any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby shall be brought in the United States District Court of Delaware or any
Delaware state court, and each of the parties hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in this Section
11.9 shall be deemed effective service of process on such party.

         Section 11.10. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

                                      -13-
<PAGE>   84

         Section 11.11. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay of or omission in the exercise of any right, power or
remedy accruing to any party as a result of any breach or default by any other
party under this Agreement shall impair any such right, power or remedy, nor
shall it be construed as a waiver of or acquiescence in any such breach or
default, or of or in any similar breach or default occurring later; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.

         Section 11.12. Reformation and Severability. In case any provision of
this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties, and if
such modification is not possible, then such provision shall be severed from
this Agreement, and in either case, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.

         Section 11.13. Attorney's Fees. Should it become necessary for any
party to bring an action or cross-action against any other party to resolve any
claim or controversy arising under this Agreement, the prevailing party shall be
entitled to recover from the other party its reasonable attorneys' fees and
expenses, including fees incurred in connection with enforcing any decision of a
court or arbitration panel, in addition to the costs of any such action. For
purposes of this section, the "prevailing party" shall be determined by the
court or arbitration panel, taking into consideration all aspects of the
litigation the court may deem appropriate, including but not limited to matters
of liability and extent of damages both as claimed before trial and proven
during trial; the court or arbitration panel may determine that different
parties prevailed on different aspects of the litigation and allocate the
responsibility to pay fees and costs reasonably as a result thereof.

         Section 11.14. Interpretation.

         (a) This Agreement is the result of arms-length negotiations between
the parties hereto and has been prepared jointly by the parties. In applying and
interpreting the provisions of this Agreement, there shall be no presumption
that the Agreement was prepared by any one party or that the Agreement shall be
construed in favor of or against any one party.

         (b) Descriptive headings are for convenience only and shall not control
or affect the meaning or construction of any provision of this Agreement. Any
matter disclosed in any disclosure furnished or made available in connection
with this Agreement shall be deemed to be disclosed in each other disclosure
furnished or made available in connection with this Agreement where such
disclosure may be relevant.

         (c) Except as may be otherwise specified in this Agreement: (a) the
singular includes the plural and the plural includes the singular; (b) "or" and
"any" are not exclusive and "include" and "including" are not limiting; (c) a
reference to any agreement or contract includes supplements and amendments; (d)
a reference to a law includes any amendment or modification to such law and any
rules or regulations thereunder; (e) a reference to a "person" includes any
individual or entity of any kind and its successors and assigns; and (f) a
reference in this Agreement to a Section or Exhibit refers to the Section or
Exhibit of this Agreement.

                                      -14-
<PAGE>   85

                            [SIGNATURE PAGES FOLLOW]

                                      -15-
<PAGE>   86

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

SELLING FUNDS:                        J O CAPITAL MANAGEMENT LTD A/C A

                                      By: /s/ Christopher H.B. Mills
                                          -----------------------------------
                                          Name:   Christopher H.B. Mills
                                          Title:  Authorized Signatory

                                      J O CAPITAL MANAGEMENT LTD A/C B

                                      By: /s/ Christopher H.B. Mills
                                          -----------------------------------
                                          Name:   Christopher H.B. Mills
                                          Title:  Authorized Signatory

                                      J O CAPITAL MANAGEMENT LTD A/C C

                                      By: /s/ Christopher H.B. Mills
                                          ----------------------------------
                                          Name:   Christopher H.B. Mills
                                          Title:  Authorized Signatory

                                      ORYX INTERNATIONAL GROWTH FUND LIMITED

                                      By: /s/ Christopher H.B. Mills
                                          -----------------------------------
                                          Name:    Christopher H.B. Mills
                                          Title:   Authorized Signatory

                                      INVESCO ENGLISH & INTERNATIONAL TRUST PLC

                                      By: /s/ D.H. Ellis
                                          -----------------------------------
                                          Name:    D.H. Ellis
                                          Title:   Authorized Signatory

                         [SECURITIES PURCHASE AGREEMENT]

<PAGE>   87

                                      NORTH ATLANTIC SMALL COMPANIES
                                       INVESTMENT TRUST PLC

                                      By: /s/ Christopher H.B. Mills
                                         --------------------------------------
                                         Name:   Christopher H.B. Mills
                                         Title:  Authorized Signatory

PURCHASER:                            OAKHURST COMPANY, INC.

                                      By: /s/ Maarten D. Hemsley
                                         --------------------------------------
                                         Name:   Maarten D. Hemsley
                                         Title:  President

STERLING:                             STERLING CONSTRUCTION COMPANY
                                      a Delaware corporation

                                      By: /s/ Patrick T. Manning
                                         --------------------------------------
                                         Name:   Patrick T. Manning
                                         Title:  President & Chief
                                                 Executive Officer

                        [SECURITIES PURCHASE AGREEMENT]

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