STERLING CONSTRUCTION CO INC (Form: 10-K/A, Received: 09/10/2009 11:53:43)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2
[X] annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934 For the fiscal year ended: December 31, 2008
[ ] transition report pursuant to section 13 or 15(d) of the securities exchange act of 1934 For the transition period from _______________________________________________________
Commission file number 1-31993

STERLING CONSTRUCTION COMPANY, INC . (Exact name of registrant as specified in its charter)
Delaware State or other jurisdiction of incorporation or organization		25-1655321 (I.R.S. Employer Identification No.)
20810 Fernbush Lane Houston, Texas (Address of principal executive offices)		77073 (Zip Code)

Registrant's telephone number, including area code (281) 821-9091

Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $0.01 par value per share (Title of Class) Preferred Share Purchase Rights (Title of Class)	Name of each exchange on which registered The NASDAQ Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [ √ ] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [ √ ] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ √ ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ √ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [ √ ] No
Aggregate market value of the voting and non-voting common equity held by non-affiliates at June 30, 2008: $228,573,765.
At March 2, 2009, the registrant had 13,189,838 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

Sterling Construction Company, Inc .

Annual Report on Form 10-K

Table of Contents

Part I		4
	Cautionary Comment Regarding Forward-Looking Statements	4
Item 1.	Business	5
	Access to the Company's Filings	5
	Overview of the Company's Business	5
	Our Business Strategy	6
	Our Markets	7
	Competition	9
	Contract Backlog	10
	Contracts	10
	Employees	12
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Part II		21
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
	Dividend Policy	21
	Equity Compensation Plan Information	21
	Performance Graph	21
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	24
Overview		24
	Critical Accounting Policies	24
	Results of Operations	26
	Historical Cash Flows	30
	Uses of Capital	33
	Off-Balance Sheet Arrangements	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
	Evaluation of Disclosure Controls and Procedures	35
	Management’s Report on Internal Control over Financial Reporting	35
	Changes in Internal Control over Financial Reporting	35
	Inherent Limitations on Effectiveness of Controls	35
Item 9B.	Other Information	35

Part III		36
Item 10.	Directors and Executive Officers of the Registrant	36
	Directors	36
	Executive Officers	37
	Section 16(a) Beneficial Ownership Reporting Compliance	37
	Code of Ethics	38
	The Audit Committee	38
Item 11.	Executive Compensation	38
	Introduction	38
	Compensation Discussion and Analysis	39
	Employment Agreements of Named Executive Officers	43
	Potential Payments Upon Termination or Change-in-Control	44
	Summary Compensation Table for 2008	45
	Grants of Plan-Based Awards for 2008	46
	Option Exercises and Stock Vested for 2008	48
	Outstanding Equity Awards at December 31, 2008	48
	Director Compensation for 2008	49
	Compensation Committee Interlocks and Insider Participation	51
	Compensation Committee Report	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
	Equity Compensation Plan Information	51
	Security Ownership of Certain Beneficial Owners and Management	51
Item 13.	Certain Relationships and Related Transactions, and Director Independence	51
	Transactions with Related Persons	53
	Policies and Procedures for the Review, Approval or Ratification of Transactions with Related Persons	53
	Related Persons	53
	Director Independence	54
Item 14.	Principal Accountant Fees and Services	54
	Audit and Non-Audit Service Approval Policy	55
	Procedures	55
Part IV		55
Item 15.	Exhibits, Financial Statement Schedules	55
	Financial Statements	55
	Financial Statement Schedules	55
Signatures		57

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PART I

Explanatory Note

Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 was filed in order to re-file the Company's Credit Agreement by and among the Company, Texas Sterling Construction Co., Oakhurst Management Corporation and Comerica Bank and the other lenders from time to time party thereto, and Comerica Bank as administrative agent for the lenders, dated as of October 31, 2007 that was filed on November 21, 2007 as Exhibit 10.1 to the Company's Current Report on Form 8-K, Amendment No. 1, and to file for the first time with the Credit Agreement certain exhibits and schedules to the credit agreement that were not filed with the November 21, 2007 Form 8-K.

This Amendment No. 2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 is being filed in order to correct certain deficiencies in Amendment No. 1, as follows:

·	To update the consent of the Company's independent registered public accounting firm to a date contemporaneous with the filing of this Amendment No. 2;

·	To cause the Company's amended Form 10-K to be signed on behalf of the Company as of a date contemporaneous with its filing; and

·	To correct errors in the certifications filed as Exhibits 31.1, 31.2 and 32.1 to Amendment No. 1 to this Form 10-K.

Cautionary Comment Regarding Forward-Looking Statements

This Report includes statements that are, or may be considered to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are included throughout this Report, including in the sections entitled "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words "anticipate," "assume," "believe," "budget," "continue," "could," "estimate," "expect," "forecast," "future, " "intend," "may," "plan," "potential," "predict," "project," "should, " "will," "would" and similar terms and phrases to identify forward-looking statements in this Report.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, that could result in our expectations not being realized or otherwise could materially affect our financial condition, results of operations and cash flows.

Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:

•

delays or difficulties related to the commencement or completion of contracts, including additional costs, reductions in revenues or the payment of completion penalties or liquidated damages;

•

actions of suppliers, subcontractors, customers, competitors, banks, surety providers and others which are beyond our control including suppliers' and subcontractor's failure to perform;

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the effects of estimates inherent in our percentage-of-completion accounting policies including onsite conditions that differ materially from those assumed in our original bid, contract modifications, mechanical problems with our machinery or equipment and effects of other risks discussed in this document;

•

cost escalations associated with our fixed-unit price contracts, including changes in availability, proximity and cost of materials such as steel, concrete, aggregate, oil, fuel and other construction materials and cost escalations associated with subcontractors and labor;

•

our dependence on a few significant customers;

•

adverse weather conditions - although we prepare our budgets and bid contracts based on historical rain and snowfall patterns, the incident of rain, snow, hurricanes, etc., may differ significantly from these expectations;

•

the presence of competitors with greater financial resources than we have and the impact of competitive services and pricing;

•

changes in general economic conditions and resulting reductions or delays, or uncertainties regarding governmental funding for infrastructure services;

•

adverse economic conditions in our markets in Texas and Nevada;

•

our ability to successfully identify, complete and integrate acquisitions;

•

citations issued by any government authority, including the Occupational Safety and Health Administration;

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•

the current instability of financial institutions could cause losses on our cash and cash equivalents and short-term investments; and

•

the other factors discussed in more detail in Item 1A. —Risk Factors .

In reading this Report, you should consider these factors carefully in evaluating any forward-looking statements and you are cautioned not to place undue reliance on any forward-looking statements. Although we believe that our plans, intentions and expectations reflected in, or suggested by, the forward-looking statements that we make in this Report are reasonable, we can provide no assurance that they will be achieved.

The forward-looking statements included in this Report are made only as of the date of this Report, and we do not undertake to update any information contained in this Report or to publicly release the results of any revisions to any forward-looking statements to reflect events or circumstances that occur, or that we become aware of after the date of this Report, except as may be required by applicable securities laws.

Item 1. Business .

Access to the Company's Filings .

The Company's Website . The Company maintains a website at www.sterlingconstructionco.com on which our latest Annual Report on Form 10-K, recent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K, any amendments to those filings, and other filings may be accessed free of charge through a link to the Securities and Exchange Commission's website where those reports are filed. Our website also has recent press releases, the Company's Code of Business Conduct & Ethics and the charters of the Audit Committee, Compensation Committee, and Corporate Governance & Nominating Committee of the Board of Directors. Information is also provided on the Company’s “whistle-blower” procedures. Our website content is made available for information purposes only. It should not be relied upon for investment purposes, and none of the information on the website is incorporated into this Report by this reference to it.

The Securities and Exchange Commission (SEC) . The public may read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 (1-800-732-0330). The SEC also maintains an Internet site at www.sec.gov on which you can obtain reports, proxy and information statements and other information regarding the Company and other issuers that file electronically with the SEC.

Overview of the Company's Business . Sterling Construction Company, Inc. was founded in 1991 as a Delaware corporation. Our principal executive offices are located at 20810 Fernbush Lane, Houston, Texas 77073, and our telephone number at this address is (281) 821-9091. Our construction business was founded in 1955 by a predecessor company in Michigan and is now operated by our subsidiaries, Texas Sterling Construction Co., a Delaware corporation, or "TSC", Road and Highway Builders, LLC, a Nevada limited liability company, or "RHB", Road and Highway Builders Inc. a Nevada corporation, or "RHB Inc." and Road and Highway Builders of California, Inc., a California corporation or "RHB Cal". The terms "Company", "Sterling", and "we" refer to Sterling Construction Company, Inc. and its subsidiaries except when it is clear that those terms mean only the parent company.

Sterling is a leading heavy civil construction company that specializes in the building, reconstruction and repair of transportation and water infrastructure. Transportation infrastructure projects include highways, roads, bridges and light rail. Water infrastructure projects include water, wastewater and storm drainage systems. Sterling provides general contracting services primarily to public sector clients utilizing its own employees and equipment, including excavating, concrete and asphalt paving, installation of large-diameter water and wastewater distribution systems; construction of bridges and similar large structures; construction of light rail infrastructure; concrete and asphalt batch plant operation; concrete crushing and mining aggregates. Sterling performs the majority of the work required by its contracts with its own crews, and generally engages subcontractors only for ancillary services.

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Although we describe our business in this report in terms of the services we provide, our base of customers and the geographic areas in which we operate, we have concluded that our operations comprise one reportable segment pursuant to Statement of Financial Accounting Standards No. 131 – Disclosures about Segments of an Enterprise and Related Information. In making this determination, we considered that each project has similar characteristics, includes similar services, has similar types of customers and is subject to similar regulatory and economic environments. We organize, evaluate and manage our financial information around each project when making operating decisions and assessing our overall performance.

Sterling has a history of profitable growth, which we have achieved by expanding both our service profile and our market areas. This involves adding services, such as concrete operations, in order to capture a greater percentage of available work in current and potential markets. It also involves strategically expanding operations, either by establishing a branch office in a new market, often after having successfully bid on and completed a project in that market, or by acquiring a company that gives us an immediate entry into a market. Sterling extended both its service profile and its geographic market reach with the 2007 acquisition of RHB, a Nevada construction company.

Sterling operates in Texas and Nevada, two states that management believes benefit from both positive long-term demographic trends as well as an historical commitment to funding transportation and water infrastructure projects. From 2000 to 2006, the population of Texas grew 12.7% and the population of Nevada 24.9%. Expenditures for transportation capital expenditures by the Texas Department of Transportation ("TXDOT") in 2009 are projected to be $2.9 billion. In the November 2007 election, Texas voters approved the issuance of $5 billion of bonds for highway improvements which TXDOT proposes to include in its 2010 and 2011 budgets. In Nevada, total estimated highway capital expenditures in 2009 are projected to be $421 million. These amounts do not include any additional funds that may be received for highway infrastructure construction from the federal government's recently enacted economic-stimulus legislation. Management anticipates that continued population growth and increased spending for infrastructure in these markets will positively affect business opportunities over the coming years.

On October 31, 2007, we acquired our Nevada operations with our purchase of an interest in RHB, which is headquartered in Reno, Nevada. RHB is a heavy civil construction business focused on the construction of roads and highways throughout the state of Nevada and, through RHB Inc., operates an aggregates quarry. We paid $53 million to acquire a 91.67% equity interest in RHB and a 100% equity interest in RHB Inc. The remaining 8.33% interest of RHB is owned by Richard Buenting, the chief executive officer of RHB who continues to run RHB as part of our senior management team, and his ownership interest can be put to or called by us in 2011.

Our Business Strategy . Key features of our business strategy include:

Continue to Add Construction Capabilities . By adding capabilities that augment our core construction competencies, we are able to improve gross margin opportunities, more effectively compete for contracts, and compete for contracts that might not otherwise be available to us.

Increase our Market Leadership in our Core Markets . We have a strong presence in a number of attractive growing markets in Texas and Nevada in which we intend to continue to expand our presence.

Apply Core Competencies Across our Markets . We intend to capitalize on opportunities to export our Texas experience constructing bridges and water and sewer systems into Nevada markets. Similarly, we believe our experience in aggregates and asphalt paving materials in Nevada may open new opportunities for us in our Texas markets.

Expand into Attractive New Markets and Selectively Pursue Strategic Acquisitions . We will continue to seek to identify attractive new markets and opportunities in select western, southwestern and southeastern U.S. markets. We will also continue to assess opportunities to extend our service capabilities and expand our markets through acquisitions.

Position our Business for Future Infrastructure Spending . As evidenced by the federal government's recently enacted economic stimulus legislation, we believe there is a growing awareness of the need to build, reconstruct and repair our country’s infrastructure, including water, wastewater and storm drainage systems, as well as transportation infrastructure such as bridges, highways and mass transit systems. We will continue to build our expertise to capture this infrastructure spending.

Continue to Develop our Employees . We believe that our employees are key to the successful implementation of our business strategy, and we will continue allocating significant resources in order to attract and retain talented managers and supervisory and field personnel.

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Our Markets

We operate in the heavy civil construction segment for infrastructure projects in Texas and Nevada, specializing in transportation and water infrastructure. RHB Cal has bid on construction projects in California, but has not been awarded any such projects.

Demand for transportation and water infrastructure depends on a variety of factors, including overall population growth, economic expansion and the vitality of the market areas in which we operate, as well as unique local topographical, structural and environmental issues. In addition to these factors, demand for the replacement of infrastructure is driven by the general aging of infrastructure and the need for technical improvements to achieve more efficient or safer use of infrastructure and resources. Funding for this infrastructure depends on federal, state and local authorizations.

According to the 2006 census, Texas is the second largest state in population in the U.S. with 23.5 million people and a population growth of 12.7% since 2000, almost double the 6.4% growth rate for the U.S. as a whole over the same period. Three of the 10 largest cities in the U.S. are located in Texas and we have operating divisions in each of those cities: Houston, Dallas/Ft. Worth and San Antonio. Nevada has undergone even more rapid growth, with the state’s population expanding 24.9% since 2000 to 2.5 million people in 2006.

Our highway and bridge work is generally funded through federal and state authorizations. The federal government enacted the SAFETEA-LU bill in 2005, which authorized $286 billion for transportation spending through 2009. Of this total, the Texas Department of Transportation (“TXDOT”) and the Nevada Department of Transportation (“NDOT”) were originally allocated approximately $14.5 billion and $1.3 billion, respectively, over the five years of the authorization. Actual SAFETEA-LU appropriations have been somewhat reduced from the original allocations. The USDOT proposed budget under SAFETEA-LU for the Federal-Aid Highways Program requests $39.4 billion of federal financial assistance to the States for 2009 versus actual appropriations of $41.2 billion for 2008 and $38.0 billion for 2007.

In January, 2009, the 2030 Committee, appointed by TXDOT at the request of the Governor of the State of Texas, submitted its draft report of the transportation needs of Texas. The report indicated that the population of Texas is projected to grow at close to twice the U.S. rate with the population of Texas growing from 23.5 million in 2006 to between 30.5 million and 40.5 million in 2030. The report stated that "With this population increase expected by 2030, transportation modes, costs and congestion are considered a possible roadblock to Texas' projected growth and prosperity."

The report further indicated that Texas needs to spend approximately $313.0 billion (in 2008 dollars) over the 22 year period from 2009 through 2030 to prevent worsening congestion and maintain economic competitiveness on its urban highways and roads, improve congestion/safety and partial connectivity on its rural highways and bridge replacement.

While TXDOT officials have indicated potential short-term funding shortfalls and reductions in spending on transportation, the TXDOT budget for 2009 for transportation construction projects is $2.9 billion versus estimated expenditures of $2.1 billion in 2008 and actual expenditures of $2.7 billion in 2007. Without any new funding resources beyond what are currently available, TXDOT estimates that the annual transportation construction project amounts would be $2.7 billion and $2.4 billion for 2010 and 2011, respectively.

To supplement these projected amounts for 2010 and 2011, TXDOT has proposed that all funds deposited in the State Highway Fund be made available to support transportation construction and maintenance projects—this would increase highway improvement expenditures by approximately $700 million in each of those years to $3.4 billion in 2010 and $3.1 billion in 2011. Further, TXDOT has proposed that the general obligation bonds approved by the voters of Texas in 2007 be appropriated for transportation expenditures in 2010 and 2011, which would add $2.0 billion and $2.3 billion in 2010 and 2011, respectively, to the above amounts. Assuming all these additional amounts are authorized, total TXDOT transportation expenditures would be approximately $5.4 billion in each of the years 2010 and 2011.

In Texas, substantial funds for transportation infrastructure spending are also being provided by toll road and regional mobility authorities for the construction of toll and pass-through toll highways and roads.

NDOT transportation construction expenditures totaled $449.2 million in 2006 and $455.5 million in 2007. NDOT’s budget for 2008 and 2009 includes $355.0 million and $420.9 million for transportation capital expenditures, respectively. Projections by NDOT for 2010 and 2011 transportation capital expenditures are $400 million each year. NDOT has stated that Nevada’s highway system needs are expected to be $11 billion by 2015; however, it has also stated that Nevada is currently facing a $3.8 billion shortfall (in 2006 dollars) for the 10 largest projects planned for completion in 2015.

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On February 17, 2009 the American Recovery and Reinvestment Act ("economic-stimulus legislation") was enacted by the federal government that authorizes $26.7 billion for highway and bridge construction. A significant portion of these funds will be used for ready-to-go, quick spending highway projects for which contracts can be awarded quickly. States are required, subject to certain exceptions, to obligate 50 percent of the apportionment within 120 days of the apportionment or lose 50 percent of the funds not obligated in that period of time. States would be further required to obligate the second 50 percent of their apportionment within one year of the apportionment. The highway funds will be apportioned to States according to the SAFETEA-LU formula which would be approximately $2.3 billion for Texas and $0.2 billion for Nevada. In addition, the legislation includes $16.4 billion for mass–transit and high speed railways and $7.4 billion for water infrastructure.

Accordingly, aggregate contract lettings, including stimulus funds, would be $4.1 billion in 2009 and $6.6 billion in 2010 in Texas and $521 million in 2009 and $500 million in 2010 in Nevada, based on the currently proposed TXDOT and NDOT budgets and strategic plans.

Our water and wastewater, underground utility, light-rail transit and non-highway paving work is generally funded by municipalities and other local authorities. While the size and growth rates of these markets is difficult to compute as a whole, given the number of municipalities, the differences in funding sources and variations in local budgets, management estimates that the municipal markets in which we operate are providing funding in excess of $1 billion annually. Two of the many municipalities that we perform work for are discussed below for projects.

The City of Houston estimated expenditures for 2008 on storm drainage, street and traffic, waste water and water capital improvements were $721 million. While the budget for these improvements for 2009 has not yet been approved, the most recently adopted five-year capital improvement plan includes $612 million in 2009, $557 million in 2010 and $504 million in 2011 for such improvements and projects; however, prior to the recent enactment of the federal government's economic-stimulus legislation, the Mayor of the City of Houston indicated he would defer $200 million of the 2009 improvements to future years.

The City of San Antonio has adopted a six-year capital improvement plan for 2009 through 2014, which includes $415 million for streets ($124 million in 2009) and $228 million for drainage ($103 million in 2009). The expenditures will be partially funded by the $550 million bond program that the voters of the City of San Antonio approved in May 2007. Included in those bonds was $307 million for streets, bridges and sidewalks improvements and $152 million for drainage improvements to be built over the period 2007 through 2012.

We also do work for other cities, counties, business area redevelopment authorities and regional authorities in Texas which have substantial water and transportation infrastructure spending budgets.

In addition, while we currently have no municipal contracts in the City of Las Vegas, that City’s capital improvement plan proposes expenditures for public works of $807 million for the years 2009 through 2013, including $311 million in 2009. The City Council of Las Vegas recently directed the city staff to delay capital improvement projects that will require additional staffing for one to two years which may cause significant deferrals of construction projects. However, management believes there will be opportunities for the Company to bid on and obtain municipal work in Las Vegas as well as Reno and Carson City.

While our business does not include residential and commercial infrastructure work, the severe fall-off in new projects in those markets in Nevada and to a lesser extent in Texas, has caused a softer bidding climate in our infrastructure markets and has caused some residential and commercial infrastructure contractors to bid on public sector transportation and water infrastructure projects, thus increasing competition and creating downward pressure on bid prices in our markets. These and other factors could adversely affect our ability to maintain or increase our backlog through successful bids for new projects and could adversely affect the profitability of new projects that we do obtain through successful bids.

Recent reductions in miles driven in the U.S. and more fuel efficient vehicles are reducing the amount of federal and state gasoline taxes and tolls collected. Additionally, the current credit crisis may limit the amount of state and local bonds that can be sold at reasonable terms. Further, the nationwide decline in home sales, the increase in foreclosures and a prolonged recession may result in decreases in user fees and property and sales taxes. These and other factors could adversely affect transportation and water infrastructure capital expenditures in our markets.

Due to increased competition and our concern about a possible decline in the future level of bid opportunities, the Company has submitted some of its more recent bids at margins that are lower than bids submitted earlier in 2008 and 2007. The resulting lower margin jobs may affect gross margins recognized in the financial statements for several quarters subsequent to December 31, 2008. Assuming TXDOT moves forward in 2009 with its planned level of spending, we expect to have bidding opportunities that could allow our gross profit margins to return to more historic levels.

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While the bidding climate varies by locality, we continue to bid projects that fit our expertise and current criteria for potential revenues and gross margins after giving consideration to resource utilization, degree of difficulty in the projects, amount of subcontracts and materials and project competition. Our markets are softer and more competitive in the current economic climate. Management believes that the Company has the resources and experience to continue to compete successfully for projects as they become available.

Our Customers . For decades, we have concentrated our operations in Texas. We are headquartered in Houston, and we serve the top markets in Texas, including Houston, San Antonio, Dallas/Fort Worth and Austin. In 2007, we expanded our operations into Nevada.

Although we occasionally undertake contracts for private customers, the vast majority of our contracts are for public sector customers. In Texas, these customers include TXDOT, county and municipal public works departments, the Metropolitan Transit Authority of Harris County, Texas (or Metro), the Harris County Toll Road Authority, North Texas Transit Authority (or NTTA), regional transit and water authorities, port authorities, school districts and municipal utility districts. In Nevada, our primary public sector customer has been NDOT. In 2008, state highway work accounted for 68% of our consolidated revenues, compared with 68% in 2007 and 67% in 2006.

Our largest revenue customer is TXDOT. In 2008, contracts with TXDOT represented 39.2% of our revenues. In 2008, contracts with NDOT represented 21.3% of our revenues. The North Texas Tollroad Authority represented 6.4% of our revenues. In both Texas and Nevada, we provide services to these customers exclusively pursuant to contracts awarded through competitive bidding processes.

In Texas, our municipal customers in 2008 included the City of Houston (8.5% of our 2008 revenues), City of San Antonio (4.2% of our revenues) and Harris County, Texas (4.4% of our 2008 revenues). In the past, we have also completed the construction of certain infrastructure for new light rail systems in Houston, Dallas and Galveston. We anticipate that revenues obtained from the Cities of Houston and San Antonio will continue to increase due to these metropolitan areas' steady gain in population through migration of new residents, the annexation of surrounding communities and the continuing programs to expand storm water and flood control systems and deliver water to suburban communities. We provide services to our municipal customers exclusively pursuant to contracts awarded through competitive bidding processes.

Competition . Our competitors are companies that we bid against for construction contracts. We estimate that Sterling has in excess of 160 competitors in the Texas and Nevada markets that we primarily serve, and they include large national and regional construction companies as well as many smaller contractors. Historically, the construction business has not typically required large amounts of capital, which can result in relative ease of market entry for companies possessing acceptable qualifications.

Factors influencing our competitiveness include price, our reputation for quality, our equipment fleet, our financial strength, our surety bonding capacity and prequalification, our knowledge of local markets and conditions, and our project management and estimating abilities. Although some of our competitors are larger than we are and may possess greater resources or provide more vertically-integrated services, we believe that we are well-positioned to compete effectively and favorably in the markets in which we operate on the basis of the foregoing factors.

We are unable to determine the size of many competitors because they are privately owned, but we believe that we are one of the larger participants in our Texas markets and one of the largest contractors in Houston engaged in municipal civil construction work. In Nevada, we believe that we are a leading asphalt paving contractor in suburban and rural highway projects. We believe that being one of the largest firms in the Houston municipal civil construction market provides us with several advantages, including greater flexibility to manage our backlog in order to schedule and deploy our workforce and equipment resources more efficiently; more cost-effective purchasing of materials, insurance and bonds; the ability to provide a broader range of services than otherwise would be provided through subcontractors; and the availability of substantially more capital and resources to dedicate to each of our contracts. Because we own and maintain most of the equipment required for our contracts and have the experienced workforce to handle many types of municipal civil construction, we are able to bid competitively on many categories of contracts, especially complex, multi-task projects.

In the state highway markets, most of our competitors are large regional contractors, and individual contracts tend to be larger and require more specialized skills than those in the municipal markets. Some of these competitors have the advantage of being more vertically-integrated, or they specialize in certain types of projects such as construction over water. However those competitors, particularly in Texas, often have the disadvantage of having to use a temporary, local workforce to complete each of their state highway contracts. In contrast, we have a permanent workforce who performs our state highway contracts in Texas; however, we do rely on a temporary, unionized workforce for performance of a portion of our state highway contracts in Nevada.

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Contract Backlog

Contract backlog is our estimate of the revenues that we expect to realize in future periods on our construction contracts. We add the revenue value of new contracts to our contract backlog, when we are the low bidder on a public sector contract and have determined that there are no apparent impediments to award of the contract. As construction on our contracts progresses, we increase or decrease contract backlog to take into account changes in estimated quantities under fixed unit price contracts, as well as to reflect changed conditions, change orders and other variations from initially anticipated contract revenues and costs, including completion penalties and bonuses. We subtract from contract backlog the amounts we recognize as revenues on contracts.

Our backlog of construction projects was $448 million at December 31, 2008, versus backlog of $450 million at December 31, 2007. During 2008, we were awarded $413 million in new contracts and change orders and recognized revenues earned of $415 million. The reduction in backlog was due to increased competition for contracts and economic conditions in certain of our markets. To date, the Company has had no material project cancellations or scope reductions in any of its backlog as a result of reduced funding authorization.

Of the contract backlog at December 31, 2008, approximately $379 million is scheduled for completion in 2009. At December 31, 2008, we had no contracts in backlog which had not been officially awarded to us.

Substantially all of the contracts in our contract backlog may be canceled at the election of the customer; however, we have not been materially adversely affected by contract cancellations or modifications in the past. See the section below entitled "Contracts - Contract Management Process."

Contracts .

Types of Contracts . We provide our services by using traditional general contracting arrangements, which are predominantly fixed unit price contracts awarded based on the lowest bid. A small amount of our revenue is produced under change orders or emergency contracts arranged on a cost plus basis.

Fixed unit price contracts are generally used in competitively-bid public civil construction contracts and, to a lesser degree, building construction contracts. Contractors under fixed unit price contracts are generally committed to provide all of the resources required to complete a contract for a fixed price per unit. Fixed unit price contracts generally transfer more risk to the contractor but offer the opportunity, under favorable circumstances, for greater profits. These contracts are generally subject to negotiated change orders, frequently due to differences in site conditions from those anticipated when the bid is placed. Some contracts provide for penalties if the contract is not completed on time, or incentives if it is completed ahead of schedule.

Contract Management Process . We identify potential contracts from a variety of sources, including through subscriber services that notify us of contracts out for bid, through advertisements by federal, state and local governmental entities, through our business development efforts and through meetings with other participants in the construction industry. After determining which contracts are available, we decide which contracts to pursue based on such factors as the relevant skills required, the contract size and duration, the availability of our personnel and equipment, the size and makeup of our current backlog, our competitive advantages and disadvantages, prior experience, the contracting agency or customer, the source of contract funding, geographic location, likely competition, construction risks, gross margin opportunities, penalties or incentives and the type of contract.

As a condition to pursuing certain contracts, we are sometimes required to complete a prequalification process with the applicable agency or customer. Some customers, such as TXDOT and NDOT, require yearly prequalification, and other customers have experience requirements specific to the contract. The prequalification process generally limits bidders to those companies with the operational experience and financial capability to effectively complete the particular contract in accordance with the plans, specifications and construction schedule.

There are several factors that can create variability in contract performance and financial results compared to our bid assumptions on a contract. The most significant of these include the completeness and accuracy of our original bid analysis, recognition of costs associated with added scope changes, extended overhead due to customer and weather delays, subcontractor performance issues, changes in productivity expectations, site conditions that differ from those assumed in the original bid, and changes in the availability and proximity of materials. In addition, each of our original bids is based on the contract customer’s estimates of the quantities needed to complete a contract. If the quantities ultimately needed are different, our backlog and financial performance on the contract will change. All of these factors can lead to inefficiencies in contract performance, which can increase costs and lower profits. Conversely, if any of these or other factors is more positive than the assumptions in our bid, contract profitability can improve.

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The estimating process for our contracts in Texas typically involves three phases. Initially, we consider the level of anticipated competition and our available resources for the prospective project. If we then decide to continue considering a project, we undertake the second phase of the contract process and spend up to six weeks performing a detailed review of the plans and specifications, summarize the various types of work involved and related estimated quantities, determine the contract duration and schedule and highlight the unique and riskier aspects of the contract. Concurrent with this process, we estimate the cost and availability of labor, material, equipment, subcontractors and the project team required to complete the contract on time and in accordance with the plans and specifications. Substantially all of our estimates are made on a per-unit basis for each line item, with the typical contract containing 50 to 400 line items. The final phase consists of a detailed review of the estimate by management, including, among other things, assumptions regarding cost, approach, means and methods, productivity, risk and the estimated profit margin. This profit amount will vary according to management’s perception of the degree of difficulty of the contract, the current competitive climate and the size and makeup of our backlog. Our project managers are intimately involved throughout the estimating and construction process so that contract issues, and risks, can be understood and addressed on a timely basis.

The estimating process in Nevada is primarily the responsibility of the management of those operations. Management reviews all of the plans and specifications for a proposed project, estimates the costs to complete the project and the risks involved, adds an appropriate profit level, and, based on all of that information, determines whether to submit a bid on the project. Prior to submittal of any proposals, estimates are reviewed by Sterling management.

To manage risks of changes in material prices and subcontracting costs used in tendering bids for construction contracts, we obtain firm price quotations from our suppliers, except for fuel, and subcontractors before submitting a bid. These quotations do not include any quantity guarantees, and we have no obligation for materials or subcontract services beyond those required to complete the respective contracts that we are awarded for which quotations have been provided.

Beginning in January 2009, in order to reduce the volatility that we experienced in 2008 in our cost of diesel and gasoline fuel, we started a process of investing in certain securities, the assets of which are a crude oil commodity pool. The change in the unit price of these securities generally follows the change in percentage terms of the price of crude oil. Since there is a strong correlation between the price of crude oil and our diesel and gasoline fuel costs, we believe that over future reporting periods, the gains and losses on these securities will tend to offset the increases and decreases in the price we pay for diesel and gasoline and thus reduce the effect of the volatility of such fuel costs on our results of operations. There can, however, be no assurance that this process will be successful.

Substantially all of our contracts are entered into with governmental entities and are generally awarded to the lowest bidder after a solicitation of bids by the project owner. Requests for proposals or negotiated contracts with public or private customers are generally awarded based on a combination of technical capability and price, taking into consideration factors such as contract schedule and prior experience.

During the construction phase of a contract, we monitor our progress by comparing actual costs incurred and quantities completed to date with budgeted amounts and the contract schedule, and periodically prepare an updated estimate of total forecasted revenue, cost and expected profit for the contract.

During the normal course of most contracts, the customer, and sometimes the contractor, initiates modifications or changes to the original contract to reflect, among other things, changes in quantities, specifications or design, method or manner of performance, facilities, materials, site conditions and the period for completion of the work. In many cases, final contract quantities may differ from those specified by the customer. Generally, the scope and price of these modifications are documented in a “change order” to the original contract and reviewed, approved and paid in accordance with the normal change order provisions of the contract. We are often required to perform extra or change order work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original contract plans and specifications or, even if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. These disputes may not be settled to our satisfaction. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of the work for a lengthy period of time until the change order is approved and funded by the customer. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other work on the contract (or on other contracts) and our ability to meet contract milestone dates.

The process for resolving contract claims varies from one contract to another but, in general, we attempt to resolve claims at the project supervisory level through the normal change order process or, if necessary, with higher levels of management within our organization and the customer’s organization. Regardless of the process, when a potential claim arises on a contract, we typically have the contractual obligation to perform the work and must incur the related costs. We do not recoup the costs unless and until the claim is resolved, which could take a significant amount of time.

Most of our construction contracts provide for termination of the contract for the convenience of the customer, with provisions to pay us only for work performed through the date of termination. Our backlog and results of operations have not been materially adversely affected by these provisions in the past.

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We act as the prime contractor on almost all of the construction contracts that we undertake. We complete the majority of our contracts with our own resources, and we typically subcontract only specialized activities, such as traffic control, electrical systems, signage and trucking. As the prime contractor, we are responsible for the performance of the entire contract, including subcontract work. Thus, we are subject to increased costs associated with the failure of one or more subcontractors to perform as anticipated. We manage this risk by reviewing the size of the subcontract, the financial stability of the subcontractor and other factors. Although we generally do not require that our subcontractors furnish a bond or other type of security to guarantee their performance, we require performance and payment bonds on many specialized or large subcontract portions of our contracts. Disadvantaged business enterprise regulations require us to use our best efforts to subcontract a specified portion of contract work performed for governmental entities to certain types of subcontractors, including minority- and women-owned businesses. We have not experienced significant costs associated with subcontractor performance issues.

Insurance and Bonding . All of our buildings and equipment are covered by insurance, at levels which our management believes to be adequate. In addition, we maintain general liability and excess liability insurance, all in amounts consistent with our risk of loss and industry practice. We self-insure our workers’ compensation and health plan claims subject to stop-loss insurance coverage.

As a normal part of the construction business, we are generally required to provide various types of surety and payment bonds that provide an additional measure of security for our performance under public sector contracts. Typically, a bidder for a contract must post a bid bond, generally for 5% to 10% of the amount bid, and on winning the bid, must post a performance and payment bond for 100% of the contract amount. Upon completion of a contract, before receiving final payment on the contract, a contractor must post a maintenance bond for generally 1% of the contract amount for one to two years. Our ability to obtain surety bonds depends upon our capitalization, working capital, aggregate contract size, past performance, management expertise and external factors, including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of our backlog that we have currently bonded and their current underwriting standards, which may change from time to time. As is customary, we have agreed to indemnify our bonding company for all losses incurred by it in connection with bonds that are issued, and we have granted our bonding company a security interest in certain assets as collateral for such obligation.

Employees . At February 15, 2009, we had approximately 1,200 employees, including 16 project managers and approximately 50 superintendents who manage over 125 fully-equipped crews in our construction business. Of such employees, approximately 50 were located in our Houston headquarters, with most of the others being field personnel. Of our Nevada employees, 70 are union members represented by three unions.

Our business is dependent upon a readily available supply of management, supervisory and field personnel. Substantially all of our employees who work on our contracts in Texas are a permanent part of our workforce, and we generally do not rely on temporary employees to complete these contracts. In contrast, many of our employees who work on our contracts in Nevada are temporary employees. In the past, we have been able to attract sufficient numbers of personnel to support the growth of our operations.

We conduct extensive safety training programs, which have allowed us to maintain a high safety level at our worksites. All newly-hired employees undergo an initial safety orientation, and for certain types of projects, we conduct specific hazard training programs. Our project foremen and superintendents conduct weekly on-site safety meetings, and our full-time safety inspectors make random site safety inspections and perform assessments and training if infractions are discovered. In addition, all of our superintendents and project managers are required to complete an OSHA-approved safety course.

Item 1A. Risk Factors .

The risks described below are those we believe to be the material risks we face. Any of the risk factors described below could significantly and adversely affect our business, prospects, financial condition, results of operations and cash flows.

Risks Relating to Our Business .

If we are unable to accurately estimate the overall risks or costs when we bid on a contract that is ultimately awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract.

Substantially all of our revenues and backlog are typically derived from fixed unit price contracts. Fixed unit price contracts require us to perform the contract for a fixed unit price irrespective of our actual costs. As a result, we realize a profit on these contracts only if we successfully estimate our costs and then successfully control actual costs and avoid cost overruns. If our cost estimates for a contract are inaccurate, or if we do not execute the contract within our cost estimates, then cost overruns may cause us to incur losses or cause the contract not to be as profitable as we expected. This, in turn, could negatively affect our cash flow, earnings and financial position.

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The costs incurred and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to:

•	onsite conditions that differ from those assumed in the original bid;

•	delays caused by weather conditions;

•	contract modifications creating unanticipated costs not covered by change orders;

•	changes in availability, proximity and costs of materials, including steel, concrete, aggregates and other construction materials (such as stone, gravel, sand and oil for asphalt paving), as well as fuel and lubricants for our equipment;

•	inability to predict the costs of accessing and producing aggregates and purchasing oil, required for asphalt paving projects;

•	availability and skill level of workers in the geographic location of a project;

•	our suppliers’ or subcontractors’ failure to perform due to various reasons including bankruptcy;

•	fraud or theft committed by our employees and management;

•	mechanical problems with our machinery or equipment;

•	citations issued by any governmental authority, including the Occupational Safety and Health Administration;

•	difficulties in obtaining required governmental permits or approvals;

•	changes in applicable laws and regulations; and

•	claims or demands from third parties alleging damages arising from our work or from the project of which our work is part.

Many of our contracts with public sector customers contain provisions that purport to shift some or all of the above risks from the customer to us, even in cases where the customer is partly at fault. Our experience has often been that public sector customers have been willing to negotiate equitable adjustments in the contract compensation or completion time provisions if unexpected circumstances arise. If public sector customers seek to impose contractual risk-shifting provisions more aggressively, we could face increased risks, which may adversely affect our cash flow, earnings and financial position.

Economic downturns or reductions in government funding of infrastructure projects could reduce our revenues and profits and have a material adverse effect on our results of operations.

Our business is highly dependent on the amount and timing of infrastructure work funded by various governmental entities, which, in turn, depends on the overall condition of the economy, the need for new or replacement infrastructure, the priorities placed on various projects funded by governmental entities and federal, state or local government spending levels. Spending on infrastructure could decline for numerous reasons, including decreased revenues received by state and local governments for spending on such projects, including federal funding. For example, state spending on highway and other projects can be adversely affected by decreases or delays in, or uncertainties regarding, federal highway funding, which could adversely affect us. We are reliant upon contracts with the Texas Department of Transportation, or TXDOT, and the Nevada Department of Transportation, or NDOT, for a significant portion of our revenues. Recent public statements by state officials indicate potential TXDOT and NDOT funding shortfalls and reductions in spending.

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Recent reductions in miles driven in the U.S. and more fuel efficient vehicles are reducing federal and state gasoline taxes and tolls collected. Additionally, the current credit crisis may limit the amount of state and local bonds that can be sold at reasonable terms. Further, the nationwide decline in home sales, increase in foreclosures and a prolonged recession may result in decreases in user fees and property and sales taxes. These and other factors could adversely affect transportation and water infrastructure capital expenditures in our markets.

The cancellation of significant contracts or our disqualification from bidding for new contracts could reduce our revenues and profits and have a material adverse effect on our results of operations.

Contracts that we enter into with governmental entities can usually be canceled at any time by them with payment only for the work already completed. In addition, we could be prohibited from bidding on certain governmental contracts if we fail to maintain qualifications required by those entities. A cancellation of an unfinished contract or our debarment from the bidding process could cause our equipment and work crews to be idled for a significant period of time until other comparable work became available, which could have a material adverse effect on our business and results of operations.

We operate in Texas and Nevada, and any adverse change to the economy or business environment in Texas or Nevada could significantly and adversely affect our operations, which would lead to lower revenues and reduced profitability.

We operate in Texas and Nevada, and our Texas operations are particularly concentrated in the Houston area. Because of this concentration in specific geographic locations, we are susceptible to fluctuations in our business caused by adverse economic or other conditions in these regions, including natural or other disasters. A stagnant or depressed economy in Texas or Nevada could adversely affect our business, results of operations and financial condition.

Our acquisition strategy involves a number of risks .

In addition to organic growth of our construction business, we intend to continue pursuing growth through the acquisition of companies or assets that may enable us to expand our project skill-sets and capabilities, enlarge our geographic markets, add experienced management and increase critical mass to enable us to bid on larger contracts. However, we may be unable to implement this growth strategy if we cannot reach agreements for potential acquisitions on acceptable terms or for other reasons. Moreover, our acquisition strategy involves certain risks, including:

•	difficulties in the integration of operations and systems;

•	difficulties applying our expertise in one market into another market;

•	the key personnel and customers of the acquired company may terminate their relationships with the acquired company;

•	we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting;

•	we may assume or be held liable for risks and liabilities (including for environmental-related costs and liabilities) as a result of our acquisitions, some of which we may not discover during our due diligence;

•	our ongoing business may be disrupted or receive insufficient management attention; and

•	we may not be able to realize cost savings or other financial benefits we anticipated.

Future acquisitions may require us to obtain additional equity or debt financing, as well as additional surety bonding capacity, which may not be available on terms acceptable to us or at all. Moreover, to the extent that any acquisition results in additional goodwill, it will reduce our tangible net worth, which might have an adverse effect on our credit and bonding capacity.

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Our industry is highly competitive, with a variety of larger companies with greater resources competing with us, and our failure to compete effectively could reduce the number of new contracts awarded to us or adversely affect our margins on contracts awarded.

Essentially all of the contracts on which we bid are awarded through a competitive bid process, with awards generally being made to the lowest bidder, but sometimes recognizing other factors, such as shorter contract schedules or prior experience with the customer. Within our markets, we compete with many national, regional and local construction firms. Some of these competitors have achieved greater market penetration than we have in the markets in which we compete, and some have greater financial and other resources than we do. In addition, there are a number of national companies in our industry that are larger than we are and that, if they so desire, could establish a presence in our markets and compete with us for contracts. In some markets where home building projects have slowed, construction companies that lack available work in the home building market have begun on a limited scale bidding on highway and municipal construction contracts. As a result, we may need to accept lower contract margins in order to compete against competitors that have the ability to accept awards at lower prices or have a pre-existing relationship with a customer. If we are unable to compete successfully in our markets, our relative market share and profits could be reduced.

Our dependence on subcontractors and suppliers of materials (including petroleum-based products) could increase our costs and impair our ability to complete contracts on a timely basis or at all, which would adversely affect our profits and cash flow.

We rely on third-party subcontractors to perform some of the work on many of our contracts. We generally do not bid on contracts unless we have the necessary subcontractors committed for the anticipated scope of the contract and at prices that we have included in our bid, except for trucking arrangements needed for our Nevada operations. Therefore, to the extent that we cannot engage subcontractors, our ability to bid for contracts may be impaired. In addition, if a subcontractor is unable to deliver its services according to the negotiated terms for any reason, including the deterioration of its financial condition, we may suffer delays and be required to purchase the services from another source at a higher price. This may reduce the profit to be realized, or result in a loss, on a contract.

We also rely on third-party suppliers to provide most of the materials (including aggregates, asphalt, concrete, steel and pipe) for our contracts, except in Nevada where we source and produce most of our own aggregates. We do not own or operate any quarries in Texas, and there are no naturally occurring sources of aggregates in the Houston metropolitan area. We normally do not bid on contracts unless we have commitments from suppliers for the materials required to complete the contract and at prices that we have included in our bid, except for some aggregates we use in our Nevada construction projects. Thus, to the extent that we cannot obtain commitments from our suppliers for materials, our ability to bid for contracts may be impaired. In addition, if a supplier is unable to deliver materials according to the negotiated terms of a supply agreement for any reason, including the deterioration of its financial condition, we may suffer delays and be required to purchase the materials from another source at a higher price. This may reduce the profit to be realized, or result in a loss, on a contract.

Diesel fuel and other petroleum-based products are utilized to operate the plants and equipment on which we rely to perform our construction contracts. In addition, our asphalt plants and suppliers use oil in combination with aggregates to produce asphalt used in our road and highway construction projects. Decreased supplies of such products relative to demand, unavailability of petroleum supplies due to refinery turnarounds, and other factors can increase the cost of such products. Future increases in the costs of fuel and other petroleum-based products used in our business, particularly if a bid has been submitted for a contract and the costs of such products have been estimated at amounts less than the actual costs thereof, could result in a lower profit, or a loss, on a contract.

We may not accurately assess the quality, and we may not accurately estimate the quantity, availability and cost, of aggregates we plan to produce, particularly for projects in rural areas of Nevada, which could have a material adverse effect on our results of operations.

Particularly for projects in rural areas of Nevada, we typically estimate these factors for anticipated aggregate sources that we have not previously used to produce aggregates, which increases the risk that our estimates may be inaccurate. Inaccuracies in our estimates regarding aggregates could result in significantly higher costs to supply aggregates needed for our projects, as well as potential delays and other inefficiencies. As a result, our failure to accurately assess the quality, quantity, availability and cost of aggregates could cause us to incur losses, which could materially adversely affect our results of operations.

We may not be able to fully realize the revenue anticipated by our reported backlog.

Almost all of the contracts included in backlog are awarded by public sector customers through a competitive bid process, with the award generally being made to the lowest bidder. We add new contracts to our backlog, typically when we are the low bidder on a public sector contract and management determines that there are no apparent impediments to award of the contract. As construction on our contracts progresses, we increase or decrease backlog to take account of changes in estimated quantities under fixed unit price contracts, as well as to reflect changed conditions, change orders and other variations from initially anticipated contract revenues and costs, including completion penalties and bonuses. We subtract from backlog the amounts we bill on contracts.

Most of the contracts with our public sector customers can be terminated at their discretion. If a customer cancels, suspends, delays or reduces a contract, we may be reimbursed for certain costs but typically will not be able to bill the total amount that had been reflected in our backlog. Cancellation of one or more contracts that constitute a large percentage of our backlog, and our inability to find a substitute contract, would have a material adverse effect on our business, results of operations and financial condition.

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If we are unable to attract and retain key personnel and skilled labor, or if we encounter labor difficulties, our ability to bid for and successfully complete contracts may be negatively impacted.

Our ability to attract and retain reliable, qualified personnel is a significant factor that enables us to successfully bid for and profitably complete our work. This includes members of our management, project managers, estimators, supervisors, foremen, equipment operators and laborers. The loss of the services of any of our management could have a material adverse effect on us. Our future success will also depend on our ability to hire and retain, or to attract when needed, highly-skilled personnel. Competition for these employees is intense, and we could experience difficulty hiring and retaining the personnel necessary to support our business. If we do not succeed in retaining our current employees and attracting, developing and retaining new highly-skilled employees, our reputation may be harmed and our future earnings may be negatively impacted.

In Texas, we rely heavily on immigrant labor. Any adverse changes to existing laws and regulations, or changes in enforcement requirements or practices, applicable to employment of immigrants could negatively impact the availability and cost of the skilled personnel and labor we need, particularly in Texas. We may not be able to continue to attract and retain sufficient employees at all levels due to changes in immigration enforcement practices or compliance standards or for other reasons.

In Nevada, a substantial number of our equipment operators and laborers are unionized. Any work stoppage or other labor dispute involving our unionized workforce would have a material adverse effect on our operations and operating results in Nevada.

Our contracts may require us to perform extra or change order work, which can result in disputes and adversely affect our working capital, profits and cash flows.

Our contracts generally require us to perform extra or change order work as directed by the customer even if the customer has not agreed in advance on the scope or price of the extra work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. These disputes may not be settled to our satisfaction. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved by the customer and we are paid by the customer.

To the extent that actual recoveries with respect to change orders or amounts subject to contract disputes or claims are less than the estimates used in our financial statements, the amount of any shortfall will reduce our future revenues and profits, and this could have a material adverse effect on our reported working capital and results of operations. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.

Our failure to meet schedule or performance requirements of our contracts could adversely affect us.

In most cases, our contracts require completion by a scheduled acceptance date. Failure to meet any such schedule could result in additional costs, penalties or liquidated damages being assessed against us, and these could exceed projected profit margins on the contract. Performance problems on existing and future contracts could cause actual results of operations to differ materially from those anticipated by us and could cause us to suffer damage to our reputation within the industry and among our customers.

Unanticipated adverse weather conditions may cause delays, which could slow completion of our contracts and negatively affect our revenues and cash flow.

Because all of our construction projects are built outdoors, work on our contracts is subject to unpredictable weather conditions, which could become more frequent or severe if general climatic changes occur. For example, evacuations in Texas due to Hurricane Rita and Ike resulted in our inability to perform work on all Houston-area contracts for several days. Lengthy periods of wet weather will generally interrupt construction, and this can lead to under-utilization of crews and equipment, resulting in less efficient rates of overhead recovery. For example, during the first nine months of 2007, we experienced an above-average number of days and amount of rainfall across our Texas markets, which impeded our ability to work on construction projects and reduced our gross profit. During the late fall to early spring months of the year, our work on construction projects in Nevada may also be curtailed because of snow and other work-limiting weather. While revenues can be recovered following a period of bad weather, it is generally impossible to recover the inefficiencies, and significant periods of bad weather typically reduce profitability of affected contracts both in the current period and during the future life of affected contracts. Such reductions in contract profitability negatively affect our results of operations in current and future periods until the affected contracts are completed.

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Timing of the award and performance of new contracts could have an adverse effect on our operating results and cash flow.

It is generally very difficult to predict whether and when new contracts will be offered for tender, as these contracts frequently involve a lengthy and complex design and bidding process, which is affected by a number of factors, such as market conditions, financing arrangements and governmental approvals. Because of these factors, our results of operations and cash flows may fluctuate from quarter to quarter and year to year, and the fluctuation may be substantial.

The uncertainty of the timing of contract awards may also present difficulties in matching the size of our equipment fleet and work crews with contract needs. In some cases, we may maintain and bear the cost of more equipment and ready work crews than are currently required, in anticipation of future needs for existing contracts or expected future contracts. If a contract is delayed or an expected contract award is not received, we would incur costs that could have a material adverse effect on our anticipated profit.

In addition, the timing of the revenues, earnings and cash flows from our contracts can be delayed by a number of factors, including adverse weather conditions such as prolonged or intense periods of rain, snow, storms or flooding, delays in receiving material and equipment from suppliers and changes in the scope of work to be performed. Such delays, if they occur, could have adverse effects on our operating results for current and future periods until the affected contracts are completed.

Our dependence on a limited number of customers could adversely affect our business and results of operations.

Due to the size and nature of our construction contracts, one or a few customers have in the past and may in the future represent a substantial portion of our consolidated revenues and gross profits in any one year or over a period of several consecutive years. For example, in 2008, approximately 54.1% of our revenue in Texas was generated from three customers, and approximately 95.3% of our revenue in Nevada was generated from one customer. Similarly, our backlog frequently reflects multiple contracts for individual customers; therefore, one customer may comprise a significant percentage of backlog at a certain point in time. An example of this is TXDOT, with which we had 14 contracts in our backlog at December 31, 2008. The loss of business from any one of such customers could have a material adverse effect on our business or results of operations. Recent public statements by TXDOT and NDOT officials indicate potential funding shortfalls and reductions in spending. Because we do not maintain any reserves for payment defaults, a default or delay in payment on a significant scale could materially adversely affect our business, results of operations and financial condition.

We may incur higher costs to lease, acquire and maintain equipment necessary for our operations, and the market value of our owned equipment may decline.

We have traditionally owned most of the construction equipment used to build our projects. To the extent that we are unable to buy construction equipment necessary for our needs, either due to a lack of available funding or equipment shortages in the marketplace, we may be forced to rent equipment on a short-term basis, which could increase the costs of performing our contracts.

The equipment that we own or lease requires continuous maintenance, for which we maintain our own repair facilities. If we are unable to continue to maintain the equipment in our fleet, we may be forced to obtain third-party repair services, which could increase our costs. In addition, the market value of our equipment may unexpectedly decline at a faster rate than anticipated.

An inability to obtain bonding could limit the aggregate dollar amount of contracts that we are able to pursue.

As is customary in the construction business, we are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. Events that affect the insurance and bonding markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. Our inability to obtain adequate bonding, and, as a result, to bid on new contracts, could have a material adverse effect on our future revenues and business prospects.

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Our operations are subject to hazards that may cause personal injury or property damage, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance.

Our workers are subject to the usual hazards associated with providing construction and related services on construction sites, plants and quarries. Operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. We self-insure our workers’ compensation claims, subject to stop-loss insurance coverage. We also maintain insurance coverage in amounts and against the risks that we believe are consistent with industry practice, but this insurance may not be adequate to cover all losses or liabilities that we may incur in our operations.

Insurance liabilities are difficult to assess and quantify due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported and the effectiveness of our safety program. If we were to experience insurance claims or costs above our estimates, we might also be required to use working capital to satisfy these claims rather than to maintain or expand our operations. To the extent that we experience a material increase in the frequency or severity of accidents or workers’ compensation claims, or unfavorable developments on existing claims, our operating results and financial condition could be materially and adversely affected.

Environmental and other regulatory matters could adversely affect our ability to conduct our business and could require expenditures that could have a material adverse effect on our results of operations and financial condition.

Our operations are subject to various environmental laws and regulations relating to the management, disposal and remediation of hazardous substances and the emission and discharge of pollutants into the air and water. We could be held liable for such contamination created not only from our own activities but also from the historical activities of others on our project sites or on properties that we acquire or lease. Our operations are also subject to laws and regulations relating to workplace safety and worker health, which, among other things, regulate employee exposure to hazardous substances. Immigration laws require us to take certain steps intended to confirm the legal status of our immigrant labor force, but we may nonetheless unknowingly employ illegal immigrants. Violations of such laws and regulations could subject us to substantial fines and penalties, cleanup costs, third-party property damage or personal injury claims. In addition, these laws and regulations have become, and enforcement practices and compliance standards are becoming, increasingly stringent. Moreover, we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed, or how existing or future laws or regulations will be administered or interpreted, with respect to products or activities to which they have not been previously applied. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could require us to make substantial expenditures for, among other things, pollution control systems and other equipment that we do not currently possess, or the acquisition or modification of permits applicable to our activities.

Our aggregate quarry lease in Nevada could subject us to costs and liabilities. As lessee and operator of the quarry, we could be held responsible for any contamination or regulatory violations resulting from activities or operations at the quarry. Any such costs and liabilities could be significant and could materially and adversely affect our business, operating results and financial condition.

We may be unable to sustain our historical revenue growth rate.

Our revenue has grown rapidly in recent years. However, we may be unable to sustain these recent revenue growth rates for a variety of reasons, including limits on additional growth in our current markets, reduced spending by our customers, less success in competitive bidding for contracts, limitations on access to necessary working capital and investment capital to sustain growth, limitations on access to bonding to support increased contracts and operations, inability to hire and retain essential personnel and to acquire equipment to support growth, and inability to identify acquisition candidates and successfully acquire and integrate them into our business. A decline in our revenue growth could have a material adverse effect on our financial condition and results of operations if we are unable to reduce the growth of our operating expenses at the same rate.

Our growth has been funded in part by our utilization of net operating loss carry-forwards, or NOLs, to reduce the amounts that we have paid for income taxes, and we expect our NOLs to be fully utilized in our 2008 federal income tax return. Paying taxes will reduce cash flows from operations compared to prior periods, as we will be required to fund the payment of taxes in 2008 and future periods. To the extent that cash flow from operations is insufficient to fund future investments, make acquisitions or provide needed additional working capital, we may require additional financing from other sources of funds.

Terrorist attacks have impacted, and could continue to negatively impact, the U.S. economy and the markets in which we operate.

Terrorist attacks, like those that occurred on September 11, 2001, have contributed to economic instability in the United States, and further acts of terrorism, violence or war could affect the markets in which we operate, our business and our expectations. Armed hostilities may increase, or terrorist attacks, or responses from the United States, may lead to further acts of terrorism and civil disturbances in the United States or elsewhere, which may further contribute to economic instability in the United States. These attacks or armed conflicts may affect our operations or those of our customers or suppliers and could impact our revenues, our production capability and our ability to complete contracts in a timely manner.

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Risks Related to Our Financial Results and Financing Plans

Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.

To prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our management include: contract costs and profits and application of percentage-of-completion accounting and revenue recognition of contract change order claims; provisions for uncollectible receivables and customer claims and recoveries of costs from subcontractors, suppliers and others; valuation of assets acquired and liabilities assumed in connection with business combinations; and accruals for estimated liabilities, including litigation and insurance reserves. Our actual results could differ from, and could require adjustments to, those estimates.

In particular, as is more fully discussed in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,” we recognize contract revenue using the percentage-of-completion method. Under this method, estimated contract revenue is recognized by applying the percentage of completion of the contract for the period to the total estimated revenue for the contract. Estimated contract losses are recognized in full when determined. Contract revenue and total cost estimates are reviewed and revised on a continuous basis as the work progresses and as change orders are initiated or approved, and adjustments based upon the percentage of completion are reflected in contract revenue in the accounting period when these estimates are revised. To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract profit, we recognize a credit or a charge against current earnings, which could be material.

We may need to raise additional capital in the future for working capital, capital expenditures and/or acquisitions, and we may not be able to do so on favorable terms or at all, which would impair our ability to operate our business or achieve our growth objectives.

Our ability to obtain additional financing in the future will depend in part upon prevailing credit and equity market conditions, as well as conditions in our business and our operating results; such factors may adversely affect our efforts to arrange additional financing on terms satisfactory to us. We have pledged the proceeds and other rights under our construction contracts to our bond surety, and we have pledged substantially all of our other assets as collateral in connection with our credit facility and mortgage debt. As a result, we may have difficulty in obtaining additional financing in the future if such financing requires us to pledge assets as collateral. In addition, under our credit facility, we must obtain the consent of our lenders to incur any amount of additional debt from other sources (subject to certain exceptions). If future financing is obtained by the issuance of additional shares of common stock, our stockholders may suffer dilution. If adequate funds are not available, or are not available on acceptable terms, we may not be able to make future investments, take advantage of acquisitions or other opportunities, or respond to competitive challenges.

We are subject to financial and other covenants under our credit facility that could limit our flexibility in managing our business.

We have a credit facility that restricts us from engaging in certain activities, including restrictions on our ability (subject to certain exceptions) to:

•	make distributions, pay dividends and buy back shares;

•	incur liens or encumbrances;

•	incur indebtedness;

•	guarantee obligations;

•	dispose of a material portion of assets or otherwise engage in a merger with a third party;

•	make acquisitions; and

•	incur losses for two consecutive quarters.

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Our credit facility contains financial covenants that require us to maintain specified fixed charge coverage ratios, asset ratios and leverage ratios, and to maintain specified levels of tangible net worth. Our ability to borrow funds for any purpose will depend on our satisfying these tests. If we are unable to meet the terms of the financial covenants or fail to comply with any of the other restrictions contained in our credit facility, an event of default could occur. An event of default, if not waived by our lenders, could result in the acceleration of any outstanding indebtedness, causing such debt to become immediately due and payable. If such an acceleration occurs, we may not be able to repay such indebtedness on a timely basis. Acceleration of our credit facility could result in foreclosure on and loss of our operating assets. In the event of such foreclosure, we would be unable to conduct our business and forced to discontinue operations.

Item 1B. Unresolved Staff Comments .

None

Item 2. Properties .

We own our 25,304 square-foot headquarters office building in Houston, Texas, which is located on a seven-acre parcel of land on which our Texas equipment repair center is also located. We also own land in Dallas and San Antonio on which we plan to construct regional offices and repair facilities. Pending completion of these regional offices, we lease office facilities in these locations. In order to complete most contracts in Texas, we lease small parcels of real estate near the site of a contract job site to store materials, locate equipment, conduct concrete crushing and pugging operations, and provide offices for the contracting customer, its representatives and our employees.

For our Nevada operations, we lease office space in Reno, Nevada, and we have an office and repair facilities located on a forty-five acre parcel of land in Lovelock, Nevada. We also lease the right to mine stone and sand at a quarry in Carson City, Nevada. Unlike in Texas where we acquire aggregates from third-party suppliers, in Nevada, we generally source and produce our own aggregates, either from the Carson City quarry or from other sources near job sites where we enter into short-term leases to acquire the aggregates necessary for the job. In order to complete most contracts in Nevada, we also lease small parcels of real estate near the site of a contract job site to store materials, locate equipment, and provide offices for the contracting customer, its representatives and our employees.

Item 3. Legal Proceedings .

We are and may in the future be involved as a party to various legal proceedings that are incidental to the ordinary course of business. We regularly analyze current information about these proceedings and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters.

In the opinion of management, after consultation with legal counsel, there are currently no threatened or pending legal matters that would reasonably be expected to have a material adverse impact on our consolidated results of operations, financial position or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders .

None

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PART II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities. .

The Company's common stock is traded on the NASDAQ Global Select Market ("NGS"). The table below shows the market high and low closing sales prices of the common stock for 2007 and 2008 by quarter and for the period from January 1, through February 28, 2009.

	High	Low
Year Ended December 31, 2007
First Quarter	$22.74	$17.42
Second Quarter	$23.86	$18.90
Third Quarter	$23.97	$18.64
Fourth Quarter	$26.60	$20.45
Year Ended December 31, 200 8
First Quarter	$21.84	$16.37
Second Quarter	$21.02	$18.70
Third Quarter	$20.80	$16.16
Fourth Quarter	$19.30	$9.40
January 1 through February 28, 2009	$19.69	$15.32

On February 28, 2009, there were approximately 1,181 holders of record of our common stock.

Dividend Policy . We have never paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings in our business, and we do not anticipate paying any cash dividends. Whether or not we declare any dividends will be at the discretion of the Board of Directors considering then-existing conditions, including the Company's financial condition and results of operations, capital requirements, bonding prospects, contractual restrictions (including those under the Company's Credit Facility) business prospects and other factors that our Board of Directors considers relevant.

Equity Compensation Plan Information . Certain information about the Company's equity compensation plans is set forth in Item 12. — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .

Performance Graph. The following graph compares the percentage change in the Company's cumulative total stockholder return on its common stock for the last five years with the Dow Jones US Index , a broad market index, and the Dow Jones US Heavy Construction Index, a group of companies whose marketing strategy is focused on a limited product line, such as civil construction. Both indices are published in The Wall Street Journal.

The returns are calculated assuming that an investment with a value of $100 was made in the Company's common stock and in each index at the end of 2003 and that all dividends were reinvested in additional shares of common stock; however, the Company has paid no dividends during the periods shown. The graph lines merely connect the measuring dates and do not reflect fluctuations between those dates. The stock performance shown on the graph is not intended to be indicative of future stock performance.

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	December 2003	December 2004	December 2005	December 2006	December 2007	December 2008
Sterling Construction Company, Inc	100.00	114.57	371.52	480.35	481.68	409.05
Dow Jones US	100.00	112.01	119.10	137.64	145.91	91.69
Dow Jones US Heavy Construction	100.00	121.26	175.23	218.58	415.21	186.34

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Item 6. Selected Financial Data .

The following table sets forth selected financial and other data of the Company and its subsidiaries and should be read in conjunction with both Item 7. —Management’s Discussion and Analysis of Financial Condition and Results of Operations , which follows, and Item 8. — Financial Statements and Supplementary Data .

	Year Ended December 31
	2008			2007			2006			2005			2004
	(Amounts in thousands except per-share data)
Operating Results:
Revenues	$	415,074		$	306,220		$	249,348		$	219,439		$	132,478
Income from continuing operations before income taxes andminority interest		28,999			22,396			19,204			13,329			4,109
Income tax (expense)/benefit		(10,025	)		(7,890	)		(6,566	)		(2,788	)		2,134
Minority interest		(908	)		(62	)		--			--			(962	)
Income from continuing operations		18,066			14,444			12,638			10,541			5,281
Income (loss) from discontinued operations, including gain on sale in 2006								682			559			372
Net income	$	18,066		$	14,444		$	13,320		$	11,100		$	5,653

Basic and diluted per share amounts:
Basic earnings per share from -
Continuing operations	$	1.38		$	1.31		$	1.19		$	1.36		$	0.99
Discontinued operations		--			--		$	0.06		$	0.07		$	0.07
Basic earnings per share	$	1.38		$	1.31		$	1.25		$	1.43		$	1.06
Basic weighted average shares outstanding		13,120			11,044			10,583			7,775			5,343

Diluted earnings per share from -
Continuing operations	$	1.32		$	1.22		$	1.08		$	1.11		$	0.75
Discontinued operations		--			--		$	0.06		$	0.05		$	0.05
Diluted earnings per share	$	1.32		$	1.22		$	1.14		$	1.16		$	0.80
Diluted weighted average shares outstanding		13,702			11,836			11,714			9,538			7,028

Cash dividends declared		—			—			—			—			—

Balance Sheet:
Total assets	$	289,615		$	274,515		$	167,772		$	118,455		$	89,544
Long-term debt		55,483			65,556			30,659			14,570			21,979

Equity		159,116			138,612			90,991			48,612			35,208
Book value per share of outstanding common stock	$	12.07		$	10.66		$	8.37		$	5.95		$	4.77
Shares outstanding		13,185			13,007			10,875			8,165			7,379

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In January 2006 the Company completed a public offering of approximately 2.0 million shares of its common stock at $15.00 per share. The Company received proceeds, net of underwriting commissions, of approximately $28.0 million ($13.95 per share) and paid approximately $907,000 in related offering expenses. In addition, the Company received approximately $484,000 from the exercise of warrants and options to purchase 321,758 shares in December 2005. These shares were sold by the option and warrant holders in the offering. From the proceeds of the offering, the Company repaid its outstanding promissory notes and related interest aggregating approximately $5.5 million to the executive management, directors and former directors.

During 2006, the Company utilized part of the offering proceeds to purchase additional capital equipment for the construction business and to replenish funds that had been used for the 2006 acquisition of a drill shaft business.

In December 2007, the Company completed an additional public offering of 1.84 million shares of its common stock at $20.00 per share. The Company received proceeds, net of underwriting commissions, of approximately $35.0 million ($19.00 per share) and paid approximately $0.5 million in related offering expenses. Between the purchase date of RHB and the 2007 public offering of stock, the Company used the proceeds from the sale of its investments in short-term securities and cash provided by operations to reduce the Credit Facility borrowings used to purchase RHB by $22.4 million. The proceeds of the public stock offering were used to replenish the investment in short-term securities.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation .

Overview

For an overview of the Company's business and its associated risks, see Item 1. Business and Item 1A. Risk Factors .

Critical Accounting Policies

Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements for the year ended December 31, 2008.

Use of Estimates.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our business involves making significant estimates and assumptions in the normal course of business relating to our contracts due to, among other things, different project scopes and specifications, the long-term duration of our contract cycle and the type of contract utilized. Therefore, management believes that “Revenue Recognition” is the most important and critical accounting policy. The most significant estimates with regard to these financial statements relate to the estimating of total forecasted construction contract revenues, costs and profits in accordance with accounting for long-term contracts. Actual results could differ from these estimates and such differences could be material.

Our estimates of contract revenue and cost are highly detailed. We believe, based on our experience, that our current systems of management and accounting controls allow management to produce reliable estimates of total contract revenue and cost during any accounting period. However, many factors can and do change during a contract performance period, which can result in a change to contract profitability from one financial reporting period to another. Some of the factors that can adversely change the estimate of total contract revenue, cost and profit include differing site conditions (to the extent that contract remedies are unavailable), the failure of major material suppliers to deliver on time, the failure of subcontractors to perform as agreed, unusual weather conditions, our failure to achieve expected productivity and efficient use of labor and equipment and the inaccuracies of our original bid estimate. Because we have a large number of contracts in process at any given time, these changes in estimates can sometimes offset each other without affecting overall profitability. However, significant changes in cost estimates on larger, more complex projects can have a material impact on our financial statements and are reflected in our results of operations when they become known.

When recording revenue from change orders on contracts that have been approved as to scope but not price, we include in revenue an amount equal to the amount that we currently expect to recover from customers in relation to costs incurred by us for changes in contract specifications or designs, or other unanticipated additional costs. Revenue relating to change order claims is recognized only if it is probable that the revenue will be realized. When determining the likelihood of eventual recovery, we consider such factors as evaluation of entitlement, settlements reached to date and our experience with the customer. When new facts become known, an adjustment to the estimated recovery is made and reflected in the current period results.

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Revenue Recognition.

The majority of our contracts with our customers are “fixed unit price.” Under such contracts, we are committed to providing materials or services required by a contract at fixed unit prices (for example, dollars per cubic yard of concrete poured or per cubic yard of earth excavated). To minimize increases in the material prices and subcontracting costs used in submitting bids, we obtain firm quotations from our suppliers and subcontractors. After we are advised that our bid is the winning bid, we enter into firm contracts with most of our materials suppliers and sub-contractors, thereby mitigating the risk of future price variations affecting those contract costs. Such quotations do not include any quantity guarantees, and we therefore have no obligation for materials or subcontract services beyond those required to complete the respective contracts that we are awarded for which quotations have been provided. As a result, we have rarely been exposed to material price or availability risk on contracts in our contract backlog. Assuming performance by our suppliers and subcontractors, the principal remaining risks under our fixed price contracts relate to labor and equipment costs and productivity levels. Most of our state and municipal contracts provide for termination of the contract for the convenience of the owner, with provisions to pay us only for work performed through the date of termination.

We use the percentage of completion accounting method for construction contracts in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Revenue and earnings on construction contracts are recognized on the percentage of completion method in the ratio of costs incurred to estimated final costs. Revenue is recognized as costs are incurred in an amount equal to cost plus the related expected profit. Contract cost consists of direct costs on contracts, including labor and materials, amounts payable to subcontractors and equipment expense (primarily depreciation, fuel, maintenance and repairs). Depreciation is computed using the straight-line method for construction equipment. Contract cost is recorded as incurred, and revisions in contract revenue and cost estimates are reflected in the accounting period when known.

The accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the cost to finish uncompleted contracts. Our cost estimates for all of our significant contracts use a highly detailed “bottom up” approach, and we believe our experience allows us to produce reliable estimates. However, our contracts can be highly complex, and in almost every case, the profit margin estimates for a contract will either increase or decrease to some extent from the amount that was originally estimated at the time of bid. Because we have a large number of contracts of varying levels of size and complexity in process at any given time, these changes in estimates can sometimes offset each other without materially impacting our overall profitability. However, large changes in revenue or cost estimates can have a significant effect on profitability.

There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include the completeness and accuracy of the original bid, recognition of costs associated with scope changes, extended overhead due to customer-related and weather-related delays, subcontractor and supplier performance issues, site conditions that differ from those assumed in the original bid (to the extent contract remedies are unavailable), the availability and skill level of workers in the geographic location of the contract and changes in the availability and proximity of materials. The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins, may cause fluctuations in gross profit between periods, and these fluctuations may be significant.

Valuation of Long-Term Assets.

Long-lived assets, which include property, equipment and acquired identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment evaluations involve management estimates of useful asset lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management, and this could have a material effect on operating results and financial position. In addition, we had goodwill with a carrying amount of approximately $57 million at December 31, 2008, which must be reviewed for impairment at least annually in accordance with Statement of Financial Accounting Standards No. 142 , or SFAS 142. The impairment testing required by SFAS 142 requires considerable judgment, and an impairment charge may be required in the future. We completed our annual impairment review for goodwill during the fourth quarter of 2008, and it did not result in an impairment.

Income Taxes.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and, where necessary, establish a valuation allowance. Reflecting management’s assessment of expected future operating profitability and expectation that the Company would utilize all remaining net operating loss carry forwards ("NOLs"), we eliminated our valuation allowance in 2005. We are subject to the alternative minimum tax (AMT). When we utilize our NOLs to offset taxable income, payment of AMT results in a reduction of our deferred tax liability.

Our deferred tax assets related to our NOLs for financial statement purposes were fully utilized during 2007. In addition to the utilization of those NOLs, we had available to us the excess tax benefit resulting from exercise of a significant number of non-qualified in-the-money options amounting to $1.2 million, which we expect to utilize in the preparation of our 2008 federal income tax return. Accordingly, because we will no longer have the significant offsets provided by the NOLs, a comparison of our future cash flows to our historic cash flows may not be meaningful.

On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, (FIN 48) which establishes the criteria that an individual tax position must meet for some or all of the benefits of that position to be recorded. Adoption of FIN 48 did not have a material impact on our consolidated financial statements.

Discontinued Operations.

In August 2005, our board of directors authorized management to sell our distribution business. In accordance with the provisions of SFAS 144, we determined in the third quarter of 2005 that the distribution business became a long-lived asset held for sale and a discontinued operation. In October 2006, we sold the distribution business to an industry-related buyer for gross proceeds of approximately $5.4 million. We recognized a pre-tax gain on the sale in 2006 of approximately $249,000, equal to $121,000 after taxes.

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Results of Operations

Fiscal Year Ended December 31, 2008 (2008) Compared with Fiscal Year Ended December 31, 2007 (2007).

	2008			2007			% Change
	(Dollar amounts in thousands)
Revenues	$	415,074		$	306,220			35.5	%
Gross profit		41,972			33,686			24.6
Gross margin		10.1	%		11.0	%		(8.2	)
General and administrative expenses, net		(13,763	)		(13,231	)		4.0
Other income (loss)		(81	)		549			(114.8	)
Operating income		28,128			21,004			33.9
Operating margin		6.8	%		6.9	%		(1.5	)
Interest income		1,070			1,669			(35.9	)
Interest expense		(199	)		(277	)		28.2
Income before taxes		28,999			22,396			29.5
Income taxes		(10,025	)		(7,890	)		27.1
Minority interest in subsidiary		(908	)		(62	)		(1,364.5	)
Net income	$	18,066		$	14,444			25.1
Contract backlog, end of year	$	448,000		$	450,000			(0.4	)

Revenues . Revenues increased $109 million, or 35.5%, from 2007 to 2008. A majority of the increase was due to the revenues earned by our Nevada operations, acquired on October 31, 2007, which were included in the consolidated results of operations for the full year of 2008 versus only two months in 2007. The remainder of the increase in revenues is the result of an increase in work performed by our Texas operations as a result of better weather throughout 2008 than 2007. Management estimates that revenues would have been $10 to $12 million greater had our Houston operations not been interrupted by Hurricane Ike and its after effects in September, 2008. Additionally, one of our oil suppliers in Nevada filed for bankruptcy in July 2008 and failed to furnish contracted oil for our production of asphalt on two of our jobs-in-progress, which delayed job performance and deferred approximately $25.0 million of revenue into 2009. The Company has negotiated with NDOT and does not anticipate the profitability on these contracts will be materially impacted by this matter.

Contract receivables are directly related to revenues and include both amounts currently due and retainage. The increase of $6.2 million in contracts receivable to $60.6 million at December 31, 2008 versus 2007 is due to the increase in revenue for the year 2008. The days revenue in contract receivables is approximately 53 days and 65 days at December 31, 2008 and 2007, respectively. The days revenue in contract receivables would have been similar for the two years if the revenues of our Nevada operations had been included in our revenues for a full year in 2007.

Revenue in the fourth quarter of 2008 increased $21 million to $109 million versus 2007 for the same reasons as discussed above for the full year. See note 17 to the consolidated financial statements for unaudited quarterly financial information.

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Gross profit

Gross profit increased $8.3 million in 2008 over 2007. This was due to the contribution of our Nevada operations in 2008 and better weather in Texas during most of 2008 than during 2007 (other than for the period during Hurricane Ike), which allowed our crews and equipment to be more productive. While Hurricane Ike affected our work in 2008, a hurricane usually does not adversely affect our profitability as much as the consistent rainy periods we had in 2007. Our gross margin decreased in 2008 from 2007 because of operating inefficiencies on certain contracts in Texas, higher fuel costs and lower profit margins on certain contracts started in the last half of 2008. We expect the trend of lower profit margins on contracts awards to continue at least in the first half of 2009.

Gross profit in the fourth quarter of 2008 decreased $2.5 million or 21% from the same quarter in 2007. Gross profit was 13.7% of revenues in the 2007 fourth quarter versus 8.7% in the fourth quarter of 2008 as a result of some unusually profitable municipal projects being performed primarily in the 2007 fourth quarter. Without those projects, the gross margins for the 2007 fourth quarter would have been more in line with normal margins, although still somewhat better than that of the fourth quarter of 2008.

Contract Backlog

At December 31, 2008, our backlog of construction projects was $448 million, as compared to $450 million at December 31, 2007. We were awarded approximately $413 million of new projects and change orders and recognized $415 million of earned revenue in 2008. Approximately $69 million of the backlog at December 31, 2008 is expected to be completed after 2009. The decrease in backlog from 2007 was due to increased competition and economic conditions in certain of our markets.

Recent reductions in miles driven in the U.S. and more fuel efficient vehicles are reducing federal and state gasoline taxes and tolls collected. Additionally, the current credit crisis may limit the amount of state and local bonds that can be sold at reasonable terms. Further, the nationwide decline in home sales, the increase in foreclosures and a prolonged recession may result in decreases in user fees and property and sales taxes. These and other factors could adversely affect transportation and water infrastructure capital expenditures in our markets.

General and administrative expenses, and other income

General and administrative expenses, net, increased by $0.5 million in 2008 from 2007 primarily due to a full year of G&A at our Nevada operations offset by lower stock compensation expense.

Despite the increase in absolute G&A expenses, the percentage of G&A to revenue decreased to 3.3% in 2008 from 4.3% in 2007 as the Nevada operations' G&A is not as large a percentage of revenues as Sterling's G&A which includes corporate overhead and expenses associated with being a public company.

Other income decreased $0.6 million and consists of gains and losses on disposal of equipment which depends on, among other things, age and condition of equipment disposed of, insurance recoveries and the market for used equipment.

Operating income

Operating income increased $7.1 million due to the factors discussed above regarding gross profit and general and administrative expenses and other income.

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Interest income and expense

Net interest income was $0.5 million less for 2008 than 2007 due to a decrease in interest rates on cash and short-term investments combined with the imputed interest expense of $0.2 million on the put option related to the minority interest in RHB.

Income taxes

Our effective income tax rate for the year ended December 31, 2008 was 34.6% compared to 35.2% for 2007. The difference between the effective tax rate and the statutory tax rate is due to the portion of earnings of a subsidiary taxed to the minority interest owner partially offset by the revised Texas franchise tax which became effective July 1, 2007.

Minority interest in subsidiary

The increase of $0.8 million is due to the minority interest's share of the results of RHB included in the consolidated results of operations for a full year in 2008 versus two months in 2007.

Fiscal Year Ended December 31, 2007 (2007) Compared with Fiscal Year Ended December 31, 2006 (2006).

	2007			2006			% Change
	(Dollar amounts in thousands)
Revenues	$	306,220		$	249,348			22.8	%
Gross profit		33,686			28,547			18.0	%
Gross margin		11.0	%		11.4	%		(3.5	)%
General and administrative expenses, net		(13,231	)		(10,825	)		22.0	%
Other income		549			276			98.9	%
Operating income		21,004			17,998			16.8	%
Operating margin		6.9	%		7.2	%		(4.2	)%
Interest income		1,669			1,426			17.0	%
Interest expense		(277	)		(220	)		26.5	%
Income from continuing operations before taxes		22,396			19,204			16.4	%
Income taxes		(7,890	)		6,566			20.2	%
Minority interest in subsidiary		(62	)		--			100.0	%
Net income from continuing operations		14,444			12,638			14.5	%
Net income (loss) from discontinued operations, including gain on sale		--			682			(100.0	)%
Net income	$	14,444		$	13,320			8.4	%
Contract backlog, end of year	$	450,000		$	395,000			13.9	%

Revenues . Revenues increased $57 million, or 23%, from 2006 to 2007 reflecting the effect of continued expansion of our construction fleet, addition of a concrete plant and addition of crews. Our workforce grew by 18% year-over-year, and we purchased over $36 million in property, plant and equipment, including that acquired in the purchase of RHB, within the twelve month period ending December 31, 2007.

The increased revenue came strictly from the state market resulting from the Company being the successful low bidder in the state market which was assisted by an improved bidding climate in 2006 due to a large state highway program and increased total funding in the Dallas and Houston areas. The improvement in the weather in the fourth quarter 2007 offset much of the lower than expected revenue of the first three quarters of 2007 due to heavy rainfall during those months. Due to seasonality of the Nevada market, the contracts of RHB had only a modest effect on revenues for the two months they were included in 2007 revenues.

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Contract receivables are directly related to revenues and include both amounts currently due and retainage. The increase of $11.6 million in contracts receivable to $54.4 million at December 31, 2007 versus 2006 is due to the increase in revenue for the year 2007. The days revenue in contract receivables is approximately 65 days and 62 days at December 31, 2007 and 2006, respectively. The increase in days revenue in contract receivables is primarily the result of the Nevada operations receivables at December 31, 2007.

Gross Profit . The improvement in gross profits in 2007 was due principally to the increase in revenues. The slight margin reduction was attributable to a decrease of margin in backlog due to poor weather for the first three quarters of the year, and an increase in sales from the state contracts which have historically had lower gross than municipal contracts.

State highway contracts generally allow us to achieve greater revenue and gross profit production from our equipment and work crews, although on average the gross margins on this work tend to be slightly lower than on our water infrastructure contracts in the municipal markets. The lower margins reflect proportionally larger material inputs in the state contracts as we typically receive lower margins on materials than on labor. Partially offsetting the margin reduction was our ability to continue to redesign some jobs, achieve incentive awards and maintain good execution levels during dry weather. Due to the large number of contracts in different stages of completion and in different locations, it is not practical to quantify the impact of each of these matters on revenues and gross profit.

Contract Backlog . The increase in contract backlog is related to the Nevada acquisition in 2007. There was $16 million included in our 2007 year-end backlog on which we were the apparent low bidder and have subsequently been officially awarded these contracts. Historically, subsequent non-awards of such low bids have not materially affected our backlog or financial condition.

General and Administrative Expenses, Net of Other Income and Expense . The increase in general and administrative expenses, or G&A, in 2007 was principally due to higher employee expenses, including an increase in staff, and higher professional fees. Despite these increases in G&A expenses in support of our growing business, our ratio of G&A expenses to revenue remained essentially unchanged from 2006 to 2007, at 4%.

Operating Income . The 2007 increase in operating income resulted principally from the higher revenues and gross profits as discussed above.

Interest Income and Expense . The interest income net of interest expense remained virtually unchanged from 2006 to 2007 given the high cash and short term investments maintained throughout the year and the offering completed in December 2007. A total of $53,000 of interest expense was capitalized as part of our office and shop expansion.

Income Taxes . Income taxes increased due to increased income, the Texas margin tax and an increase in the statutory tax rate.

Minority Interest. As discussed in Part I, Item 1. Business, on October 31, 2007, the Company acquired a 91.67% interest in RHB. The minority interest's share of RHB's income before income taxes was $62,000 for the two months ended December 31, 2007 that was included in the consolidated results of operations.

Net Income from Continuing Operations . The 2007 increase in net income from continuing operations was the result of the various factors discussed above.

Discontinued Operations, Net of Tax . Discontinued operations for 2006 represents the results of operations of our distribution business, which was operated by Steel City Products, LLC.

The distribution business was sold on October 27, 2006. The Company recorded proceeds from the sale of approximately $5.4 million and recorded a pre-tax gain on the sale of approximately $249,000 and recorded $128,000 in income tax expense related to that gain in 2006.

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Historical Cash Flows

The following table sets forth information about our cash flows for the years ended December 31, 2008, 2007 and 2006.

	Year Ended December 31,
	2008			2007			2006
	(Amounts in thousands)
Cash and cash equivalents (at end of period)	$	55,305		$	80,649		$	28,466
Net cash provided by (used in)
Continuing operations:
Operating activities		26,721			29,542			23,089
Investing activities		(42,923	)		(47,935	)		(52,358	)
Financing activities		(9,142	)		70,576			35,468
Discontinued operations
Operating activities		--			--			495
Investing activities		--			--			4,739
Financing activities		--			--			(5,357	)
Supplementary information:
Capital expenditures		19,896			26,319			24,849
Working capital (at end of period)		95,123			82,063			62,874

Operating Activities

Significant non-cash items included in operating activities are:

	●	depreciation and amortization, which for 2008 totaled $13.2 million, an increase of $3.6 million from 2007 and $6.2 million from 2006, as a result of the continued increase in the size of our construction fleet in recent years and a full year's depreciation on equipment purchased in the RHB acquisition on October 31, 2007;
	●	deferred tax expense was $8.9 million, $6.6 million and $6.3 million in 2008, 2007 and 2006, respectively, mainly attributable to accelerated depreciation methods used on equipment for tax purposes and amortization for tax return purposes of goodwill arising in the acquisition of RHB.

Besides net income of $18.1 million and the non-cash items discussed above, other significant components of cash flows from operations are as follows:

	●	contracts receivable increased by $6.2 million in the current year due to the increase in revenues of $109 million, including those of the Nevada operations, as compared to an increase of $6.6 million in 2007 which was also due to an increase in revenue and a higher level of customer retentions;
	●	the increase in cost and estimated earnings in excess of billings on uncompleted contracts of $3.8 million as of December 31, 2008, versus a decrease of $0.6 million as of December 31, 2007, which was due to an increase in the volume of materials purchased for certain projects at December 31, 2008, but not billed to the customer until 2009 and timing of other billings.

●

accounts payable decreased by $1.1 million in 2008 and increased $6.1 million in 2007 as a result of changes in the volume of materials and sub-contractor services purchased in later months of each period.

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Investing activities

Expenditures for the replacement of certain equipment and to expand our construction fleet and office and shop facilities totaled $19.9 million in 2008, compared with a total of $26.3 million of property and equipment purchases in 2007. Capital equipment is acquired as needed to support work crews required by increased backlog and to replace retiring equipment. The decrease in capital expenditures in 2008 was principally due to management's cautious view regarding certain of the Company's markets in 2009 and current economic uncertainties. Unless such factors change, management expects capital expenditures in 2009 to be equal to or less than in 2008.

During the twelve months ended December 31, 2008, the Company had purchases of short-term securities of $24.3 million versus a net reduction of $26.1 million in 2007 primarily due to the longer term of the securities purchased.

In October 2007, we purchased a 91.67% equity interest in RHB which we acquired for a net cash purchase price of $49.3 million in order to expand our construction operations to Nevada.

Financing activities

Financing activities in 2008 primarily reflect a reduction of $10.0 million in borrowings under our $75.0 million Credit Facility as compared to an increase of $35.0 million of borrowings in 2007. The amount of borrowings under the Credit Facility is based on the Company's expectations of working capital requirements.

Additionally, the Company sold common stock in 2007 and 2006 for net proceeds of $34.5 million and $27.0 million, respectively.

Liquidity

The level of working capital required for our construction business varies due to fluctuations in:

	·	customer receivables and contract retentions;
	·	costs and estimated earnings in excess of billings;

	·	billings in excess of costs and estimated earnings;
	·	the size and status of contract mobilization payments and progress billings;

the amounts owed to suppliers and subcontractors.

Some of these fluctuations can be significant.

As of December 31, 2008, we had working capital of $95.1 million, an increase of $13.1 million over December 31, 2007. Increasing working capital is an important element in expanding our bonding capacity, which enables us to bid on larger and longer-lived projects. The increase in working capital was mainly the result of net income plus depreciation and deferred tax expense totaling $40.2 million reduced by purchases of property and equipment of $19.9 million and net repayment of debt of $10 million.

The Company believes that it has sufficient liquid financial resources, including the unused portion of its Credit Facility, to fund its requirements for the next twelve months of operations, including its bonding requirements, and expects no other material changes in its liquidity.

Sources of Capital

In addition to our available cash and cash equivalents, short term investments balances and cash provided by operations, we use borrowings under our Credit Facility with Comerica Bank to finance our capital expenditures and working capital needs.

The financial markets have recently experienced substantial volatility as a result of disruptions in the credit markets. However, to date we have not experienced any difficulty in borrowing under our Credit Facility or any change in its terms.

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We have a $75.0 million Credit Facility with a bank syndicate for which Comerica Bank is a participant and agent. The Credit Facility entered into on October 31, 2007 replaced a similar $35.0 million revolver that had been renewed in April 2006. The Credit Facility has a maturity date of October 31, 2012, and is secured by all assets of the Company, other than proceeds and other rights under our construction contracts which are pledged to our bond surety. Borrowings under the Credit Facility were used to finance the RHB acquisition, repay indebtedness outstanding under the Revolver, and finance working capital. At December 31, 2008, the aggregate borrowings outstanding under the Credit Facility were $55.0 million, and the aggregate amount of letters of credit outstanding under the Credit Facility was $1.8 million, which reduces availability under the Credit Facility. Availability under the Credit Facility was, therefore, $18.2 million.

The Credit Facility is subject to our compliance with certain covenants, including financial covenants relating to fixed charges, leverage, tangible net worth, asset coverage and consolidated net losses.

The Credit Facility contains restrictions on our ability to:

·	Make distributions and dividends;

·	Incur liens and encumbrances;

·	Incur further indebtedness;

·	Guarantee obligations;

·	Dispose of a material portion of assets or merge with a third party;

·	Incur negative income for two consecutive quarters.

The Company was in compliance with all covenants under the Credit Facility as of December 31, 2008.

The unpaid principal balance of each prime-based loan will bear interest at a variable rate equal to Comerica’s prime rate plus an amount ranging from 0% to 0.50% depending on the pricing leverage ratio that we achieve. If we achieve a pricing leverage ratio of (a) less than 1.00 to 1.00; (b) equal to or greater than 1.00 to 1.00 but less than 1.75 to 1.00; or (c) greater than or equal to 1.75 to 1.00, then the applicable prime margins will be 0.0%, 0.25% or 0.50%, respectively. The interest rate on funds borrowed under this revolver during the year ended December 31, 2008 ranged from 3.5% to 7.5%.

Management believes that the new Credit Facility will provide adequate funding for the Company’s working capital, debt service and capital expenditure requirements, including seasonal fluctuations at least through December 31, 2009.

At our election, the loans under the new Credit Facility bear interest at either a LIBOR-based interest rate or a prime-based interest rate. The unpaid principal balance of each LIBOR-based loan bears interest at a variable rate equal to LIBOR plus an amount ranging from 1.25% to 2.25% depending on the pricing leverage ratio that we achieve. The “pricing leverage ratio” is determined by the ratio of our average total debt, less cash and cash equivalents, to earnings before interest, taxes, depreciation and amortization ("EBITDA") that we achieve on a rolling four-quarter basis. The pricing leverage ratio is measured quarterly. If we achieve a pricing leverage ratio of (a) less than 1.00 to 1.00; (b) equal to or greater than 1.00 to 1.00 but less than 1.75 to 1.00; or (c) greater than or equal to 1.75 to 1.00, then the applicable LIBOR margins will be 1.25%, 1.75% or 2.25%, respectively. Interest on LIBOR-based loans is payable at the end of the relevant LIBOR interest period, which must be one, two, three or six months. The new Credit Facility is subject to our compliance with certain covenants, including financial covenants relating to fixed charges, leverage, tangible net worth, asset coverage and consolidated net losses.

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Mortgages

In 2001 we completed the construction of a new headquarters building on land owned by us adjacent to our equipment repair facility in Houston. The building was financed principally through an additional mortgage of $1.1 million on the land and facilities at a floating interest rate which at December 31, 2008 was 3.5% per annum, repayable over 15 years.

Uses of Capital

Contractual Obligations.

The following table sets forth our fixed, non-cancelable obligations at December 31, 2008.

	Payments due by Period
	Total		Less Than One Year		1—3 Years		4—5 Years		More Than 5 Years
	(Amounts in thousands)
Credit Facility	$	55,000	$	—	$	—	$	55,000	$	—
Operating leases		2,146		721		1,425		--		—
Mortgages		556		73		220		147		116
	$	57,702	$	794	$	1,645	$	55,147	$	116

Our obligations for interest are not included in the table above as these amounts vary according to the levels of debt outstanding at any time. Interest on our Credit Facility is paid monthly and fluctuates with the balances outstanding during the year, as well as with fluctuations in interest rates. In 2008 interest on the Credit Facility was approximately $91,000. The mortgages are expected to have future annual interest expense payments of approximately $18,000 in less than one year, $40,000 in one to three years, $14,000 in four to five years and $3,000 for all years thereafter.

To manage risks of changes in the material prices and subcontracting costs used in submitting bids for construction contracts, we generally obtain firm quotations from our suppliers and subcontractors before submitting a bid. These quotations do not include any quantity guarantees, and we have no obligation for materials or subcontract services beyond those required to complete the contracts that we are awarded for which quotations have been provided.

As is customary in the construction business, we are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. Events that affect the insurance and bonding markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. We have pledged all proceeds and other rights under our construction contracts to our bond surety to the surety company.

Capital Expenditures.

Our capital expenditures during 2008 were $19.9 million, and during 2007 were $36.0 million including property, plant and equipment acquired with the purchase of RHB. In 2009 we expect that our capital expenditure spending will be equal to or less than the 2008 level due to management's cautious view regarding certain of the Company's markets and current economic uncertainties.

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Off- Balance Sheet Arrangements

We have no off-balance sheet arrangements.

New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. 141, “Business Combinations” (SFAS 141(R)). This Statement establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Also, under SFAS 141(R), all direct costs of the business combination must be charged to expense on the financial statements of the acquirer as incurred. SFAS 141(R) revises previous guidance as to the recording of post-combination restructuring plan costs by requiring the acquirer to record such costs separately from the business combination. This statement is effective for acquisitions occurring on or after January 1, 2009, with early adoption not permitted. Unless the Company enters into another business combination, there will be no effect on future financial statements of SFAS 141(R) when adopted.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157) which establishes a framework for measuring fair value and requires expanded disclosure about the information used to measure fair value. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value, and does not expand the use of fair value accounting in any new circumstances. In February 2008, the FASB delayed the effective date by which companies must adopt the provisions of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The new effective date of SFAS 157 deferred implementation to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of this standard is not anticipated to have a material impact on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment to FASB Statement No. 115" ("SFAS No. 159"). This statement allows a company to irrevocably elect fair value as a measurement attribute for certain financial assets and financial liabilities with changes in fair value recognized in the results of operations. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Adoption of this pronouncement did not have a material impact on the Company's results of operations and financial position.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Non-controlling Interests in Consolidated Financial Statements” (SFAS 160). SFAS 160 clarifies previous guidance on how consolidated entities should account for and report non-controlling interests in consolidated subsidiaries. The statement standardizes the presentation of non-controlling ("minority interests") for both the consolidated balance sheet and income statement. This Statement is effective for the Company for fiscal years beginning on or after January 1, 2009, and all interim periods within that fiscal year, with early adoption not permitted. When this Statement is adopted, the minority interest in any subsequent acquisitions that does not contain a put will be reported as a separate component of stockholders' equity instead of a liability and net income will be segregated between net income attributable to common stockholders and non-controlling interests.

Item 7A .

Quantitative and Qualitative Disclosures about Market Risk .

Changes in interest rates are one of our sources of market risks. At December 31, 2008, $55 million of our outstanding indebtedness was at floating interest rates. Based on our average debt outstanding during 2008, we estimate that an increase of 1.0% in the interest rate would have resulted in an increase in our interest expense of approximately $15,000 in 2008.

During 2009, we have started a process of investing in certain securities, the assets of which are a crude oil commodity pool. We believe that the gains and losses on these securities will tend to offset increases and decreases in the price we pay for diesel and gasoline fuel and reduce the volatility of such fuel costs in our operations. There can, however, be no assurance that this process will be successful.

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Item 8.

Financial Statements and Supplementary Data .

Financial statements start on page F-1.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 9A.

Controls and Procedures .

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s principal executive officer and principal financial officer reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at December 31, 2008 to ensure that the information required to be disclosed by the Company in this Annual Report on Form 10-K is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company's management including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f)) under the Securities Exchange Act of 1934). Under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting at December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. The Company’s management has concluded that, at December 31, 2008, the Company’s internal control over financial reporting is effective based on these criteria.

Our internal control over financial reporting has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included herein.

Changes in Internal Control over Financial Reporting

We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Based on the most recent evaluation, we have concluded that no significant changes in our internal control over financial reporting occurred during the last fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting may not prevent or detect all errors and all fraud. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B.

Other Information .

None

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PART III

Item 10.

Directors and Executive Officers of the Registrant .

Directors . The following table sets forth the name and age of each of the Company's current directors and the positions each held on February 16, 2009.

Name	Position	Age	Director Since	Year Term of Office Expires
Patrick T. Manning	Chairman of the Board of Directors & Chief Executive Officer	63	2001	2011
Joseph P. Harper, Sr.	President, Treasurer & Chief Operating Officer, Director	63	2001	2011
John D. Abernathy	Director	71	1994	2009
Robert W. Frickel	Director	65	2001	2009
Donald P. Fusilli, Jr.	Director	57	2007	2010
Maarten D. Hemsley	Director	59	1998	2010
Christopher H. B. Mills	Director	56	2001	2010
Milton L. Scott	Director	52	2005	2009
David R. A. Steadman	Director	71	2005	2009

Patrick T. Manning . Mr. Manning joined the predecessor of Texas Sterling Construction Co., the Company's Texas construction subsidiary, which along with its predecessors is referred to as TSC, in 1971 and led its move from Detroit, Michigan into the Houston market in 1978. He has been TSC’s President and Chief Executive Officer since 1998 and Chairman of the Board of Directors and Chief Executive Officer of the Company since July 2001. Mr. Manning has served on a variety of construction industry committees, including the Gulf Coast Trenchless Association and the Houston Contractors’ Association, where he served as a member of the board of directors and as President from 1987 to 1993. He attended Michigan State University from 1969 to 1972.

Joseph P. Harper, Sr . Mr. Harper has been employed by TSC since 1972. He was Chief Financial Officer of TSC for approximately 25 years until August 2004, when he became Treasurer of TSC. In addition to his financial responsibilities, Mr. Harper has performed both estimating and project management functions. Mr. Harper has been a director and the Company's President and Chief Operating Officer since July 2001, and in May 2006 was elected Treasurer. Mr. Harper is a certified public accountant.

John D. Abernathy . Mr. Abernathy was Chief Operating Officer of Patton Boggs LLP, a Washington D.C. law firm, from January 1995 through May 2004 when he retired. He is also a director of Par Pharmaceutical Companies, Inc., a New York Stock Exchange-listed company that manufactures generic and specialty drugs, and Neuro-Hitech, Inc., a company that manufactures generic drugs, the shares of which are traded on the over-the-counter market. Mr. Abernathy is a certified public accountant. In December 2005, Mr. Abernathy was first elected Lead Director by the independent members of the Board of Directors.

Robert W. Frickel . Mr. Frickel is the founder and President of R.W. Frickel Company, P.C., a public accounting firm that provides audit, tax and consulting services primarily to companies in the construction industry. Prior to the founding of R.W. Frickel Company in 1974, Mr. Frickel was employed by Ernst & Ernst. Mr. Frickel is a certified public accountant.

Donald P. Fusilli, Jr . Mr. Fusilli is presently the principal of the Telum Group, a professional consulting firm. From January 2008 to January 2009, he was the Chief Executive Officer of a marine services subsidiary of David Evans and Associates, Inc., a company that provides underwater mapping and analysis services. From May 1973 until September 2006, Mr. Fusilli served in a variety of capacities at Michael Baker Corporation, a public company listed on the American Stock Exchange that provides a variety of professional engineering services spanning the complete life cycle of infrastructure and managed asset projects. Mr. Fusilli joined Michael Baker Corporation as an engineer and over the course of his career rose to president and chief executive officer in April 2001. From September 2006 to January 2008, Mr. Fusilli was an independent consultant providing strategic planning, marketing development and operations management services. Mr. Fusilli is a director of RTI International Metals, Inc., a New York Stock Exchange-listed company that is a leading U.S. producer of titanium mill products and fabricated metal components. He holds a Civil Engineering degree from Villanova University, a Juris Doctor degree from Duquesne University School of Law and attended the Advanced Management Program at the Harvard Business School.

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Maarten D. Hemsley . Mr. Hemsley served as the Company's President and Chief Operating Officer from 1988 until 2001, and as Chief Financial Officer from 1998 until August 2007. From January 2001 to May 2002, Mr. Hemsley was also a consultant to, and thereafter has been an employee of, JO Hambro Capital Management Limited, which is part of JO Hambro Capital Management Group Limited, or JOHCMG, an investment management company based in the United Kingdom. Mr. Hemsley has served since 2001 as Fund Manager of JOHCMG’s Leisure & Media Venture Capital Trust, plc, and since February 2005, as Senior Fund Manager of its Trident Private Equity II LLP investment fund. Mr. Hemsley is a director of Tech/Ops Sevcon, Inc., a U.S. public company that manufactures electronic controls for electric vehicles and other equipment, and of a number of privately-held companies in the United Kingdom. Mr. Hemsley is a Fellow of the Institute of Chartered Accountants in England and Wales.

Christopher H. B. Mills . Mr. Mills is a director of JOHCMG. Prior to founding JOHCMG in 1993, Mr. Mills was employed by Montagu Investment Management and its successor company, Invesco MIM, as an investment manager and director, from 1975 to 1993. He is the Chief Executive of North Atlantic Smaller Companies Investment Trust plc, which is a part of JOHCMG and a 3.82% holder of the Company's common stock. Mr. Mills is a director of two U.S. public companies, W-H Energy Services, Inc., a New York Stock Exchange-listed company that is in the oilfield services industry, and SunLink Healthcare Systems, Inc., a publicly-traded, non-urban community healthcare provider for seven hospitals and related businesses in four states in the Southwest and Midwest. Mr. Mills also serves as a director of a number of public and private companies outside of the U.S. in which JOHCMG funds have investments.

Milton L. Scott . Mr. Scott is Chairman and Chief Executive Officer of the Tagos Group, a strategic advisory and services company in supply chain management, transportation and logistics, and integrated supply. He was previously associated with Complete Energy Holdings, LLC, a company of which he was Managing Director until January 2006 and which he co-founded in January 2004 to acquire, own and operate power generation assets in the United States. From March 2003 to January 2004, Mr. Scott was a Managing Director of The StoneCap Group, an entity formed to acquire, own and operate power generation assets. From October 1999 to November 2002, Mr. Scott served as Executive Vice President and Chief Administrative Officer at Dynegy Inc., a public company that was a market leader in power distribution, marketing and trading of gas, power and other commodities, midstream services and electric distribution. From July 1977 to October 1999, Mr. Scott was with the Houston office of Arthur Andersen LLP, a public accounting firm, where he served as partner in charge of the Southwest Region Technology and Communications practice.

David R. A. Steadman . Mr. Steadman is President of Atlantic Management Associates, Inc., a management services and investment group. An engineer by profession, Mr. Steadman served as Vice President of the Raytheon Company from 1980 until 1987 where he was responsible for commercial telecommunications and data systems businesses in addition to setting up a corporate venture capital portfolio. Subsequent to that and until 1989, Mr. Steadman was Chairman and Chief Executive Officer of GCA Corporation, a manufacturer of semiconductor production equipment. Mr. Steadman serves as a director of Aavid Thermal Technologies, Inc., a provider of thermal management solutions for the electronics industry, a privately-held company. Mr. Steadman also serves as Chairman of Tech/Ops Sevcon, Inc., a public company that manufactures electronic controls for electric vehicles and other equipment. Mr. Steadman is a Visiting Lecturer in Business Administration at the Darden School of the University of Virginia.

Executive Officers . In addition to Messrs. Manning and Harper, whose backgrounds are described above, the following are the Company's other executive officers:

James H. Allen, Jr . Mr. Allen became the Company's Senior Vice President & Chief Financial Officer in August 2007. He spent approximately 30 years with Arthur Andersen & Co., including 19 years as an audit and business advisory partner and as head of the firm’s Houston office construction industry practice. After being retired for several years, he became chief financial officer of a process chemical manufacturer and served in that position for over three years prior to joining the Company. Mr. Allen is a certified public accountant.

Roger M. Barzun . Mr. Barzun has been the Company's Vice President, Secretary and General Counsel since August 1991. He was elected a Senior Vice President from May 1994 until July 2001 and again in March 2006. Mr. Barzun has been a lawyer since 1968 and is a member of the bar of both New York and Massachusetts. Mr. Barzun also serves as general counsel to other corporations from time to time on a part-time basis.

Section 16(a) Beneficial Ownership Reporting Compliance . Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than 10% of the Company’s equity securities, or insiders, to file with the Securities and Exchange Commission (SEC) reports of beneficial ownership of those securities and certain changes in beneficial ownership on Forms 3, 4 and 5, and to give the Company a copy of those reports.

Based solely upon a review of Forms 3 and 4 and amendments to them furnished to the Company during 2008, any Forms 5 and amendments to them furnished to the Company relating to 2008, and any written representations that no Form 5 is required, all Section 16(a) filing requirements applicable to the Company’s insiders were satisfied except as follows:

In December 2008, Mr. Mills shared voting and investment power over 400,000 shares of the Company's common stock with North Atlantic Smaller Companies Investment Trust plc, or NASCIT, of which he is chief executive officer. Mr. Mills failed to timely file a Form 4 covering sales by NASCIT on December 5, 2008 of 39,400 shares. A Form 4 reporting that sale was filed with the SEC on December 12, 2008.

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Code of Ethics . The Company has adopted a Code of Business Conduct & Ethics that complies with SEC rules. The Code applies to all the officers and in-house counsel of the Company and its subsidiaries, and is posted on the Company’s website at www.sterlingconstructionco.com .

The Audit Committee . The Company has a standing audit committee as defined in Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are John D. Abernathy, Chairman, Donald P. Fusilli, Jr., and Milton L. Scott.

Each of the members of the Audit Committee is an independent director under the independence standards of both Nasdaq and the SEC. The Board of Directors has determined that each of Messrs. Abernathy and Scott is an audit committee financial expert. The independent members of the Board have appointed Mr. Abernathy Lead Director.

Item 11.

Executive Compensation

Introduction

This Item 11 has two main parts. The first contains information about the compensation of the executive officers of the Company and the second contains information about the compensation of directors who are not also executive officers.

The Company is required under applicable rules and regulations to furnish information about the compensation of four of its top executive officers. Because these executive officers are named in the Summary Compensation Table for 2008 in this Item 11, they are sometimes referred to as the named executive officers. The named executive officers are as follows:

Patrick T. Manning	Chairman & Chief Executive Officer
Joseph P. Harper, Sr.	President, Treasurer & Chief Operating Officer
James H. Allen, Jr.	Senior Vice President & Chief Financial Officer
Roger M. Barzun	Senior Vice President, Secretary & General Counsel

The compensation of these executives, which is based on employment agreements between the Company and the executives, is described and discussed in the subsections listed below:

·	The Compensation Discussion and Analysis, which covers how and why executive compensation was determined.

·	The Employment Agreements of Named Executive Officers, which describes the important terms of the executives' employment agreements.

·	The Potential Payments upon Termination or Change-in-Control , which as its name indicates, describes particular provisions of the executives' employment agreements relating to the termination of their employment and a change in control of the Company.

·	The Summary Compensation Table for 2008, which shows the cash and equity compensation the Company paid to the named executive officers for 2008.

·	The table of Grants of Plan-Based Awards for 2008 , which shows details of any equity and non-equity awards made to the named executive officers for 2008 and describes the plans under which the Company made those awards.

The table of Option Exercises and Stock Vested for 2008, which shows the number of shares the named executive officers purchased under their stock options in 2008 and the dollar value of the difference between the market value of the shares purchased on the date of purchase and the option exercise price.

·	The table of Outstanding Equity Awards at December 31, 2008 , which as its name indicates, shows the stock options held by the named executive officers at year's end and gives other details of their option awards.

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Compensation Discussion and Analysis

Introduction . This discussion and analysis of executive compensation is designed to show how and why the compensation of the named executive officers was determined. Their compensation is determined by the Compensation Committee of the Board of Directors, or the Committee, whose members are three independent directors of the Company.

Compensation Objectives . The Committee's compensation objectives for each of the named executive officers as well as for other management employees is to provide the employee with a rate of pay for the work he does that is appropriate in comparison to similar companies in the industry and that is considered fair by the executive and the Company; to give the executive a significant incentive to make the Company financially successful; and to give him an incentive to remain with the Company.

Employment Agreements . The Company believes that compensating an executive under an employment agreement has the benefit of assuring the executive of continuity, both as to his employment and the amounts and elements of his compensation. At the same time, an employment agreement gives the Company some assurance that the executive will remain with the Company for the duration of the agreement and enables the Company to budget salary costs over the term of the agreement. All elements of the compensation of the named executive officers are paid according to the terms of their employment agreements.

How the Terms of the Employment Agreements Were Determined . The agreements under which the Company compensated the executives in 2008 became effective as of July 2007, when the prior employment agreements of Messrs. Manning and Harper expired and when Mr. Allen was first employed by the Company. The Committee's starting point was a written salary and cash incentive bonus proposal made by Messrs. Manning and Harper for themselves and for the five senior managers of TSC. Mr. Allen had not then joined the Company. In connection with the proposal, Messrs. Manning and Harper stressed their belief in the importance of a team approach to compensation, an approach that is designed to avoid the disruptive effects of variations in compensation levels between managers of equal responsibility and importance to the Company. The Committee discussed the proposal in the course of several meetings. No member of senior management to be covered by the employment agreements, including Messrs Manning and Harper, was present at any of the Committee's deliberations and discussions.

Compensation Principles and Policies . In the course of their discussions, members of the Committee came to a consensus on the following general compensation principles as a guide for their further discussion of the compensation of Messrs. Manning, Harper and Allen as well as of the five senior managers of TSC:

·	Compensation should consist of two main elements, base salary and cash incentive bonus to achieve all of the compensation objectives discussed above.

·	Equity compensation should not be an element of compensation for executives who already hold a substantial number of shares of the Company's common stock or who already hold options to purchase a substantial number of shares of common stock, or both.

The cash incentive bonus element of compensation should be divided into two parts: one part, 60%, of the incentive bonus should be based on the achievement by the Company, on a consolidated basis, of financial goals. The other part, 40%, should be based on the achievement by the executive of personal goals to be established annually in advance by the Committee in consultation with the executive.

·	Perquisites such as car allowances, reimbursement of club dues and the like should not be an element of compensation because salaries are designed to be sufficient for the executive to pay these items personally.

·	The Committee should determine at the end of each year the extent to which each of Messrs. Manning, Harper and Allen has achieved his personal goals, as provided in the Committee’s charter.

·	In determining individual compensation levels, the Committee should take into account, among other things, the following:

·	The elimination of stock options as an element of compensation (except for Mr. Allen, who was a new employee in 2007.)

·	The executives' existing salaries.

·	Salaries of comparable executives in the industry.

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·	Wage inflation from 2004 through 2007, to the extent applicable.

·	The Company's growth since July 2004 when the prior employment agreements of Messrs. Manning and Harper became effective and the resulting increase in senior management responsibilities.

·	The total amount that is appropriate for the Company to allocate to the compensation of the Company's senior management given the Company's size and industry.

·	The elimination of perquisites.

Compensation Consultant . To assist them in evaluating management's proposed salary and bonus structure, in May 2007, the Committee authorized its Chairman to retain the services of Hay Group, a large firm that performs a number of consulting services, including the benchmarking of executive compensation. The Committee's Chairman instructed Hay Group to prepare an analysis of the levels of compensation payable under the July 2004 employment agreements to Messrs. Manning, Harper and the five senior managers of TSC, and to compare them to a representative group of similar companies. Mr. Allen joined the Company in July 2007 just before Hay Group's report was finished and as a result, its analysis did not cover his compensation.

The peer group was selected by Hay Group in consultation with the Chairman of the Committee and Messrs. Manning and Harper. The peer group consisted of eight engineering and construction companies with 2006 revenues of between $85 million and $651 million. The following is a list of companies in the peer group:

·	Devcon International Corp.

·	Furmanite Corporation

·	Modtech Holdings Inc.

·	Meadow Valley Corporation

·	SPARTA, Inc. (Delaware)

·	Great Lakes Dredge & Dock Company

·	Insituform Technologies Inc.

·	Michael Baker Corporation

The Committee determined that although these companies are in different areas of the construction and engineering industry, they present an appropriate range in size and types of construction-related businesses to which to compare the Company.

After distributing its report to members of the Committee, two representatives of Hay Group reviewed its findings in detail at a meeting of the Committee held at the end of July 2007. Hay Group performed no other services for the Committee. Because of the work Hay Group did for the Committee, the Board's Corporate Governance & Nominating Committee retained Hay Group to do a similar analysis and report relating to the compensation of the Company's non-employee directors.

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The following is a summary of the Hay Group's Executive Compensation Report, which was delivered to Committee members in mid 2007 and was based on financial information for calendar year 2006, the then most recently completed full fiscal year:

·	Except for net income, the Company was at or about the median of the peer group in sales, assets, market capitalization and number of employees. In total shareholder return, growth in income before interest and taxes, and return on investment, the Company was ahead of the peer group.

·	The Company's 2006 net income was above the peer group and its stockholders' equity was 135% of the peer-group median.

Using the peer group, the base salaries of Messrs. Manning and Harper under their July 2004 agreements were 64% and 81%, of the median, respectively; the sum of their base salaries and annual incentive awards were 130% and 150% of the median, respectively; and their total direct compensation (which includes equity compensation) was 86% and 93% of the median, respectively.

·	Using Hay Group's so called national general industry database updated to July 2007, the base salaries of Messrs. Manning and Harper under the July 2004 agreements were below the median, 91% and 81% respectively, but their total cash compensation was above the median, 144% and 132%, respectively.

The Committee concluded from these numbers that it is the financial success of the Company and the resulting incentive bonuses that results in the total compensation of Messrs. Manning and Harper to be above the median.

Compensation Levels . It was the consensus of the Committee that both the salary and cash incentive bonus levels of Messrs. Manning and Harper should be significantly above the peer-group median to reflect the following:

·	The Company's excellent, above-median performance in net income and stockholders' equity;

·	The growth of the Company since 2004 and the resulting increase in the complexity of the business; and

·	The elimination of equity as an element of compensation.

To account for the elimination of long-standing perquisites, the Committee added $25,000 to the proposed base salaries of both executives. In addition, the Committee took into account the fact that under the accounting rules of FAS 123R, the elimination of equity compensation causes the proposed $3.41 million of total compensation for the seven-person management group consisting of Messrs. Manning, Harper and the five TSC senior managers, to be below the total of prior years.

Because of management's expressed desire for a team concept of compensation, the Committee agreed with the proposal of Messrs. Manning and Harper that their own salaries and cash incentive bonuses be the same, reflecting their belief that each has different but equal levels of responsibility and expertise.

The Committee determined that performance-based compensation, including deferred salary as described below, should be approximately equal to base salary. In the case of Mr. Allen, his performance-based compensation when combined with his equity compensation is approximately 60% of his base salary.

As noted above, Mr. Allen's compensation was not a subject of Hay Group's report because he joined the Company just before the report was presented. The Committee established his salary based on a number of factors, including Mr. Allen's thirty years of experience in Houston with a major public accounting firm, nineteen of those years consisting of concentration in the construction industry; his financial and business experience; the compensation package requested by Mr. Allen; and Committee members' own judgment of what is a reasonable level of compensation. The Committee granted him the stock option described below so that like other members of senior management, he would have a long-term equity interest in the Company. The Committee determined that Mr. Allen would be compensated under the same form of employment agreement as the one agreed upon with Messrs. Manning and Harper.

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Deferred Salary . The Committee's first inclination was to have cash incentive bonuses tied solely to a financial measurement found in the Company's annual audited financial statements. Mr. Harper advised the Committee that EBITDA was used in the past as a measure of financial performance because it was the number on which management believes that its performance has the most direct effect. Mr. Harper also noted that the threshold for bonus achievement was 75% instead of 100% of budgeted EBITDA because in the past, base salaries had been set at a relatively low level, a fact supported by the Hay Group report. The relatively easily achieved cash incentive bonus together with base salary was intended to yield fair base compensation, but was also intended to conserve cash by keeping salaries low in years in which the Company had especially poor financial performance and did not even achieve 75% of budgeted EBITDA.

The Committee agreed to maintain this concept, but determined that it would be better structured by revising the base salary arrangements. The Committee divided base salary into two parts; the larger part to be paid in periodic installments through the payroll system, or base payroll salary, and the balance to be deferred, or base deferred salary, to be paid in a lump sum after year end only if 75% of budgeted EBITDA is achieved. EBITDA is defined in the agreements as annual net income determined in accordance with generally accepted accounting principles —

Plus

Interest expense for the period;

Plus

Depreciation and amortization expense for the period;

Plus

Federal and state income tax expense incurred for the period;

Plus

Extraordinary items (to the extent negative) if any, for the period;

Minus

Extraordinary items (to the extent positive) if any

Minus

Interest income for the period; and

Minus

Any fees paid to non-employee directors.

Cash Incentive Bonus. In keeping with its principle of basing cash incentive bonuses on the achievement of a financial measurement that can be determined by direct reference to the Company's audited annual financial statements, the Committee decided to base 60% of the bonus on achieving budgeted fully-diluted earnings per share in the belief that it is a measure that most directly affects a stockholder's investment in the Company, and 40% on the achievement of personal goals by the executives.

Termination Events . The obligations of the Company under the employment agreements in the event of the termination of the employment of the named executive officers or a change in control of the Company are described in detail in the section entitled Potential Payments Upon Termination or Change-in-Control , below.

The Committee's principle in setting termination provisions was based on the belief that absent a termination for cause, an employee should at least receive the base deferred salary and cash incentive bonus that he would have earned had his employment not terminated, but prorated for the portion of the year that he was an employee. The Committee made an exception to this in the event the executive voluntarily resigns, in which case the Committee determined that payment of any cash incentive bonus is not warranted because incentive bonuses are designed in part to encourage the employee to remain in the Company's employ.

In accordance with a sense of basic fairness, the Committee determined that in the event that termination is by the Company without cause or because of an uncured breach by the Company of the employment agreement, the executive should also receive the benefit of his base salary for the balance of the term of the agreement, but at least for twelve months.

The Committee did not believe that any special payments should be made to executives in the event of a change in control of the Company because the protections afforded by their employment agreements against termination without cause would be unaffected by a change in control. The executives' outstanding stock options by their terms vest in full in the event of a change in control. The acceleration of vesting is based on the assumption that a change in control often results in a change in senior management. Absent accelerated vesting, a termination without cause after a change in control could unfairly reduce or eliminate the benefit of a stock option depending on when the change occurs. If the executive is terminated for cause, all of the executives' stock options immediately terminate.

Deferred Salary and Incentive Awards for 2008 . In 2008, the Company exceeded the 75% of budgeted EBITDA goal, but did not achieve the budgeted, fully-diluted earnings-per-share goal. In February 2009, the Committee reviewed the personal goals of each of Messrs. Manning, Harper and Allen and determined that they had substantially completed all of them to the satisfaction of the Committee. Therefore, the Committee approved the payment to each of Messrs. Manning, Harper and Allen of his base deferred salary and 40% of his cash incentive bonus.

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The Committee , in the exercise of its discretion and based on the personal judgment of the Committee members, awarded Mr. Barzun a cash incentive bonus of $30,000 and increased his annual salary to $80,000.

All base deferred salary payments and cash incentive bonuses for 2008, are more fully described in the following sections:

Employment Agreements of Named Executive Officers

Summary Compensation Table for 2008

Grants of Plan-Based Awards for 2008

Employment Agreements of Named Executive Officers

During 2008, Messrs. Manning, Harper and Allen were compensated under similar employment agreements that became effective in July of 2007 and that expire on December 31, 2010. The following table describes the material financial features of each of the employment agreements.

	Mr. Manning	Mr. Harper	Mr. Allen
Base Salary	$365,000	$365,000	$250,000
Base Deferred Salary	$162,500	$162,500	$75,000
Maximum Incentive Bonus	$162,500	$162,500	$75,000
Equity Compensation	None	None	13,707-share stock option award (1)
Vacation	Discretionary (2)	Discretionary (2)	5 weeks
Benefits Paid by the Company	None	None	None (3)

(1)	Information about this stock option, which was granted in August 2007, is set forth below in the section entitled Outstanding Equity Awards at December 31, 2008.

(2)	The executive is entitled to take as many days vacation per year as he believes is appropriate in light of the needs of the business.

(3)

At Mr. Allen's request when he joined the Company, the Company agreed that he would continue his then current health plan rather than participate in the Company's health plan and that he would be reimbursed for up to $1,000 of the monthly premiums of his plan. This arrangement is less expensive for the Company than if Mr. Allen had joined the Company's health plan.

Mr. Barzun's Employment Agreement . Mr. Barzun's employment agreement became effective in March 2006 and continues until terminated by the Company or by Mr. Barzun. His base salary in 2008 under the terms of his employment agreement was $75,000, and is subject to merit increases. He is also eligible to receive an annual cash incentive bonus in the discretion of the Committee. Because he is a part-time employee, there is no provision in his agreement for paid vacation time.

All of the foregoing agreements provide for the election of the executive to his current positions with the Company. The employment agreements of Messrs. Manning, Harper and Allen provide that they may not compete with the Company after termination of employment for a period of twelve months or for the period, if any, during which the Company is obligated to continue to pay him his base payroll salary, whichever period is longer

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Potential Payments upon Termination or Change-in-Control

The following table describes the payment and other obligations of the Company and the named executive officers under their employment agreements in the event of a termination of employment or a change in control of the Company. The table also shows the estimated cost to the Company had the executive's employment been terminated on December 31, 2008.

Patrick T. Manning, Joseph P. Harper, Sr. & James H. Allen, Jr.

Event		Payment and/or Other Obligations *
1.Termination by the Company without cause	The Company must — · Continue to pay the executive his base salary for the balance of the term of his employment agreement or for one year, whichever period is longer; · Continue to cover him under its medical and dental plans provided the executive reimburses the Company the COBRA cost thereof, in which event the Company must reimburse the amount of the COBRA payments to the executive; and · Pay him a portion of any base deferred salary and cash incentive bonus that he would have earned had he remained an employee of the Company through the end of the calendar year in which his employment is terminated, based on the number of days during the year that he was an employee of the Company.
Estimated December 31, 2008 termination payments: Messrs. Manning & Harper (each)	$730,000 plus COBRA payment reimbursement, which currently would be approximately $32,219 for Mr. Manning and $20,885 for Mr. Harper for the two-year period.
Mr. Allen	$500,000 plus $24,000 in health insurance reimbursements.
2.Termination by reason of the executive's death	The Company is obligated to pay the executive a portion of any base deferred salary and of any cash incentive bonus that he would have earned had he remained an employee of the Company through the end of the calendar year in which his employment terminated, based on the number of days during the year that he was an employee of the Company.
Estimated December 31, 2008 termination payments:	None
3.Termination by the Company for cause (1)	The Company is required to pay the executive any accrued but unpaid base payroll salary through the date of termination and any other legally-required payments through that date. All of the executive's stock options terminate.
Estimated December 31, 2008 termination payments:	None
4.Involuntary resignation of the executive (2)	An involuntary resignation, also known as a constructive termination, is treated under the agreement as a termination by the Company without cause.
Estimated December 31, 2008 termination payments:	See Event #1, above.
5.Voluntary resignation by the executive	The Company is obligated to pay the executive a portion of any base deferred salary that he would have earned had he remained an employee of the Company through the end of the calendar year in which he resigned, based on the number of days during the year that he was an employee of the Company.
Estimated December 31, 2008 termination payments:	None
6.A change in control of the Company.	All the executives' un -exercisable but in-the-money stock options become exercisable in full. At December 31, 2008, those options had the following values based on the difference between the market value of a share of the Company's common stock at that date and each option's per-share exercise price: Mr. Manning $11,851 Mr. Harper $1,050 Mr. Allen -0-

*	The base payroll salaries, base deferred salaries and cash incentive bonus eligibility of the executives are set forth above under the heading Employment Agreements of Named Executive Officers .

(1)

The term "cause" is defined in the employment agreements and means what is commonly referred to as cause in employment matters, such as gross negligence, dishonesty, insubordination, inadequate performance of responsibilities after notice and the like. A termination without cause is a termination for any reason other than for cause, death or voluntary resignation.

(2)

The executive is entitled to "involuntarily" resign in the event that the Company commits a material breach of a material provision of his employment agreement and fails to cure the breach within thirty days, or, if the nature of the breach is one that cannot practicably be cured in thirty days, if the Company fails to diligently and in good faith commence a cure of the breach within the thirty-day period.

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Roger M. Barzun . In the event that Mr. Barzun's employment is terminated for cause, the Company is only obligated to pay him his salary through the date of termination, and his outstanding options terminate on that date. In the event that his employment is terminated without cause, or by reason of his death or permanent disability, the Company is obligated to pay him his salary then in effect for a period of six months, which at December 31, 2008 would be $37,500, and to pay him within thirty days of his termination a portion of any cash incentive bonus to which he would otherwise have been entitled had his employment not been terminated, based on the number of days during the year that he was an employee of the Company. For purposes of determining the amount of the cash incentive bonus to which he would have been entitled, the Company is required to make such reasonable assumptions as it determines in good faith. In the event of a change in control of the Company, all of Mr. Barzun’s options become exercisable in full. At December 31, 2008, his only un-exercisable, in-the-money option had a value of $700 based upon the difference between the market value of a share of the Company's common stock at that date and the option's per-share exercise price.

Summary Compensation Table for 2008

The following table sets forth for calendar years 2006, 2007 and 2008 all compensation awarded to, earned by, or paid to, Patrick T. Manning, the Company's principal executive officer, and James H. Allen, Jr., its principal financial officer, who joined the Company in July 2007.

The table also shows the same compensation information of Joseph P. Harper, Sr., the Company's President, Treasurer & Chief Operating Officer, and Roger M. Barzun, its Senior Vice President, Secretary & General Counsel, who are the only other executive officers whose compensation for 2008 exceeded $100,000.

The Company pays compensation to these executive officers according to the terms of their employment agreements. The Company does not pay Messrs. Manning or Harper additional compensation for service on the Board of Directors. The amounts include any compensation that was deferred by the executive through contributions to his defined contribution plan account under Section 401(k) of the Internal Revenue Code. All amounts are rounded to the nearest dollar.

Name and Principal Position	Year	Salary ($)	Option Awards (1) ($)	Non-Equity Incentive Plan Compensation (2) ($)	All Other Compensation ($) (3)	Total ($)
Patrick T. Manning Chairman of the Board & Chief Executive Officer (principal executive officer)	2006 2007 2008	240,000 296,500 365,000	82,883 — —	341,000 325,000 227,500	38,950 31,258 6,900	702,833 652,758 599,400
Joseph P. Harper, Sr. President, Treasurer & Chief Operating Officer	2006 2007 2008	235,800* 282,500 365,000	82,883 — —	318,500 325,000 227,500	21,150 14,396 7,300	658,333 621,896 599,800
James H. Allen, Jr. Senior Vice President & Chief Financial Officer (principal financial officer)	2007 2008	115,500 250,000	14,553 —	100,000 105,000	865 7,500	230,918 362,500
Roger M. Barzun Senior Vice President & General Counsel, Secretary	2007 2008	62,500 76,800	— —	75,000 30,000	— —	137,500 106,800

*	This includes $20,800 paid to Mr. Harper for foregoing approximately five weeks of the vacation he was entitled to in 2006 under his prior employment agreement, which expired in July 2007.

(1)

The value of these stock option awards is the total dollar cost of the award recognized by the Company in the year of grant for financial reporting purposes in accordance with FAS 123R. No amounts earned by the executive officers have been capitalized on the balance sheet for 2008. The cost does not reflect any estimates made for financial statement reporting purposes of forfeitures by the executive officers related to service-based vesting conditions.

The valuation of these options was made on the equity valuation assumptions described in Note 8 of Notes to Consolidated Financial Statements . None of the awards has been forfeited. The following section, entitled Grants of Plan-Based Awards for 2008, contains a description of the basis on which these stock options were awarded and their full grant date fair market value.

(2)

Cash incentive bonuses were calculated and approved by the Committee in February 2009. The bonuses for 2006 were determined in part by the application of a formula found in the prior employment agreement of each executive officer and in part by the Committee exercising its discretion as to the amount of additional cash incentive bonus within the range provided for in his employment agreements. Footnotes (1) and (2) to the table in the following section, entitled Grants of Plan-Based Awards for 2008, contain a description of the formula and its application.

(3)	The following table shows a breakdown of the amounts shown above in the column entitled All Other Compensation . The dollar amounts are the costs of the items to the Company.

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Type of Other Compensation	Year	Mr. Manning	Mr. Harper	Mr. Allen
Car allowance	2006 2007 2008	$8,400 $5,000 —	$8,400 $5,000 —	— —
Expenses of commuting to work	2006 2007 2008	$2,500 $2,400 —	$1,800 $1,750 —	— —
Country club dues	2006 2007 2008	$25,000 $15,000 —	$4,500 $3,420 —	— —
Company contribution to 401(k) Plan account	2006 2007 2008	$3,050 $8,858 $6,900	$6,450 $4,226 $7,300	— $865 $7,500

Grants of Plan-Based Awards for 2008

The following table shows each grant of an award for 2008 to a named executive officer under a Company plan. The Company did not award any SAR's, stock, restricted stock, restricted stock units, or similar instruments to any of the named executive officers in 2008.

	Grant Date	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)			All Other Option Awards: Number of Securities Underlying Options	Exercise or Base Price of Option Awards	Grant Date Fair Value of Option Awards
			($)		(#)	($/share)	($)
		Threshold	Target	Maximum
Patrick T. Manning	N/A	162,500	260,000	325,000	—	N/A	N/A
Joseph P. Harper, Sr.	N/A	162,500	260,000	325,000	—	N/A	N/A
James H. Allen, Jr.	N/A	75,000	120,000	150,000	—	N/A	N/A
Roger M. Barzun	N/A	—	$75,000	—	—	N/A	N/A

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(1)	Non-Equity Incentive Plan Awards . In the table above, "possible" payouts mean the payouts that were available to be earned by the executive for calendar year 2008.

Messrs. Manning, Harper and Allen . As more fully described above under the heading Employment Agreements of Named Executive Officers, the employment agreements of Messrs. Manning, Harper and Allen provide each executive annually with the ability to earn compensation in addition to his base salary. The additional compensation is divided into three parts, each based on the achievement of an annual goal, as follows:

·	The achievement by the Company of 75% of budgeted EBITDA.

·	The achievement by the Company of budgeted fully-diluted earnings per share.

·	The achievement by the executive of personal goals approved by the Committee at the beginning of the year.

As a result, in any given year, the executive may earn all, some or none of the additional compensation. In the table above —

The Threshold is the amount that the executive will earn if the Company achieves the 75% of budgeted EBITDA goal. It is designated the threshold because, as described above in the section entitled Compensation Discussion and Analysis , this amount is considered by the Committee to be salary that is deferred pending the achievement by the Company of a relatively modest financial goal. In 2008 the goal was more than met by achieving 92% of budgeted EBITDA.

·	The Target is the amount that the executive will earn if both the EBITDA and the earnings-per-share goals are achieved. In 2008, the Company did not achieve the earnings-per-share goal.

·	The Maximum is the sum of the Target amount and the amount the executive will earn if, in addition to the financial goals, he achieves all of his personal goals for the year. In 2008 the Committee determined that each executive completed substantially all of his personal goals.

Mr. Barzun . Mr. Barzun's cash incentive bonus for a given year is entirely in the discretion of the Committee and is based on the Company's consolidated financial results for the year, the number of non-routine legal transactions to which he devoted substantial time during the year, and such other matters as the Committee deems relevant. Accordingly, because Mr. Barzun's possible payout for 2008 cannot be estimated at the beginning of the year, the Target amount included in the table is the bonus paid to him for 2007.

For the actual amounts paid to the executives for 2008, see the Summary Compensation Table for 2008 , above.

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Option Exercises and Stock Vested for 2008

The following table contains information on an aggregated basis about each exercise of a stock option during 2008 by each of the named executive officers.

Name	Option Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized Upon Exercise (1) ($)
Patrick T. Manning	17,200	$221,380
Joseph P. Harper, Sr.	—	—
James H. Allen, Jr.	—	—
Roger M. Barzun	1,190	$24,722

(1)

SEC regulations define the "Value Realized Upon Exercise" as the difference between the market price of the shares on the date of the purchase, and the option exercise price of the shares, whether or not the shares are sold, or if they are sold, whether or not the sale occurred on the date of the exercise.

Outstanding Equity Awards at December 31, 2008

The following table shows certain information concerning un-exercised stock options and stock options that have not vested that were outstanding on December 31, 2008 for each named executive officer. No other equity awards have been made to the named executive officers.

Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price/Share ($)	Option Grant Date	Option Expiration Date	Vesting Date Footnotes
Patrick T. Manning	400	600	$25.21	8/08/2006	9/08/2011	(1)
	10,000	—	$24.96	7/18/2006	7/18/2011	(2)
	300	600	$16.78	8/12/2005	9/12/2010	(1)
	10,000	—	$9.69	7/18/2005	7/18/2010	(2)
	2,800	700	$3.10	8/12/2004	8/12/2014	(1)
	—	—	$3.10	8/12/2004	8/12/2009	(2)
	3500	—	$3.05	8/20/2003	8/20/2013	(1)
Joseph P. Harper, Sr.	400	600	$25.21	8/08/2006	9/08/2011	(1)
	10,000	—	$24.96	7/18/2006	7/18/2011	(2)
	900	600	$16.78	8/12/2005	9/12/2010	(1)
	10,000	—	$9.69	7/18/2005	7/18/2010	(2)
	3,500	—	$3.10	8/12/2004	8/12/2014	(3)
	10,000	—	$3.10	8/12/2004	8/12/2009	(2)
	3,500	—	$3.05	8/20/2003	8/20/2013	(3)
	3,500	—	$1.725	7/24/2002	7/24/2012	(3)
	3,700	—	$1.50	7/23/2001	7/23/2011	(1)
James H. Allen, Jr.	13,707	9,138	$18.99	8/7/2007	8/7/2012	(3)
Roger M. Barzun	240	360	$25.21	8/8/2006	9/8/2011	(1)
	600	400	$16.78	8/12/2005	9/12/2010	(1)
	2,000	—	$3.10	8/12/2004	8/12/2014	(4)

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Vesting of Stock Options . If there is a change in control of the Company, all the stock options then held by a named executive officer become exercisable in full. Absent a change in control of the Company, the options listed above vest as described in the following footnotes:

(1)	This option vests in equal installments on the first five anniversaries of its grant date.

(2)	This option vested in a single installment on July 18, 2007.

(3)	This option vests in equal installments on the first three anniversaries of its grant date.

(4)	This option vested in a single installment on its grant date.

Director Compensation for 2008

The Company does not pay additional compensation for serving on the Board of Directors to directors who are employees of the Company, namely Messrs. Manning and Harper. The following table contains information concerning the compensation paid for 2008 to non-employee directors. All dollar numbers are rounded to the nearest dollar.

Name	Fees Earned or Paid in Cash ($)	Stock Awards (1)(3) ($)	Total (2) ($)
John D. Abernathy (Lead director) Chairman of the Audit Committee Member of the Compensation and Corporate Governance & Nominating Committees	39,184	50,000	89,184
Robert W. Frickel Chairman of the Compensation Committee Member of the Corporate Governance & Nominating Committee	29,884	50,000	79,884
Donald P. Fusilli, Jr. Member of the Audit Committee Member of the Compensation Committee	26,956	50,000	76,956
Maarten D. Hemsley	21,406	50,000	71,406
Christopher H. B. Mills	18,756	50,000	68,756
Milton L. Scott Chairman of the Corporate Governance & Nominating Committee Member of the Audit Committee	30,998	50,000	80,998
David R. A. Steadman Member of the Corporate Governance & Nominating Committee	25,542	50,000	75,542

(1)

The aggregate value of these restricted stock awards was $350,000, including $220,833 recognized in 2008 for financial reporting purposes in accordance with FAS 123R. No amounts earned by a director have been capitalized on the balance sheet for 2008. The cost does not reflect any estimates made for financial statement reporting purposes of future forfeitures related to service-based vesting conditions. The valuation of the awards was made on the equity valuation assumptions described in Note 8 of Notes to Consolidated Financial Statements . None of the awards has been forfeited to date.

(2)

During 2008, none of the non-employee directors received any other compensation for any service provided to the Company. All directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending meetings of the Board and Board committees. Directors living outside of North America, currently only Mr. Mills, have the option of attending regularly-scheduled in-person meetings by telephone, and if they choose to do so, they are paid an attendance fee as if they had attended in person.

(3)	The following table shows for each non-employee director the grant date fair value of each stock award that has been expensed, the aggregate number of shares of stock awarded, and the number of shares underlying stock options that were outstanding on December 31, 2008.

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Name	Grant Date	Securities Underlying Option Awards Outstanding at December 31, 2008 (#)	Aggregate Stock Awards Outstanding at December 31, 2008 (#)	Grant Date Fair Value of Stock and Option Awards ($)
John D. Abernathy	5/19/2005	5,000		27,950
	5/8/2008		2,564	50,000
Total		5,000	2,564	77,950
Robert W. Frickel	7/23/2001	12,000		57,600
	5/19/2005	5,000		27,950
	5/8/2008		2,564	50,000
Total		17,000	2,564	135,550
Donald P. Fusilli, Jr.	5/8/2008	—	2,564	50,000
Maarten D. Hemsley	7/18/2007	2,800		27,640
	7/18/2006	2,800		45,917
	7/18/2005	2,800		17,534
	5/8/2008		2,564	50,000
Total		8,400	2,564	141,091
Christopher H. B. Mills	5/19/2005	5,000		27,950
	5/8/2008		2,564	50,000
Total		5,000	2,564	77,950
Milton L. Scott	5/8/2008		2,564	50,000
David R. A. Steadman	5/8/2008		2,564	50,000

Standard Director Compensation Arrangements . The following table shows the standard compensation arrangements for non-employee directors that were adopted by the Board on May 8, 2008.

Annual Fees
Annual Fees	Each Non-Employee Director
	$17,500
	An award (on the date of each Annual Meeting of Stockholders) of restricted stock that has an accounting income charge under FAS 123R of $50,000 per grant.*
Additional Annual Fees for Committee Chairmen
Chairman of the Audit Committee		$12,500
Chairman of the Compensation Committee		$7,500
Chairman of the Corporate Governance & Nominating Committee		$7,500
Meeting Fees
In-Person Meetings		Per Director Per Meeting
Board Meetings		$1,500
Committee Meetings
Audit Committee Meetings in connection with a Board meeting not in connection with a Board meeting Other Committee Meetings in connection with a Board meeting not in connection with a Board meeting		$1,000 $1,500 $500 $750
Telephonic Meetings (Board & committee meetings)
One hour or longer		$1,000
Less than one hour		$300

The shares awarded are considered restricted because they may not be sold, assigned, transferred, pledged or otherwise disposed of until the restrictions expire. The restrictions for the award made on May 8, 2008 expire on May 5, 2009, the day before the 2009 Annual Meeting of Stockholders, but earlier if the director dies or becomes disabled or if there is a change in control of the Company. The shares are forfeited if before the restrictions expire, the director ceases to be a director other than because of his death or disability.

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Compensation Committee Interlocks and Insider Participation

During 2008, Robert W. Frickel (Chairman), John D. Abernathy and Donald P. Fusilli, Jr. served on the Compensation Committee. None of these Compensation Committee members is or has been an officer or employee of the Company. Mr. Frickel is President of R.W. Frickel Company, P.C., an accounting firm that performs certain accounting and tax services for the Company. In 2008, the Company paid or accrued for payment to R.W. Frickel Company approximately $39,700 in fees. The Company estimates that during 2009, the fees of R.W. Frickel Company will be approximately the same as in 2008.

None of the Company's executive officers served as a director or member of the compensation committee, or any other committee serving an equivalent function, of any other entity that has an executive officer who is serving or during 2008 served as a director or member of the Compensation Committee of the Company.

Compensation Committee Report

The Compensation Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis set forth above in this Item 11. Based on that review and those discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

Submitted by the members of the Compensation Committee on March 16, 2009

Robert W. Frickel, Chairman

John D. Abernathy

Donald P. Fusilli, Jr.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .

Equity Compensation Plan Information . The following table contains information at December 31, 2008 about compensation plans (including individual compensation arrangements) under which the Company has authorized the issuance of equity securities.

Plan Category (1)	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans, excluding securities reflected in column (a)
	(a)	(b)	(c)
Equity compensation plans approved by security holders:	411,000	$9.753	397,690

(1)	There is no outstanding compensation plan (including individual compensation arrangements) under which the Company has authorized the issuance of equity securities that has not been approved by stockholders.

Security Ownership of Certain Beneficial Owners and Management . The following table sets forth certain information at February 16, 2009 about the beneficial ownership of shares of the Company's common stock by each person or entity known to the Company to own beneficially more than 5% of the outstanding shares of common stock; by each director; by each executive officer named above in Item 11. — Executive Compensation , under the heading Summary Compensation Table for 2008 ; and by all directors and executive officers as a group. The Company has no other class of equity securities outstanding.

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Based on information furnished by the beneficial owners, the Company believes that those owners have sole investment and voting power over the shares of common stock shown as beneficially owned by them, except as stated otherwise in the footnotes to the table.

Rule 13d-3(d)(1) of the Securities Exchange Act of 1934 requires that the percentages listed in the following table assume for each person or group the acquisition of all shares that the person or group can acquire within sixty days of February 16, 2009, for instance by the exercise of a stock option, but not the acquisition of the shares that can be acquired in that period by any other person or group listed.

Except for Mr. Mills and the entities listed below, the address of each person is the address of the Company.

Name and Address of Beneficial Owner	Number of Outstanding Shares of Common Stock Owned	Shares Subject to Purchase*	Total Beneficial Ownership	Percent of Class
Wellington Management Company, LLP 75 State Street Boston, Massachusetts 02109 (2)	1,646,870 (1)	—	1,646,870	12.49%
T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, Maryland 21201 (1)	1,086,413 (2)	—	1,086,413	8.24%
John D. Abernathy	54,531 (3)	5,000	59,531	†
Robert W. Frickel	67,369 (3)	17,000	84,369	†
Donald P. Fusilli, Jr.	4,162 (3)	—	4,162	†
Joseph P. Harper, Sr.	520,444 (4)	173,074	693,518	5.19%
Maarten D. Hemsley	184,238 (3)(5)	8,400	192,638	1.46%
Patrick T. Manning	100,295 (6)	27,600	127,895	†
Christopher H. B. Mills ℅ North Atlantic Value LLP Ryder Court, 14 Ryder Street, London SW1Y 6QB, England	317,369 (3)(7)	5,000	519,805	2.44%
Milton L. Scott	5,369 (3)	—	5,369	†
David R. A. Steadman	24,369 (3)	—	24,369	†
All directors and executive officers as a group (11 persons)	1,305,307 (8)	243,483 (8)	1,548,790	11.53%

*	These are the shares that the entity or person can acquire within sixty days of February 16, 2009.

†	Less than one percent.

(1)	This number is based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 10, 2009. Of this number, Wellington Management Company, LLP claims shared voting power over 1,438,659 of the shares and shared dispositive power over all of the shares.

(2)	This number is based on a Schedule 13G filed with the Securities and Exchange Commission on February 10, 2009. Of this number, T. Rowe Price claims sole voting power over 461,613 of the shares and sole dispositive power over all of the shares.

(3)

This number includes 2,564 restricted shares awarded to non-employee directors as described above in Item 11. — Executive Compensation in footnote (1) to the Director Compensation Table for 2008 . The restrictions expire on May 5, 2009, the day preceding the 2009 Annual Meeting of Stockholders, but earlier if the director dies or becomes disabled or if there is a change in control of the Company. The shares are forfeited before the expiration of the restrictions if the director ceases to be a director other than because of his death or disability.

(4)	This number includes 8,000 shares held by Mr. Harper as custodian for his grandchildren.

(5)	This number includes 10,000 shares owned by the Maarten and Mavis Hemsley Family Foundation as to which Mr. Hemsley has shared voting and investment power with his wife and two daughters. Of the total number of shares, 155,924 shares are pledged as security.

(6)	Of these shares 92,795, have been pledged as security.

(7)	This number consists of 300,000 shares owned by NASCIT of which Mr. Mills is Chief Executive Officer; 14,805 shares owned by Mr. Mills personally over which he claims sole voting and investment power; and 2,564 restricted shares that are described above in footnote (3).

(8)	See the footnotes above for a description of certain of the shares included in this total.

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Item 13.

Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons .

Maarten D. Hemsley . At December 31, 2008, NASCIT held 2.28% of the Company's outstanding common stock. NASCIT is a part of JO Hambro Capital Management Group Limited, or JOHCMG, an investment company and fund manager located in the United Kingdom. From January 2001 until May 2002, Mr. Hemsley was a consultant to JO Hambro Capital Management Limited, or JOHCM, which is part of JOHCMG, and since May 2002 has been an employee of JOHCM. Mr. Hemsley has served since 2001 as Fund Manager of JOHCMG's Leisure & Media Venture Capital Trust, plc, and since February 2005, as Senior Fund Manager of its Trident Private Equity II LLP investment fund. Neither of those funds was or is an investor in the Company or any of the Company's affiliates.

Robert W. Frickel . Mr. Frickel is President of R.W. Frickel Company, P.C., an accounting firm based in Michigan that performs certain accounting and tax services for the Company. In 2008, the Company paid or accrued for payment to R.W. Frickel Company approximately $39,700 in fees. The Company estimates that during 2009, the fees of R.W. Frickel Company will be approximately the same as in 2008.

Joseph P. Harper, Jr . Joseph P. Harper, Jr. is Chief Financial Officer of the Company's wholly-owned subsidiary, Texas Sterling Construction Co., or TSC, and the son of Joseph P. Harper, Sr., who is President, Treasurer & Chief Operating Officer of the Company. For 2008 Mr. Harper Jr. received salary of $200,000 and deferred salary and cash incentive bonus of $140,000.

The Paradigm Companies . Since July 2005, Patrick T. Manning has been the husband of the sole beneficial owner of Paradigm Outdoor Supply, LLC, Paradigm Outsourcing, Inc. and Paradigm Consultants, Inc. The Paradigm companies have provided materials and services to the Company and to other contractors for many years. In 2008, the Company paid a total of approximately $436,262 to the Paradigm companies. The Audit Committee reviews and approves these payments in the manner described below.

Policies and Procedures for the Review, Approval or Ratification of Transactions with Related Persons .

General . The Board of Directors' policy on transactions between the Company and related parties is set forth in the written charter of the Audit Committee. The policy requires that the Audit Committee must review in advance the terms of any transaction by the Company with a director; executive officer; nominee for election as director; stockholder; or any affiliate or any of their immediate family members that involves more than $50,000. If the Audit Committee approves the transaction, it must do so in compliance with Delaware law and report it to the full Board of Directors.

Mr. Hemsley . Mr. Hemsley's relationship with JOHCM has not been the subject of any approval process by the Board or the Audit Committee because, as noted above, neither of the funds he manages were or are an investor in the Company or any of its affiliates.

Mr. Frickel . The Company's Audit Committee reviews and approves the retention of Mr. Frickel's firm and the payment of its fees. A description of this written procedure is found in Item 14. — Principal Accounting Fees and Services , below, under the heading Audit and Non-Audit Service Approval Policy.

Joseph P. Harper, Jr . The Compensation Committee reviews Mr. Harper, Jr.'s salary and bonus as well as the salary and bonus of other senior managers of TSC. Neither Mr. Harper, Sr. nor Mr. Harper, Jr. is a member of the Compensation Committee, which is made up entirely of independent directors.

The Paradigm Companies . TSC engages the Paradigm companies primarily for City of Houston projects to comply with requirements that a portion of project contracts be subcontracted to minority and/or women-owned businesses. Both Paradigm companies are woman-owned businesses. Paradigm Outdoor Supply arranges for the purchase of construction materials. Paradigm delivers the materials directly to the project site and bills the Company for them. Paradigm Outdoor Supply and similar companies charge a percentage commission ranging from 2% to 3% of the cost of the materials. Paradigm Outsourcing provides flagmen and other temporary construction personnel to contractors and charges competitive rates for those services. During 2008, the Company paid Paradigm Outdoor Supply a total of approximately $326,520 for the materials it purchased for the Company; and paid Paradigm Outsourcing $109,548 for temporary personnel supplied to the Company.

The Audit Committee has engaged a separate auditing firm to review on a quarterly basis the purchases of materials and services from Paradigm and to furnish the Audit Committee with a report of the rates charged by the Paradigm companies compared to rates charged by similar firms. The Audit Committee then determines whether to approve the continuation of business with the Paradigm companies for the succeeding quarter.

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Director Independence . The following table shows the Company's independent directors in 2008 and the committees of the Board of Directors on which they served. Each of the directors listed has in the past and continues to satisfy Nasdaq's definition of an independent director. Each member of the Audit Committee, Compensation Committee, and Corporate Governance & Nominating Committee also satisfies Nasdaq's independence standards for service on those committees. In addition, the members of the Audit Committee satisfy the independence requirements of the SEC's Regulation §240.10A-3.

Name	Committee Assignment
John D. Abernathy	Audit Committee (Chairman) Compensation Committee Corporate Governance and Nominating Committee
Robert W. Frickel	Compensation Committee (Chairman) Corporate Governance & Nominating Committee
Milton L. Scott	Corporate Governance & Nominating Committee (Chairman) Audit Committee
Donald P. Fusilli, Jr.	Audit Committee Compensation Committee
David R. A. Steadman	Corporate Governance & Nominating Committee
Christopher H. B. Mills	None

The relationship between Mr. Frickel's accounting firm and the Company is described above in this Item 12 under the heading Transactions with Related Persons .

In determining that Mr. Mills is independent under Nasdaq rules, the Board of Directors considered the fact that Mr. Mills is the Chief Executive Officer of NASCIT, which is a stockholder holding less than 10% of the Company's outstanding common stock and therefore under applicable rules and regulations is not an affiliate of the Company. The Board also considered the payments of interest that the Company made on a promissory note it issued to NASCIT in 2001 in connection with the Company's acquisition of TSC and the fact that the note was paid in full on June 30, 2005. The Board has concluded that under Nasdaq's standards for independence, neither of Mr. Frickel's nor Mr. Mills' relationship to the Company adversely affects his independence. In reaching this conclusion, the Board also relied on the fact that both Messrs. Frickel and Mills were directors at the time that the Company applied for the listing of its common stock on Nasdaq and that they qualified as independent at that time.

Item 14. Principal Accountant Fees and Services .

The following table sets forth the aggregate fees that the Company's independent registered public accounting firm, Grant Thornton LLP, billed to the Company for the years ended December 31, 2008 and 2007.

Fee Category	2008	Percentage Approved by the Audit Committee	2007	Percentage Approved by the Audit Committee
Audit Fees:	$529,000	100%	$574,000	100%
Audit-Related Fees:	--	NA	$25,500	100%
Tax Fees:	$3,000	NA	$3,300	100%
All Other Fees:	$20,000	100%	—	NA

Audit Fees . In 2008 and 2007 audit fees include the fees for Grant Thornton's audit of the consolidated financial statements included in the Company's Annual Report on Form 10-K; reviews of the consolidated financial statements included in the Company's quarterly reports on Form 10-Q; the resolution of issues that arose during the audit process; attestation work required by Section 404 of the Sarbanes-Oxley Act of 2002; and other audit services that are normally provided in connection with statutory and regulatory filings. For 2008, only $349,000 of the expected billings as reflected in the above table had been billed by December 31, 2008. For 2007, the audit fees have been updated since the 2007 Form 10-K filing to reflect a reduction of $29,000 from the estimate at the time of filing as compared to the actual fees incurred.

Audit-Related Fees . In 2007 audit-related fees included fees in connection with the Company's October 2007 acquisition of RHB.

Tax Fees. Our independent registered public accounting firm provides tax consulting services to the Company.

All Other Fees. In 2008, these fees consist of accounting services performed in connection with our shelf registration filing with the SEC and various other consulting fees on accounting issues.

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Audit and Non-Audit Service Approval Policy . In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and related rules and regulations, the Audit Committee has adopted a policy that it believes will result in an effective and efficient procedure to approve the services of the Company's independent registered public accounting firm.

Audit Services . The Audit Committee annually approves specified audit services engagement terms and fees and other specified audit fees. All other audit services must be specifically pre-approved by the Audit Committee. The Audit Committee monitors the audit services engagement and must approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope or other items.

Audit-Related Fees . Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements, which historically have been provided by our independent registered public accounting firm, and are consistent with the SEC’s rules on auditor independence. The Audit Committee annually approves specified audit-related services within established fee levels. All other audit-related services must be pre-approved by the Audit Committee.

Tax Fees . As the fees related to these services are de minimis in amount, they are approved by the Chairman of the Audit committee prior to being incurred.

All Other Fees . Other services, if any, are services provided by our independent registered public accounting firm that do not fall within the established audit, audit-related and tax services categories. The Audit Committee must pre-approve specified other services that do not fall within any of the specified prohibited categories of services.

Procedures . All requests for services that are to be provided by our independent registered public accounting firm, which must include a detailed description of the services to be rendered and the amount of corresponding estimated fees, are submitted to both the Company's President and the Chairman of the Audit Committee. The Chief Financial Officer authorizes services that have been approved by the Audit Committee within the pre-set limits. If there is any question as to whether a proposed service fits within an approved service, the Chairman of the Audit Committee is consulted for a determination. The Chief Financial Officer submits to the Audit Committee any requests for services that have not already been approved by the Audit Committee. The request must include an affirmation by the Chief Financial Officer and the independent registered public accounting firm that the request is consistent with the SEC’s rules on auditor independence.

PART IV

Item 15.

Exhibits, Financial Statements and Schedules .

The following Financial Statements and Financial Statement Schedules are filed with this Report:

Financial Statements

Reports of the Company's Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2008 and December 31, 2007

Consolidated Statements of Operations for the fiscal periods ended December 31, 2008, December 31, 2007 and December 31, 2006

Consolidated Statements of Stockholders' Equity for the fiscal periods ended December 31, 2008, December 31, 2007 and December 31, 2006

Consolidated Statements of Cash Flows for the fiscal periods ended December 31, 2008, December 31, 2007 and December 31, 2006

Notes to the Consolidated Financial Statements

Financial Statement Schedules: None

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Exhibits

The following exhibits are filed with this Report:

Explanatory Note

Prior to changing its name to Sterling Construction Company, Inc. in November 2001, the Company had the following names during the following periods:

Hallwood Holdings Incorporated	May 1991 to July 1993
Oakhurst Capital, Inc.	July 1993 to April 1995
Oakhurst Company, Inc.	April 1995 to November 2001

References in the following exhibit list use the name of the Company in effect at the date of the exhibit.

Number	Exhibit Title
2.1	Purchase Agreement by and among Richard H. Buenting, Fisher Sand & Gravel Co., Thomas Fisher and Sterling Construction Company, Inc. dated as of October 31, 2007 (incorporated by reference to Exhibit number 2.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
2.2	Escrow Agreement by and among Sterling Construction Company, Inc., Fisher Sand & Gravel Co., Richard H. Buenting and Comerica Bank as Escrow Agent, dated as of October 31, 2007 (incorporated by reference to Exhibit number 2.2 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
3.1	Certificate of Incorporation of Sterling Construction Company, Inc. incorporating all amendments made thereto through May 8, 2008 (incorporated by reference to Exhibit 3.1 to Sterling Construction Company, Inc.'s Quarterly Report on Form 10-Q, filed on August 11, 2008 (SEC File No. 333-129780)).
3.2	Bylaws of Sterling Construction Company, Inc. as amended through March 13, 2008 (incorporated by reference to Exhibit 3.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, filed on March 19, 2008 (SEC File No. 333-129780)).
4.1	Form of Common Stock Certificate of Sterling Construction Company, Inc. (incorporated by reference to Exhibit 4.5 to its Form 8-A, filed on January 11, 2006 (SEC File No. 011-31993)).
10.1#	Oakhurst Company, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Sterling Construction Company, Inc.'s Registration Statement on Form S-1, filed on November 17, 2005 (SEC File No. 333-129780)).
10.2#	Forms of Stock Option Agreement under the Oakhurst Company, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.51 to Sterling Construction Company, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 29, 2005 (SEC File No. 001-31993)).
10.3#	Summary of the Compensation Plan for Non Employee Directors of Sterling Construction Company, Inc. (incorporated by reference to Exhibit 10.1 to Sterling Construction Company, Inc.'s Quarterly Report on Form 10-Q, filed on August 11, 2008 (SEC File No. 333-129780)).
10.4*	Credit Agreement by and among Sterling Construction Company, Inc., Texas Sterling Construction Co., Oakhurst Management Corporation and Comerica Bank and the other lenders from time to time party thereto, and Comerica Bank as administrative agent for the lenders, dated as of October 31, 2007.
10.5	Security Agreement by and among Sterling Construction Company, Inc., Texas Sterling Construction Co., Oakhurst Management Corporation and Comerica Bank as administrative agent for the lenders, dated as of October 31, 2007 (incorporated by reference to Exhibit 10.2 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
10.6	Joinder Agreement by Road and Highway Builders, LLC and Road and Highway Builders Inc, dated as of October 31, 2007 (incorporated by reference to Exhibit 10.3 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
10.7#	Employment Agreement dated as of July 19, 2007 between Sterling Construction Company, Inc. and Patrick T. Manning (incorporated by reference to Exhibit 10.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.8#	Employment Agreement dated as of July 19, 2007 between Sterling Construction Company, Inc. and Joseph P. Harper, Sr. (incorporated by reference to Exhibit 10.2 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.09#	Employment Agreement dated as of July 16, 2007 between Sterling Construction Company, Inc. and James H. Allen, Jr. (incorporated by reference to Exhibit 10.3 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.10#	Option Agreement dated August 7, 2007 between Sterling Construction Company, Inc. and James H. Allen, Jr. (incorporated by reference to Exhibit 10.4 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.11#*	Employment Agreement dated as of March 17, 2006 between Sterling Construction Company, Inc. and Roger M. Barzun.
21	Subsidiaries of Sterling Construction Company, Inc.: Name State of Incorporation Texas Sterling Construction Co. Delaware Road and Highway Builders, LLC Nevada Road and Highway Builders Inc. Nevada Road and Highway Builders of California, Inc. California
23.1*	Consent of Grant Thornton LLP.
31.1*	Certification of Patrick T. Manning, Chief Executive Officer of Sterling Construction Company, Inc.
31.2*	Certification of James H. Allen, Jr., Chief Financial Officer of Sterling Construction Company, Inc.
32.0*	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) of Patrick T. Manning, Chief Executive Officer, and James H. Allen, Jr., Chief Financial Officer.

	# Management contract or compensatory plan or arrangement.
	* Filed herewith.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Sterling Construction Company, Inc .

Dated: September 9, 2009 By: /s/ James H. Allen, Jr.

James H. Allen, Jr., Chief Financial Officer

(duly authorized officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Patrick T. Manning Patrick T. Manning	Chairman of the Board of Directors; Chief Executive Officer (principal executive officer)	March 16, 2009
/s/ Joseph P. Harper, Sr. Joseph P. Harper, Sr.	President, Treasurer & Chief Operating Officer; Director	March 16, 2009
/s/James H. Allen, Jr. James H. Allen, Jr.	Senior Vice President & Chief Financial Officer (principal financial officer and principal accounting officer)	March 16, 2009
/s/ John D. Abernathy John D. Abernathy	Director	March 16, 2009
/s/ Robert W. Frickel Robert W. Frickel	Director	March 16, 2009
/s/ Donald P. Fusilli, Jr. Donald P. Fusilli, Jr.	Director	March 16, 2009
/s/Maarten D. Hemsley Maarten D. Hemsley	Director	March 16, 2009
/s/ Christopher H. B. Mills Christopher H. B. Mills	Director	March 16, 2009
/s/ Milton L. Scott Milton L. Scott	Director	March 16, 2009
/s/ David R. A. Steadman David R. A. Steadman	Director	March 16, 2009

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Sterling Construction Company, Inc.

We have audited the accompanying consolidated balance sheets of Sterling Construction Company, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sterling Construction Company, Inc. and subsidiaries as of December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sterling Construction Company, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ) and our report dated March 16, 2009 expressed an unqualified opinion that Sterling Construction Company, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting.

/s/ GRANT THORNTON LLP

Houston, Texas

March 16, 2009

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Sterling Construction Company, Inc.

We have audited Sterling Construction Company, Inc. (a Delaware Corporation) and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Fram ework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sterling Construction Company, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Sterling Construction Company, Inc. and subsidiaries’ internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sterling Construction Company Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sterling Construction Company Inc. and subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 and our report dated March 16, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/ GRANT THORNTON LLP

Houston, Texas

March 16, 2009

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STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2008 and 2007

(Amounts in thousands, except share and per share data)

	2008		2007
ASSETS
Current assets:
Cash and cash equivalents	$	55,305	$	80,649
Short-term investments		24,379		54
Contracts receivable, including retainage		60,582		54,394
Costs and estimated earnings in excess of billings on uncompleted contracts		7,508		3,747
Inventories		1,041		1,239
Deferred tax asset, net		1,203		1,088
Deposits and other current assets		2,704		1,779
Total current assets		152,722		142,950
Property and equipment, net		77,993		72,389
Goodwill		57,232		57,232
Other assets, net		1,668		1,944
Total assets	$	289,615	$	274,515
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	26,111	$	27,190
Billings in excess of cost and estimated earnings on uncompleted contracts		23,127		25,349
Current maturities of long-term debt		73		98
Income taxes payable		547		1,102
Other accrued expenses		7,741		7,148
Total current liabilities		57,599		60,887
Long-term liabilities:
Long-term debt, net of current maturities		55,483		65,556
Deferred tax liability, net		11,117		3,098
Minority interest in RHB		6,300		6,362
		72,900		75,016
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share; authorized 1,000,000, none issued		--		--
Common stock, par value $0.01 per share; authorized 19,000,000 shares, 13,184,638 and 13,006,502 shares issued and outstanding		131		130
Additional paid in capital		150,223		147,786
Retained earnings (deficit)		8,762		(9,304	)
Total stockholders’ equity		159,116		138,612
Total liabilities and stockholders’ equity	$	289,615	$	274,515

The accompanying notes are an integral part of these consolidated financial statements

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STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 2008, 2007 and 2006

(Amounts in thousands, except share and per share data)

	2008			2007			2006
Revenues	$	415,074		$	306,220		$	249,348
Cost of revenues		373,102			272,534			220,801
Gross Profit		41,972			33,686			28,547
General and administrative expenses		(13,763	)		(13,231	)		(10,825	)
Other income (expense)		(81	)		549			276
Operating income		28,128			21,004			17,998
Interest income		1,070			1,669			1,426
Interest expense		(199	)		(277	)		(220	)
Income from continuing operations beforeincome taxes and minority interest		28,999			22,396			19,204
Income tax expense:
Current		(1,087	)		(1,290	)		(310	)
Deferred		(8,938	)		(6,600	)		(6,256	)
Total Income tax expense		(10,025	)		(7,890	)		(6,566	)
Minority interest in earnings of RHB		(908	)		(62	)		--
Net Income from continuing operations		18,066			14,444			12,638
Income from discontinued operations, including gain on disposal of $121 in 2006		--			--			682
Net income	$	18,066		$	14,444		$	13,320

Basic net income per share:
Net income from continuing operations	$	1.38		$	1.31		$	1.19
Net income from discontinued operations		--			--		$	0.06
Net income	$	1.38		$	1.31		$	1.25
Weighted average number of shares outstanding in computing basic per share amounts		13,119,987			11,043,948			10,582,730
Diluted net income per share:
Net income from continuing operations	$	1.32		$	1.22		$	1.08
Net income from discontinued operations		--			--		$	0.06
Net income	$	1.32		$	1.22		$	1.14
Weighted average number of shares outstanding in computing diluted per share amounts		13,702,488			11,836,176			11,714,310

The accompanying notes are an integral part of these consolidated financial statements

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STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the years ended December 31, 2008, 2007 and 2006

(Amounts in thousands)

	Common stock				Additional			Retained earnings
	Shares		Amount		paid in capital			(deficit)			Total
Balance at December 31, 2005		8,165	$	82	$	82,822		$	(34,293	)	$	48,611
Net income									13,320			13,320
Stock issued upon option and warrant exercises		701		7		906						913
Stock based compensation expense						991						991
Stock issued in equity offering, net of expenses		2,003		20		27,019						27,039
Issuance and amortization of restricted stock		6		--		117						117
Excess tax benefits from exercise of stock options				109		2,775			(2,775	)		--
Balance at December 31, 2006		10,875		109		114,630			(23,748	)		90,991
Net income									14,444			14,444
Stock issued upon option and warrant exercises		241		2		511						513
Stock based compensation expense						912						912
Stock issued in equity offering, net of expenses		1,840		18		34,471						34,489
Issuance and amortization of restricted stock		10		--		198						198
Excess tax benefits from exercise of stock options						1,480						1,480
Issuance of stock to minority interest		41		1		999						1,000
Excess fair value over book value of minority interest in RHB						(5,415	)					(5,415	)
Balance at December 31, 2007		13,007		130		147,786			(9,304	)		138,612
Net income									18,066			18,066
Stock issued upon option and warrant exercises		154		1		237						238
Stock based compensation expense						210						210
Issuance and amortization of restricted stock		24		--		307						307
Excess tax benefits from exercise of stock options						1,218						1,218
Revaluation of minority interest put call liability						607						607
Expenditures related to 2007 equity offering						(142	)					(142	)
Balance at December 31, 2008		13,185	$	131	$	150,223		$	8,762		$	159,116

The accompanying notes are an integral part of this consolidated financial statement

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STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2008, 2007 and 2006

(Amounts in thousands, except share data)

	2008			2007			2006
Net income	$	18,066		$	14,444		$	13,320
Net income from discontinued operations		--			--			682
Net income from continuing operations		18,066			14,444			12,638
Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities:
Depreciation and amortization		13,168			9,544			7,011
(Gain) loss on sale of property and equipment		81			(501	)		(276	)
Deferred tax expense		8,938			6,600			6,256
Stock based compensation expense		517			1,110			1,108
Excess tax benefits from exercise of stock options		(1,218	)		(1,480	)		--
Minority interest in net earnings of subsidiary		908			62			--
Interest expense accreted on minority interest		199			--			--
Other changes in operating assets and liabilities:
(Increase) in contracts receivable		(6,188	)		(6,588	)		(7,893	)
(Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts		(3,761	)		648			(958	)
(Increase) decrease in prepaid expenses and other assets		(1,945	)		(629	)		(1,011	)
(Decrease) increase in trade payables		(1,079	)		6,064			(3,043	)
(Decrease) increase in billings in excess of costs and estimated earnings on uncompleted contracts		(2,222	)		646			7,901
(Decrease) increase in accrued compensation and other liabilities		1,257			(378	)		1,356
Net cash provided by continuing operations operating activities		26,721			29,542			23,089
Cash flows from continuing operations investing activities:
Cash paid for business combinations, net of cash acquired		--			(49,334	)		(2,206	)
Additions to property and equipment		(19,896	)		(26,319	)		(24,849	)
Proceeds from sale of property and equipment		1,298			1,603			866
Purchases of short-term securities, available for sale		(24,325	)		(123,797	)		(144,192	)
Sales of short-term securities, available for sale		--			149,912			118,023
Net cash used in continuing operations investing activities		(42,923	)		(47,935	)		(52,358	)
Cash flows from continuing operations financing activities:
Cumulative daily drawdowns – Credit Facility		235,000			190,199			106,025
Cumulative daily reductions – Credit Facility		(245,000	)		(155,199	)		(89,813	)
Repayments under related party long term debt		--			--			(8,449	)
Repayments under long-term obligations		(98	)		(129	)		(123	)
Increase in deferred loan costs		--			(1,197	)		(124	)
Issuance of common stock pursuant to warrants and options exercised		238			513			913
Utilization of excess tax benefits from exercise of stock options		1,218			1,480			--
Distributions to RHB minority interest owner		(562	)		--			--
Payments on note receivable		204			420			--
Net proceeds from sale of common stock		(142	)		34,489			27,039
Net cash provided by (used in) continuing operations financing activities		(9,142	)		70,576			35,468
Net increase (decrease) in cash and cash equivalents from continuing operations		(25,344	)		52,183			6,199
Cash provided by discontinued operations		--			--			495
Cash used in discontinued investing activities		--			--			4,739
Cash used in discontinued operations financing activities		--			--			(5,357	)
Net cash used in discontinued operations		--			--			(123	)

Cash and cash equivalents at beginning of period		80,649			28,466			22,267
Cash and cash equivalents at end of period	$	55,305		$	80,649		$	28,466

Supplemental disclosures of cash flow information:
Cash paid during the period for interest, net of $107, $53 and $14 of capitalized interest expense in 2008, 2007 and 2006, respectively	$	167		$	216		$	199
Cash paid during the period for income taxes	$	3,000		$	1,300		$	300

The accompanying notes are an integral part of these consolidated financial statements

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STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Business and Significant Accounting Policies

Basis of Presentation:

Sterling Construction Company, Inc. (“Sterling” or “the Company”) a Delaware Corporation, is a leading heavy civil construction company that specializes in the building, reconstruction and repair of transportation and water infrastructure in large and growing markets in Texas and Nevada. Our transportation infrastructure projects include highways, roads, bridges and light rail, and our water infrastructure projects include water, wastewater and storm drainage systems. We provide general contracting services primarily to public sector clients utilizing our own employees and equipment for activities including excavating, paving, pipe installation and concrete and asphalt placement. We purchase the necessary materials for our contracts, perform approximately three-quarters of the work required by our contracts with our own crews, and generally engage subcontractors only for ancillary services.

Sterling owns four subsidiaries; Texas Sterling Construction Co. (“TSC”), a Delaware corporation, Road and Highway Builders, LLC (“RHB”), a Nevada limited liability company, Road and Highway Builders, Inc. ("RHB Inc"), a Nevada corporation and Road and Highway Builders of California, Inc., ("RHB Cal"). TSC, RHB and RHB Cal perform construction contracts and RHB Inc produces aggregates from a leased quarry.

The accompanying consolidated financial statements include the accounts of subsidiaries in which the Company has a greater than 50% ownership interest and all significant intercompany accounts and transactions have been eliminated in consolidation. For all years presented, the Company had no subsidiaries with ownership interests of less than 50%.

Organization and Business:

Although we describe our business in this report in terms of the services we provide, our base of customers and the geographic areas in which we operate, we have concluded that our operations comprise one reportable segment pursuant to Statement of Financial Accounting Standards No. 131 – Disclosures about Segments of an Enterprise and Related Information. In making this determination, we considered that each project has similar characteristics, includes similar services, has similar types of customers and is subject to similar economic and regulatory environments. We organize, evaluate and manage our financial information around each project when making operating decisions and assessing our overall performance.

Use of Estimates:

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain of the Company's accounting policies require higher degrees of judgment than others in their application. These include the recognition of revenue and earnings from construction contracts under the percentage of completion method, the valuation of long-term assets, and income taxes. Management evaluates all of its estimates and judgments on an on-going basis.

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Revenue Recognition:

Construction

The Company's primary business since July 2001 has been as a general contractor in the States of Texas and, with the acquisition of RHB, Nevada where it engages in various types of heavy civil construction projects principally for public (government) owners. Credit risk is minimal with public owners since the Company ascertains that funds have been appropriated by the governmental project owner prior to commencing work on such projects. While most public contracts are subject to termination at the election of the government entity, in the event of termination the Company is entitled to receive the contract price for completed work and reimbursement of termination-related costs. Credit risk with private owners is minimized because of statutory mechanics liens, which give the Company high priority in the event of lien foreclosures following financial difficulties of private owners.

Revenues are recognized on the percentage-of-completion method, measured by the ratio of costs incurred up to a given date to estimated total costs for each contract.

Contract costs include all direct material, labor, subcontract and other costs and those indirect costs related to contract performance, such as indirect salaries and wages, equipment repairs and depreciation, insurance and payroll taxes. Administrative and general expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount attributable to contract claims is included in revenues when realization is probable and the amount can be reliably estimated. Cost and estimated earnings in excess of billings included $0.2 million and $0.5 million at December 31, 2008 and 2007, respectively, for contract claims not approved by the customer (which includes out-of-scope work, potential or actual disputes, and claims). The Company generally provides a one-year warranty for workmanship under its contracts. Warranty claims historically have been insignificant.

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed on these contracts. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized on these contracts.

Cash and Cash Equivalents and Short-term Investments:

The Company considers all highly liquid investments with original or remaining maturities of three months or less at the time of purchase to be cash equivalents. At December 31, 2008, all cash and cash equivalents were fully insured by the FDIC under its Transaction Account Guarantee Program. At December 31, 2008 there were uninsured short-term investments of $13.1 million.

The Company classified investments in U.S. treasury bills of $5.0 million at December 31, 2008, as securities available for sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. At December 31, 2008 we had certificates of deposits of $19.4 million with original maturities of greater than 90 days, but less than one year which were included along with the treasury bills in short-term investments. There was no material unrealized gain or loss on these securities at December 31, 2008, as the market value of these securities approximated their cost. For the years ended December 31, 2008, 2007 and 2006, the Company recorded interest income of $1.1 million, $1.7 million and $1.4 million, respectively.

Contracts Receivable:

Contracts receivable are generally based on amounts billed to the customer. At December 31, 2008, contracts receivable included retainage of $25.9 million discussed below which is being withheld by customers until completion of the contracts and $2.1 million of unbilled receivables on contracts completed or substantially complete at that date (the latter amount is expected to be billed in 2009). All other contracts receivable include only balances approved for payment by the customer. Based upon a review of outstanding contracts receivable, historical collection information and existing economic conditions, management has determined that all contracts receivable at December 31, 2008 and 2007 are fully collectible, and accordingly, no allowance for doubtful accounts against contracts receivable is necessary. Contracts receivable are written off based on individual credit evaluation and specific circumstances of the customer, when such treatment is warranted.

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Retainage:

Many of the contracts under which the Company performs work contain retainage provisions. Retainage refers to that portion of billings made by the Company but held for payment by the customer pending satisfactory completion of the project. Unless reserved, the Company assumes that all amounts retained by customers under such provisions are fully collectible. Retainage on active contracts is classified as a current asset regardless of the term of the contract and is generally collected within one year of the completion of a contract. Retainage was approximately $25.9 million and $21.1 million at December 31, 2008 and December 31, 2007, respectively, of which $0.2 million at December 31, 2008 is expected to be collected beyond 2009.

Inventories:

The Company's inventories are stated at the lower of cost or market as determined by the average cost method. Inventories at December 31, 2008 and 2007 consist primarily of raw materials, such as concrete and millings which are expected to be utilized on construction projects in the future. The cost of inventory includes labor, trucking and other equipment costs.

Property and Equipment:

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method. The estimated useful lives used for computing depreciation and amortization are as follows:

Building	39 years
Construction equipment	5-15 years
Land improvements	5-15 years
Office furniture and fixtures	3-10 years
Transportation equipment	5 years

Depreciation expense was approximately $12.9 million, $9.5 million, and $6.9 million in 2008, 2007 and 2006, respectively.

Equipment under Capital Leases:

The Company’s policy is to account for capital leases, which transfer substantially all the benefits and risks incident to the ownership of the leased property to the Company, as the acquisition of an asset and the incurrence of an obligation. Under this method of accounting, the recorded value of the leased asset is amortized principally using the straight-line method over its estimated useful life and the obligation, including interest thereon, is reduced through payments over the life of the lease. Depreciation expense on leased equipment and the related accumulated depreciation is included with that of owned equipment.

Deferred Loan Costs:

Deferred loan costs represent loan origination fees paid to the lender and related professional fees such as legal fees related to drafting of loan agreements. These fees are amortized over the term of the loan. In 2007, the Company entered into a new syndicated term Credit Facility (see Note 4) and incurred $1.3 million of loan costs, which are being amortized over the five-year term of the loan. In 2006, TSC renewed its line of credit and incurred loan costs in the amount of $123,000, which were being amortized over the three year term of the Credit Facility; however, the unamortized loan costs were charged to expense in 2007 with the execution of a new line of credit. Loan cost amortization expense for fiscal years 2008, 2007 and 2006 was $254,000, $76,000 and $99,000, respectively.

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Goodwill and Intangibles:

Goodwill represents the excess of the cost of companies acquired over the fair value of their net assets at the dates of acquisition.

The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 142 requires that: (1) goodwill and indefinite lived intangible assets not be amortized, (2) goodwill is to be tested for impairment at least annually at the reporting unit level, (3) the amortization period of intangible assets with finite lives is to be no longer limited to forty years, and (4) intangible assets deemed to have an indefinite life are to be tested for impairment at least annually by comparing the fair value of these assets with their recorded amounts.

Goodwill impairment is tested during the last quarter of each calendar year. The first step compares the book value of the Company’s stock to the fair market value of those shares as reported by Nasdaq. If the fair market value of the stock is greater than the calculated book value of the stock, goodwill is deemed not to be impaired and no further testing is required. If the fair market value is less than the calculated book value, additional steps of determining fair value of additional assets must be taken to determine impairment. Testing step one in 2008 indicated the fair market value of the Company’s stock was in excess of its book value and no further testing was required; based on the results of such test for impairment, the Company concluded that no impairment of goodwill existed as of December 31, 2008.

Intangible assets that have finite lives continue to be subject to amortization. In addition, the Company must evaluate the remaining useful life in each reporting period to determine whether events and circumstances warrant a revision of the remaining period of amortization. If the estimate of an intangible asset’s remaining life is changed, the remaining carrying amount of such asset is amortized prospectively over that revised remaining useful life.

Evaluating Impairment of Long-Lived Assets:

When events or changes in circumstances indicate that long-lived assets other than goodwill may be impaired, an evaluation is performed. The estimated undiscounted cash flow associated with the asset is compared to the asset's carrying amount to determine if a write-down to fair value is required.

Federal and State Income Taxes:

We determine deferred income tax assets and liabilities using the balance sheet method, as clarified by FIN 48. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. FIN 48 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority (see Note 6).

Stock-Based Compensation:

The Company has five stock-based incentive plans which are administered by the Compensation Committee of the Board of Directors. Prior to August 2006, the Company used the closing price of its common stock on the trading day immediately preceding the date the option was approved as the grant date market value. Since July 2006, the Company’s policy has been to use the closing price of the common stock on the date of the meeting at which a stock option award is approved for the option’s per-share exercise price. The term of the grants under the plans do not exceed 10 years. Stock options generally vest over a three to five year period and the fair value of the stock option is recognized on a straight-line basis over the vesting period of the option. Refer to Note 8 for further information regarding the stock-based incentive plans.

F10

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Net Income Per Share:

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is the same as basic net income per share but assumes the exercise of any convertible subordinated debt securities and includes dilutive stock options and warrants using the treasury stock method. The following table reconciles the numerators and denominators of the basic and diluted per common share computations for net income for 2008, 2007 and 2006 (in thousands, except per share data):

	2008		2007		2006
Numerator:
Net income	$	18,066	$	14,444	$	13,320

Denominator:
Weighted average common shares outstanding — basic		13,120		11,044		10,583
Shares for dilutive stock options and warrants		582		792		1,131
Weighted average common shares outstanding and assumed conversions — diluted		13,702		11,836		11,714

Basic net income per share	$	1.38	$	1.31	$	1.25

Diluted net income per share	$	1.32	$	1.22	$	1.14

For the years ended December 31, 2008, 2007 and 2006, there were 96,007, 79,700 and 81,500 options, respectively, considered antidilutive as the option exercise price exceeded the average share market price.

Interest Costs

Approximately $107,000, $53,000 and $14,000 of interest related to the construction of maintenance facilities and an office building were capitalized as part of construction costs during 2008, 2007 and 2006, respectively, in accordance with SFAS No.34 “Capitalization of Interest Cost”.

Recent Accounting Pronouncements:

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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157) which establishes a framework for measuring fair value and requires expanded disclosure about the information used to measure fair value. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value, and does not expand the use of fair value accounting in any new circumstances. In February 2008, the FASB delayed the effective date by which companies must adopt the provisions of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed in the financial statements on a recurring basis (at least annually). The new effective date of SFAS 157 deferred implementation to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of this standard is not anticipated to have a material impact on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment to FASB Statement No. 115" ("SFAS No. 159"). This statement allows a company to irrevocably elect fair value as a measurement attribute for certain financial assets and financial liabilities with changes in fair value recognized in the results of operations. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Adoption of this FASB did not have a material impact on the Company's results of operations and financial position.

Reclassifications

Certain immaterial balances included in the prior year balance sheet have been reclassified to conform to current year presentation.

2. Discontinued operations

In 2005 management identified one of the Company’s subsidiaries, Steel City Products, LLC, (“SCPL”) as held for sale and accordingly, reclassified its consolidated financial statements for all periods to separately present SCPL as discontinued operations.

On October 27, 2006, the Company sold the operations of SCPL to an industry related buyer. The Company received proceeds from the sale of $5.4 million, The Company reported a pre-tax gain of $249,000 on the sale, equal to $121,000 after taxes. Summarized financial information for discontinued operations through the date of the sale on October 27, 2006 is presented below (in thousands):

	2006
Net sales	$	17,661
Income before income taxes		741
Income taxes		180
Gain on disposal, net of tax of $128		121
Net income from discontinued operations	$	682

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3. Property and Equipment

Property and equipment are summarized as follows (in thousands):

	December 31, 2008			December 31, 2007

Construction equipment	$	96,002		$	83,739
Transportation equipment		12,358			9,279
Buildings		3,926			1,573
Office equipment		547			602
Construction in progress		792			856
Land		2,916			2,718
Water rights		200			200
		116,741			98,967
Less accumulated depreciation		(38,748	)		(26,578	)
	$	77,993		$	72,389

At December 31, 2008 construction in progress consisted of expenditures for new maintenance shop facilities at various locations in Texas.

4. Line of Credit and Long-Term Debt

Long-term debt consists of the following (in thousands):

	December 31, 2008			December 31, 2007
Credit Facility, due October 2012	$	55,000		$	65,000
Mortgages due monthly through June 2016		556			654
		55,556			65,654
Less current maturities of long-term debt		(73	)		(98	)
	$	55,483		$	65,556

Line of Credit Facilities

On October 31, 2007, the Company and its subsidiaries entered into a new credit facility (“Credit Facility”) with Comerica Bank, which replaced a prior Revolver and will mature on October 31, 2012. The Credit Facility allows for borrowing of up to $75.0 million and is secured by all assets of the Company, other than proceeds and other rights under our construction contracts, which are pledged to our bond surety. The Credit Facility requires the payment of a quarterly commitment fee of 0.25% per annum of the unused portion of the Credit Facility. Borrowings under the Credit Facility were used to finance the RHB acquisition, repay indebtedness outstanding under the Revolver, and finance working capital. At December 31, 2008, the aggregate borrowings outstanding under the Credit Facility were $55.0 million, and the aggregate amount of letters of credit outstanding under the Credit Facility was $1.8 million, which reduces availability under the Credit Facility. Availability under the Credit Facility was, therefore, $18.2 million at December 31, 2008.

At our election, the loans under the Credit Facility bear interest at either a LIBOR-based interest rate or a prime-based interest rate. The unpaid principal balance of each prime-based loan will bear interest at a variable rate equal to Comerica’s prime rate plus an amount ranging from 0% to 0.50% depending on the pricing leverage ratio that we achieve. The “pricing leverage ratio” is determined by the ratio of our average total debt, less cash and cash equivalents, to the EBITDA that we achieve on a rolling four-quarter basis. The pricing leverage ratio is measured quarterly. If we achieve a pricing leverage ratio of (a) less than 1.00 to 1.00; (b) equal to or greater than 1.00 to 1.00 but less than 1.75 to 1.00; or (c) greater than or equal to 1.75 to 1.00, then the applicable prime margins will be 0.0%, 0.25% or 0.50%, respectively. The interest rate on funds borrowed under this Credit Facility was 3.5% at December 31, 2008, and during the year ended December 31, 2008 ranged from 3.50% to 7.50%.

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The unpaid principal balance of each LIBOR-based loan bears interest at a variable rate equal to LIBOR plus an amount ranging from 1.25% to 2.25% depending on the pricing leverage ratio that we achieve. If we achieve a pricing leverage ratio of (a) less than 1.00 to 1.00; (b) equal to or greater than 1.00 to 1.00 but less than 1.75 to 1.00; or (c) greater than or equal to 1.75 to 1.00, then the applicable LIBOR margins will be 1.25%, 1.75% or 2.25%, respectively. Interest on LIBOR-based loans is payable at the end of the relevant LIBOR interest period, which must be one, two, three or six months.

·	Make distributions and dividends;

·	Incur liens and encumbrances;

·	Incur further indebtedness;

·	Guarantee obligations;

·	Dispose of a material portion of assets or merge with a third party;

·	Make acquisitions;

·	Incur negative income for two consecutive quarters.

The Company was in compliance with all covenants under the Credit Facility as of December 31, 2008.

In December 2007, Comerica syndicated the Credit Facility with three other financial institutions under the same terms discussed above.

Management believes that the Credit Facility will provide adequate funding for the Company’s working capital, debt service and capital expenditure requirements, including seasonal fluctuations at least through December 31, 2009.

The prior Revolver required the payment of a quarterly commitment fee of 0.25% per annum of the unused portion of the line of credit. Borrowing interest rates were based on the bank's prime rate or on a Eurodollar rate at the option of the Company. The interest rate on funds borrowed under this revolver during the year ended December 31, 2006 ranged from 7.25% to 8.25% and during 2007 ranged from 7.75% to 8.25%.

Mortgage

In 2001 TSC completed the construction of a headquarters building and financed it principally through a mortgage of $1.1 million on the land and facilities, at a floating interest rate, which at December 31, 2008 was 3.5% per annum, repayable over 15 years. The aggregate outstanding balance on these two mortgages aggregated $556,000 at December 31, 2008.

Maturity of Debt

The Company's long-term obligations mature in future years as follows (in thousands):

Fiscal Year

2009	$	73
2010		73
2011		73
2012		55,073
2013		73
Thereafter		191
	$	55,556

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5. Financial Instruments

SFAS No. 107, “Disclosure about Fair Value of Financial Instruments” defines the fair value of financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing parties.

The Company’s financial instruments are cash and cash equivalents, short-term investments, contracts receivable, accounts payable, mortgages payable and long-term debt. The recorded values of cash and cash equivalents, short-term investments, contracts receivable and accounts payable approximate their fair values based on their short-term nature. The recorded value of long-term debt approximates its fair value, as interest approximates market rates.

TSC had one mortgage outstanding at December 31, 2008, and two mortgages outstanding at December 31, 2007. The mortgage outstanding at December 31, 2008 was accruing interest at 3.50% at that date and contained pre-payment penalties. To determine the fair value of the mortgage, the amount of future cash flows was discounted using the Company’s borrowing rate on its Credit Facility. At December 31, 2008 and December 31, 2007, the carrying value of the mortgages was $556,000 and $654,000, respectively, and the fair value of the mortgages was approximately $488,000 and $641,000, respectively.

The Company does not have any off-balance sheet financial instruments.

6. Income Taxes and Deferred Tax Asset/Liability

During the year ended December 31, 2007, Sterling utilized its book net operating tax loss carry-forwards ("NOL") of approximately $9.8 million to offset a portion of the taxable income of the Company and its subsidiaries for federal income tax return purposes.

The Company also had available carry-forwards resulting from the exercise of non-qualified stock options. The Company could not recognize the tax benefit of these carry-forwards as deferred tax assets until its existing NOL's were fully utilized, and therefore, the deferred tax asset related to NOL carry-forwards differed from the amount available on its federal tax returns. The Company utilized approximately $3.5 million and $4.2 million of these excess compensation carry-forwards from the exercise of stock options to offset taxable income in 2008 and 2007, respectively. The utilization of these excess compensation benefits for tax purposes reduced taxes payable and increased additional paid-in capital for financial statement purposes by $1.2 million and $1.5 million in 2008 and 2007, respectively.

Current income tax expense represents federal tax payable for 2008 and Texas franchise tax.

Deferred tax assets and liabilities of continuing operations consist of the following (in thousands):

	December 31, 2008					December 31, 2007
	Current		Long Term			Current			Long Term
Assets related to:
Accrued compensation		1,169		--			1,054			487
AMT carry forward		--		1,770			--			2,446
Other		34		128			37			--

Liabilities related to:
Amortization of goodwill		--		(1,209	)
Depreciation of property and equipment		--		(11,806	)		--			(6,031	)
Other		--		--			(3	)		--
Net asset/liability	$	1,203	$	(11,117	)	$	1,088		$	(3,098	)

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The income tax provision differs from the amount using the statutory federal income tax rate of 35% in 2008 and 2007 and 34% in 2006 applied to income from continuing operations, for the following reasons (in thousands):

	Fiscal Year Ended
	December 31, 2008			December 31, 2007			December 31, 2006
Tax expense at the U.S. federal statutory rate	$	10,149		$	7,838		$	6,721
Texas franchise tax expense, net of refunds and federalbenefits		195			106			--
Taxes on subsidiary's earnings allocated to minority interest		(319	)		--			--
Non-taxable interest income		(35	)		(295	)		--
Permanent differences		35			241			153
Income tax expense	$	10,025		$	7,890		$	6,874
Income tax on discontinued operations including taxeson the gain on sale in 2006		--			--			308
Income tax on continuing operations	$	10,025		$	7,890		$	6,566

The decrease in the effective income tax rate to 34.6% in 2008 from 35.2% in 2007 is due to the increase in the portion of earnings of a subsidiary taxed to the minority interest owner partially offset by a full year of the revised Texas franchise tax which became effective July 1, 2007. The increase in the effective income tax rate to 35.2% in 2007 from 34.2% in 2006 is the result of the Texas franchise tax and an increase in the statutory tax rate.

The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and in various states. With few exceptions, the Company is no longer subject to federal tax examinations for years prior to 2002 and state income tax examinations for years prior to 2005. The Company’s policy is to recognize interest related to any underpayment of taxes as interest expense, and penalties as administrative expenses. No interest or penalties have been accrued at December 31, 2008.

The Company adopted FIN 48, "Accounting for Uncertainty in Income Taxes" on January 1, 2007; however the adoption did not result in an adjustment to retained earnings. In its 2005 tax return, the Company used NOL’s that would have expired during that year instead of deducting compensation expense that originated in 2005 as the result of stock option exercises. Therefore, that compensation deduction was lost. Whether the Company can choose not to take deductions for compensation expense in the tax return and to instead use otherwise expiring NOLs is considered by management to be an uncertain tax position. In the event that the IRS examines the 2005 tax return and determines that the compensation expense is a required deduction in the tax return, then the Company would deduct the compensation expense instead of the NOL used in the period; however there would be no cash impact on tax paid due to the increased compensation deduction. In addition, there would be no interest or penalties due as a result of the change. As a result of the Company’s detailed FIN 48 analysis, management has determined that it is more likely than not this position will be sustained upon examination, and this uncertain tax position was determined to have a measurement of $0.

The Company does not believe that its uncertain tax position will significantly change due to the settlement and expiration of statutes of limitations prior to December 31, 2009.

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7. Costs and Estimated Earnings and Billings on Uncompleted Contracts

Costs and estimated earnings and billings on uncompleted contracts at December 31, 2008 and 2007 are as follows (in thousands):

	Fiscal Year Ended December 31, 2008			Fiscal Year Ended December 31, 2007
Costs incurred and estimated earnings on uncompleted contracts	$	584,997		$	329,559
Billings on uncompleted contracts		(600,616	)		(351,161	)
	$	(15,619	)	$	(21,602	)

Included in accompanying balance sheets under the following captions:

	Fiscal Year Ended December 31, 2008			Fiscal Year Ended December 31, 2007
Costs and estimated earnings in excess of billings on uncompleted contracts	$	7,508		$	3,747
Billings in excess of costs and estimated earnings on uncompleted contracts		(23,127	)		(25,349	)
	$	(15,619	)	$	(21,602	)

8. Stock Options and Warrants

Stock Options and Grants

In July 2001, the Board of Directors adopted and in October 2001 shareholders approved the 2001 Stock Incentive Plan (the “2001 Plan”). The 2001 Plan initially provided for the issuance of stock awards for up to 500,000 shares of the Company's common stock. In March 2006, the number of shares available for issuance under the 2001 Plan was increased to one million shares. In November 2007, the number of shares available for issuance under the 2001 Plan was reduced by the board of directors from one million shares to 662,626 shares and subsequently in May 2008 was returned to one million shares. The plan is administered by the Compensation Committee of the Board of Directors. In general, the plan provides for all grants to be issued with a per-share exercise price equal to the fair market value of a share of common stock on the date of grant. The original terms of the grants typically do not exceed 10 years. Stock options generally vest over a three to five year period.

The Company's and its subsidiaries' directors, officers, employees, consultants and advisors are eligible to be granted awards under the 2001 plan.

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At December 31, 2008 there were 397,690 shares of common stock available under the 2001 Plan for issuance pursuant to future stock option and share grants. No options are outstanding and no shares are or will be available for grant under the Company’s other option plans, all of which have been terminated.

The 2001 plan provides for restricted stock grants and in May 2008 and May 2007, pursuant to non-employee director compensation arrangements. Non-employee directors of the Company were awarded restricted stock with one-year vesting as follows:

	2008 Awards		2007 Awards
Shares awarded to each non-employee directors		2,564		1,598
Total shares awarded		17,948		9,588
Grant-date market price per share of awarded shares	$	19.50	$	21.90
Total compensation cost	$	350,000	$	210,000
Compensation cost recognized in 2008	$	221,000	$	140,000

In March 2008, five employees were granted an aggregate of 5,672 shares of restricted stock with a market value $18.16 per share resulting in compensation expense of $103,000 to be recognized ratably over the five-year restriction period.

The following tables summarize the stock option activity under the 2001 Plan and previously active plans:

	2001 Plan					1994 Non-Employee Director Plan					1991 Plan
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at December 31, 2005:		457,160		$	4.66		31,166		$	1.58		84,420		$	2.75
Granted		81,500		$	16.36		--			--		--			--
Exercised		(64,057	)	$	2.46		(18,000	)	$	2.05		(55,996	)	$	2.75
Expired/forfeited		(4,400	)	$	7.83		--			--		--			--
Outstanding at December 31, 2006:		470,203		$	8.35		13,166		$	0.94		28,424		$	2.75
Granted		16,507		$	19.43		--			--		--			--
Exercised		(24,110	)	$	3.39		(3,000	)	$	1.00		(28,424	)	$	2.75
Expired/forfeited		(5,460	)	$	13.48		--			--		--			--
Outstanding at December 31, 2007:		457,140		$	9.06		10,166		$	0.93		--			--
Exercised		(45,940	)	$	2.81		(10,166	)	$	0.93		--			--
Expired/forfeited		(200	)	$	25.21		--			--		--			--
Outstanding at December 31, 2008:		411,000		$	9.75		--			--		--			--

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	1994 Omnibus Plan					1998 Plan
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at December 31, 2005:		424,196		$	1.40		229,125		$	0.58
Exercised		(166,016	)	$	1.08		(225,875	)	$	0.57
Outstanding at December 31, 2006:		258,180		$	1.60		3,250		$	1.00
Exercised		(181,990	)	$	1.91		(3,250	)	$	1.00
Outstanding at December 31, 2007:		76,190		$	0.88		--			--
Exercised		(76,190	)	$	0.88		--			--
Outstanding at December 31, 2008:		--			--		--			--

The following table summarizes information about stock options outstanding and exercisable at December 31, 2008:

		Options Outstanding						Options Exercisable
Range of Exercise Price Per Share		Number of Shares		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Pricer Per Share		Number of Shares		Weighted Average Exercise Pricer Per Share
	$0.94 - $1.50		31,700		2.56	$	1.50		31,700	$	1.50
	$1.73 - $2.00		31,800		3.56	$	1.73		31,800	$	1.73
	$2.75 - $3.38		148,193		3.66	$	3.09		135,533	$	3.09
	$6.87		15,000		6.38	$	6.87		15,000	$	6.87
	$9.69		62,800		1.55	$	9.69		62,800	$	9.69
	$16.78		25,500		1.70	$	16.78		15,100	$	16.78
	$18.99		13,707		8.61	$	18.99		4,569	$	18.99
	$21.60		2,800		3.55	$	21.60		2,800	$	21.60
	$24.96		62,800		2.55	$	24.96		62,800	$	24.96
	$25.21		16,700		2.69	$	25.21		6,920	$	25.21
			411,000		3.18	$	9.75		369,022	$	9.15

	Number of Shares		Aggregate intrinsic value
Total outstanding in-the-money options at 12/31/08		314,993	$	4,137,416
Total vested in-the-money options at 12/31/08		291,933	$	3,923,872
Total options exercised during 2008		132,296	$	2,184,482

For unexercised options, aggregate intrinsic value represents the total pretax intrinsic value (the difference between the Company’s closing stock price on December 31, 2008 ($18.53) and the exercise price, multiplied by the number of in-the-money option shares) that would have been received by the option holders had all option holders exercised their options on December 31, 2008. For options exercised during 2008, aggregate intrinsic value represents the total pretax intrinsic value based on the Company’s closing stock price on the day of exercise.

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Compensation expense for options granted during 2007 and 2006 were calculated using the Black-Scholes option pricing model using the following assumptions in each year (no options were granted during 2008):

	Fiscal 2007	Fiscal 2006
Average Risk free interest rate	4.7%	4.9%
Average Expected volatility	70.7%	76.3%
Average Expected life of option	3.0 years	5.0 years
Expected dividends	None	None

The risk-free interest rate is based upon interest rates that match the contractual terms of the stock option grants. The expected volatility is based on historical observation and recent price fluctuations. The expected life is based on evaluations of historical and expected future employee exercise behavior, which is not less than the vesting period of the options. The Company does not currently pay dividends. The weighted average fair value of stock options granted in 2007 and 2006 was $12.20 and$16.36, respectively.

Pre-tax deferred compensation expense for stock options and restricted stock grants was $517,000 ($336,000 after tax effects of 35.0%), $1,110,000 ($722,000 after tax effects of 35.0%), and $1,108,000 ($729,000 after tax effects of 34.2%), in 2008, 2007 and 2006, respectively. Proceeds received by the Company from the exercise of options in 2008, 2007 and 2006 were $205,000, $513,000 and $657,000, respectively. At December 31, 2008, total unrecognized stock-based compensation expense related to unvested stock options was approximately $336,000, which is expected to be recognized over a weighted average period of approximately 2.0 years.

Warrants

Warrants attached to zero coupon notes were issued to certain members of TSC management and to certain stockholders in 2001. These ten-year warrants to purchase shares of the Company's common stock at $1.50 per share became exercisable 54 months from the July 2001 issue date, except that one warrant covering 322,661 shares by amendment became exercisable forty-two months from the issue date. The following table shows the warrant shares outstanding and the proceeds that have been received by the Company from exercises.

	Shares		Company’s Proceeds of Exercise		Year-End Warrant Share Balance
Warrants outstanding on vest date		850,000		--		850,000
Warrants exercised in 2005		322,661	$	483,991		527,339
Warrants exercised in 2006		171,073	$	256,610		356,266
Warrants exercised in 2007		--		--		356,266
Warrants exercised in 2008		22,220	$	33,330		334,046

9. Employee Benefit Plan

The Company and its subsidiaries maintain a defined contribution profit-sharing plan covering substantially all non-union persons employed by the Company and its subsidiaries, whereby employees may contribute a percentage of compensation, limited to maximum allowed amounts under the Internal Revenue Code. The Plan provides for discretionary employer contributions, the level of which, if any, may vary by subsidiary and is determined annually by each company's board of directors. The Company made aggregate matching contributions of $322,000, $353,000 and $325,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

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10. Operating Leases

The Company leases office space in the Dallas and San Antonio areas of Texas and Reno, Nevada.

In 2006 and 2007, the Company entered into several long-term operating leases for equipment with lease terms of approximately three to five years. Certain of these leases allow the Company to purchase the equipment on or before the end of the lease term. If the Company does not purchase the equipment, it is returned to the lessor. Two leases obligate the Company to pay a guaranteed residual not to exceed 20% of the original equipment cost. The Company is accruing the liability for both leases, which is not expected to exceed $330,000 in the aggregate.

Minimum annual rentals for all operating leases having initial non-cancelable lease terms in excess of one year are as follows (in thousands):

Fiscal Year
2009	$	721
2010		721
2011		634
2012		70
2013		--
Thereafter		--
Total future minimum rental payments	$	2,146

Total rent expense for all operating leases amounted to approximately $767,000, $1,068,000 and $995,000 in fiscal years 2008, 2007 and 2006, respectively.

11. Customers

The following table shows contract revenues generated from the Company’s customers that accounted for more than 10% of revenues (dollars in thousands):

	December 31, 2008					December 31, 2007					December 31, 2006
	Contract Revenues		% of Revenues			Contract Revenues		% of Revenues			Contract Revenues		% of Revenues
Texas Department of Transportation ("TXDOT")	$	162,041		39.2	%	$	201,073		65.7	%	$	166,333		67.1	%
Nevada Department ofTransportation ("NDOT")	$	88,159		21.3	%		*		*			N/A		N/A
City of Houston ("COH")		*		*			*		*		$	29,848		12.1	%
Harris County		*		*			*		*			*		*

* represents less than 10% of revenues

At December 31, 2008, TXDOT ($22.1 million), City of Houston ($10.2 million) and City of San Antonio ($7.5 million) owed balances greater than 10% of contracts receivable.

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12. Equity Offerings

In December 2007, the Company completed a public offering of 1.84 million shares of its common stock at $20.00 per share. The Company received proceeds, net of underwriting discounts and commissions, of approximately $35.0 million ($19.00 per share) and paid approximately $0.5 million in related offering expenses. From the proceeds of the offering, the Company repaid the portion of its Credit Facility that was used in its acquisition of its interest in RHB. The remainder of the offering proceeds was used for working capital purposes.

In January 2006, the Company completed a public offering of approximately 2.0 million shares of its common stock at $15.00 per share. The Company received proceeds, net of underwriting commissions, of approximately $28.0 million ($13.95 per share) and paid approximately $907,000 in related offering expenses. In addition, the Company received approximately $484,000 in December 2005 from the exercise of warrants and options to purchase 321,758 shares of Common Stock, which were subsequently sold in 2006 by the option and warrant holders in the offering. From the proceeds of the offering, the Company repaid all its outstanding related party promissory notes to officers, directors and former directors as follows:

Name	Principal		Interest		Total Payment
Patrick T. Manning	$	318,592	$	2,867	$	321,459
James D. Manning	$	1,855,349	$	16,698	$	1,872,047
Joseph P. Harper, Sr.	$	2,637,422	$	23,737	$	2,661,159
Maarten D. Hemsley	$	181,205	$	1,631	$	182,836
Robert M. Davies	$	452,909	$	4,076	$	456,985

During 2006, the Company utilized a portion of the offering proceeds to purchase additional construction equipment and to repay borrowed funds.

13. Minority interest in RHB:

On October 31, 2007, the Company purchased a 91.67% interest in Road and Highway Builders, LLC (“RHB”), a Nevada limited liability company, and all of the outstanding capital stock of Road and Highway Builders, Inc (“RHB Inc”), then an inactive Nevada corporation. These entities were affiliated through common ownership and have been included in the Company's consolidated results since the date of acquisition.

RHB is a heavy civil construction business located in Reno, Nevada that builds roads, highways and bridges for local and state agencies in Nevada. Its assets consist of construction contracts, road and bridge construction and aggregate mining machinery and equipment, and approximately 44.5 acres of land with improvements. RHB Inc’s sole asset is its right as a co-lessee with RHB under a long-term, royalty-based lease of a Nevada quarry on which RHB can mine aggregates for use in its own construction business and for sale to third parties. During early 2008, RHB Inc began crushing stone for the operations of RHB.

The Company paid an aggregate purchase price for its interest in RHB of $53.0 million, consisting of $48.9 million in cash, 40,702 unregistered shares of the Company’s common stock, which were valued at $1.0 million based on the quoted market value of the Company’s stock on the purchase date, and $3.1 million in assumption of accounts payable to RHB by one of the sellers. Additionally, the Company incurred $1.1 million of direct costs related to the acquisition. We acquired RHB for a number of reasons, including those listed below:

a)	Expansion into growing western U.S. infrastructure construction markets;

b)	Strong management team with a shared corporate culture;

c)	Expansion of our service lines into aggregates and asphalt paving materials;

d)	Opportunities to extend our municipal and structural capabilities into Nevada; and

e)	RHB’s strong financial results and expected immediate accretion to our earnings and earnings per share.

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Table of Contents

Ten percent of the cash purchase price was placed in escrow for eighteen months as security for any breach of representations and warranties made by the sellers.

The minority interest owner of RHB (who remains with RHB as Chief Executive Officer) has the right to require the Company to buy his remaining 8.33% minority interest in RHB and, concurrently, the Company has the right to require that owner to sell his 8.33% interest to the Company, beginning in 2011. The purchase price in each case is 8.33% of the product of six times the simple average of RHB’s income before interest, taxes, depreciation and amortization for the calendar years 2008, 2009 and 2010. The minority interest was recorded at its estimated fair value of $6.3 million at the date of acquisition and the difference of $5.4 million between the minority owner’s interest in the historical basis of RHB and the estimated fair value of that interest was recorded as a liability to the minority interest and a reduction in addition paid-in capital.

Any changes to the estimated fair value of the minority interest will be recorded as a corresponding change in additional paid-in-capital. Additionally, interest will be accredited to the minority interest liability based on the discount rate used to calculate the fair value of the acquisition.

Based on RHB's operating results for 2008 and management's current estimates of such results for 2009 and 2010, the Company has revised its estimate of the fair value of the minority interest at December 31, 2008 and recorded a reduction in the related liability and increased paid-in-capital by $607,000 at that date. This change in fair value estimate also resulted in a reduction in interest accreted in the first three quarters of 2008 on the liability by $228,000, which is reflected as a reduction in fourth quarter interest expense.

The purchase agreement restricts the sellers from competing against the business of RHB and from soliciting its employees for a period of four years after the closing of the purchase.

The following table summarizes the allocation of the purchase price, including related direct acquisition costs for RHB (in thousands):

Tangible assets acquired at estimated fair value, includingapproximately $10,000 of property, plant and equipment	$	19,334
Current liabilities assumed		(9,686	)
Goodwill		44,496
Total	$	54,144

The goodwill is deductible for tax purposes over 15 years. The purchase price allocation has been finalized and there were no separately identifiable assets, other than goodwill. Other than the adjustment to the minority interest liability and additional paid-in-capital discussed above, no material adjustments were made to the initial allocation of the purchase price.

The operations of RHB are included in the accompanying consolidated statements of operations and cash flows for the two months ended December 31, 2007 and the year of 2008. Supplemental information on an unaudited pro forma combined basis, as if the RHB acquisition had been consummated at the beginning of 2006, is as follow (in thousands, except per share amounts):

	(Unaudited)
	2007		2006
Revenues	$	377,740	$	286,511
Net income from continuing operations	$	26,881	$	14,959
Diluted net income per share from continuing operations	$	2.26	$	1.27

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For the ten months ended October 31, 2007, RHB had unaudited revenues of approximately $72 million and unaudited income before taxes of approximately $21 million. The profitability of RHB for the ten month period was higher than what was expected to continue due to some unusually high margin contracts and may not be indicative of future results of operations.

14. Commitments and Contingencies

Employment Agreements

Patrick T. Manning, Joseph P. Harper, Sr., James H. Allen, Jr. and certain other officers of the Company and its subsidiaries have employment agreements which provide for payments of annual salary, deferred salary, incentive bonuses and certain benefits if their employment is terminated without cause.

Self-Insurance

The Company is self-insured for employee health claims. Its policy is to accrue the estimated liability for known claims and for estimated claims that have been incurred but not reported as of each reporting date. The Company has obtained reinsurance coverage for the policy period as follows:

• Specific excess reinsurance coverage for medical and prescription drug claims in excess of $60,000 for each insured person with a maximum lifetime reimbursable of $2,000,000.

• Aggregate reinsurance coverage for medical and prescription drug claims within a plan year with a maximum of approximately $1.1 million which is the estimated maximum claims and fixed cost based on the number of employees.

For the twelve months ended December 31, 2008, 2007 and 2006, the Company incurred $1.5 million, $1.6 million and $1.2 million, respectively, in expenses related to this plan.

The Company is also self-insured for workers’ compensation claims up to $250,000 per occurrence, with a maximum aggregate liability of $2.7 million per year. Its policy is to accrue the estimated liability for known claims and for estimated claims that have been incurred but not reported as of each reporting date. At December 31, 2008 and 2007, the Company had recorded an estimated liability of $1,092,000 and $1,067,000, respectively, which it believes is adequate based on its claims history and an actuarial study. The Company has a safety and training program in place to help prevent accidents and injuries and works closely with its employees and the insurance company to monitor all claims.

The Company obtains bonding on construction contracts through Travelers Casualty and Surety Company of America. As is customary in the construction industry, the Company indemnifies Travelers for any losses incurred by it in connection with bonds that are issued. The Company has granted Travelers a security interest in accounts receivable and contract rights for that obligation.

Guarantees

The Company typically indemnifies contract owners for claims arising during the construction process and carries insurance coverage for such claims, which in the past have not been material.

The Company’s Certificate of Incorporation provides for indemnification of its officers and directors. The Company has a Director and Officer insurance policy that limits its exposure. At December 31, 2008 the Company had not accrued a liability for this guarantee, as the likelihood of incurring a payment obligation in connection with this guarantee is believed to be remote.

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Table of Contents

Litigation

The Company is the subject of certain claims and lawsuits occurring in the normal course of business. Management, after consultation with outside legal counsel, does not believe that the outcome of these actions will have a material impact on the financial statements of the Company.

Purchase Commitments

To manage the risk of changes in material prices and subcontracting costs used in tendering bids for construction contracts, we obtain firm quotations from suppliers and subcontractors before submitting a bid. These quotations do not include any quantity guarantees. As soon as we are advised that our bid is the lowest, we enter into firm contracts with most of our materials suppliers and sub-contractors, thereby mitigating the risk of future price variations affecting the contract costs.

15. Related Party Transactions

In July 2001, Robert Frickel was elected to the Board of Directors. He is President of R.W. Frickel Company, P.C., an accounting firm that performs certain tax services for the Company. Fees paid or accrued to R.W. Frickel Company for 2008, 2007 and 2006 and were approximately $39,700, $63,600 and $57,500, respectively.

In July 2005, Patrick T. Manning married the sole beneficial owner of Paradigm Outdoor Supply, LLC and Paradigm Outsourcing, Inc., both of which are women-owned business enterprises. The Paradigm companies provide materials and services to the Company and to other contractors. In 2008, 2007 and 2006, the Company paid approximately $0.4 million, $1.7 million and $3.3 million, respectively, to the Paradigm companies for materials and services.

16. Capital Structure

Holders of common stock are entitled to one vote for each share on all matters voted upon by the stockholders, including the election of directors, and do not have cumulative voting rights. Subject to the rights of holders of any then outstanding shares of preferred stock, common stockholders are entitled to receive ratably any dividends that may be declared by the Board of Directors out of funds legally available for that purpose. Holders of common stock are entitled to share ratably in net assets upon any dissolution or liquidation after payment of provision for all liabilities and any preferential liquidation rights of our preferred stock then outstanding. Common stock shares are not subject to any redemption provisions and are not convertible into any other shares of capital stock. The rights, preferences and privileges of holders of common stock are subject to those of the holders of any shares of preferred stock that may be issued in the future.

The Board of Directors may authorize the issuance of one or more classes or series of preferred stock without stockholder approval and may establish the voting powers, designations, preferences and rights and restrictions of such shares. No preferred shares have been issued.

In December 1998, the Company entered into a rights agreement with American Stock Transfer & Trust Company, as rights agent, providing for a dividend of one purchase right for each outstanding share of common stock for stockholders of record on December 29, 1998. Holders of shares of common stock issued since that date were issued rights with their shares. The rights traded automatically with the shares of common stock and became exercisable only if a takeover attempt of the Company had occurred. The rights expired on December 29, 2008.

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17. Quarterly Financial Information (Unaudited)

	Fiscal 2008 Quarter Ended (unaudited)
	March 31		June 30		September 30		December 31 (*)		Total
	(Dollar amounts in thousands, except per share data)
Revenues	$	84,926	$	106,728	$	114,148	$	109,272	$	415,074
Gross profit		8,101		11,740		12,572		9,559		41,972
Income before income taxes and minority interest		4,800		8,278		9,591		6,330		28,999
Net income	$	3,117	$	5,140	$	5,978	$	3,831	$	18,066
Net income per share, basic:	$	0.24	$	0.39	$	0.46	$	0.29	$	1.38
Net income per share, diluted:	$	0.23	$	0.37	$	0.44	$	0.28	$	1.32

	Fiscal 2007 Quarter Ended (unaudited)
	March 31		June 30		September 30		December 31		Total
	(Dollar amounts in thousands, except per share data)
Revenues	$	68,888	$	71,275	$	77,714	$	88,343	$	306,220
Gross profit		5,632		8,046		7,915		12,093		33,686
Income before income taxes and minority interest		3,806		5,711		5,125		7,754		22,396
Net income	$	2,511	$	3,797	$	3,443	$	4,693	$	14,444
Net income per share, basic:	$	0.23	$	0.35	$	0.31	$	0.42	$	1.31
Net income per share, diluted:	$	0.21	$	0.32	$	0.29	$	0.39	$	1.22

* See Note 13 regarding reversal in the fourth quarter of $228,000 of interest expense accreted on the minority interest liability in the first three quarters of 2008.

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Exhibit Index

Number	Exhibit Title
2.1	Purchase Agreement by and among Richard H. Buenting, Fisher Sand & Gravel Co., Thomas Fisher and Sterling Construction Company, Inc. dated as of October 31, 2007 (incorporated by reference to Exhibit number 2.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
2.2	Escrow Agreement by and among Sterling Construction Company, Inc., Fisher Sand & Gravel Co., Richard H. Buenting and Comerica Bank as Escrow Agent, dated as of October 31, 2007 (incorporated by reference to Exhibit number 2.2 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
3.1	Certificate of Incorporation of Sterling Construction Company, Inc. incorporating all amendments made thereto through May 8, 2008 (incorporated by reference to Exhibit 3.1 to Sterling Construction Company, Inc.'s Quarterly Report on Form 10-Q, filed on August 11, 2008 (SEC File No. 333-129780)).
3.2	Bylaws of Sterling Construction Company, Inc. as amended through March 13, 2008 (incorporated by reference to Exhibit 3.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, filed on March 19, 2008 (SEC File No. 333-129780)).
4.1	Form of Common Stock Certificate of Sterling Construction Company, Inc. (incorporated by reference to Exhibit 4.5 to its Form 8-A, filed on January 11, 2006 (SEC File No. 011-31993)).
10.1#	Oakhurst Company, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Sterling Construction Company, Inc.'s Registration Statement on Form S-1, filed on November 17, 2005 (SEC File No. 333-129780)).
10.2#	Forms of Stock Option Agreement under the Oakhurst Company, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.51 to Sterling Construction Company, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 29, 2005 (SEC File No. 001-31993)).
10.3#	Summary of the Compensation Plan for Non Employee Directors of Sterling Construction Company, Inc. (incorporated by reference to Exhibit 10.1 to Sterling Construction Company, Inc.'s Quarterly Report on Form 10-Q, filed on August 11, 2008 (SEC File No. 333-129780)).
10.4*	Credit Agreement by and among Sterling Construction Company, Inc., Texas Sterling Construction Co., Oakhurst Management Corporation and Comerica Bank and the other lenders from time to time party thereto, and Comerica Bank as administrative agent for the lenders, dated as of October 31, 2007.
10.5	Security Agreement by and among Sterling Construction Company, Inc., Texas Sterling Construction Co., Oakhurst Management Corporation and Comerica Bank as administrative agent for the lenders, dated as of October 31, 2007 (incorporated by reference to Exhibit 10.2 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
10.6	Joinder Agreement by Road and Highway Builders, LLC and Road and Highway Builders Inc, dated as of October 31, 2007 (incorporated by reference to Exhibit 10.3 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, Amendment No. 1 filed on November 21, 2007 (SEC File No. 1-31993)).
10.7#	Employment Agreement dated as of July 19, 2007 between Sterling Construction Company, Inc. and Patrick T. Manning (incorporated by reference to Exhibit 10.1 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.8#	Employment Agreement dated as of July 19, 2007 between Sterling Construction Company, Inc. and Joseph P. Harper, Sr. (incorporated by reference to Exhibit 10.2 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.09#	Employment Agreement dated as of July 16, 2007 between Sterling Construction Company, Inc. and James H. Allen, Jr. (incorporated by reference to Exhibit 10.3 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.10#	Option Agreement dated August 7, 2007 between Sterling Construction Company, Inc. and James H. Allen, Jr. (incorporated by reference to Exhibit 10.4 to Sterling Construction Company, Inc.'s Current Report on Form 8-K filed on January 17, 2008 (SEC File No. 1-31993))
10.11#*	Employment Agreement dated as of March 17, 2006 between Sterling Construction Company, Inc. and Roger M. Barzun.
21	Subsidiaries of Sterling Construction Company, Inc.: Name State of Incorporation Texas Sterling Construction Co. Delaware Road and Highway Builders, LLC Nevada Road and Highway Builders Inc. Nevada Road and Highway Builders of California, Inc. California
23.1*	Consent of Grant Thornton LLP.
31.1*	Certification of Patrick T. Manning, Chief Executive Officer of Sterling Construction Company, Inc.
31.2*	Certification of James H. Allen, Jr., Chief Financial Officer of Sterling Construction Company, Inc.
32.0*	Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) of Patrick T. Manning, Chief Executive Officer, and James H. Allen, Jr., Chief Financial Officer.

	# Management contract or compensatory plan or arrangement.
	* Filed herewith.

Exhibit 10.11

Employment Agreement

Sterling Construction Company, Inc. & Roger M. Barzun

This Employment Agreement (this " Agreement ") is entered into as of the 17 th day of March, 2006 (the " Effective Date ") between Sterling Construction Company, Inc . (hereinafter the " Company ") and Roger M. Barzun (hereinafter "you"). For and in consideration of the mutual covenants contained herein, the parties agree as follows:

Term:	Your employment under the terms and conditions of this Agreement will commence on the Effective Date and will continue until terminated by one of the parties as provided below under the heading "Termination."
Title:	The Company will elect you Senior Vice President, Secretary & General Counsel of the Company or to such higher position or positions as the Board of Directors of the Company may determine in its absolute discretion. You will report jointly to the Chief Executive Officer and the Board of Directors of the Company.
Responsibilities:	You will carry out the normal and customary responsibilities of a general counsel of a publicly-traded company. Such responsibilities include, but are not limited to the following: · Performing legal work and giving legal advice to the Company in the areas in which you are competent to do so by reason of your training and/or experience. · The preparation of SEC filings. · The selection, retention and supervision of outside counsel. · The review of outside legal counsel legal fees and bills. · Overall supervision and conduct of the Company's legal affairs. At the request of the Company, you agree to also serve as an officer and/or director of one or more of the subsidiaries of the Company. You may undertake representation of other clients, provided that doing so does not conflict or interfere with the carrying out of your responsibilities to the Company.
Salary:	The Company will pay you an annualized salary of $27,500 until March 31, 2006 and thereafter $60,000 (" Salary ") in approximately equal installments at the same time as other officers of the Company are paid. Your Salary will be subject to such increases as the Compensation Committee of the Board of Directors of the Company may determine from time to time in its sole discretion. Any increase in your Salary will upon its effective date without any further act by you or the Company be and become your Salary for all purposes of this Agreement.
Bonus:	You will be eligible for an annual bonus in an amount that the Compensation Committee deems appropriate after taking into consideration the Company's consolidated financial results for the year, the number of non-routine legal transactions to which you devoted substantial time, and such other matters as the Compensation Committee deems relevant.
Benefits:	You will be entitled to participate in all health, insurance and other benefit programs made available from time to time to officers of the Company generally and on the same terms and conditions. You will be eligible to participate in the Company's stock incentive plans to the extent approved by the Compensation Committee.
Business Expenses:	The Company will reimburse you in accordance with Company expense reimbursement policies in effect from time to time for all reasonable business expenses incurred by you in carrying out your responsibilities under this Agreement.

Indemnification:	The Company will defend and indemnify you against, and hold you harmless from, any and all costs, liabilities, losses, claims and exposures arising out of your services as an employee and/or officer of the Company and as an officer and/or director of any of the Company's subsidiaries to the maximum extent permitted under applicable laws and under the Company's charter and bylaws.
Confidential Information:	Except in carrying out your responsibilities under this Agreement or in response to a legal requirement, during your employment by the Company and thereafter, you will not disclose to any person, firm or corporation and you will not use any confidential information of the Company or its subsidiaries.
Termination: For Cause:	The Company may terminate your employment for Cause (as defined below) immediately upon giving you written notice of termination and paying you your Salary then in effect accrued to the date of termination.
Without Cause, including by reason of Death or Permanent Disability:	The Company may terminate your employment without Cause or by reason of your death or permanent disability upon written notice to you (or to your personal representative, as the case may be) provided that it does the following: · Pay to you your Salary then in effect in at least bi-weekly installments for a period of six (6) full calendar months following the effective date of the termination of your employment. · Pay to you within thirty (30) days of the effective date of termination any bonus to which you would otherwise have been entitled had your employment not been terminated, pro-rated, however, for the length of time during the period to which the bonus relates that you were an employee of the Company. For purposes of determining the amount of the bonus to which you would have been entitled had your employment not been terminated, the Company will make such reasonable assumptions as it in good faith determines.
	Your employment will be deemed to have been terminated by the Company without Cause in the event that the Company without your consent reduces your Salary; fails to elect you to the offices set forth above under the heading "Title" or breaches any other material term of this Agreement.
Definition of Cause:	"Cause" is defined for purposes of this Agreement as any act by you of fraud, material dishonesty or serious moral turpitude; or material misconduct or a material breach by you in connection with the performance by you of your responsibilities under this Agreement.
Resignation:	You may resign from the Company's employ by giving the Company sixty (60) days' prior written notice. In the event of your resignation, you will be paid your Salary then in effect through the effective date of your resignation, but no bonus will be paid to you for the year in which your notice of resignation is given or, if different, the year in which it becomes effective. The Company at its election may treat your notice of resignation as a resignation by you effective upon the date the notice is received of some or all of the officer and director positions you then hold in the Company and its subsidiaries, but the Company will nevertheless continue to pay you your Salary then in effect during the sixty-day period.
Notices:	All formal notices required or permitted under this Agreement that concern this Agreement must be in writing and will be deemed given to a party either when hand delivered to the party against a receipt therefor; or when received (or when delivery is refused) by such party if sent by a courier service with instructions to provide next-business-day delivery and proof of delivery. Notices must be sent to the Company at its headquarters address, attention of the President and must be sent to you at your most recent residence address in the Company's records.
Pro-ration	All amounts payable to you under this Agreement will be deemed earned on a daily basis, and when pro-ration is necessary or appropriate, amounts will be pro rated based on a 365-day year.
Other Terms	This Agreement supersedes and replaces all prior agreements between you and the Company. The waiver by a party of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach of the same or of any other provision of this Agreement. This Agreement may only be amended by the written agreement of both parties. As used in this Agreement, the word "will" means "is obligated to" and the word "may" means "is permitted to." The parties intend and agree that the terms and provisions of this Agreement and the performance of the parties hereunder be governed by the laws of the State of Texas, excluding its conflicts of laws provisions, and all disputes hereunder are subject exclusively to the jurisdiction of the state or federal courts sitting in Harris County, Texas. This Agreement may be executed in multiple counterparts, each of which may be considered an original, but all of which together will constitute but one and the same instrument. This Agreement when signed by a party may be delivered by telecopier or other electronic transmission with the same force and effect as if the same were an executed and delivered original manually signed counterpart.

In witness whereof the parties have executed this Agreement as of the Effective Date.

Sterling Construction Company, Inc . By: /s/ Patrick T. Manning Patrick T. Manning Chairman & Chief Executive Officer	/s/ Roger M. Barzun Roger M. Barzun

E 3

EXECUTION COPY

STERLING CONSTRUCTION COMPANY, INC.

CREDIT AGREEMENT

DATED AS OF OCTOBER 31, 2007

COMERICA BANK

AS ADMINISTRATIVE AGENT, SYNDICATION AGENT, DOCUMENTATION AGENT AND LEAD ARRANGER

Detroit_801261_9

TABLE OF CONTENTS

Page

DEFINITIONS.

1.1

Certain Defined Terms

REVOLVING CREDIT.

2.1

Commitment

2.2

Accrual of Interest and Maturity; Evidence of Indebtedness.

2.3

Requests for and Refundings and Conversions of Advances

2.4

Disbursement of Advances.

2.5

Swing Line Advances

2.6

Interest Payments; Default Interest

2.7

Optional Prepayments.

2.8

Prime-based Advance in Absence of Election or Upon Default

2.9

Revolving Credit Facility Fee

2.10

Mandatory Repayment of Revolving Credit Advances.

2.11

Optional Reduction or Termination of Revolving Credit Aggregate Commitment

2.12

Use of Proceeds of Advances

LETTERS OF CREDIT.

3.1

Letters of Credit

3.2

Conditions to Issuance

3.3

Notice

3.4

Letter of Credit Fees; Increased Costs

3.5

Other Fees

3.6

Drawings and Demands for Payment Under Letters of Credit.

3.7

Obligations Irrevocable

3.8

Risk Under Letters of Credit.

3.9

Indemnification

3.10

Right of Reimbursement

INTENTIONALLY OMITTED.

CONDITIONS.

5.1

Conditions of Initial Advances

5.2

Continuing Conditions

REPRESENTATIONS AND WARRANTIES.

6.1

Corporate Authority

6.2

Due Authorization

6.3

Good Title; Leases; Assets; No Liens

6.4

Taxes

6.5

No Defaults

6.6

Enforceability of Agreement and Loan Documents

6.7

Compliance with Laws

6.8

Non-contravention

6.9

Litigation

6.10

Consents, Approvals and Filings, Etc

6.11

Agreements Affecting Financial Condition

6.12

No Investment Company or Margin Stock

6.13

ERISA

6.14

Conditions Affecting Business or Properties

6.15

Environmental and Safety Matters

6.16

Subsidiaries

6.17

Intentionally Omitted

6.18

Intentionally Omitted

6.19

Franchises, Patents, Copyrights, Tradenames, etc

6.20

Capital Structure

6.21

Accuracy of Information

6.22

Solvency

6.23

Employee Matters

6.24

No Misrepresentation

6.25

Corporate Documents and Corporate Existence

6.26

Acquisition Documents.

AFFIRMATIVE COVENANTS.

7.1

Financial Statements

7.2

Certificates; Other Information

7.3

Intentionally Omitted

7.4

Conduct of Business and Maintenance of Existence; Compliance with Laws.59

7.5

Maintenance of Property; Insurance

7.6

Inspection of Property; Books and Records, Discussions

7.7

Notices

7.8

Hazardous Material Laws

7.9

Financial Covenants.

7.10

Governmental and Other Approvals

7.11

Compliance with ERISA; ERISA Notices

7.12

Defense of Collateral

7.13

Future Subsidiaries; Additional Collateral.

7.14

Accounts

7.15

Use of Proceeds

7.16

Post-Closing Items

7.17

Further Assurances and Information

NEGATIVE COVENANTS.

8.1

Limitation on Debt

8.2

Limitation on Liens

8.3

Acquisitions

8.4

Limitation on Mergers, Dissolution or Sale of Assets

8.5

Restricted Payments

8.6

Put and Call

8.7

Limitation on Investments, Loans and Advances

8.8

Transactions with Affiliates

8.9

Sale-Leaseback Transactions; Sale of Accounts or Notes Receivables

8.10

Limitations on Other Restrictions

8.11

Prepayment of Debt

8.12

Amendment of Certain Documents

8.13

Modification of Certain Agreements

8.14

Management Fees

8.15

Fiscal Year

DEFAULTS.

9.1

Events of Default

9.2

Exercise of Remedies

9.3

Rights Cumulative

9.4

Waiver by Borrowers of Certain Laws

9.5

Waiver of Defaults

9.6

Set Off

10.

PAYMENTS, RECOVERIES AND COLLECTIONS.

10.1

Payment Procedure

10.2

Application of Proceeds of Collateral

10.3

Pro-rata Recovery

11.

CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS.

11.1

Reimbursement of Prepayment Costs

11.2

Eurodollar Lending Office

11.3

Circumstances Affecting Eurodollar-based Rate Availability

11.4

Laws Affecting Eurodollar-based Advance Availability

11.5

Increased Cost of Eurodollar-based Advances

11.6

Capital Adequacy and Other Increased Costs

11.7

Right of Lenders to Fund through Branches and Affiliates

11.8

Margin Adjustment

12.

AGENT.

12.1

Appointment of Agent

12.2

Deposit Account with Agent

12.3

Scope of Agent’s Duties

12.4

Successor Agent

12.5

Credit Decisions

12.6

Authority of Agent to Enforce This Agreement

12.7

Indemnification of Agent

12.8

Knowledge of Default

12.9

Agent’s Authorization; Action by Lenders

12.10

Enforcement Actions by the Agent

12.11

Collateral Matters.

12.12

Agents in their Individual Capacities

12.13

Agent’s Fees

iii

12.14

Documentation Agent or other Titles

12.15

No Reliance on Agent’s Customer Identification Program

13.

MISCELLANEOUS.

13.1

Accounting Principles

13.2

Consent to Jurisdiction

13.3

Law of Texas

13.4

Interest

13.5

Closing Costs and Other Costs; Indemnification.

13.6

Notices

13.7

Further Action

13.8

Successors and Assigns; Participations; Assignments.

13.9

Counterparts; Execution

13.10

Amendment and Waiver

13.11

Confidentiality

13.12

Substitution of Lenders

13.13

Withholding Taxes

13.14

Taxes and Fees

13.15

WAIVER OF JURY TRIAL

13.16

Patriot Act Notice

100

13.17

Complete Agreement; Conflicts

100

13.18

Severability

100

13.19

Table of Contents and Headings; Section References

100

13.20

Construction of Certain Provisions

101

13.21

Independence of Covenants

101

13.22

Electronic Transmissions

101

13.23

Advertisements

102

13.24

Reliance on and Survival of Provisions

102

13.25

Joint and Several Liability

102

EXHIBITS

A FORM OF REQUEST FOR REVOLVING CREDIT ADVANCE

B FORM OF REVOLVING CREDIT NOTE

C FORM OF SWING LINE NOTE

D FORM OF REQUEST FOR SWING LINE ADVANCE

E FORM OF NOTICE OF LETTERS OF CREDIT

F FORM OF SECURITY AGREEMENT

G FORM OF JOINDER AGREEMENT

H FORM OF ASSIGNMENT AGREEMENT

I INTENTIONALLY OMITTED

J FORM OF COVENANT COMPLIANCE REPORT

K INTENTIONALLY OMITTED

L INTENTIONALLY OMITTED

M FORM OF SWING LINE PARTICIPATION CERTIFICATE

SCHEDULES

Schedule 1.1 Applicable Margin Grid

Schedule 1.2 Percentages and Allocations

Schedule 1.3 Corporate Information

Schedule 1.4 Existing Comerica Loans

Schedule 1.5 Existing Letters of Credit

Schedule 5.1(c) Jurisdictions of Organization

Schedule 5.2 Jurisdictions where each Credit Party is Authorized to do Business

Schedule 6.3(b) Owned Real Property

Schedule 6.4 Exceptions to Tax Filings

Schedule 6.7 Violations of Law

Schedule 6.9 Litigation

Schedule 6.10 Third Party Consents

Schedule 6.13 Benefit Plans

Schedule 6.15 Environmental

Schedule 6.16 Subsidiaries

Schedule 6.19 Trade Names

Schedule 6.20 Equity Interests

Schedule 6.23 Collective Bargaining Agreements and Grievances

Schedule 8.1 Existing Debt

Schedule 8.1(i) Liberty Mutual Insurance Company Bonds Remaining Outstanding Post Closing

Schedule 8.2 Existing Liens

Schedule 8.7 Existing Investments

Schedule 8.8 Transactions with Affiliates

Schedule 13.6 Notices

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CREDIT AGREEMENT

This Credit Agreement (“Agreement”) is made as of the 31 st day of October, 2007, by and among the financial institutions from time to time signatory hereto (individually a “Lender,” and any and all such financial institutions collectively the “Lenders”), Comerica Bank, as Administrative Agent for the Lenders (in such capacity, the “Agent”), Arranger, Syndication Agent and Documentation Agent, Sterling Construction Company, Inc., a Delaware corporation (“Sterling”), Texas Sterling Construction Co., a Delaware corporation (“TSC”) and Oakhurst Management Corporation, a Texas corporation (“OMC” and together with Sterling and TSC, the “Borrowers” and each a “Borrower” as more specifically defined herein).

RECITALS

A. Borrowers have requested that the Lenders extend to them credit and letters of credit on the terms and conditions set forth herein.

B. The Lenders are prepared to extend such credit as aforesaid, but only on the terms and conditions set forth in this Agreement.

NOW THEREFORE, in consideration of the covenants contained herein, Borrowers, the Lenders, and the Agent agree as follows:

1.DEFINITIONS.

1.1 Certain Defined Terms . For the purposes of this Agreement the following terms will have the following meanings:

“Acquisition” shall mean the acquisition by Sterling of 100% of the issued and outstanding Equity Interests of RHBI and of at least 91% of the issued and outstanding Equity Interests of RHBL on the terms set forth in this Agreement and the Acquisition Documents.

“Acquisition Documents” shall mean the Purchase Agreement dated October 31, 2007 by and among Sterling, Thomas Fisher and the Sellers (the “Purchase Agreement”) and all documents related thereto or executed and delivered in connection therewith, as the same may be amended, restated or otherwise modified in compliance with this Agreement.

“Advance(s)” shall mean, as the context may indicate, a borrowing requested by the Borrowers, and made by the Revolving Credit Lenders under Section 2.1 hereof or the Swing Line Lender under Section 2.5 hereof, including without limitation any readvance, refunding or conversion of such borrowing pursuant to Section 2.3 or 2.5 hereof, and any advance deemed to have been made in respect of a Letter of Credit under Section 3.6(a) hereof, and shall include, as applicable, a Eurodollar-based Advance, a Prime-based Advance and a Quoted Rate Advance.

“Affected Lender” shall have the meaning set forth in Section 13.12 hereof.

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“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another Person for the purposes of this definition if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the Equity Interests having ordinary voting power for the election of directors or managers of such other Person or (ii) to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

“Agent” shall have the meaning set forth in the preamble, and include any successor agents appointed in accordance with Section 12.4 hereof.

“Agent’s Correspondent” shall mean for Eurodollar-based Advances, Agent’s Grand Cayman Branch (or for the account of said branch office, at Agent’s main office in Detroit, Michigan, United States).

“Alternate Base Rate” shall mean, for any day, an interest rate per annum equal to the Federal Funds Effective Rate in effect on such day, plus fifty basis points.

“Applicable Fee Percentage” shall mean, as of any date of determination thereof, the applicable percentage used to calculate certain of the fees due and payable hereunder, determined by reference to the appropriate columns in the Pricing Matrix attached to this Agreement as Schedule 1.1.

“Applicable Interest Rate” shall mean, (i) with respect to each Revolving Credit Advance, the Eurodollar-based Rate or the Prime-based Rate, and (ii) with respect to each Swing Line Advance, the Prime-based Rate or, if made available to the Borrowers by the Swing Line Lender at its option, the Quoted Rate, in each case as selected by the Borrowers from time to time subject to the terms and conditions of this Agreement.

“Applicable Margin” shall mean, as of any date of determination thereof, the applicable interest rate margin, determined by reference to the appropriate columns in the Pricing Matrix attached to this Agreement as Schedule 1.1, such Applicable Margin to be adjusted solely as specified in Section 11.8 hereof.

“Applicable Measuring Period” shall mean the period of four consecutive fiscal quarters ending on the applicable date of determination, for Sterling, TSC, OMC and the Target as if they had combined operations as of January 1, 2007.

“Asset Coverage Ratio” shall mean, as of any date of determination, a ratio the numerator of which is an amount equal to eighty percent (80%) of the orderly liquidation value of machinery and equipment of Sterling and its Consolidated Subsidiaries owned on the Effective Date after giving effect to the Acquisition plus eighty percent (80%) of the Cost of new and used machinery and equipment purchased after the Effective Date and the denominator of which is the Funded Debt minus cash and cash equivalents and Permitted Investments of Sterling and its Consolidated Subsidiaries, in each case as determined in accordance with GAAP.

“Asset Sale” shall mean the sale, transfer or other disposition by any Credit Party of any asset (other than the sale or transfer of less than one hundred percent (100%) of the stock or other ownership interests of any Subsidiary) to any Person (other than to Borrowers or a Guarantor).

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“Assignment Agreement” shall mean an Assignment Agreement substantially in the form of Exhibit H hereto.

“Authorized Signer” shall mean each person who has been authorized by the Borrowers to execute and deliver any requests for Advances hereunder pursuant to a written authorization delivered to the Agent and whose signature card or incumbency certificate has been received by the Agent.

“Average Total Debt” shall mean the daily average Funded Debt for any applicable period.

“Balance Sheet” shall have the meaning as set forth on Section 7.2(b).

“Bankruptcy Code” shall mean Title 11 of the United States Code and the rules promulgated thereunder.

“Bond Documents” shall mean the Surety Agreements together, in each case, with such other documents as are related thereto as the same may be amended, restated, or otherwise modified in compliance with this Agreement.

“Borrower Representative” shall mean Sterling or any other Borrower identified as the Borrower Representative in a written notice delivered to Agent and signed by Borrowers.

“Borrowers” and “Borrower” shall have the meaning set forth in the Preamble to this Agreement, and shall include each other Subsidiary of Sterling which shall join into this Agreement as a Borrower hereunder, including but not limited to Road and Highway Builders, LLC, a Nevada limited liability company (“RHBL”) and Road and Highway Builders Inc., a Nevada corporation (“RHBI” and together with RHBL, the “Target”) following the consummation of the Acquisition.

“Business Day” shall mean any day other than a Saturday or a Sunday on which commercial banks are open for domestic and international business (including dealings in foreign exchange) in Detroit, Michigan and New York, New York, and in the case of a Business Day which relates to a Eurodollar-based Advance, on which dealings are carried on in the London interbank eurodollar market.

“Capitalized Lease” shall mean, as applied to any Person, any lease of any property (whether real, personal or mixed) with respect to which the discounted present value of the rental obligations of such Person as lessee thereunder, in conformity with GAAP, is required to be capitalized on the balance sheet of that Person.

“Collateral” shall mean all property or rights in which a security interest, mortgage, lien or other encumbrance for the benefit of the Lenders is or has been granted or arises or has arisen, under or in connection with this Agreement, the other Loan Documents, or otherwise to secure the Indebtedness.

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“Collateral Access Agreement” shall mean an agreement in form and substance satisfactory to the Agent in its sole discretion, pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of inventory or other property owned by any Credit Party, that acknowledges the Liens under the Collateral Documents and subordinates or waives any Liens held by such Person on such property and, includes such other agreements with respect to the Collateral as Agent may require in its sole discretion, as the same may be amended, restated or otherwise modified from time to time.

“Collateral Assignment” shall mean that certain Collateral Assignment of Purchase Agreement dated as of the date hereof executed by Sterling for the benefit of Agent, as the same may be amended, restated or otherwise modified from time to time.

“Collateral Documents” shall mean the Security Agreement, the Pledge Agreements, the Mortgages, the Collateral Assignment, the Escrow Agreement Acknowledgement, the Collateral Access Agreements, the Joinder Agreement and all other security documents (and any joinders thereto) executed by any Credit Party in favor of the Agent on or after the Effective Date, in connection with any of the foregoing collateral documents, in each case, as such collateral documents may be amended or otherwise modified from time to time.

“Comerica Bank” shall mean Comerica Bank and its successors or assigns.

“Comerica Debt” shall mean the term loans owed by any of the Borrowers to Comerica Bank as set forth on Schedule 1.4.

“Comerica Intercreditor Agreement” shall mean that certain Intercreditor Agreement dated as of the Effective Date between the Agent and Comerica Bank, as the same may be amended, restated or otherwise modified from time to time.

“Commitment Letter” shall mean that certain Commitment Letter dated as of October 12, 2007 by and among Comerica Bank, Sterling, TSC and OMC.

“Consolidated” (or “consolidated”) or “Consolidating” (or “consolidating”) shall mean, when used with reference to any financial term in this Agreement, the aggregate for two or more Persons of the amounts signified by such term for all such Persons determined on a consolidated (or consolidating) basis in accordance with GAAP, applied on a consistent basis. Unless otherwise specified herein, “Consolidated” and “Consolidating” shall refer to Sterling and its Subsidiaries, determined on a Consolidated or Consolidating basis.

“Cost” shall mean the purchase price and all other costs related to the purchase of the machinery and equipment by the Credit Parties which are eligible to be capitalized under GAAP, including taxes, transportation, warranties, set-up charges, instructions, license fees and other miscellaneous amounts.

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“Covenant Compliance Report” shall mean the report to be furnished by Borrowers to the Agent pursuant to Section 7.2(a) hereof, substantially in the form attached hereto as Exhibit J and certified by a Responsible Officer of the Borrower Representative, in which report Borrowers shall set forth the information specified therein and which shall include a statement of then applicable level for the Applicable Margin and Applicable Fee Percentages as specified in Schedule 1.1 attached to this Agreement.

“Credit Parties” shall mean the Borrowers and their respective Subsidiaries, and “Credit Party” shall mean any one of them, as the context indicates or otherwise requires.

“Current Maturities of Long Term Debt” shall mean, at any given time, all principal and interest payments required to be paid during the ensuing one year period from such given time on all Debt having a maturity of greater than one year.

“Debt” shall mean as to any Person, without duplication (a) all Funded Debt of a Person, (b) all Guarantee Obligations of such Person, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (d) all indebtedness of such Person arising in connection with any Hedging Transaction entered into by such Person, and (e) all recourse Debt of any partnership of which such Person is the general partner.

“Default” shall mean any event that with the giving of notice or the passage of time, or both, would constitute an Event of Default under this Agreement.

“Distribution” is defined in Section 8.5 hereof.

“Dollars” and the sign “$” shall mean lawful money of the United States of America.

“Domestic Subsidiary” shall mean any Subsidiary of a Borrower incorporated or organized under the laws of the United States of America, or any state or other political subdivision thereof or which is considered to be a “disregarded entity” for United States federal income tax purposes and which is not a “controlled foreign corporation” as defined under Section 957 of the Internal Revenue Code, in each case provided such Subsidiary is owned by a Borrower or a Domestic Subsidiary of Borrower, and “Domestic Subsidiaries” shall mean any or all of them.

“EBITDA” shall mean for any period, as determined in accordance with GAAP, Net Income for such period plus , without duplication and only to the extent reflected as a charge or reduction in the statement of such Net Income for such period, the sum of (a) income tax expense, (b) interest expense, (c) depreciation and amortization expense (including amortized debt financing costs), (d) any extraordinary or non-recurring non-cash expenses or losses, and any other non-cash expenses or losses approved by the Majority Lenders, including non-cash losses on sales of assets outside the ordinary course of business, minus , to the extent included in consolidated Net Income for such period, any extraordinary or non-recurring non-cash gains including non-cash gains on sales of assets outside the ordinary course of business.

“Effective Date” shall mean the date on which all the conditions precedent set forth in Sections 5.1 and 5.2 have been satisfied.

“Electronic Transmission” shall mean each document, instruction, authorization, file, information and any other communication transmitted, posted or otherwise made or communicated by e-mail or E-Fax, or otherwise to or from an E-System or other equivalent service.

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“Eligible Assignee” shall mean (a) a Lender; (b) an Affiliate of a Lender; (c) any Person (other than a natural person) that is or will be engaged in the business of making, purchasing, holding or otherwise investing in commercial loans or similar extensions of credit in the ordinary course of its business, provided that such Person is administered or managed by a Lender, an Affiliate of a Lender or an entity or Affiliate of an entity that administers or manages a Lender; or (d) any other Person (other than a natural person) approved by the (i) Agent (and in the case of an assignment of a commitment under the Revolving Credit, the Issuing Lender and Swing Line Lender), and (ii) unless a Event of Default has occurred and is continuing, the Borrower Representative (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrowers, or any of the Borrowers’ Affiliates or Subsidiaries; and provided further that notwithstanding clause (d)(ii) of this definition, no assignment shall be made to an entity which is a competitor of any Credit Party without the consent of the Borrower Representative, which consent may be withheld in its sole discretion.

“Equity Interest” shall mean (i) in the case of any corporation, all capital stock and any securities exchangeable for or convertible into capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents of corporate stock (however designated) in or to such association or entity, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distribution of assets of, the issuing Person, and including, in all of the foregoing cases described in clauses (i), (ii), (iii) or (iv), any warrants, rights or other options to purchase or otherwise acquire any of the interests described in any of the foregoing cases.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code and the regulations in effect from time to time thereunder.

“E-System” shall mean any electronic system and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Agent, any of its Affiliates or any other Person, providing for access to data protected by passcodes or other security system.

“Escrow Agreement Acknowledgement” shall mean that certain acknowledgment executed and delivered by Sterling and Comerica Bank, as escrow agent for the benefit of the Agent, acknowledging the assignment of Sterling’s rights under that certain Escrow Agreement relating to the Acquisition.

“Eurodollar-based Advance” shall mean any Advance which bears interest at the Eurodollar-based Rate.

“Eurodollar-based Rate” shall mean a per annum interest rate which is equal to the sum of (a) the Applicable Margin, plus (b) the quotient of:

(i) the per annum interest rate at which deposits in the relevant eurocurrency are offered to Agent’s Eurodollar Lending Office by other prime banks in the eurocurrency market in an amount comparable to the relevant Eurodollar-based Advance and for a period equal to the relevant Eurodollar-Interest Period at approximately 11:00 A.M. Detroit time two (2) Business Days prior to the first day of such Eurodollar-Interest Period, divided by

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(ii) a percentage equal to 100% minus the maximum rate on such date at which Agent is required to maintain reserves on ‘Eurocurrency Liabilities’ as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation or definition is modified, and as long as Agent is required to maintain reserves against a category of liabilities which includes eurocurrency deposits or includes a category of assets which includes eurocurrency loans, the rate at which such reserves are required to be maintained on such category,

such sum to be rounded upward, if necessary, to the nearest whole multiple of 1/100th of 1%.

“Eurodollar-Interest Period” shall mean, for any Eurodollar-based Advance, an Interest Period of one, two, three or six months (or any shorter or longer periods agreed to in advance by the Borrower Representative, Agent and the Lenders) as selected by Borrowers, for such Eurodollar-based Advance pursuant to Section 2.3 or 4.4 hereof, as the case may be.

“Eurodollar Lending Office” shall mean, (a) with respect to the Agent, Agent’s office located at its Grand Caymans Branch or such other branch of Agent, domestic or foreign, as it may hereafter designate as its Eurodollar Lending Office by written notice to the Borrower Representative and the Lenders and (b) as to each of the Lenders, its office, branch or affiliate located at its address set forth on the signature pages hereof (or identified thereon as its Eurodollar Lending Office), or at such other office, branch or affiliate of such Lender as it may hereafter designate as its Eurodollar Lending Office by written notice to Borrower Representative and Agent.

“Event of Default” shall mean each of the Events of Default specified in Section 9.1 hereof.

“Existing Letters of Credit” shall mean the Letters of Credit set forth on Schedule 1.5.

“Federal Funds Effective Rate” shall mean, for any day, a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by Agent, all as conclusively determined by the Agent, such sum to be rounded upward, if necessary, to the nearest whole multiple of 1/100th of 1%.

“Fee Letter” shall mean the fee letter by and among Sterling, TSC, OMC and Comerica Bank dated as of October 12, 2007 relating to the Indebtedness hereunder, as amended, restated, replaced or otherwise modified from time to time.

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“Fees” shall mean the Revolving Credit Facility Fee, the Letter of Credit Fees and the other fees and charges (including any agency fees) payable by Borrowers to the Lenders, the Issuing Lender or Agent hereunder or under the Fee Letter.

“Final Maturity Date” shall mean the Revolving Credit Maturity Date.

“Fiscal Year” shall mean the twelve-month period ending on each December 31.

“Fixed Charge Coverage Ratio” shall mean as of any date of determination a ratio the numerator of which is EBITDA for the Applicable Measuring Period, minus cash taxes and cash tax distributions with respect to such period and the denominator of which is the sum of Current Maturities of Long Term Debt plus interest paid during the trailing twelve month period, plus twenty-five percent (25%) of the daily average total non-amortizing debt during the trailing twelve month period.

“Foreign Subsidiary” shall mean any Subsidiary, other than a Domestic Subsidiary, and “Foreign Subsidiaries” shall mean any or all of them.

“Funded Debt” of any Person shall mean, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services as of such date (other than operating leases and trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) the principal component of all obligations of such Person under Capitalized Leases, (c) all reimbursement obligations (actual, contingent or otherwise) of such Person in respect of letters of credit, bankers acceptances or similar obligations issued or created for the account of such Person, (d) all liabilities of the type described in (a), (b) and (c) above that are secured by any Liens on any property owned by such Person as of such date even though such Person has not assumed or otherwise become liable for the payment thereof, the amount of which is determined in accordance with GAAP but excluding accrued liabilities or deferred charges as defined under GAAP except as specifically included in clauses (a), (b), (c) and (d) of this definition; provided however that so long as such Person is not personally liable for any such liability, the amount of such liability shall be deemed to be the lesser of the fair market value at such date of the property subject to the Lien securing such liability and the amount of the liability secured, and (e) all Guarantee Obligations in respect of any liability which constitutes Funded Debt; provided, however that Funded Debt shall not include any indebtedness under any Hedging Transaction prior to the occurrence of a termination event with respect thereto.

“GAAP” shall mean, as of any applicable date of determination, generally accepted accounting principles in the United States of America, as applicable on such date, consistently applied, as in effect from time to time.

“Governmental Obligations” means noncallable direct general obligations of the United States of America or obligations the payment of principal of and interest on which is unconditionally guaranteed by the United States of America.

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“Guarantee Obligation” shall mean as to any Person (the “guaranteeing person”) any obligation of the guaranteeing Person in respect of any obligation of another Person (the “primary obligor”) (including, without limitation, any bank under any letter of credit), the creation of which was induced by a reimbursement agreement, guaranty agreement, keepwell agreement, purchase agreement, counterindemnity or similar obligation issued by the guaranteeing person, in either case guaranteeing or in effect guaranteeing any Debt, leases, dividends or other obligations (the “primary obligations”) of the primary obligor in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the applicable Person in good faith.

“Guarantor(s)” shall mean each Subsidiary of any Borrower which has executed and delivered to the Agent a Guaranty (or a joinder to a Guaranty), and a Security Agreement (or a joinder to the Security Agreement).

“Guaranty” shall mean, collectively, any guaranty agreements executed and delivered from time to time after the Effective Date (whether by execution of joinder agreements or otherwise) pursuant to Section 7.13 hereof or otherwise, as amended, restated or otherwise modified from time to time.

“Hazardous Material” shall mean any hazardous or toxic waste, substance or material defined or regulated as such in or for purposes of the Hazardous Material Laws.

“Hazardous Material Law(s)” shall mean all laws, codes, ordinances, rules, regulations and other governmental restrictions and requirements issued by any federal, state, local or other governmental or quasi-governmental authority or body (or any agency, instrumentality or political subdivision thereof) pertaining to any substance or material which is regulated for reasons of health, safety or the environment and which is present or alleged to be present on or about or used in any facilities owned, leased or operated by any Credit Party, or any portion thereof including, without limitation, those relating to soil, surface, subsurface ground water conditions and the condition of the indoor and outdoor ambient air; any so-called “superfund” or “superlien” law; and any other United States federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any Hazardous Material, as now or at any time during the term of the Agreement in effect.

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“Hedging Agreement” shall mean any agreement relating to a Hedging Transaction entered into between a Borrower and any Lender or an Affiliate of a Lender.

“Hedging Transaction” means each interest rate swap transaction, basis swap transaction, forward rate transaction, equity transaction, equity index transaction, foreign exchange transaction, cap transaction, floor transaction or commodities hedge (including any option with respect to any of these transactions and any combination of any of the foregoing).

“Hereof”, “hereto”, “hereunder” and similar terms shall refer to this Agreement and not to any particular paragraph or provision of this Agreement.

“Income Taxes” shall mean for any period the aggregate amount of taxes based on income or profits for such period with respect to the operations of Sterling and its Subsidiaries (including, without limitation, all corporate franchise, capital stock, net worth and value-added taxes assessed by state and local governments) determined in accordance with GAAP on a Consolidated basis (to the extent such income and profits were included in computing Consolidated Net Income).

“Indebtedness” shall mean all indebtedness and liabilities (including without limitation principal, interest (including without limitation interest accruing at the then applicable rate provided in this Agreement or any other applicable Loan Document after the Final Maturity Date and interest accruing at the then applicable rate provided in this Agreement or any other applicable Loan Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Credit Parties whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, expenses and other charges) arising under this Agreement or any of the other Loan Documents, whether direct or indirect, absolute or contingent, of any Credit Party to any of the Lenders or Affiliates thereof or to the Agent, in any manner and at any time, whether arising under this Agreement, the Guaranty or any of the other Loan Documents (including without limitation, payment obligations under Hedging Transactions evidenced by Hedging Agreements, provided that the payment obligations under commodities Hedging Transactions evidenced by Hedging Agreements that are deemed “Indebtedness” hereunder and entitled to the benefit of the Liens granted under the Collateral Documents (the “Lender Commodities Hedging Transactions”) (a) shall not exceed $500,000 in aggregate amount and (b) shall be provided by only one Lender at a time, which Lender (the “Designated Lender”) shall be designated in a notice from the Borrower Representative to the Agent, provided, further, that the Borrowers may select a new Designated Lender from time to time upon notice to the Agent so long as no payment obligations remain outstanding to the then current Designated Lender under any Lender Commodities Hedging Transaction) , due or hereafter to become due, now owing or that may hereafter be incurred by any Credit Party to any of the Lenders or Affiliates thereof or to the Agent, and which shall be deemed to include protective advances made by Agent with respect to the Collateral under or pursuant to the terms of any Loan Document and any liabilities of any Credit Party to Agent or any Lender arising in connection with any Lender Products, in each case whether or not reduced to judgment, with interest according to the rates and terms specified, and any and all consolidations, amendments, renewals, replacements, substitutions or extensions of any of the foregoing; provided, however that for purposes of calculating the Indebtedness outstanding under this Agreement or any of the other Loan Documents, the direct and indirect and absolute and contingent obligations of the Credit Parties (whether direct or contingent) shall be determined without duplication.

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“Intercompany Note” shall mean any promissory note issued or to be issued by any Credit Party to evidence an intercompany loan in form and substance satisfactory to Agent.

“Interest Period” shall mean (a) with respect to a Eurodollar-based Advance, a Eurodollar-Interest Period, commencing on the day a Eurodollar-based Advance is made, or on the effective date of an election of the Eurodollar-based Rate made under Section 2.3 or 4.4 hereof, and (b) with respect to a Swing Line Advance carried at the Quoted Rate, an interest period of 30 days (or any lesser number of days agreed to in advance by the Borrower Representative, Agent and the Swing Line Lender); provided, however that (i) any Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day, except that as to an Interest Period in respect of a Eurodollar-based Advance, if the next succeeding Business Day falls in another calendar month, such Interest Period shall end on the next preceding Business Day, (ii) when an Interest Period in respect of a Eurodollar-based Advance begins on a day which has no numerically corresponding day in the calendar month during which such Interest Period is to end, it shall end on the last Business Day of such calendar month, and (iii) no Interest Period in respect of any Advance shall extend beyond the Revolving Credit Maturity Date.

“Internal Revenue Code” shall mean the Internal Revenue Code of 1986 of the United States of America, as amended from time to time, and the regulations promulgated thereunder.

“Investment” shall mean, when used with respect to any Person, (a) any loan, investment or advance made by such Person to any other Person (including, without limitation, any Guarantee Obligation) in respect of any Equity Interest, Debt, obligation or liability of such other Person and (b) any other investment made by such Person (however acquired) in Equity Interests in any other Person, including, without limitation, any investment made in exchange for the issuance of Equity Interest of such Person and any investment made as a capital contribution to such other Person.

“Issuing Lender” shall mean Comerica Bank in its capacity as issuer of one or more Letters of Credit hereunder, or its successor designated by the Revolving Credit Lenders.

“Issuing Office” shall mean such office as Issuing Lender shall designate as its Issuing Office.

“Joinder Agreement” means that certain Joinder Agreement in the form attached hereto as Exhibit G, executed and delivered by Target and dated as of the Effective Date, as the same may be amended, restated or otherwise modified.

“Lender Products” shall mean any one or more of the following types of services or facilities extended to the Credit Parties by any Lender: (i) credit cards, (ii) credit card processing services, (iii) debit cards, (iv) purchase cards, (v) Automated Clearing House (ACH) transactions, (vi) cash management, including controlled disbursement services, and (vii) establishing and maintaining deposit accounts.

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“Lenders” shall have the meaning set forth in the preamble, and shall include the Revolving Credit Lenders, the Swing Line Lender and any assignee which becomes a Lender pursuant to Section 13.8 hereof.

“Letter of Credit Agreement” shall mean, collectively, the letter of credit application and related documentation executed and/or delivered by the Borrowers in respect of each Letter of Credit, in each case satisfactory to the Issuing Lender, as amended, restated or otherwise modified from time to time.

“Letter of Credit Documents” shall have the meaning ascribed to such term in Section 3.7(a) hereof.

“Letter of Credit Fees” shall mean the fees payable in connection with Letters of Credit pursuant to Section 3.4(a) and (b) hereof.

“Letter of Credit Maximum Amount” shall mean Two Million Five Hundred Thousand Dollars ($2,500,000).

“Letter of Credit Obligations” shall mean at any date of determination, the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, and (b) the aggregate amount of Reimbursement Obligations which remain unpaid as of such date.

“Letter of Credit Payment” shall mean any amount paid or required to be paid by the Issuing Lender in its capacity hereunder as issuer of a Letter of Credit as a result of a draft or other demand for payment under any Letter of Credit.

“Letter(s) of Credit” shall mean any standby letters of credit issued by Issuing Lender at the request of or for the account of Borrowers (or any of them) pursuant to Article 3 hereof, and shall include all Existing Letters of Credit, which shall be deemed “Letters of Credit” as defined in this Agreement for all purposes of this Agreement and the related Loan Documents, and which shall be secured by all the Collateral Documents.

“Leverage Ratio” shall mean as of any date of determination, a ratio the numerator of which is Funded Debt of Sterling and its Consolidated Subsidiaries as of such date and the denominator of which is EBITDA for the Applicable Measuring Period as of such date, in each case as determined in accordance with GAAP.

“Liberty Mutual Indemnity Agreement” shall mean that certain General Agreement of Indemnity by RHBL and the Sellers for the benefit of Liberty Mutual Insurance Company, Employers Insurance Company of Wausau, Peerless Insurance Company and any other company that is part of the Liberty Mutual Group dated as of November 15, 2006.

“Lien” shall mean any security interest in or lien on or against any property arising from any pledge, assignment, hypothecation, mortgage, security interest, deposit arrangement, trust receipt, conditional sale or title retaining contract, sale and leaseback transaction, Capitalized Lease, consignment or bailment for security, or any other type of lien, charge, encumbrance, title exception, preferential or priority arrangement affecting property (including with respect to stock, any stockholder agreements, voting rights agreements, buy-back agreements and all similar arrangements), whether based on common law or statute.

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“Loan Documents” shall mean, collectively, this Agreement, the Notes (if issued), the Letter of Credit Agreements, the Letters of Credit, the Guaranty, the Subordination Agreements, the Comerica Intercreditor Agreement, the Collateral Documents, each Hedging Agreement, and any other documents, certificates or agreements that are executed and required to be delivered pursuant to any of the foregoing documents, as such documents may be amended, restated or otherwise modified from time to time.

“Majority Lenders” shall mean at any time (a) so long as the Revolving Credit Aggregate Commitment has not been terminated, Lenders holding more than 50.0% of the sum of (i) the Revolving Credit Aggregate Commitment and (b) if the Revolving Credit Aggregate Commitment has been terminated (whether by maturity, acceleration or otherwise), Lenders holding more than 50.0% of the aggregate principal amount then outstanding under the Revolving Credit; provided that, for purposes of determining Majority Lenders hereunder, the Letter of Credit Obligations and principal amount outstanding under the Swing Line shall be allocated among the Revolving Credit Lenders based on their respective Revolving Credit Percentages; provided further that so long as there are fewer than three Lenders, considering any Lender and its Affiliates as a single Lender, “Majority Lenders” shall mean all Lenders.

“Majority Revolving Credit Lenders” shall mean Majority Lenders.

“Material Adverse Effect” shall mean a material adverse effect on (a) the condition (financial or otherwise), business, performance, operations, properties or prospects of the Credit Parties taken as a whole, (b) the ability of any Credit Party to perform its obligations under this Agreement, the Notes (if issued) or any other Loan Document to which it is a party, or (c) the validity or enforceability of this Agreement, any of the Notes (if issued) or any of the other Loan Documents or the rights or remedies of the Agent or the Lenders hereunder or thereunder.

“Mortgages” shall mean the mortgages, deeds of trust and any other similar documents related thereto or required thereby executed and delivered by a Credit Party on the Effective Date pursuant to Section 5.1 hereof, if any, and executed and delivered after the Effective Date by a Credit Party pursuant to Section 7.13 hereof or otherwise, and “Mortgage” shall mean any such document, as such documents may be amended, restated or otherwise modified from time to time.

“Multiemployer Plan” shall mean a Pension Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“OMC” shall have the meaning set forth in Preamble to this Agreement.

“Net Income” shall mean for any period of determination the net income (or loss) of the Sterling and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP.”

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“Notes” shall mean the Revolving Credit Notes and the Swing Line Note.

“PBGC” shall mean the Pension Benefit Guaranty Corporation or any successor thereto.

“Pension Plan” shall mean any plan established and maintained by a Credit Party, or contributed to by a Credit Party, which is qualified under Section 401(a) of the Internal Revenue Code and subject to the minimum funding standards of Section 412 of the Internal Revenue Code.

“Percentage” shall mean the Revolving Credit Percentage.

“Permitted Acquisition” shall mean any acquisition by any Borrower or any Guarantor of all or substantially all of the assets of another Person, or of a division or line of business of another Person, or any Equity Interests of another Person which satisfies and/or is conducted in accordance with the following requirements:

(a)

Such acquisition is of a business or Person engaged in a line of business which is compatible with, or complementary to, the business of the Borrowers or such Guarantor;

(b)

If such acquisition is structured as an acquisition of the Equity Interests of any Person, then the Person so acquired shall (X) become a direct Subsidiary of a Borrower or of a Guarantor and the applicable Borrower or the applicable Guarantor shall cause such acquired Person to comply with Section 7.13 hereof, provided, further, that after such acquisition the Person so acquired shall be consolidated in accordance with GAAP with Sterling and its other Consolidated Subsidiaries or (Y) provided that the Credit Parties continue to comply with Section 7.4(a) hereof, be merged with and into such a Borrower or such a Guarantor (and, in the case of such a Borrower, with the applicable Borrower being the surviving entity);

(c)

If such acquisition is structured as the acquisition of assets, such assets shall be acquired directly by a Borrower or a Guarantor (subject to compliance with Section 7.4(a) hereof);

(d)

Borrowers shall have delivered to Agent not less than ten (10) (or such shorter period of time agreed to by the Agent) nor more than ninety (90) days prior to the date of such acquisition, notice of such acquisition together with Pro Forma Projected Financial Information, copies of all material documents relating to such acquisition (including the acquisition agreement and any related document), and historical financial information (including income statements, balance sheets and cash flows) covering at least two (2) complete Fiscal Years of the acquisition target, if available, prior to the effective date of the acquisition or the entire credit history of the acquisition target, whichever period is shorter, in each case in form and substance reasonably satisfactory to the Agent;

(e)

Both immediately before and after the consummation of such acquisition and after giving effect to the Pro Forma Projected Financial Information, no Default or Event of Default shall have occurred and be continuing;

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(f)

Intentionally omitted;

(g)

The board of directors (or other Person(s) exercising similar functions) of the seller of the assets or issuer of the Equity Interests being acquired shall not have disapproved such transaction or recommended that such transaction be disapproved;

(h)

All governmental, quasi-governmental, agency, regulatory or similar licenses, authorizations, exemptions, qualifications, consents and approvals necessary under any laws applicable to the Borrower or Guarantor that is making the acquisition, or the acquisition target (if applicable) for or in connection with the proposed acquisition and all necessary non-governmental and other third-party approvals which, in each case, are material to such acquisition shall have been obtained, and all necessary or appropriate declarations, registrations or other filings with any court, governmental or regulatory authority, securities exchange or any other Person, which in each case, are material to the consummation of such acquisition or to the acquisition target, if applicable, have been made, and evidence thereof reasonably satisfactory in form and substance to Agent shall have been delivered, or caused to have been delivered, by Borrowers to Agent;

(i)

There shall be no actions, suits or proceedings pending or, to the knowledge of any Credit Party threatened against or affecting the acquisition target in any court or before or by any governmental department, agency or instrumentality, which could reasonably be expected to be decided adversely to the acquisition target and which, if decided adversely, could reasonably be expected to have a material adverse effect on the business, operations, properties or financial condition of the acquisition target and its subsidiaries (taken as a whole) or would materially adversely affect the ability of the acquisition target to enter into or perform its obligations in connection with the proposed acquisition, nor shall there be any actions, suits, or proceedings pending, or to the knowledge of any Credit Party threatened against the Credit Party that is making the acquisition which would materially adversely affect the ability of such Credit Party to enter into or perform its obligations in connection with the proposed acquisition; and

(j)

The purchase price of such proposed new acquisition, computed on the basis of total acquisition consideration paid or incurred, or required to be paid or incurred, with respect thereto, including the amount of Debt (such Debt being otherwise permitted under this Agreement) assumed or to which such assets, businesses or business or Equity Interests, or any Person so acquired is subject and including any portion of the purchase price allocated to any non-compete agreements, (X) is less than Five Million Dollars ($5,000,000), (Y) when added to the purchase price for each other acquisition consummated hereunder as a Permitted Acquisition during the same Fiscal Year as the applicable acquisition (not including acquisitions specifically consented to which fall outside of the terms of this definition), does not exceed Ten Million Dollars ($10,000,000) and (Z) when added to the purchase price for each other acquisition consummated hereunder as a Permitted Acquisition during the term of this agreement (not including acquisitions specifically consented to which fall outside the terms of this definition), does not exceed Ten Million Dollars ($10,000,000).

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“Permitted Investments” shall mean with respect to any Person:

(a)

Governmental Obligations;

(b)

Obligations of a state or commonwealth of the United States or the obligations of the District of Columbia or any possession of the United States, or any political subdivision of any of the foregoing, which are described in Section 103(a) of the Internal Revenue Code and are graded in any of the highest three (3) major grades as determined by at least one Rating Agency; or secured, as to payments of principal and interest, by a letter of credit provided by a financial institution or insurance provided by a bond insurance company which in each case is itself or its debt is rated in one of the highest three (3) major grades as determined by at least one Rating Agency;

(c)

Banker’s acceptances, commercial accounts, demand deposit accounts, certificates of deposit, other time deposits or depository receipts issued by or maintained with any Lender or any Affiliate thereof, or any bank, trust company, savings and loan association, savings bank or other financial institution whose deposits are insured by the Federal Deposit Insurance Corporation and whose reported capital and surplus equal at least $250,000,000, provided that such minimum capital and surplus requirement shall not apply to demand deposit accounts maintained by any Credit Party in the ordinary course of business;

(d)

Commercial paper rated at the time of purchase within the two highest classifications established by not less than two Rating Agencies, and which matures within 270 days after the date of issue;

(e)

Secured repurchase agreements against obligations itemized in paragraph (a) above, and executed by a bank or trust company or by members of the association of primary dealers or other recognized dealers in United States government securities, the market value of which must be maintained at levels at least equal to the amounts advanced; and

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(f)

Any fund or other pooling arrangement which exclusively purchases and holds the investments itemized in (a) through (e) above.

“Permitted Liens” shall mean with respect to any Person:

(a)

Liens for (i) taxes or governmental assessments or charges or (ii) customs duties in connection with the importation of goods to the extent such Liens attach to the imported goods that are the subject of the duties, in each case (x) to the extent not yet due, (y) as to which the period of grace, if any, related thereto has not expired or (z) which are being contested in good faith by appropriate proceedings, provided that in the case of any such contest, any proceedings for the enforcement of such liens have been suspended and adequate reserves with respect thereto are maintained on the books of such Person in conformity with GAAP;

(b)

carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, processor’s, landlord’s liens or other like liens arising in the ordinary course of business which secure obligations that are not overdue for a period of more than 30 days or which are being contested in good faith by appropriate proceedings, provided that in the case of any such contest, (x) any proceedings commenced for the enforcement of such Liens have been suspended and (y) appropriate reserves with respect thereto are maintained on the books of such Person in conformity with GAAP;

(c)

any attachment or judgment lien that remains unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period ending on the earlier of (i) thirty (30) consecutive days from the date of its attachment or entry (as applicable) or (ii) the commencement of enforcement steps with respect thereto, other than the filing of notice thereof in the public record;

(d)

minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, or any interest of any lessor or sublessor under any lease permitted hereunder which, in each case, does not materially interfere with the business of such Person;

(e)

Liens arising in connection with worker’s compensation, unemployment insurance, old age pensions and social security benefits and similar statutory obligations (excluding Liens arising under ERISA), provided that no enforcement proceedings in respect of such Liens are pending and provisions have been made for the payment of such liens on the books of such Person as may be required by GAAP; and

(f)

continuations of Liens that are permitted under subsections (a)-(e) hereof, provided such continuations do not violate the specific time periods set forth in subsections (b) and (c) and provided further that such Liens do not extend to any additional property or assets of any Credit Party or secure any additional obligations of any Credit Party.

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Regardless of the language set forth in this definition, no Lien over the Equity Interests of any Credit Party granted to any Person other than to Agent for the benefit of the Lenders shall be deemed a “Permitted Lien” under the terms of this Agreement.

“Person” shall mean a natural person, corporation, limited liability company, partnership, limited liability partnership, trust, incorporated or unincorporated organization, joint venture, joint stock company, firm or association or a government or any agency or political subdivision thereof or other entity of any kind.

“Pledge Agreement(s)” shall mean any pledge agreement executed and delivered by a Credit Party on the Effective Date pursuant to Section 5.1 hereof, if any, and executed and delivered from time to time after the Effective Date by any Credit Party pursuant to Section 7.13 hereof or otherwise, and any agreements, instruments or documents related thereto, in each case in form and substance satisfactory to Agent amended, restated or otherwise modified from time to time.

“Pricing Leverage Ratio” shall mean as of any date of determination, a ratio the numerator of which is Average Total Debt of Sterling and its Consolidated Subsidiaries as of such date minus cash and cash equivalents of Sterling and its Consolidated Subsidiaries and the denominator of which is EBITDA for the Applicable Measuring Period as of such date, in each case as determined in accordance with GAAP.

“Prime-based Advance” shall mean an Advance which bears interest at the Prime-based Rate.

“Prime-based Rate” shall mean, for any day, that rate of interest which is equal to the sum of the Applicable Margin plus the greater of (i) the Prime Rate, and (ii) the Alternate Base Rate.

“Prime Rate” shall mean the per annum rate of interest announced by the Agent, at its main office from time to time as its “prime rate” (it being acknowledged that such announced rate may not necessarily be the lowest rate charged by the Agent to any of its customers), which Prime Rate shall change simultaneously with any change in such announced rate.

“Pro Forma Projected Financial Information” shall mean, as to any proposed acquisition, a statement executed by the Borrower undertaking the acquisition (supported by reasonable detail) setting forth the total consideration to be paid or incurred in connection with the proposed acquisition, and pro forma combined projected financial information for the Credit Parties and the acquisition target (if applicable), consisting of projected balance sheets as of the proposed effective date of the acquisition and as of the end of at least the next succeeding two (2) Fiscal Years following the acquisition and projected statements of income and cash flows for each of those years, including sufficient detail to permit calculation of the ratios described in Section 7.9 hereof, as projected as of the effective date of the acquisition and as of the ends of those Fiscal Years and accompanied by (i) a statement setting forth a calculation of the ratio so described, (ii) a statement in reasonable detail specifying all material assumptions underlying the projections and (iii) such other information as the Agent or the Lenders shall reasonably request.

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“Purchasing Lender” shall have the meaning set forth in Section 13.12.

“Quoted Rate” shall mean the rate of interest per annum offered by the Swing Line Lender in its sole discretion with respect to a Swing Line Advance and accepted by the Borrowers.

“Quoted Rate Advance” means any Swing Line Advance which bears interest at the Quoted Rate.

“Rating Agency” shall mean Moody’s Investor Services, Inc., Standard and Poor’s Ratings Services, their respective successors or any other nationally recognized statistical rating organization which is acceptable to the Agent.

“Register” is defined in Section 13.8(g) hereof.

“Reimbursement Obligation(s)” shall mean the aggregate amount of all unreimbursed drawings under all Letters of Credit (excluding for the avoidance of doubt, reimbursement obligations that are deemed satisfied pursuant to a deemed disbursement under Section 3.6(a)).

“Request for Advance” shall mean a Request for Revolving Credit Advance or a Request for Swing Line Advance, as the context may indicate or otherwise require.

“Request for Revolving Credit Advance” shall mean a request for a Revolving Credit Advance issued by the Borrowers under Section 2.3 of this Agreement in the form attached hereto as Exhibit A.

“Request for Swing Line Advance” shall mean a request for a Swing Line Advance issued by the Borrowers under Section 2.5(b) of this Agreement in the form attached hereto as Exhibit D.

“Requirement of Law” shall mean as to any Person, the certificate of incorporation and bylaws, the partnership agreement or other organizational or governing documents of such Person and any law, treaty, rule or regulation or determination of an arbitration or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Responsible Officer” shall mean, with respect to any Person, the chief executive officer, chief financial officer, treasurer, president or controller of such Person, or with respect to compliance with financial covenants, the chief financial officer or the treasurer of such Person, or any other officer of such Person having substantially the same authority and responsibility.

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“Revolving Credit” shall mean the revolving credit loans to be advanced to Borrowers by the applicable Revolving Credit Lenders pursuant to Article 2 hereof, in an aggregate amount (subject to the terms hereof), not to exceed, at any one time outstanding, the Revolving Credit Aggregate Commitment.

“Revolving Credit Advance” shall mean a borrowing requested by Borrowers and made by the Revolving Credit Lenders under Section 2.1 of this Agreement, including without limitation any readvance, refunding or conversion of such borrowing pursuant to Section 2.3 hereof and any deemed disbursement of an Advance in respect of a Letter of Credit under Section 3.6(a) hereof, and may include, subject to the terms hereof, Eurodollar-based Advances and Prime-based Advances.

“Revolving Credit Aggregate Commitment” shall mean Seventy-Five Million Dollars ($75,000,000), subject to reduction or termination under Sections 2.11 or 9.2 hereof.

“Revolving Credit Commitment Amount” shall mean with respect to any Revolving Credit Lender, (i) if the Revolving Credit Aggregate Commitment has not been terminated, the amount specified opposite such Revolving Credit Lender’s name in the column entitled “Revolving Credit Commitment Amount” on Schedule 1.2, as adjusted from time to time in accordance with the terms hereof; and (ii) if the Revolving Credit Aggregate Commitment has been terminated (whether by maturity, acceleration or otherwise), the amount equal to its Percentage of the aggregate principal amount outstanding under the Revolving Credit (including the outstanding Letter of Credit Obligations and any outstanding Swing Line Advances).

“Revolving Credit Facility Fee” shall mean the fee payable to Agent for distribution to the Revolving Credit Lenders in accordance with Section 2.9 hereof.

“Revolving Credit Lenders” shall mean the financial institutions from time to time parties hereto as lenders of the Revolving Credit.

“Revolving Credit Maturity Date” shall mean the earlier to occur of (i) October 31, 2012, and (ii) the date on which the Revolving Credit Aggregate Commitment shall terminate in accordance with the provisions of this Agreement.

“Revolving Credit Notes” shall mean the revolving credit notes described in Section 2.2 hereof, made by Borrowers to each of the Revolving Credit Lenders in the form attached hereto as Exhibit B, as such notes may be amended or supplemented from time to time, and any other notes issued in substitution, replacement or renewal thereof from time to time.

“Revolving Credit Percentage” means, with respect to any Revolving Credit Lender, the percentage specified opposite such Revolving Credit Lender’s name in the column entitled “Revolving Credit Percentage” on Schedule 1.2, as adjusted from time to time in accordance with the terms hereof.

“RHBL” shall have the meaning set forth in the definition of “Borrowers” in this Agreement.

“RHBI” shall have the meaning set forth in the definition of “Borrowers” in this Agreement.

“Security Agreement” shall mean, collectively, the security agreement(s) executed and delivered by Borrowers and the Guarantors on the Effective Date pursuant to Section 5.1 hereof, and any such agreements executed and delivered after the Effective Date (whether by execution of a joinder agreement to any existing security agreement or otherwise) pursuant to Section 7.13 hereof or otherwise, in the form of the Security Agreement attached hereto as Exhibit F, as amended, restated or otherwise modified from time to time.

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“Sellers” shall mean Mr. Richard Buenting and Fisher Sand & Gravel Co.

“Sterling” shall have the meaning set forth in the Preamble to this Agreement.

“Subordinated Debt” shall mean any Funded Debt of any Credit Party and other obligations under the Subordinated Debt Documents and any other Funded Debt of any Credit Party, the terms of which are acceptable to the Agent and which has been subordinated in right of payment and priority to the Indebtedness, all on terms and conditions satisfactory to the Agent.

“Subordinated Debt Documents” shall mean and include any documents evidencing any Subordinated Debt, in each case, as the same may be amended, modified, supplemented or otherwise modified from time to time in compliance with the terms of this Agreement.

“Subordination Agreements” shall mean any subordination agreements entered into by any Person from time to time in favor of Agent in connection with any Subordinated Debt, the terms of which are acceptable to the Agent, in each case as the same may be amended, restated or otherwise modified from time to time, and “Subordination Agreement” shall mean any one of them.

“Subsidiary(ies)” shall mean any other corporation, association, joint stock company, business trust, limited liability company, partnership or any other business entity of which more than fifty percent (50%) of the outstanding voting stock, share capital, membership, partnership or other interests, as the case may be, is owned either directly or indirectly by any Person or one or more of its Subsidiaries, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by any Person and/or its Subsidiaries. Unless otherwise specified to the contrary herein or the context otherwise requires, Subsidiary(ies) shall refer to the Subsidiary(ies) of Sterling.

“Surety Agreement(s)” shall mean the Travelers Indemnity Agreement, the Liberty Mutual Indemnity Agreement, and any other surety indemnity agreement which contains substantially similar terms and conditions as the Travelers Indemnity Agreement and which is for the benefit of a surety company that has been rated by A.M. Best (or another generally accepted rating company) with a financial strength rating and issuer credit ratings comparable to or better than Travelers Casualty and Surety Company of America and which surety company has delivered a “comfort letter” to Agent which is substantially similar to the letter delivered pursuant to Section 5.1(a)(iii) hereof.

“Sweep Agreement” means any agreement relating to the “Sweep to Loan” automated system of the Agent or any other cash management arrangement which any Borrower and the Agent have executed for the purposes of effecting the borrowing and repayment of Swing Line Advances.

“Swing Line” shall mean the revolving credit loans to be advanced to Borrowers by the Swing Line Lender pursuant to Section 2.5 hereof, in an aggregate amount (subject to the terms hereof), not to exceed, at any one time outstanding, the Swing Line Maximum Amount.

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“Swing Line Advance” shall mean a borrowing requested by Borrowers and made by Swing Line Lender pursuant to Section 2.5 hereof and may include, subject to the terms hereof, Quoted Rate-Advances and Prime-based Advances.

“Swing Line Lender” shall mean Comerica Bank in its capacity as lender of the Swing Line under Section 2.5 of this Agreement, or its successor as subsequently designated hereunder.

“Swing Line Maximum Amount” shall mean Seven Million Five Hundred Thousand Dollars ($7,500,000).

“Swing Line Note” shall mean the swing line note which may be issued by Borrowers to Swing Line Lender pursuant to Section 2.5(b)(ii) hereof in the form attached hereto as Exhibit C, as such note may be amended or supplemented from time to time, and any note or notes issued in substitution, replacement or renewal thereof from time to time.

“Swing Line Participation Certificate” shall mean the Swing Line Participation Certificate delivered by Agent to each Revolving Credit Lender pursuant to Section 2.5(e)(ii) hereof in the form attached hereto as Exhibit M.

“Tangible Net Worth” shall mean as of any date of determination, for any Person (a) the net book value of all assets of such Person (excluding patent rights, trademarks, tradenames, franchises, copyrights, licenses, goodwill and all other intangible assets of such Person) after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization) less (b) all the total liabilities of such Person reported on the balance sheet of such Person under GAAP at such time.

“Target” shall have the meaning set forth in the definition of “Borrowers” in this Agreement.

“Travelers Indemnity Agreement” shall mean that certain General Agreement of Indemnity by and among Sterling and certain of its Subsidiaries for the benefit of Traveler’s Casualty and Surety Company of America dated as of January 26, 2006.

“TSC” shall have the meaning set forth in the Preamble to this Agreement.

“Uniform Commercial Code” or “UCC” shall mean the Uniform Commercial Code as in effect in any applicable state; provided that, unless specified otherwise or the context otherwise requires, such terms shall refer to the Uniform Commercial Code as in effect in the State of Texas.

“USA Patriot Act” is defined in Section 6.7.

“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

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2.REVOLVING CREDIT.

2.1 Commitment . Subject to the terms and conditions of this Agreement (including without limitation Section 2.3 hereof), each Revolving Credit Lender severally and for itself alone agrees to make Advances of the Revolving Credit in Dollars to Borrowers from time to time on any Business Day during the period from the Effective Date hereof until (but excluding) the Revolving Credit Maturity Date in an aggregate amount, not to exceed at any one time outstanding such Lender’s Revolving Credit Percentage of the Revolving Credit Aggregate Commitment. Subject to the terms and conditions set forth herein, advances, repayments and readvances may be made under the Revolving Credit.

2.2 Accrual of Interest and Maturity; Evidence of Indebtedness.

(a)

Each Borrower hereby unconditionally promises to pay, jointly and severally, to the Agent for the account of each Revolving Credit Lender the then unpaid principal amount of each Revolving Credit Advance (plus all accrued and unpaid interest) of such Revolving Credit Lender to Borrowers on the Revolving Credit Maturity Date and on such other dates and in such other amounts as may be required from time to time pursuant to this Agreement. Subject to the terms and conditions hereof, each Revolving Credit Advance shall, from time to time from and after the date of such Advance (until paid), bear interest at its Applicable Interest Rate.

(b)

Each Revolving Credit Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of Borrowers to the appropriate lending office of such Revolving Credit Lender resulting from each Revolving Credit Advance made by such lending office of such Revolving Credit Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Revolving Credit Lender from time to time under this Agreement.

(c)

The Agent shall maintain the Register pursuant to Section 13.8(g), and a subaccount therein for each Revolving Credit Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Revolving Credit Advance made hereunder, the type thereof and each Eurodollar-Interest Period applicable to any Eurodollar-based Advance, (ii) the amount of any principal or interest due and payable or to become due and payable, jointly and severally from Borrowers to each Revolving Credit Lender hereunder in respect of the Revolving Credit Advances and (iii) both the amount of any sum received by the Agent hereunder from Borrower in respect of the Revolving Credit Advances and each Revolving Credit Lender’s share thereof.

(d)

The entries made in the Register maintained pursuant to paragraph (c) of this Section 2.2 shall, absent manifest error, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of Borrowers therein recorded; provided , however , that the failure of any Revolving Credit Lender or the Agent to maintain the Register or any account, as applicable, or any error therein, shall not in any manner affect the obligation of Borrowers to repay the Revolving Credit Advances (and all other amounts owing with respect thereto) made to Borrowers by the Revolving Credit Lenders in accordance with the terms of this Agreement.

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(e)

Each Borrower agrees that, upon written request to the Agent by any Revolving Credit Lender, such Borrower will execute and deliver, to such Revolving Credit Lender, at such Borrower’s own expense, a Revolving Credit Note evidencing the outstanding Revolving Credit Advances owing to such Revolving Credit Lender.

2.3 Requests for and Refundings and Conversions of Advances . Borrowers may request an Advance of the Revolving Credit, a refund of any Revolving Credit Advance in the same type of Advance or to convert any Revolving Credit Advance to any other type of Revolving Credit Advance only by delivery to Agent of a Request for Revolving Credit Advance executed by an Authorized Signer for the Borrower Representative, subject to the following:

(a)

each such Request for Revolving Credit Advance shall set forth the information required on the Request for Revolving Credit Advance, including without limitation:

(i)

the proposed date of such Revolving Credit Advance (or the refunding or conversion of an outstanding Revolving Credit Advance), which must be a Business Day;

(ii)

whether such Advance is a new Revolving Credit Advance or a refunding or conversion of an outstanding Revolving Credit Advance; and

(iii)

whether such Revolving Credit Advance is to be a Prime-based Advance or a Eurodollar-based Advance, and, except in the case of a Prime-based Advance, the first Eurodollar-Interest Period applicable thereto, provided, however, that the initial Revolving Credit Advance made under this Agreement shall be a Prime-based Advance, which may then be converted into a Eurodollar-based Advance in compliance with this Agreement.

(b)

each such Request for Revolving Credit Advance shall be delivered to Agent by 12:00 p.m. (Detroit time) three (3) Business Days prior to the proposed date of the Revolving Credit Advance, except in the case of a Prime-based Advance, for which the Request for Revolving Credit Advance must be delivered by 12:00 p.m. (Detroit time) on the proposed date for such Revolving Credit Advance;

(c)

on the proposed date of such Revolving Credit Advance, the sum of (x) the aggregate principal amount of all Revolving Credit Advances and Swing Line Advances outstanding on such date (including, without duplication) the Advances that are deemed to be disbursed by Agent under Section 3.6(a) hereof in respect of Borrowers’ Reimbursement Obligations hereunder), plus (y) the Letter of Credit Obligations as of such date, in each case after giving effect to all outstanding requests for Revolving Credit Advances and Swing Line Advances and for the issuance of any Letters of Credit, shall not exceed the Revolving Credit Aggregate Commitment;

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(d)

in the case of a Prime-based Advance, the principal amount of the initial funding of such Advance, as opposed to any refunding or conversion thereof, shall be at least $1,000,000 or the remainder available under the Revolving Credit Aggregate Commitment if less than $1,000,000;

(e)

in the case of a Eurodollar-based Advance, the principal amount of such Advance, plus the amount of any other outstanding Revolving Credit Advance to be then combined therewith having the same Eurodollar-Interest Period, if any, shall be at least $2,000,000 (or a larger integral multiple of $100,000) or the remainder available under the Revolving Credit Aggregate Commitment if less than $2,000,000 and at any one time there shall not be in effect more than three (3) different Eurodollar-Interest Periods;

(f)

a Request for Revolving Credit Advance, once delivered to Agent, shall not be revocable by Borrowers and shall constitute a certification by Borrowers as of the date thereof that:

(v)

all conditions to the making of Revolving Credit Advances set forth in this Agreement have been satisfied, and shall remain satisfied to the date of such Revolving Credit Advance (both before and immediately after giving effect to such Revolving Credit Advance);

(vi)

there is no Default or Event of Default in existence, and none will exist upon the making of such Revolving Credit Advance (both before and immediately after giving effect to such Revolving Credit Advance); and

(vii)

the representations and warranties of the Credit Parties contained in this Agreement and the other Loan Documents are true and correct in all material respects and shall be true and correct in all material respects as of the date of the making of such Revolving Credit Advance (both before and immediately after giving effect to such Revolving Credit Advance), other than any representation or warranty that expressly speaks only as of a different date;

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Agent, acting on behalf of the Revolving Credit Lenders, may also, at its option, lend under this Section 2.3 upon the telephone or email request of an Authorized Signer of the Borrower Representative to make such requests and, in the event Agent, acting on behalf of the Revolving Credit Lenders, makes any such Advance upon a telephone or email request, an Authorized Signer shall fax or deliver by electronic file to Agent, on the same day as such telephone or email request, an executed Request for Revolving Credit Advance. Each Borrower hereby authorizes Agent to disburse Advances under this Section 2.3 pursuant to the telephone or email instructions of any person purporting to be an Authorized Signer. Notwithstanding the foregoing, Borrowers acknowledge that Borrowers shall bear all risk of loss resulting from disbursements made upon any telephone or email request. Each telephone or email request for an Advance from an Authorized Signer for the Borrower Representative shall constitute a certification by the Borrowers of the matters set forth in the Request for Revolving Credit Advance form as of the date of such requested Advance.

2.4 Disbursement of Advances.

(a) Upon receiving any Request for Revolving Credit Advance from Borrowers under Section 2.3 hereof, Agent shall promptly notify each Revolving Credit Lender by wire, telex or telephone (confirmed by wire, telecopy or telex) of the amount of such Advance being requested and the date such Revolving Credit Advance is to be made by each Revolving Credit Lender in an amount equal to its Revolving Credit Percentage of such Advance. Unless such Revolving Credit Lender’s commitment to make Revolving Credit Advances hereunder shall have been suspended or terminated in accordance with this Agreement, each such Revolving Credit Lender shall make available the amount of its Revolving Credit Percentage of each Revolving Credit Advance in immediately available funds to Agent, as follows:

(i)

for Prime-based Advances, at the office of Agent located at One Detroit Center, Detroit, Michigan 48226, not later than 1:00 p.m. (Detroit time) on the date of such Advance; and

(ii)

for Eurodollar-based Advances, at the Agent’s Correspondent for the account of the Eurodollar Lending Office of the Agent, not later than 12:00 p.m. (the time of the Agent’s Correspondent) on the date of such Advance.

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(b) Subject to submission of an executed Request for Revolving Credit Advance by Borrowers without exceptions noted in the compliance certification therein, Agent shall make available to Borrowers the aggregate of the amounts so received by it from the Revolving Credit Lenders in Dollars:

(i)

for Prime-based Advances, not later than 4:00 p.m. (Detroit time) on the date of such Revolving Credit Advance, by credit to an account of Borrowers maintained with Agent or to such other account or third party as Borrowers may reasonably direct in writing, provided such direction is timely given; and

(ii)

for Eurodollar-based Advances, not later than 4:00 p.m. (the time of the Agent’s Correspondent) on the date of such Revolving Credit Advance, by credit to an account of Borrowers maintained with Agent’s Correspondent or to such other account or third party as Borrowers may direct, provided such direction is timely given.

(c) Agent shall deliver the documents and papers received by it for the account of each Revolving Credit Lender to such Revolving Credit Lender. Unless Agent shall have been notified by any Revolving Credit Lender prior to the date of any proposed Revolving Credit Advance that such Revolving Credit Lender does not intend to make available to Agent such Revolving Credit Lender’s Percentage of such Advance, Agent may assume that such Revolving Credit Lender has made such amount available to Agent on such date, as aforesaid. Agent may, but shall not be obligated to, make available to Borrowers the amount of such payment in reliance on such assumption. If such amount is not in fact made available to Agent by such Revolving Credit Lender, as aforesaid, Agent shall be entitled to recover such amount on demand from such Revolving Credit Lender. If such Revolving Credit Lender does not pay such amount forthwith upon Agent’s demand therefor and the Agent has in fact made a corresponding amount available to Borrowers, the Agent shall promptly notify Borrowers and Borrowers shall pay such amount to Agent, if such notice is delivered to Borrowers prior to 1:00 p.m. (Detroit time) on a Business Day, on the day such notice is received, and otherwise on the next Business Day, and such amount paid by Borrowers shall be applied as a prepayment of the Revolving Credit (without any corresponding reduction in the Revolving Credit Aggregate Commitment), reimbursing Agent for having funded said amounts on behalf of such Revolving Credit Lender. The Borrowers shall retain their claims against such Revolving Credit Lender with respect to the amounts repaid by it to Agent and, if such Revolving Credit Lender subsequently makes such amounts available to Agent, Agent shall promptly make such amounts available to the Borrowers as a Revolving Credit Advance. Agent shall also be entitled to recover from such Revolving Credit Lender or Borrowers, as the case may be, but without duplication, interest on such amount in respect of each day from the date such amount was made available by Agent to Borrowers, to the date such amount is recovered by Agent, at a rate per annum equal to:

(i)

in the case of such Revolving Credit Lender, for the first two (2) Business Days such amount remains unpaid, the Federal Funds Effective Rate, and thereafter, at the rate of interest then applicable to such Revolving Credit Advances; and

(ii)

in the case of Borrowers, the rate of interest then applicable to such Advance of the Revolving Credit.

Until such Revolving Credit Lender has paid Agent such amount, such Revolving Credit Lender shall have no interest in or rights with respect to such Advance for any purpose whatsoever. The obligation of any Revolving Credit Lender to make any Revolving Credit Advance hereunder shall not be affected by the failure of any other Revolving Credit Lender to make any Advance hereunder, and no Revolving Credit Lender shall have any liability to the Borrowers or any of their respective Subsidiaries, the Agent, any other Revolving Credit Lender, or any other party for another Revolving Credit Lender’s failure to make any loan or Advance hereunder.

2.5 Swing Line Advances.

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i) Commitment . The Swing Line Lender may, on the terms and subject to the conditions hereinafter set forth (including without limitation Section 2.5(c) hereof), but shall not be required to, make one or more Advances (each such advance being a “Swing Line Advance”) to the Borrowers from time to time on any Business Day during the period from the Effective Date hereof until (but excluding) the Revolving Credit Maturity Date in an aggregate amount not to exceed at any one time outstanding the Swing Line Maximum Amount. Subject to the terms set forth herein, advances, repayments and readvances may be made under the Swing Line.

(b) Accrual of Interest and Maturity; Evidence of Indebtedness .

(i)

Swing Line Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrowers to Swing Line Lender resulting from each Swing Line Advance from time to time, including the amount and date of each Swing Line Advance, its Applicable Interest Rate, its Interest Period, if any, and the amount and date of any repayment made on any Swing Line Advance from time to time. The entries made in such account or accounts of Swing Line Lender shall be prima facie evidence, absent manifest error, of the existence and amounts of the obligations of the Borrowers therein recorded; provided, however, that the failure of Swing Line Lender to maintain such account, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrowers to repay the Swing Line Advances (and all other amounts owing with respect thereto) in accordance with the terms of this Agreement.

(ii)

Each Borrower agrees that, upon the written request of Swing Line Lender, the Borrowers will execute and deliver to Swing Line Lender a Swing Line Note.

(iii)

Each Borrower unconditionally promises to pay, jointly and severally, to the Swing Line Lender the then unpaid principal amount of such Swing Line Advance (plus all accrued and unpaid interest) on the Revolving Credit Maturity Date and on such other dates and in such other amounts as may be required from time to time pursuant to this Agreement. Subject to the terms and conditions hereof, each Swing Line Advance shall, from time to time after the date of such Advance (until paid), bear interest at its Applicable Interest Rate.

(c)

Requests for Swing Line Advances . Borrowers may request a Swing Line Advance by the delivery to Swing Line Lender of a Request for Swing Line Advance executed by an Authorized Signer for the Borrower Representative, subject to the following:

(i)

each such Request for Swing Line Advance shall set forth the information required on the Request for Advance, including without limitation, (A) the proposed date of such Swing Line Advance, which must be a Business Day, (B) whether such Swing Line Advance is to be a Prime-based Advance or a Quoted Rate Advance, and (C) in the case of a Quoted Rate Advance, the duration of the Interest Period applicable thereto;

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(ii)

on the proposed date of such Swing Line Advance, after giving effect to all outstanding requests for Swing Line Advances made by Borrowers as of the date of determination, the aggregate principal amount of all Swing Line Advances outstanding on such date shall not exceed the Swing Line Maximum Amount;

(iii)

on the proposed date of such Swing Line Advance, after giving effect to all outstanding requests for Revolving Credit Advances and Swing Line Advances and Letters of Credit requested by the Borrowers on such date of determination (including, without duplication, Advances that are deemed disbursed pursuant to Section 3.6(a) hereof in respect of the Borrowers’ Reimbursement Obligations hereunder), the sum of (x) the aggregate principal amount of all Revolving Credit Advances and the Swing Line Advances outstanding on such date plus (y) the Letter of Credit Obligations on such date shall not exceed the Revolving Credit Aggregate Commitment;

(iv)

(A) in the case of a Swing Line Advance that is a Prime-based Advance, the principal amount of the initial funding of such Advance, as opposed to any refunding or conversion thereof, shall be at least Two Hundred Fifty Thousand Dollars ($250,000) or such lesser amount as may be agreed to by the Swing Line Lender, and (B) in the case of a Swing Line Advance that is a Quoted Rate Advance, the principal amount of such Advance, plus any other outstanding Swing Line Advances to be then combined therewith having the same Interest Period, if any, shall be at least Two Hundred Fifty Thousand Dollars ($250,000) or such lesser amount as may be agreed to by the Swing Line Lender, and at any time there shall not be in effect more than three (3) Interest Rates and Interest Periods;

(v)

each such Request for Swing Line Advance shall be delivered to the Swing Line Lender by 3:00 p.m. (Detroit time) on the proposed date of the Swing Line Advance;

(vi)

each Request for Swing Line Advance, once delivered to Swing Line Lender, shall not be revocable by Borrowers, and shall constitute and include a certification by Borrowers as of the date thereof that:

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(A)

all conditions to the making of Swing Line Advances set forth in this Agreement shall have been satisfied and shall remain satisfied to the date of such Swing Line Advance (both before and immediately after giving effect to such Swing Line Advance);

(B)

there is no Default or Event of Default in existence, and none will exist upon the making of such Swing Line Advance (both before and immediately after giving effect to such Swing Line Advance); and

(C)

the representations and warranties of the Credit Parties contained in this Agreement and the other Loan Documents are true and correct in all material respects and shall be true and correct in all material respect as of the date of the making of such Swing Line Advance (both before and immediately after giving effect to such Swing Line Advance), other than any representation or warranty that expressly speaks only as of a different date;

(vii)

At the option of the Agent, subject to revocation by Agent at any time and from time to time and so long as the Agent is the Swing Line Lender, Borrowers may utilize the Agent’s “Sweep to Loan” automated system for obtaining Swing Line Advances and making periodic repayments. At any time during which the “Sweep to Loan” system is in effect, Swing Line Advances shall be advanced to fund borrowing needs pursuant to the terms of the Sweep Agreement. Each time a Swing Line Advance is made using the “Sweep to Loan” system, Borrowers shall be deemed to have certified to the Agent and the Lenders each of the matters set forth in clause (vi) of this Section 2.5(b). Principal and interest on Swing Line Advances requested, or deemed requested, pursuant to this Section shall be paid pursuant to the terms and conditions of the Sweep Agreement without any deduction, setoff or counterclaim whatsoever. Unless sooner paid pursuant to the provisions hereof or the provisions of the Sweep Agreement, the principal amount of the Swing Loans shall be paid in full, together with accrued interest thereon, on the Revolving Credit Maturity Date. Agent may suspend or revoke Borrowers’ privilege to use the “Sweep to Loan” system at any time and from time to time for any reason and, immediately upon any such revocation, the “Sweep to Loan” system shall no longer be available to Borrowers for the funding of Swing Line Advances hereunder (or otherwise), and the regular procedures set forth in this Section 2.5 for the making of Swing Line Advances shall be deemed immediately to apply. Agent may, at its option, also elect to make Swing Line Advances upon the Borrower Representative’s telephone requests on the basis set forth in the last paragraph of Section 2.3, provided that the Borrowers comply with the provisions set forth in this Section 2.5.

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(d)

Disbursement of Swing Line Advances . Upon receiving any executed Request for Swing Line Advance from the Borrowers and the satisfaction of the conditions set forth in Section 2.5(c) hereof, Swing Line Lender shall make available to Borrowers the amount so requested in Dollars not later than 4:00 p.m. (Detroit time) on the date of such Advance, by credit to an account of Borrowers maintained with Agent or to such other account or third party as the Borrowers may reasonably direct in writing, subject to applicable law, provided such direction is timely given. Swing Line Lender shall promptly notify Agent of any Swing Line Advance by telephone, telex or telecopier.

(e)

Refunding of or Participation Interest in Swing Line Advances .

(i)

The Agent, at any time in its sole and absolute discretion, may, in each case on behalf of the Borrowers (which hereby irrevocably directs the Agent to act on their behalf) request each of the Revolving Credit Lenders (including the Swing Line Lender in its capacity as a Revolving Credit Lender) to make an Advance of the Revolving Credit to Borrowers, in an amount equal to such Revolving Credit Lender’s Revolving Credit Percentage of the aggregate principal amount of the Swing Line Advances outstanding on the date such notice is given (the “Refunded Swing Line Advances”); provided however that the Swing Line Advances carried at the Quoted Rate which are refunded with Revolving Credit Advances at the request of the Swing Line Lender at a time when no Default or Event of Default has occurred and is continuing shall not be subject to Section 11.1 and no losses, costs or expenses may be assessed by the Swing Line Lender against the Borrowers or the Revolving Credit Lenders as a consequence of such refunding. The applicable Revolving Credit Advances used to refund any Swing Line Advances shall be Prime-based Advances. In connection with the making of any such Refunded Swing Line Advances or the purchase of a participation interest in Swing Line Advances under Section 2.5(e)(ii) hereof, the Swing Line Lender shall retain its claim against Borrowers for any unpaid interest or fees in respect thereof accrued to the date of such refunding. Unless any of the events described in Section 9.1(i) hereof shall have occurred (in which event the procedures of Section 2.5(e)(ii) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied (but subject to Section 2.5(e)(iii)), each Revolving Credit Lender shall make the proceeds of its Revolving Credit Advance available to the Agent for the benefit of the Swing Line Lender at the office of the Agent specified in Section 2.4(a) hereof prior to 11:00 a.m. Detroit time on the Business Day next succeeding the date such notice is given, in immediately available funds. The proceeds of such Revolving Credit Advances shall be immediately applied to repay the Refunded Swing Line Advances, subject to Section 11.1 hereof .

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(ii)

If, prior to the making of an Advance of the Revolving Credit pursuant to Section 2.5(e)(i) hereof, one of the events described in Section 9.1(i) hereof shall have occurred, each Revolving Credit Lender will, on the date such Advance of the Revolving Credit was to have been made, purchase from the Swing Line Lender an undivided participating interest in each Swing Line Advance that was to have been refunded in an amount equal to its Revolving Credit Percentage of such Swing Line Advance. Each Revolving Credit Lender within the time periods specified in Section 2.5(e)(i) hereof, as applicable, shall immediately transfer to the Agent, for the benefit of the Swing Line Lender, in immediately available funds, an amount equal to its Revolving Credit Percentage of the aggregate principal amount of all Swing Line Advances outstanding as of such date. Upon receipt thereof, the Agent will deliver to such Revolving Credit Lender a Swing Line Participation Certificate evidencing such participation.

(iii)

Each Revolving Credit Lender’s obligation to make Revolving Credit Advances to refund Swing Line Advances, and to purchase participation interests, in accordance with Section 2.5(e)(i) and (ii), respectively, shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Revolving Credit Lender may have against Swing Line Lender, Borrowers or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any adverse change in the condition (financial or otherwise) of Borrowers or any other Person; (D) any breach of this Agreement or any other Loan Document by Borrowers or any other Person; (E) any inability of Borrowers to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such Revolving Credit Advance is to be made or such participating interest is to be purchased; (F) the termination of the Revolving Credit Aggregate Commitment hereunder; or (G) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Credit Lender does not make available to the Agent the amount required pursuant to Section 2.5(e)(i) or (ii) hereof, as the case may be, the Agent on behalf of the Swing Line Lender, shall be entitled to recover such amount on demand from such Revolving Credit Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full (x) for the first two (2) Business Days such amount remains unpaid, at the Federal Funds Effective Rate and (y) thereafter, at the rate of interest then applicable to such Swing Line Advances. The obligation of any Revolving Credit Lender to make available its pro rata portion of the amounts required pursuant to Section 2.5(e)(i) or (ii) hereof shall not be affected by the failure of any other Revolving Credit Lender to make such amounts available, and no Revolving Credit Lender shall have any liability to any Credit Party, the Agent, the Swing Line Lender, or any other Revolving Credit Lender or any other party for another Revolving Credit Lender’s failure to make available the amounts required under Section 2.5(e)(i) or (ii) hereof.

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(iv)

Notwithstanding the foregoing, no Revolving Credit Lender shall be required to make any Revolving Credit Advance to refund a Swing Line Advance or to purchase a participation in a Swing Line Advance if at least two (2) Business Days prior to the making of such Swing Line Advance by the Swing Line Lender, the officers of the Swing Line Lender immediately responsible for matters concerning this Agreement shall have received written notice from Agent or any Lender that Swing Line Advances should be suspended based on the occurrence and continuance of a Default or Event of Default and stating that such notice is a “notice of default”; provided, however that the obligation of the Revolving Credit Lenders to make such Revolving Credit Advances (or purchase such participations) shall be reinstated upon the date on which such Default or Event of Default has been waived by the requisite Lenders.

2.6 Interest Payments; Default Interest

(a) Interest on the unpaid balance of all Prime-based Advances of the Revolving Credit and the Swing Line from time to time outstanding shall accrue from the date of such Advance to the date repaid, at a per annum interest rate equal to the Prime-based Rate, and shall be payable in immediately available funds commencing on December 1, and on the first day of each calendar month thereafter. Whenever any payment under this Section 2.6(a) shall become due on a day which is not a Business Day, the date for payment thereof shall be extended to the next Business Day. Interest accruing at the Prime-based Rate shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed, and in such computation effect shall be given to any change in the interest rate resulting from a change in the Prime-based Rate on the date of such change in the Prime-based Rate.

(b) Interest on each Eurodollar-based Advance of the Revolving Credit shall accrue at its Eurodollar-based Rate and shall be payable in immediately available funds on the last day of the Eurodollar-Interest Period applicable thereto (and, if any Eurodollar-Interest Period shall exceed three months, then on the last Business Day of the third month of such Eurodollar-Interest Period, and at three month intervals thereafter). Interest accruing at the Eurodollar-based Rate shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed from the first day of the Eurodollar-Interest Period applicable thereto to but not including the last day thereof.

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(c) Interest on each Quoted Rate Advance of the Swing Line shall accrue at its Quoted Rate and shall be payable in immediately available funds on the last day of the Interest Period applicable thereto. Interest accruing at the Quoted Rate shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed from the first day of the Interest Period applicable thereto to, but not including, the last day thereof.

(d) Notwithstanding anything to the contrary in the preceding sections, all accrued and unpaid interest on any Revolving Credit Advance refunded or converted pursuant to Section 2.3 hereof and any Swing Line Advance refunded pursuant to Section 2.5(e) hereof, shall be due and payable in full on the date such Advance is refunded or converted.

(e) In the case of any Event of Default under Section 9.1(i), immediately upon the occurrence thereof, and in the case of any other Event of Default, immediately upon receipt by Agent of notice from the Majority Revolving Credit Lenders, interest shall be payable on demand on all Revolving Credit Advances and Swing Line Advances from time to time outstanding at a per annum rate equal to the Applicable Interest Rate in respect of each such Advance plus, in the case of Eurodollar-based Advances and Quoted Rate Advances, two percent (2%) for the remainder of the then existing Interest Period, if any, and at all other such times, and for all Prime-based Advances from time to time outstanding, at a per annum rate equal to the Prime-based Rate plus two percent (2%).

2.7 Optional Prepayments.

(a) (i) The Borrowers may prepay all or part of the outstanding principal of any Prime-based Advance(s) of the Revolving Credit at any time, provided that, unless the “Sweep to Loan” system shall be in effect in respect of the Revolving Credit, after giving effect to any partial prepayment, the aggregate balance of Prime-based Advance(s) of the Revolving Credit remaining outstanding shall be at least One Million Dollars ($1,000,000), and (ii) subject to Section 2.10(c) hereof, the Borrowers may prepay all or part of the outstanding principal of any Eurodollar-based Advance of the Revolving Credit at any time (subject to not less than five (5) Business Day’s notice to Agent) provided that, after giving effect to any partial prepayment, the unpaid portion of such Advance which is to be refunded or converted under Section 2.3 hereof shall be at least Two Million Five Hundred Thousand Dollars ($2,500,000).

(b) (i) The Borrowers may prepay all or part of the outstanding principal of any Swing Line Advance carried at the Prime-based Rate at any time, provided that after giving effect to any partial prepayment, the aggregate balance of such Prime-based Swing Line Advances remaining outstanding shall be at least One Hundred Thousand Dollars ($100,000) and (ii) subject to Section 2.10(c) hereof, the Borrowers may prepay all or part of the outstanding principal of any Swing Line Advance carried at the Quoted Rate at any time (subject to not less than one (1) day’s notice to the Swing Line Lender) provided that after giving effect to any partial prepayment, the aggregate balance of such Quoted Rate Swing Line Advances remaining outstanding shall be at least Two Hundred Fifty Thousand Dollars ($250,000).

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(c) Any prepayment of a Prime-based Advance made in accordance with this Section shall be without premium or penalty and any prepayment of any other type of Advance shall be subject to the provisions of Section 11.1 hereof, but otherwise without premium or penalty.

2.8 Prime-based Advance in Absence of Election or Upon Default . If, (a) as to any outstanding Eurodollar-based Advance of the Revolving Credit or any outstanding Quoted Rate Advance of the Swing Line, Agent has not received payment of all outstanding principal and accrued interest on the last day of the Interest Period applicable thereto, or does not receive a timely Request for Advance meeting the requirements of Section 2.3 or 2.5 hereof with respect to the refunding or conversion of such Advance, or (b) if on the last day of the applicable Interest Period a Default or an Event of Default shall have occurred and be continuing, then, on the last day of the applicable Interest Period the principal amount of any Eurodollar-based Advance or Quoted Rate Advance, as the case may be, which has not been prepaid shall, absent a contrary election of the Majority Revolving Credit Lenders, be converted automatically to a Prime-based Advance and the Agent shall thereafter promptly notify Borrowers of said action. All accrued and unpaid interest on any Advance converted to a Prime-based Advance under this Section 2.8 shall be due and payable in full on the date such Advance is converted.

2.9 Revolving Credit Facility Fee . From the Effective Date to the Revolving Credit Maturity Date, the Borrowers shall pay, jointly and severally, to the Agent for distribution to the Lenders pro-rata in accordance with their respective Percentages, a Revolving Credit Facility Fee quarterly in arrears commencing January 1, 2008 and on the first day of each calendar quarter thereafter (in respect of the prior three months or any portion thereof). The Revolving Credit Facility Fee payable to each Lender shall be determined by multiplying the Applicable Fee Percentage times such Lender’s Revolving Credit Percentage of the Revolving Credit Aggregate Commitment then in effect (whether used or unused). The Revolving Credit Facility Fee shall be computed on the basis of a year of three hundred sixty (360) days and assessed for the actual number of days elapsed. Whenever any payment of the Revolving Credit Facility Fee shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next Business Day. Upon receipt of such payment, Agent shall make prompt payment to each Lender of its share of the Revolving Credit Facility Fee based upon its respective Percentage. It is expressly understood that the Revolving Credit Facility Fees described in this Section are not refundable.

2.10 Mandatory Repayment of Revolving Credit Advances.

(a) If at any time and for any reason the aggregate outstanding principal amount of Revolving Credit Advances plus Swing Line Advances, plus the outstanding Letter of Credit Obligations, shall exceed the Revolving Credit Aggregate Commitment, Borrowers shall immediately reduce any pending request for a Revolving Credit Advance on such day by the amount of such excess and, to the extent any excess remains thereafter, repay any Revolving Credit Advances and Swing Line Advances in an amount equal to the lesser of the outstanding amount of such Advances and the amount of such remaining excess, with such amounts to be applied between the Revolving Credit Advances and Swing Line Advances as determined by the Agent and then, to the extent that any excess remains after payment in full of all Revolving Credit Advances and Swing Line Advances, to provide cash collateral in support of any Letter of Credit Obligations in an amount equal to the lesser of (x) 105% of the amount of such Letter of Credit Obligations and (y) the amount of such remaining excess, with such cash collateral to be provided on the basis set forth in Section 9.2 hereof. Each Borrower acknowledges that, in connection with any repayment required hereunder, it shall also be responsible for the reimbursement of any prepayment or other costs required under Section 11.1 hereof. Any payments made pursuant to this Section shall be applied first to outstanding Prime-based Advances under the Revolving Credit, next to Swing Line Advances carried at the Prime-based Rate and then to Eurodollar-based Advances of the Revolving Credit, and then to Swing Line Advances carried at the Quoted Rate.

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(b) Intentionally omitted.

(c) To the extent that, on the date any mandatory repayment of the Revolving Credit Advances under this Section 2.10 or payment pursuant to the terms of any of the Loan Documents is due, the Indebtedness under the Revolving Credit or any other Indebtedness to be prepaid is being carried, in whole or in part, at the Eurodollar-based Rate and no Default or Event of Default has occurred and is continuing, Borrowers may deposit the amount of such mandatory prepayment in a cash collateral account to be held by the Agent, for and on behalf of the Revolving Credit Lenders, on such terms and conditions as are reasonably acceptable to Agent and upon such deposit the obligation of Borrowers to make such mandatory prepayment shall be deemed satisfied. Subject to the terms and conditions of said cash collateral account, sums on deposit in said cash collateral account shall be applied (until exhausted) to reduce the principal balance of the Revolving Credit on the last day of each Eurodollar-Interest Period attributable to the Eurodollar-based Advances of such Revolving Advance, thereby avoiding breakage costs under Section 11.1 hereof; provided, however, that if a Default or Event of Default shall have occurred at any time while sums are on deposit in the cash collateral account, Agent may, in its sole discretion, elect to apply such sums to reduce the principal balance of such Eurodollar-based Advances prior to the last day of the applicable Eurodollar-Interest Period, and the Borrowers will be obligated to pay any resulting breakage costs under Section 11.1.

2.11 Optional Reduction or Termination of Revolving Credit Aggregate Commitment . Borrowers may, upon at least five (5) Business Days’ prior written notice to the Agent, permanently reduce the Revolving Credit Aggregate Commitment in whole at any time, or in part from time to time, without premium or penalty, provided that: (i) each partial reduction of the Revolving Credit Aggregate Commitment shall be in an aggregate amount equal to One Million Dollars ($1,000,000) or a larger integral multiple of One Hundred Thousand Dollars ($100,000); (ii) each reduction shall be accompanied by the payment of the Revolving Credit Facility Fee, if any, accrued and unpaid to the date of such reduction; (iii) Borrowers shall prepay in accordance with the terms hereof the amount, if any, by which the aggregate unpaid principal amount of Revolving Credit Advances and Swing Line Advances (including, without duplication, any deemed Advances made under Section 3.6 hereof) outstanding hereunder, plus the Letter of Credit Obligations, exceeds the amount of the then applicable Revolving Credit Aggregate Commitment as so reduced, together with interest thereon to the date of prepayment; (iv) no reduction shall reduce the Revolving Credit Aggregate Commitment to an amount which is less than the aggregate undrawn amount of any Letters of Credit outstanding at such time; and (v) no such reduction shall reduce the Swing Line Maximum Amount unless Borrowers so elect, provided that the Swing Line Maximum Amount shall at no time be greater than the Revolving Credit Aggregate Commitment; provided, however that if the termination or reduction of the Revolving Credit Aggregate Commitment requires the prepayment of a Eurodollar-based Advance or a Quoted Rate Advance and such termination or reduction is made on a day other than the last Business Day of the then current Interest Period applicable to such Eurodollar-based Advance or such Quoted Rate Advance, then, pursuant to Section 11.1, Borrowers shall compensate the Revolving Credit Lenders and/or the Swing Line Lender for any losses or, so long as no Default or Event of Default has occurred and is continuing, Borrowers may deposit the amount of such prepayment in a collateral account as provided in Section 2.10(c). Reductions of the Revolving Credit Aggregate Commitment and any accompanying prepayments of Advances of the Revolving Credit shall be distributed by Agent to each Revolving Credit Lender in accordance with such Revolving Credit Lender’s Revolving Percentage thereof, and will not be available for reinstatement by or readvance to Borrowers and any accompanying prepayments of Advances of the Swing Line shall be distributed by Agent to the Swing Line Lender and will not be available for reinstatement by or readvance to the Borrowers. Any reductions of the Revolving Credit Aggregate Commitment hereunder shall reduce each Revolving Credit Lender’s portion thereof proportionately (based on the applicable Percentages), and shall be permanent and irrevocable. Any payments made pursuant to this Section shall be applied first to outstanding Prime-based Advances under the Revolving Credit, next to Swing Line Advances carried at the Prime-based Rate and then to Eurodollar-based Advances of the Revolving Credit, and then to Swing Line Advances carried at the Quoted Rate.

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2.12 Use of Proceeds of Advances . Advances of the Revolving Credit shall be used to finance working capital, to refinance existing Debt and to consummate the Acquisition and other lawful corporate purposes.

3.LETTERS OF CREDIT.

3.1 Letters of Credit . Subject to the terms and conditions of this Agreement, Issuing Lender may through the Issuing Office, at any time and from time to time from and after the date hereof until thirty (30) days prior to the Revolving Credit Maturity Date, upon the written request of Borrowers accompanied by a duly executed Letter of Credit Agreement and such other documentation related to the requested Letter of Credit as the Issuing Lender may require, issue Letters of Credit in Dollars for the account of Borrowers, in an aggregate amount for all Letters of Credit issued hereunder at any one time outstanding not to exceed the Letter of Credit Maximum Amount. Each Letter of Credit shall be in a minimum face amount of One Hundred Thousand Dollars ($100,000) (or such lesser amount as may be agreed to by Issuing Lender) and each Letter of Credit (including any renewal thereof) shall expire not later than the first to occur of (i) thirteen months after the date of issuance thereof and (ii) ten (10) Business Days prior to the Revolving Credit Maturity Date in effect on the date of issuance thereof, provided, however, with the consent of the Issuing Lender, a Letter of Credit may provide that such Letter of Credit shall automatically renew at the end of such term unless Issuing Lender shall have given written notice at least thirty (30) days prior to the expiration of such Letter of Credit. The submission of all applications in respect of and the issuance of each Letter of Credit hereunder shall be subject in all respects to the International Standby Practices 98, and any successor documentation thereto and to the extent not inconsistent therewith, the laws of the State of Michigan. In the event of any conflict between this Agreement and any Letter of Credit Document other than any Letter of Credit, this Agreement shall control.

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3.2 Conditions to Issuance . No Letter of Credit shall be issued at the request and for the account of Borrowers unless, as of the date of issuance of such Letter of Credit:

(a)

(i) after giving effect to the Letter of Credit requested, the Letter of Credit Obligations do not exceed the Letter of Credit Maximum Amount; and (ii) after giving effect to the Letter of Credit requested, the Letter of Credit Obligations on such date plus the aggregate amount of all Revolving Credit Advances and Swing Line Advances (including all Advances deemed disbursed by Agent under Section 3.6(a) hereof in respect of Borrowers’ Reimbursement Obligations) hereunder requested or outstanding on such date do not exceed the Revolving Credit Aggregate Commitment;

(b)

the representations and warranties of the Credit Parties contained in this Agreement and the other Loan Documents are true and correct in all material respects and shall be true and correct in all material respects as of date of the issuance of such Letter of Credit (both before and immediately after the issuance of such Letter of Credit), other than any representation or warranty that expressly speaks only as of a different date;

(c)

there is no Default or Event of Default in existence, and none will exist upon the issuance of such Letter of Credit;

(d)

Borrowers shall have delivered to Issuing Lender at its Issuing Office, not less than three (3) Business Days prior to the requested date for issuance (or such shorter time as the Issuing Lender, in its sole discretion, may permit), the Letter of Credit Agreement related thereto, together with such other documents and materials as may be required pursuant to the terms thereof, and the terms of the proposed Letter of Credit shall be reasonably satisfactory to Issuing Lender;

(e)

no order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain Issuing Lender from issuing the Letter of Credit requested, or any Revolving Credit Lender from taking an assignment of its Revolving Credit Percentage thereof pursuant to Section 3.6 hereof, and no law, rule, regulation, request or directive (whether or not having the force of law) shall prohibit the Issuing Lender from issuing, or any Revolving Credit Lender from taking an assignment of its Revolving Credit Percentage of, the Letter of Credit requested or letters of credit generally;

(f)

there shall have been (i) no introduction of or change in the interpretation of any law or regulation, (ii) no declaration of a general banking moratorium by banking authorities in the United States, Michigan or the respective jurisdictions in which the Revolving Credit Lenders, the Borrowers and the beneficiary of the requested Letter of Credit are located, and (iii) no establishment of any new restrictions by any central bank or other governmental agency or authority on transactions involving letters of credit or on banks generally that, in any case described in this clause (e), would make it unlawful or unduly burdensome for the Issuing Lender to issue or any Revolving Credit Lender to take an assignment of its Revolving Credit Percentage of the requested Letter of Credit or letters of credit generally; and

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(g)

Issuing Lender shall have received the issuance fees required in connection with the issuance of such Letter of Credit pursuant to Section 3.4 hereof.

Each Letter of Credit Agreement submitted to Issuing Lender pursuant hereto shall constitute the certification by Borrowers of the matters set forth in Sections 5.2 hereof. The Agent shall be entitled to rely on such certification without any duty of inquiry.

3.3 Notice . The Issuing Lender shall deliver to the Agent, concurrently with or promptly following its issuance of any Letter of Credit, a true and complete copy of each Letter of Credit. Promptly upon its receipt thereof, Agent shall give notice, substantially in the form attached as Exhibit E, to each Revolving Credit Lender of the issuance of each Letter of Credit, specifying the amount thereof and the amount of such Revolving Credit Lender’s Percentage thereof.

3.4 Letter of Credit Fees; Increased Costs . (a) Borrowers shall pay letter of credit fees as follows:

(i)

A per annum letter of credit fee with respect to the undrawn amount of each Letter of Credit issued pursuant hereto (based on the amount of each Letter of Credit) in the amount of the Applicable Fee Percentage (determined with reference to Schedule 1.1 to this Agreement) shall be paid to the Agent for distribution to the Revolving Credit Lenders in accordance with their Percentages.

(ii)

A letter of credit facing fee on the face amount of each Letter of Credit shall be paid to the Agent for distribution to the Issuing Lender for its own account, in accordance with the terms of the applicable Fee Letter.

(b)

All payments by Borrowers to the Agent for distribution to the Issuing Lender or the Revolving Credit Lenders under this Section 3.4 shall be made in Dollars in immediately available funds at the Issuing Office or such other office of the Agent as may be designated from time to time by written notice to Borrowers by the Agent. The fees described in clauses (a)(i) and (ii) above (i) shall be nonrefundable under all circumstances, (ii) in the case of fees due under clause (a)(i) above, shall be payable semi-annually in advance and (iii) in the case of fees due under clause (a)(ii) above, shall be payable upon the issuance of such Letter of Credit and upon any amendment thereto or extension thereof. The fees due under clause (a)(i) above shall be determined by multiplying the Applicable Fee Percentage times the undrawn amount of the face amount of each such Letter of Credit on the date of determination, and shall be calculated on the basis of a 360 day year and assessed for the actual number of days from the date of the issuance thereof to the stated expiration thereof. The parties hereto acknowledge that, unless the Issuing Lender otherwise agrees, any material amendment and any extension to a Letter of Credit issued hereunder shall be treated as a new Letter of Credit for the purposes of the letter of credit facing fee.

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(c)

If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof, adopted after the date hereof, shall either (i) impose, modify or cause to be deemed applicable any reserve, special deposit, limitation or similar requirement against letters of credit issued or participated in by, or assets held by, or deposits in or for the account of, Issuing Lender or any Revolving Credit Lender or (ii) impose on Issuing Lender or any Revolving Credit Lender any other condition regarding this Agreement, the Letters of Credit or any participations in such Letters of Credit, and the result of any event referred to in clause (i) or (ii) above shall be to increase the cost or expense to Issuing Lender or such Revolving Credit Lender of issuing or maintaining or participating in any of the Letters of Credit (which increase in cost or expense shall be determined by the Issuing Lender’s or such Revolving Credit Lender’s reasonable allocation of the aggregate of such cost increases and expenses resulting from such events), then, upon demand by the Issuing Lender or such Revolving Credit Lender, as the case may be, Borrowers shall, within thirty (30) days following demand for payment, pay to Issuing Lender or such Revolving Credit Lender, as the case may be, from time to time as specified by the Issuing Lender or such Revolving Credit Lender, additional amounts which shall be sufficient to compensate the Issuing Lender or such Revolving Credit Lender for such increased cost and expense (together with interest on each such amount from ten days after the date such payment is due until payment in full thereof at the Prime-based Rate), provided that if the Issuing Lender or such Revolving Credit Lender could take any reasonable action, without cost or administrative or other burden or restriction to such Lender, to mitigate or eliminate such cost or expense, it agrees to do so within a reasonable time after becoming aware of the foregoing matters. Each demand for payment under this Section 3.4(c) shall be accompanied by a certificate of Issuing Lender or the applicable Revolving Credit Lender setting forth the amount of such increased cost or expense incurred by the Issuing Lender or such Revolving Credit Lender, as the case may be, as a result of any event mentioned in clause (i) or (ii) above, and in reasonable detail, the methodology for calculating and the calculation of such amount, which certificate shall be prepared in good faith and shall be conclusive evidence, absent manifest error, as to the amount thereof.

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3.5 Other Fees . In connection with the Letters of Credit, and in addition to the Letter of Credit Fees, Borrowers shall pay, for the sole account of the Issuing Lender, standard documentation, administration, payment and cancellation charges assessed by Issuing Lender or the Issuing Office, at the times, in the amounts and on the terms set forth or to be set forth from time to time in the standard fee schedule of the Issuing Office in effect from time to time.

3.6 Drawings and Demands for Payment Under Letters of Credit.

(a) If the Issuing Lender shall honor a draft or other demand for payment presented or made under any Letter of Credit, each Borrower agrees to pay to the Issuing Lender an amount equal to the amount paid by the Issuing Lender in respect of such draft or other demand under such Letter of Credit and all reasonable expenses paid or incurred by the Agent relative thereto not later than 1:00 p.m. (Detroit time), on (i) the Business Day that Borrowers receive notice of such presentment and honor, if such notice is received prior to 11:00 a.m. (Detroit time) or (ii) the Business Day immediately following the day that Borrowers received such notice, if such notice is received after 11:00 a.m. (Detroit time). Unless Borrowers shall have made such payment to the Agent for the account of the Issuing Lender on such day, the Agent shall be deemed to have disbursed to Borrowers and to have elected to substitute for the reimbursement obligation, with respect to the applicable Letter of Credit honored by the Issuing Lender, a Prime-based Advance of the Revolving Credit (which Advance may be subsequently converted at any time into a Eurodollar-based Advance pursuant to Section 2.3 hereof) on behalf of and for the account of the Revolving Credit Lenders in an aggregate amount equal to the amount so paid by the Issuing Lender in respect of such draft or other demand under such Letter of Credit. Such Prime-based Advance shall be deemed disbursed notwithstanding any failure to satisfy any conditions for disbursement of any Advance set forth in Section 2 hereof and, to the extent of the Advances so disbursed, the reimbursement obligation of Borrowers under this Section 3.6 shall be deemed satisfied.

(b) If the Issuing Lender shall honor a draft or other demand for payment presented or made under any Letter of Credit, the Issuing Lender shall provide notice thereof to Borrowers on the date such draft or demand is honored, and to each Revolving Credit Lender on such date unless Borrowers shall have satisfied their reimbursement obligations under Section 3.6(a) hereof by payment to the Agent (for the benefit of the Issuing Lender) on such date. The Issuing Lender shall further use reasonable efforts to provide notice to Borrowers prior to honoring any such draft or other demand for payment, but such notice, or the failure to provide such notice, shall not affect the rights or obligations of the Issuing Lender with respect to any Letter of Credit or the rights and obligations of the parties hereto, including without limitation the obligations of Borrowers under Section 3.6(a) hereof.

(c) Upon issuance by the Issuing Lender of each Letter of Credit hereunder, each Revolving Credit Lender shall automatically acquire a pro rata participation interest in such Letter of Credit and each related Letter of Credit Payment based on its respective Revolving Credit Percentage. Each Revolving Credit Lender, on the date a draft or demand under any Letter of Credit is honored (or the next succeeding Business Day if the notice required to be given by Issuing Lender to the Revolving Credit Lenders under Section 3.6(b) hereof is not given to the Revolving Credit Lenders prior to 2:00 p.m. (Detroit time) on such date of draft or demand), shall make its Revolving Credit Percentage of the amount paid by the Issuing Lender, and not reimbursed by Borrowers on such day, in immediately available funds at the principal office of the Agent for the account of Issuing Lender. If and to the extent such Revolving Credit Lender shall not have made such pro rata portion available to the Agent, such Revolving Credit Lender agrees to pay to the Agent for the account of the Issuing Lender forthwith on demand such amount together with interest thereon, for each day from the date such amount was paid by the Issuing Lender until such amount is so made available to the Agent at the Federal Funds Rate for the first three days and thereafter at a Prime-based Rate applicable during such period to the related Advance deemed to have been disbursed under Section 3.6(a) in respect of the reimbursement obligation of Borrowers. If such Revolving Credit Lender shall pay such amount to the Agent for the account of Issuing Lender together with such interest, if any, such amount so paid shall be deemed to constitute an Advance by such Revolving Credit Lender disbursed in respect of the reimbursement obligation of Borrowers under Section 3.6(a) hereof for purposes of this Agreement, effective as of the dates applicable under said Section 3.6(a). The failure of any Revolving Credit Lender to make its pro rata portion of any such amount paid by the Issuing Lender available to the Agent for the account of Issuing Lender shall not relieve any other Revolving Credit Lender of its obligation to make available its pro rata portion of such amount, but no Revolving Credit Lender shall be responsible for failure of any other Revolving Credit Lender to make such pro rata portion available to the Agent for the account of Issuing Lender.

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Notwithstanding the foregoing however no Revolving Credit Lender shall be deemed to have acquired a participation in a Letter of Credit if the officers of the Issuing Lender immediately responsible for matters concerning this Agreement shall have received written notice from Agent or any Lender at least two (2) Business Days prior to the date of the issuance of such Letter of Credit that the issuance of Letters of Credit should be suspended based on the occurrence and continuance of a Default or Event of Default and stating that such notice is a “notice of default”; provided, however that the Revolving Credit Lenders shall be deemed to have acquired such a participation upon the date on which such Default or Event of Default has been waived by the requisite Revolving Credit Lenders, as applicable. In the event that the Issuing Lender receives such a notice, the Issuing Lender shall have no obligation to issue any Letter of Credit until such notice is withdrawn by Agent or such Lender or until the requisite Lenders have waived such Default or Event of Default in accordance with the terms of this Agreement.

(d) Nothing in this Agreement shall be construed to require or authorize any Revolving Credit Lender to issue any Letter of Credit, it being recognized that the Issuing Lender shall be the sole issuer of Letters of Credit under this Agreement.

3.7 Obligations Irrevocable . The obligations of Borrowers to make payments to Agent for the account of Issuing Lender or the Revolving Credit Lenders with respect to Letter of Credit Obligations under Section 3.6 hereof, shall be unconditional and irrevocable and not subject to any qualification or exception whatsoever, including, without limitation:

(a)

Any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement, any other documentation relating to any Letter of Credit, this Agreement or any of the other Loan Documents (the “Letter of Credit Documents”);

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(b)

Any amendment, modification, waiver, consent, or any substitution, exchange or release of or failure to perfect any interest in collateral or security, with respect to or under any Letter of Credit Document;

(c)

The existence of any claim, setoff, defense or other right which Borrowers may have at any time against any beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Agent, the Issuing Lender or any Revolving Credit Lender or any other Person, whether in connection with this Agreement, any of the Letter of Credit Documents, the transactions contemplated herein or therein or any unrelated transactions;

(d)

Any draft or other statement or document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(e)

Payment by the Issuing Lender to the beneficiary under any Letter of Credit against presentation of documents which do not comply with the terms of such Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit;

(f)

Any failure, omission, delay or lack on the part of the Agent, Issuing Lender or any Revolving Credit Lender or any party to any of the Letter of Credit Documents to enforce, assert or exercise any right, power or remedy conferred upon the Agent, Issuing Lender, any Revolving Credit Lender or any such party under this Agreement, any of the other Loan Documents or any of the Letter of Credit Documents, or any other acts or omissions on the part of the Agent, Issuing Lender, any Revolving Credit Lender or any such party; or

(g)

Any other event or circumstance that would, in the absence of this Section 3.7, result in the release or discharge by operation of law or otherwise of Borrowers from the performance or observance of any obligation, covenant or agreement contained in Section 3.6 hereof.

No setoff, counterclaim, reduction or diminution of any obligation or any defense of any kind or nature which any Borrower has or may have against the beneficiary of any Letter of Credit shall be available hereunder to such Borrower against the Agent, Issuing Lender or any Revolving Credit Lender. With respect to any Letter of Credit, nothing contained in this Section 3.7 shall be deemed to prevent any Borrower, after satisfaction in full of the absolute and unconditional obligations of Borrowers hereunder with respect to such Letter of Credit, from asserting in a separate action any claim, defense, set off or other right which they (or any of them) may have against Agent, Issuing Lender or any Revolving Credit Lender in connection with such Letter of Credit.

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3.8 Risk Under Letters of Credit.

(a) In the administration and handling of Letters of Credit and any security therefor, or any documents or instruments given in connection therewith, Issuing Lender shall have the sole right to take or refrain from taking any and all actions under or upon the Letters of Credit.

(b) Subject to other terms and conditions of this Agreement, Issuing Lender shall issue the Letters of Credit and shall hold the documents related thereto in its own name and shall make all collections thereunder and otherwise administer the Letters of Credit in accordance with Issuing Lender’s regularly established practices and procedures and will have no further obligation with respect thereto. In the administration of Letters of Credit, Issuing Lender shall not be liable for any action taken or omitted on the advice of counsel, accountants, appraisers or other experts selected by Issuing Lender with due care and Issuing Lender may rely upon any notice, communication, certificate or other statement from Borrowers, beneficiaries of Letters of Credit, or any other Person which Issuing Lender believes to be authentic. Issuing Lender will, upon request, furnish the Revolving Credit Lenders with copies of Letter of Credit Documents related thereto.

(c) In connection with the issuance and administration of Letters of Credit and the assignments hereunder, Issuing Lender makes no representation and shall have no responsibility with respect to (i) the obligations of Borrowers or the validity, sufficiency or enforceability of any document or instrument given in connection therewith, or the taking of any action with respect to same, (ii) the financial condition of, any representations made by, or any act or omission of Borrowers or any other Person, or (iii) any failure or delay in exercising any rights or powers possessed by Issuing Lender in its capacity as issuer of Letters of Credit in the absence of its gross negligence or willful misconduct. Each of the Revolving Credit Lenders expressly acknowledges that it has made and will continue to make its own evaluations of Borrowers’ creditworthiness without reliance on any representation of Issuing Lender or Issuing Lender’s officers, agents and employees.

(d) If at any time Issuing Lender shall recover any part of any unreimbursed amount for any draw or other demand for payment under a Letter of Credit, or any interest thereon, Agent or Issuing Lender, as the case may be, shall receive same for the pro rata benefit of the Revolving Credit Lenders in accordance with their respective Percentages and shall promptly deliver to each Revolving Credit Lender its share thereof, less such Revolving Credit Lender’s pro rata share of the costs of such recovery, including court costs and attorney’s fees. If at any time any Revolving Credit Lender shall receive from any source whatsoever any payment on any such unreimbursed amount or interest thereon in excess of such Revolving Credit Lender’s Percentage of such payment, such Revolving Credit Lender will promptly pay over such excess to Agent, for redistribution in accordance with this Agreement.

3.9 Indemnification . Each Borrower hereby indemnifies and agrees to hold harmless the Revolving Credit Lenders, the Issuing Lender and the Agent and their respective Affiliates, and the respective officers, directors, employees and agents of such Persons (each an “L/C Indemnified Person”), from and against any and all claims, damages, losses, liabilities, costs or expenses of any kind or nature whatsoever which the Revolving Credit Lenders, the Issuing Lender or the Agent or any such Person may incur or which may be claimed against any of them by reason of or in connection with any Letter of Credit (collectively, the “L/C Indemnified Amounts”), and none of the Issuing Lender, any Revolving Credit Lender or the Agent or any of their respective officers, directors, employees or agents shall be liable or responsible for:

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(a)

the use which may be made of any Letter of Credit or for any acts or omissions of any beneficiary in connection therewith;

(b)

the validity, sufficiency or genuineness of documents or of any endorsement thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged;

(c)

payment by the Issuing Lender to the beneficiary under any Letter of Credit against presentation of documents which do not strictly comply with the terms of any Letter of Credit (unless such payment resulted from the gross negligence or willful misconduct of the Issuing Lender), including failure of any documents to bear any reference or adequate reference to such Letter of Credit;

(d)

any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit; or

(e)

any other event or circumstance whatsoever arising in connection with any Letter of Credit.

It is understood that in making any payment under a Letter of Credit the Issuing Lender will rely on documents presented to it under such Letter of Credit as to any and all matters set forth therein without further investigation and regardless of any notice or information to the contrary.

With respect to subparagraphs (a) through (e) hereof, (i) no Borrower shall be required to indemnify any L/C Indemnified Person for any L/C Indemnified Amounts to the extent such amounts result from the gross negligence or willful misconduct of such L/C Indemnified Person or any officer, director, employee or agent of such L/C Indemnified Person and (ii) the Agent and the Issuing Lender shall be liable to each Borrower to the extent, but only to the extent, of any direct, as opposed to consequential or incidental, damages suffered by such Borrower which were caused by the gross negligence or willful misconduct of the Issuing Lender or any officer, director, employee or agent of the Issuing Lender or by the Issuing Lender’s wrongful dishonor of any Letter of Credit after the presentation to it by the beneficiary thereunder of a draft or other demand for payment and other documentation strictly complying with the terms and conditions of such Letter of Credit.

3.10 Right of Reimbursement . Each Revolving Credit Lender agrees to reimburse the Issuing Lender on demand, pro rata in accordance with its respective Revolving Credit Percentage, for (i) the reasonable out-of-pocket costs and expenses of the Issuing Lender to be reimbursed by Borrowers pursuant to any Letter of Credit Agreement or any Letter of Credit, to the extent not reimbursed by Borrowers or any other Credit Party and (ii) any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, fees, reasonable out-of-pocket expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Issuing Lender in any way relating to or arising out of this Agreement (including Section 3.6(c) hereof), any Letter of Credit, any documentation or any transaction relating thereto, or any Letter of Credit Agreement, to the extent not reimbursed by Borrowers, except to the extent that such liabilities, losses, costs or expenses were incurred by Issuing Lender as a result of Issuing Lender’s gross negligence or willful misconduct or by the Issuing Lender’s wrongful dishonor of any Letter of Credit after the presentation to it by the beneficiary thereunder of a draft or other demand for payment and other documentation strictly complying with the terms and conditions of such Letter of Credit.

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4.INTENTIONALLY OMITTED.

5.CONDITIONS.

The obligations of the Lenders to make Advances or loans pursuant to this Agreement and the obligation of the Issuing Lender to issue Letters of Credit are subject to the following conditions:

5.1 Conditions of Initial Advances . The obligations of the Lenders to make initial Advances or loans pursuant to this Agreement and the obligation of the Issuing Lender to issue initial Letters of Credit, in each case, on the Effective Date only, are subject to the following conditions:

(a) This Agreement and the other Loan Documents . Borrowers shall have executed and delivered this Agreement; and each Credit Party shall have executed and delivered the other Loan Documents to which such Credit Party is required to be a party (including all schedules and other documents to be delivered pursuant hereto); and such Notes (if any), this Agreement and the other Loan Documents shall be in full force and effect.

(b) Corporate Authority . Agent shall have received, with a counterpart thereof for each Lender, from each Credit Party, a certificate of its Secretary or Assistant Secretary dated as of the Effective Date as to:

(i)

corporate resolutions (or the equivalent) of each Credit Party authorizing the transactions contemplated by this Agreement and the other Loan Documents approval of this Agreement and the other Loan Documents, in each case to which such Credit Party is party, and authorizing the execution and delivery of this Agreement and the other Loan Documents, and in the case of Borrowers, authorizing the execution and delivery of requests for Advances and the issuance of Letters of Credit hereunder,

(ii)

the incumbency and signature of the officers or other authorized persons of such Credit Party executing any Loan Document and in the case of the Borrowers, the officers who are authorized to execute any Requests for Advance, or requests for the issuance of Letters of Credit,

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(iii)

a certificate of good standing or continued existence (or the equivalent thereof) from the state of its incorporation or formation, and from every state or other jurisdiction where such Credit Party is qualified to do business, which jurisdictions are listed on Schedule 5.2 attached hereto, and

(iv)

copies of such Credit Party’s articles of incorporation and bylaws or other constitutional documents, as in effect on the Effective Date.

(c) Collateral Documents and other Loan Documents . The Agent shall have received the following documents, each in form and substance satisfactory to Agent and fully executed by each party thereto:

(i)

The following Collateral Documents, each in form and substance acceptable to Agent and fully executed by each party thereto and dated as of the Effective Date:

(A)

the Security Agreement;

(B)

the Collateral Assignment;

(C)

the Escrow Agreement Acknowledgement;

(ii)

The Comerica Intercreditor Agreement in form and substance acceptable to the Agent and fully executed by the Term Debt Lender and the Revolving Credit Agent (in each case as defined therein and dated as of the Effective Date;

(iii)

A Letter from Travelers Indemnity and Surety Company of America to the Agent in form and substance acceptable to the Agent and fully executed by each party thereto and dated on or prior to the Effective Date;

(iv)

Evidence of the filing of a UCC-3 termination statement over any “all asset” filing for the benefit of National City Bank;

(v)

Intentionally omitted;

(vi)

(A) Certified copies of uniform commercial code requests for information, or a similar search report certified by a party acceptable to the Agent, dated a date reasonably prior to the Effective Date, listing all effective financing statements in the jurisdiction noted on Schedule 5.1(c) which name any Credit Party or Target (under their present names or under any previous names used within five (5) years prior to the date hereof) as debtors, together with (x) copies of such financing statements, and (y) authorized Uniform Commercial Code (Form UCC-3) Termination Statements, if any, necessary to release all Liens and other rights of any Person in any Collateral described in the Collateral Documents previously granted by any Person (other than Liens permitted by Section 8.2 of this Agreement) and (B) intellectual property search reports results from the United States Patent and Trademark Office and the United States Copyright Office for the Credit Parties and Target dated a date reasonably prior to the Effective Date.

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(vii)

Any documents (including, without limitation, financing statements, amendments to financing statements and assignments of financing statements, stock powers executed in blank and any endorsements) requested by Agent and reasonably required to be provided in connection with the Collateral Documents to create, in favor of the Agent (for and on behalf of the Lenders), a first priority perfected security interest in the Collateral thereunder shall have been filed, registered or recorded, or shall have been delivered to Agent in proper form for filing, registration or recordation.

(c) Acquisition . On or before the Effective Date, the Agent shall have received evidence satisfactory to it that (i) all conditions to effectiveness of the Acquisition have been satisfied, other than payment of the purchase price, on terms reasonably acceptable to the Agent and in compliance with the Acquisition Documents delivered to the Agent (which Acquisition Documents are in form and substance reasonably acceptable to the Agent), (ii) that the purchase price to be paid (including any Debt assumed) in connection with the Acquisition is not in excess of $60,000,000; (iii) any material consents from any third party necessary to the consummation of the Acquisition have been obtained and (iv) fully executed copies of all material Acquisition Documents, including all schedules and exhibits thereto as in effect on the Effective Date, certified true and correct by Sterling shall have been delivered to the Agent.

(d) Intentionally Omitted .

(e) Compliance with Certain Documents and Agreements . Each Credit Party shall have each performed and complied in all material respects with all agreements and conditions contained in this Agreement and the other Loan Documents, to the extent required to be performed or complied with by such Credit Party. No Person (other than Agent, Lenders and Issuing Lender) party to this Agreement or any other Loan Document shall be in material default in the performance or compliance with any of the terms or provisions of this Agreement or the other Loan Documents or shall be in material default in the performance or compliance with any of the material terms or material provisions of, in each case to which such Person is a party.

(f) Opinions of Counsel . The Credit Parties shall furnish Agent prior to the initial Advance under this Agreement, with signed copies for each Lender, opinions of counsel to the Credit Parties, including opinions of local counsel to the extent deemed necessary by the Agent, in each case dated the Effective Date and covering such matters as reasonably required by and otherwise reasonably satisfactory in form and substance to the Agent and each of the Lenders.

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(g) Payment of Fees . Borrowers shall have paid to Comerica Bank any fees due under the terms of the Fee Letter, along with any other fees, costs or expenses due and outstanding to the Agent or the Lenders as of the Effective Date (including reasonable fees, disbursements and other charges of counsel to Agent).

(h) Financial Statements . Borrowers shall have delivered to the Lenders and the Agent, in form and substance satisfactory to Agent: (a) any updates of the pro forma unaudited combined consolidated balance sheet as of June 30, 2007 and statements of operations for the year ended December 31, 2006 and the six months ended June 30, 2007 of the Credit Parties, and forecasts through December 31, 2008, which statements shall evidence no material adverse change from the information provided to the Agent prior to the execution and delivery of the Commitment Letter.

(i) Appraisals; Due Diligence . Agent and Lenders shall have received, in each case in form and substance satisfactory to the Agent, (a) appraisals of all material machinery and equipment of the Credit Parties performed by an appraiser and using appraisal methodology satisfactory to the Agent and which establish an aggregate value of such property on an orderly liquidation value basis in amounts satisfactory to the Agent, and (b) such other reports or due diligence materials as Agent and the Majority Lenders may reasonably request, including such due diligence materials as Agent and the Majority Banks may request in connection with the Acquisition, including any new environmental reports obtained for the real estate acquired in the Acquisition.

(j) Intentionally Omitted.

(k) Bond Documents . Agent shall have received copies of the Travelers Indemnity Agreement and the Liberty Mutual Indemnity Agreement in effect as of the date hereof.

(l) Governmental and Other Approvals . Agent shall have received copies of all authorizations, consents, approvals, licenses, qualifications or formal exemptions, filings, declarations and registrations with, any court, governmental agency or regulatory authority or any securities exchange or any other person or party (whether or not governmental) received by any Credit Party in connection with the transactions contemplated by the Loan Documents to occur on the Effective Date.

(m) Closing Certificate . The Agent shall have received, with a signed counterpart for each Lender, a certificate of a Responsible Officer of Borrower Representative dated the Effective Date (or, if different, the date of the initial Advance hereunder), stating that to the best of his or her respective knowledge after due inquiry, (a) the conditions set forth in this Section 5 have been satisfied to the extent required to be satisfied by any Credit Party; (b) the representations and warranties made by the Credit Parties in this Agreement or any of the other Loan Documents, as applicable, are true and correct in all material respects; (c) no Default or Event of Default shall have occurred and be continuing; (d) since June 30, 2007, nothing shall have occurred which has had, or could reasonably be expected to have, a material adverse change on the business, results of operations, conditions, property or prospects (financial or otherwise) of Borrowers or any other Credit Party; and (e) there shall have been no material adverse change to the pro forma financial information and projections delivered to Agent prior to the execution and delivery of the Commitment Letter.

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5.2 Continuing Conditions . The obligations of each Lender to make Advances (including the initial Advance) under this Agreement and the obligation of the Issuing Lender to issue any Letters of Credit shall be subject to the continuing conditions that:

(a) No Default or Event of Default shall exist as of the date of the Advance or the request for the Letter of Credit, as the case may be; and

(b) Each of the representations and warranties contained in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects as of the date of the Advance or Letter of Credit (as the case may be) as if made on and as of such date (other than any representation or warranty that expressly speaks only as of a different date).

6.REPRESENTATIONS AND WARRANTIES.

Each Borrower represents and warrants to the Agent, the Lenders, the Swing Line Lender and the Issuing Lender as follows:

6.1 Corporate Authority . Each Credit Party is a corporation (or other business entity) duly organized and existing in good standing under the laws of the state or jurisdiction of its incorporation or formation, as applicable, and each Credit Party is duly qualified and authorized to do business as a foreign corporation in each jurisdiction where the character of its assets or the nature of its activities makes such qualification and authorization necessary except where failure to be so qualified or be in good standing could not reasonably be expected to have a Material Adverse Effect. Each Credit Party has all requisite corporate, limited liability or partnership power and authority to own all its property (whether real, personal, tangible or intangible or of any kind whatsoever) and to carry on its business.

6.2 Due Authorization . Execution, delivery and performance of this Agreement, and the other Loan Documents, to which each Credit Party is party, and the issuance of the Notes by Borrowers (if requested) are within such Person’s corporate, limited liability or partnership power, have been duly authorized, are not in contravention of any law applicable to such Credit Party or the terms of such Credit Party’s organizational documents and, except as have been previously obtained or as referred to in Section 6.10, below, do not require the consent or approval of any governmental body, agency or authority or any other third party except to the extent that such consent or approval is not material to the transactions contemplated by the Loan Documents.

6.3 Good Title; Leases; Assets; No Liens . (a) Each Credit Party, to the extent applicable, has good and valid title (or, in the case of real property, good and marketable title) to all assets owned by it, subject only to the Liens permitted under section 8.2 hereof, and each Credit Party has a valid leasehold or interest as a lessee or a licensee in all of its leased real property;

(b) Schedule 6.3(b) hereof identifies all of the real property owned by the Credit Parties on the Effective Date;

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(c) The Credit Parties will collectively own or collectively have a valid leasehold interest in all assets that were owned or leased (as lessee) by the Credit Parties immediately prior to the Effective Date to the extent that such assets are necessary for the continued operation of the Credit Parties’ businesses in substantially the manner as such businesses were operated immediately prior to the Effective Date;

(d) Each Credit Party owns or has a valid leasehold interest in all real property necessary for its continued operations and, to the best knowledge of Borrowers, no material condemnation, eminent domain or expropriation action has been commenced or threatened against any such owned or leased real property; and

(e) There are no Liens on and no financing statements on file with respect to any of the assets owned by the Credit Parties, except for the Liens permitted pursuant to Section 8.2 of this Agreement.

6.4 Taxes . Except as set forth on Schedule 6.4 hereof, each Credit Party has filed on or before their respective due dates or within the applicable grace periods, all United States federal, state, local and other tax returns which are required to be filed or has obtained extensions for filing such tax returns and is not delinquent in filing such returns in accordance with such extensions and has paid all material taxes which have become due pursuant to those returns or pursuant to any assessments received by any such Credit Party, as the case may be, to the extent such taxes have become due, except to the extent such taxes are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate provision has been made on the books of such Credit Party as may be required by GAAP.

6.5 No Defaults . No Credit Party is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which would cause or would reasonably be expected to cause a Material Adverse Effect.

6.6 Enforceability of Agreement and Loan Documents . This Agreement and each of the other Loan Documents to which any Credit Party is a party (including without limitation, each Request for Advance), have each been duly executed and delivered by its duly authorized officers and constitute the valid and binding obligations of such Credit Party, enforceable against such Credit Party in accordance with their respective terms, except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or similar laws affecting the enforcement of creditor’s rights, generally and by general principles of equity (regardless of whether enforcement is considered in a proceeding in law or equity).

6.7 Compliance with Laws . (a) Except as disclosed on Schedule 6.7, each Credit Party has complied with all applicable federal, state and local laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) including but not limited to Hazardous Material Laws, and is in compliance with any Requirement of Law, except to the extent that failure to comply therewith could not reasonably be expected to have a Material Adverse Effect; and (b) neither the extension of credit made pursuant to this Agreement or the use of the proceeds thereof by the Credit Parties will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto, or The United and Strengthening America by providing appropriate Tools Required to Intercept and Obstruct Terrorism (“USA Patriot Act”) Act of 2001, Public Law 10756, October 26, 2001 or Executive Order 13224 of September 23, 2001 issued by the President of the United States (66 Fed. Reg. 49049 (2001)).

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6.8 Non-contravention . The execution, delivery and performance of this Agreement and the other Loan Documents (including each Request for Advance) to which each Credit Party is a party are not in contravention of the terms of any indenture, agreement or undertaking to which such Credit Party is a party or by which it or its properties are bound where such violation could reasonably be expected to have a Material Adverse Effect.

6.9 Litigation . Except as set forth on Schedule 6.9 hereof, there is no suit, action, proceeding, including, without limitation, any bankruptcy proceeding or governmental investigation pending against or to the knowledge of Borrowers, threatened against any Credit Party (other than any suit, action or proceeding in which a Credit Party is the plaintiff and in which no counterclaim or cross-claim against such Credit Party has been filed), or any judgment, decree, injunction, rule, or order of any court, government, department, commission, agency, instrumentality or arbitrator outstanding against any Credit Party, nor is any Credit Party in violation of any applicable law, regulation, ordinance, order, injunction, decree or requirement of any governmental body or court which could in any of the foregoing events reasonably be expected to have a Material Adverse Effect.

6.10 Consents, Approvals and Filings, Etc . Except as set forth on Schedule 6.10 hereof, no material authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange or any other Person (whether or not governmental) is required in connection with the execution, delivery and performance: (a) by any Credit Party of this Agreement and any of the other Loan Documents or Acquisition Documents to which such Credit Party is a party or (b) by the Credit Parties of the grant of Liens granted, conveyed or otherwise established (or to be granted, conveyed or otherwise established) by or under this Agreement or the other Loan Documents, as applicable, except in each case for (i) such matters which have been previously obtained, and (ii) such filings to be made concurrently herewith or promptly following the Effective Date as are required by the Collateral Documents to perfect Liens in favor of the Agent. All such material authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations which have previously been obtained or made, as the case may be, are in full force and effect and, to the best knowledge of Borrowers, are not the subject of any attack or threatened attack (in each case in any material respect) by appeal or direct proceeding or otherwise.

6.11 Agreements Affecting Financial Condition . No Credit Party is party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect.

6.12 No Investment Company or Margin Stock . No Credit Party is an “investment company” within the meaning of the Investment Company Act of 1940, as amended. No Credit Party is engaged principally, or as one of its important activities, directly or indirectly, in the business of extending credit for the purpose of purchasing or carrying margin stock. None of the proceeds of any of the Advances will be used by any Credit Party to purchase or carry margin stock. Terms for which meanings are provided in Regulation U of the Board of Governors of the Federal Reserve System or any regulations substituted therefore, as from time to time in effect, are used in this paragraph with such meanings.

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6.13 ERISA . No Credit Party maintains or contributes to any Pension Plan subject to Title IV of ERISA, except as set forth on Schedule 6.13 hereto or otherwise disclosed to the Agent in writing. There is no accumulated funding deficiency within the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA, or any outstanding liability with respect to any Pension Plans owed to the PBGC other than future premiums due and owing pursuant to Section 4007 of ERISA, and no “reportable event” as defined in Section 4043(c) of ERISA has occurred with respect to any Pension Plan other than an event for which the notice requirement has been waived by the PBGC. None of the Credit Parties has engaged in a prohibited transaction with respect to any Pension Plan, other than a prohibited transaction for which an exemption is available and has been obtained, which could subject such Credit Parties to a material tax or penalty imposed by Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA. Each Pension Plan is being maintained and funded in accordance with its terms and is in material compliance with the requirements of the Internal Revenue Code and ERISA. No Credit Party has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or could reasonably be expected to have resulted in any Withdrawal Liability and, except as notified to Agent in writing following the Effective Date, no such Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA) or insolvent (within the meaning of Section 4245 of ERISA).

6.14 Conditions Affecting Business or Properties . Neither the respective businesses nor the properties of any Credit Party is affected by any fire, explosion, accident, strike, lockout or other dispute, drought, storm, hail, earthquake, embargo, Act of God, or other casualty (except to the extent such event is covered by insurance sufficient to ensure that upon application of the proceeds thereof, no Material Adverse Effect could reasonably be expected to occur) which could reasonably be expected to have a Material Adverse Effect.

6.15 Environmental and Safety Matters . Except as set forth in Schedules 6.9, 6.10 and 6.15:

(a)

all facilities and property owned or leased by the Credit Parties are in compliance with all Hazardous Material Laws in all material respects;

(b)

to the best knowledge of Borrowers, there have been no unresolved and outstanding past, and there are no pending or threatened:

(i)

claims, complaints, notices or requests for information received by any Credit Party with respect to any alleged violation of any Hazardous Material Law which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, or

(ii)

written complaints, notices or inquiries to any Credit Party regarding potential liability of any Credit Parties under any Hazardous Material Law which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and

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(c)

to the best knowledge of Borrowers, no conditions exist at, on or under any property now or previously owned or leased by any Credit Party which, with the passage of time, or the giving of notice or both, are reasonably likely to give rise to liability under any Hazardous Material Law which solely or together with any other such conditions could reasonably be expected to have a Material Adverse Effect.

6.16 Subsidiaries . Except as disclosed on Schedule 6.16 hereto as of the Effective Date, and thereafter, except as disclosed to the Agent in writing from time to time, no Credit Party has any Subsidiaries.

6.17 Intentionally Omitted .

6.18 Intentionally Omitted .

6.19 Franchises, Patents, Copyrights, Tradenames, etc . The Credit Parties possess all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of their business substantially as now conducted without known conflict with any rights of others except where the failure to possess such rights could not reasonably be expected to have a Material Adverse Effect. Schedule 6.19 contains a true and accurate list of all trade names and any and all other names used by any Credit Party during the five-year period ending as of the Effective Date.

6.20 Capital Structure . Schedule 6.20 attached hereto sets forth all issued and outstanding Equity Interests of each Credit Party, including the number of authorized, issued and outstanding Equity Interests of each Credit Party, the par value of such Equity Interests and, other than for Sterling, the holders of such Equity Interests, all on and as of the Effective Date. All issued and outstanding Equity Interests of each Credit Party are duly authorized and validly issued, fully paid, nonassessable, and, except for the Equity Interests of Sterling, free and clear of all Liens (except for the benefit of Agent) and such Equity Interests were issued in compliance with all applicable state, federal and foreign laws concerning the issuance of securities. Except as disclosed on Schedule 6.20, there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from any Credit Party, of any Equity Interests of any Credit Party.

6.21 Accuracy of Information . (a) The audited financial statements for the Fiscal Year ended December 31, 2006, furnished to Agent and the Lenders prior to the Effective Date fairly present in all material respects the financial condition of Sterling and its Subsidiaries covered thereby and the results of their operations for the periods covered thereby, and have been prepared in accordance with GAAP. The projections and the other pro forma financial information delivered to the Agent prior to the Effective Date are based upon good faith estimates and assumptions believed by management of the Borrowers to be accurate and reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein.

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(b) From June 30, 2007 through the Effective Date, there has been no material adverse change in the business, operations, condition, property or prospects (financial or otherwise) of the Credit Parties, taken as a whole.

(c) To the best knowledge of the Credit Parties, as of the Effective Date, (i) the Credit Parties do not have any material contingent obligations (including any liability for taxes) not disclosed by or reserved against in the opening balance sheet to be delivered hereunder and (ii) there are no unrealized or anticipated losses from any present commitment of the Credit Parties which contingent obligations and losses in the aggregate could reasonably be expected to have a Material Adverse Effect.

6.22 Solvency . After giving effect to the consummation of the transactions contemplated by this Agreement and other Loan Documents and the Acquisition Documents, each Credit Party will be solvent, able to pay its indebtedness as it matures and will have capital sufficient to carry on its businesses and all business in which it is about to engage. This Agreement is being executed and delivered by the Borrowers to Agent and the Lenders in good faith and in exchange for fair, equivalent consideration. The Credit Parties do not intend to nor does management of the Credit Parties believe the Credit Parties will incur debts beyond their ability to pay as they mature. No Credit Party contemplates filing a petition in bankruptcy or for an arrangement or reorganization under the Bankruptcy Code or any similar law of any jurisdiction now or hereafter in effect relating to any Credit Party, nor does any Credit Party have any knowledge of any threatened bankruptcy or insolvency proceedings against a Credit Party.

6.23 Employee Matters . Except as set forth on Schedule 6.23, there are no strikes, slowdowns, work stoppages, unfair labor practice complaints, grievances, arbitration proceedings or controversies pending or, to the best knowledge of the Borrowers, threatened against any Credit Party by any employees of any Credit Party, other than non-material employee grievances or controversies arising in the ordinary course of business. Set forth on Schedule 6.23 are all union contracts or agreements to which any Credit Party is party as of the Effective Date and the related expiration dates of each such contract.

6.24 No Misrepresentation . Neither this Agreement nor any other Loan Document, certificate, information or report furnished or to be furnished by or on behalf of a Credit Party to Agent or any Lender in connection with any of the transactions contemplated hereby or thereby, contains a misstatement of material fact, or omits to state a material fact required to be stated in order to make the statements contained herein or therein, taken as a whole, not misleading in the light of the circumstances under which such statements were made. There is no fact, other than information known to the public generally, known to any Credit Party after diligent inquiry, that could reasonably be expect to have a Material Adverse Effect that has not expressly been disclosed to Agent in writing.

6.25 Corporate Documents and Corporate Existence . As to each Credit Party, (a) it is an organization as described on Schedule 1.3 hereto and has provided the Agent and the Lenders with complete and correct copies of its articles of incorporation, by-laws and all other applicable charter and other organizational documents, and, if applicable, a good standing certificate and (b) its correct legal name, business address, type of organization and jurisdiction of organization, tax identification number and other relevant identification numbers are set forth on Schedule 1.3 hereto.

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6.26 Acquisition Documents.

(a)

Each Acquisition Document to which any Credit Party is a party has been duly authorized and validly executed, constitutes the valid and binding obligation of such Credit Party and is enforceable against such Credit Party in accordance with its terms except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or similar laws affecting the enforcement of creditor’s rights, generally and by general principles of equity (regardless of whether enforcement is considered in a proceeding in law or equity). No Acquisition Document to which any Credit Party is a party has been modified, amended, altered or changed in any manner except in compliance with this Agreement, and there are no unwaived defaults, other than such defaults which, either singly or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, existing under the Acquisition Documents by any Credit Party that is a party thereto, or, to the best of the knowledge of any Credit Party, by any other party thereto;

(b)

The Credit Parties will keep and perform or cause to be kept and performed all of their respective material obligations under the Acquisition Documents;

(c)

No Credit Party shall have granted a collateral assignment of, or a security interest over the Acquisition Documents (other than in favor of Agent for the benefit of the Lenders) and, no Credit Party shall have sold, transferred or assigned any Acquisition Document to any Person (other than to or in favor of Agent) without the consent of the Agent; and

(d)

Upon the consummation of the Acquisition, the Borrowers and Sellers shall have obtained all material third party consents reasonably deemed necessary by Agent or otherwise required in connection with the Acquisition and shall have delivered copies to Agent of all additional assignment or assumption agreements entered into in connection therewith, except to the extent waived or extended pursuant to the terms hereof and thereof.

7.AFFIRMATIVE COVENANTS.

Each Borrower covenants and agrees, so long as any Lender has any commitment to extend credit hereunder, or any of the Indebtedness remains outstanding and unpaid, that it will, and, as applicable, it will cause each of its Subsidiaries to:

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7.1 Financial Statements . Furnish to the Agent, in form and detail satisfactory to Agent, with sufficient copies for each Lender, the following documents:

(a)

as soon as available, but in any event within one hundred twenty (120) days after the end of each Fiscal Year, a copy of the audited Consolidated and unaudited Consolidating financial statements of the Sterling and its Consolidated Subsidiaries as at the end of such Fiscal Year and the related audited Consolidated and unaudited Consolidating statements of income, stockholders equity, and cash flows of Sterling and its Consolidated Subsidiaries for such Fiscal Year or partial Fiscal Year and underlying assumptions, setting forth in each case in comparative form the figures for the previous Fiscal Year, certified as being fairly stated in all material respects by an independent, nationally recognized certified public accounting firm reasonably satisfactory to the Agent; and

(b)

as soon as available, but in any event within forty-five (45) days after the end of each fiscal quarter of Sterling (except the last quarter of each Fiscal Year), Borrower prepared unaudited Consolidated and Consolidating balance sheets of Sterling and its Consolidated Subsidiaries as at the end of such quarter and the related stockholders equity and cash flows, jobs-in-progress report, backlog report, and accounts receivable and payable statements, and a statement of the Average Total Debt for the Applicable Measuring Period of Sterling and its Consolidated Subsidiaries for the portion of the Fiscal Year through the end of such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous Fiscal Year, and certified by a Responsible Officer of the Borrower Representative as being fairly stated in all material respects;

all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP throughout the periods reflected therein and with prior periods (except as approved by a Responsible Officer of the Borrower Representative and disclosed therein), provided however that the financial statements delivered pursuant to clause (b) hereof will not be required to include footnotes and will be subject to change from audit and year-end adjustments.

7.2 Certificates; Other Information . Furnish to the Agent, in form and detail acceptable to Agent, with sufficient copies for each Lender, the following documents:

(a)

Concurrently with the delivery of the financial statements described in Sections 7.1(a) and 7.1(b) of this Agreement for each fiscal year-end and fiscal quarter-end, respectively, a Covenant Compliance Report duly executed by a Responsible Officer of the Borrower Representative and, as required by the Security Agreement, all original vehicle titles for vehicles acquired by any Credit Party during the prior fiscal quarter;

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(b)

Deliver (i) no later than November 15, 2007, a pro forma opening balance sheet for Sterling and its Consolidated Subsidiaries (including the Target) and (ii) no later than December 15, 2007, an actual opening balance sheet (the “Balance Sheet”) for Sterling and its Consolidated Subsidiaries (including Target), each such balance sheet to be in form and substance reasonably acceptable to the Agent;

(c)

Promptly upon receipt thereof, copies of all significant reports submitted by the Credit Parties’ firm(s) of certified public accountants in connection with each annual, interim or special audit or review of any type of the financial statements or related internal control systems of the Credit Parties made by such accountants, including any comment letter submitted by such accountants to management in connection with their services;

(d)

Any financial reports, statements, press releases, other material information or written notices delivered to the holders of the Subordinated Debt pursuant to any applicable Subordinated Debt Documents (to the extent not otherwise required hereunder), as and when delivered to such Persons;

(e)

Within sixty (60) days after the end of each Fiscal Year, projections for the Credit Parties for the next succeeding Fiscal Year, substantially in the form provided to the Agent prior to Effective Date, except as otherwise requested by or agreed to by the Agent, such projections certified by a Responsible Officer of the Borrower Representative as being based on reasonable estimates and assumptions taking into account all facts and information known (or reasonably available to any Credit Party) by a Responsible Officer of the Borrower Representative;

(f)

Promptly upon the filing thereof, any 10-K or 10-Q filings made with the Securities and Exchange Commission or any national securities exchange;

(g)

Any additional information as required by any Loan Document, and such additional schedules, certificates and reports respecting all or any of the Collateral, the items or amounts received by the Credit Parties in full or partial payment thereof, and any goods (the sale or lease of which shall have given rise to any of the Collateral) possession of which has been obtained by the Credit Parties, all to such extent as Agent may reasonably request from time to time, any such schedule, certificate or report to be certified as true and correct in all material respects by a Responsible Officer of the applicable Credit Party and shall be in such form and detail as Agent may reasonably specify; and

(h)

Such additional financial and/or other information as Agent or any Lender may from time to time reasonably request, promptly following such request.

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7.3 Intentionally Omitted .

7.4 Conduct of Business and Maintenance of Existence; Compliance with Laws.

(a) Not engage in any business that is substantially different from the business conducted by the Credit Parties immediately prior to the Effective Date and businesses reasonably related or complementary thereto;

(b) Preserve, renew and keep in full force and effect its existence and maintain its qualifications to do business in each jurisdiction where such qualifications are necessary for its operations, except as otherwise permitted pursuant to Section 8.4;

(c) Take all action it deems necessary in its reasonable business judgment to maintain all rights, privileges and franchises necessary for the normal conduct of its business except where the failure to so maintain such rights, privileges or franchises could not, either singly or in the aggregate, reasonably be expected to have a Material Adverse Effect;

(d) Comply with all Requirements of Law, except to the extent that failure to comply therewith could not, either singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; and

(e) (i) Continue to be a Person whose property or interests in property is not blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Order”), (ii) not engage in the transactions prohibited by Section 2 of that Order or become associated with Persons such that a violation of Section 2 of the Order would arise, and (iii) not become a Person on the list of Specially Designated National and Blocked Persons, or (iv) otherwise not become subject to the limitation of any OFAC regulation or executive order.

7.5 Maintenance of Property; Insurance . (a) Keep all material property it deems, in its reasonable business judgment, useful and necessary in its business in working order (ordinary wear and tear excepted); (b) maintain insurance coverage with financially sound and reputable insurance companies on physical assets and against other business risks in such amounts and of such types as are customarily carried by companies similar in size and nature (including without limitation casualty and public liability and property damage insurance), and in the event of acquisition of additional property, real or personal, or of the incurrence of additional risks of any nature, increase such insurance coverage in such manner and to such extent as prudent business judgment and present practice or any applicable Requirements of Law would dictate; (c) in the case of all insurance policies covering any Collateral, such insurance policies shall provide that the loss payable thereunder shall be payable to the applicable Credit Party, and to the Agent (as mortgagee, or, in the case of personal property interests, lender loss payee) as their respective interests may appear; (d) in the case of all public liability insurance policies, such policies shall list the Agent as an additional insured, as Agent may reasonably request; and (e) if requested by Agent, certificates evidencing such policies, including all endorsements thereto, to be deposited with Agent, such certificates being in form and substance reasonably acceptable to Agent.

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7.6 Inspection of Property; Books and Records, Discussions . Permit Agent and each Lender, through their authorized attorneys, accountants and representatives (a) at all reasonable times during normal business hours, upon the request of Agent or such Lender, to examine each Credit Party’s books, accounts, records, ledgers and assets and properties; (b) from time to time, during normal business hours, upon the request of the Agent, to conduct appraisals of all or a portion of the material fixed assets of the Credit Parties, such appraisals to be completed by an appraiser as may be selected by Agent and consented to by the Borrower Representative (such consent not to be unreasonably withheld), with all reasonable costs and expenses of such appraisals to be reimbursed by the Credit Parties, provided that so long as no Event of Default or Default exists, Borrowers shall not be required to reimburse Agent for such audits or appraisals more frequently than once each Fiscal Year; (c) during normal business hours and at their own risk, to enter onto the real property owned or leased by any Credit Party to conduct inspections, investigations or other reviews of such real property; and (d) at reasonable times during normal business hours and at reasonable intervals, to visit all of the Credit Parties’ offices, discuss each Credit Party’s respective financial matters with their respective officers, as applicable, and, by this provision, each Borrower authorizes, and will cause each of their respective Subsidiaries to authorize, its independent certified or chartered public accountants to discuss the finances and affairs of any Credit Party and examine any of such Credit Party’s books, reports or records held by such accountants.

7.7 Notices . Promptly give written notice to the Agent of:

(a)

the occurrence of any Default or Event of Default of which any Credit Party has knowledge;

(b)

any (i) litigation or proceeding existing at any time between any Credit Party and any Governmental Authority or other third party, or any investigation of any Credit Party conducted by any Governmental Authority, which in any case if adversely determined would have a Material Adverse Effect or (ii) any material adverse change in the financial condition of any Credit Party since the date of the last audited financial statements delivered pursuant to Section 7.1(a) hereof;

(c)

the occurrence of any event which any Credit Party believes could reasonably be expected to have a Material Adverse Effect, promptly after concluding that such event could reasonably be expected to have such a Material Adverse Effect;

(d)

promptly after becoming aware thereof, the taking by the Internal Revenue Service or any foreign taxing jurisdiction of a written tax position (or any such tax position taken by any Credit Party in a filing with the Internal Revenue Service or any foreign taxing jurisdiction) which could reasonably be expected to have a Material Adverse Effect, setting forth the details of such position and the financial impact thereof;

(e)

(i) all jurisdictions in which any Credit Party proposes to become qualified after the Effective Date to transact business, (ii) the acquisition or creation of any new Subsidiaries, (iii) any material change after the Effective Date in the authorized and issued Equity Interests of any Credit Party or any other material amendment to any Credit Party’s charter, by-laws or other organizational documents, such notice, in each case, to identify the applicable jurisdictions, capital structures or amendments as applicable, provided that such notice shall be given not less than ten (10) Business Days prior to the proposed effectiveness of such changes, acquisition or creation, as the case may be (or such shorter period to which Agent may consent);

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(f)

not less than fifteen (15) Business Days (or such other shorter period to which Agent may agree) prior to the proposed effective date thereof, any proposed material amendments, restatements or other modifications to any Subordinated Debt Documents; and

(g)

any default or event of default by any Person under any Subordinated Debt Document, Acquisition Document or Bond Document concurrently with delivery or promptly after receipt (as the case may be) of any notice of default or event of default under the applicable document, as the case may be.

Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Borrower Representative setting forth details of the occurrence referred to therein and, in the case of notices referred to in clauses (a), (b), (c), (d) and (g) hereof stating what action the applicable Credit Party has taken or proposes to take with respect thereto.

7.8 Hazardous Material Laws .

(a) Use and operate all of its facilities and properties in material compliance with all applicable Hazardous Material Laws, keep all material required permits, approvals, certificates, licenses and other authorizations required under such Hazardous Material Laws in effect and remain in compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Hazardous Material Laws;

(b) (i) Promptly notify Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries received by any Credit Party relating to its facilities and properties or compliance with Hazardous Material Laws which, if adversely determined, could reasonably be expected to have a Material Adverse Effect and (ii) promptly cure and have dismissed with prejudice to the reasonable satisfaction of Agent and the Majority Lenders any material actions and proceedings relating to compliance with Hazardous Material Laws to which any Credit Party is named a party, other than such actions or proceedings being contested in good faith and with the establishment of reasonable reserves;

(c) To the extent necessary to comply in all material respects with Hazardous Material Laws, remediate or monitor contamination arising from a release or disposal of Hazardous Material, which solely, or together with other releases or disposals of Hazardous Materials could reasonably be expected to have a Material Adverse Effect;

(d) Provide such information and certifications which Agent or any Lender may reasonably request from time to time to evidence compliance with this Section 7.8.

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7.9 Financial Covenants.

(a) Commencing with the fiscal quarter ending December 31, 2007, maintain as of the end of each fiscal quarter a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00.

(b) Commencing with the fiscal quarter ending December 31, 2007, maintain as of the end of each fiscal quarter a Leverage Ratio of not more (i) than 2.25 to 1.00 for the fiscal quarters ending December 31, 2007 and March 31, 2008 and (ii) 2.00 to 1.00 for each fiscal quarter thereafter:

(c) Commencing on the Effective Date (after giving effect to the Acquisition), maintain a Tangible Net Worth of Sterling and its Consolidated Subsidiaries equal to (i) the Tangible Net Worth of Sterling and its Consolidated Subsidiaries as calculated based on the Balance Sheet less $3,000,000 plus (ii) 50% of each subsequent fiscal quarter’s positive Net Income, without reduction for losses.

(d) Commencing on the Effective Date (after giving effect to the Acquisition), maintain an Asset Coverage Ratio of at least 1.25 to 1.00.

(e) At no time shall Sterling and its Consolidated Subsidiaries have Net Income for any two consecutive fiscal quarters which is less than ($500,000) in the aggregate for such two consecutive fiscal quarters.

7.10 Governmental and Other Approvals . Apply for, obtain and/or maintain in effect, as applicable, all authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations (whether with any court, governmental agency, regulatory authority, securities exchange or otherwise) which are necessary or reasonably requested by Agent in connection with the execution, delivery and performance by any Credit Party of, as applicable, this Agreement, the other Loan Documents, the Subordinated Debt Documents or any other documents or instruments to be executed and/or delivered by any Credit Party, as applicable in connection therewith or herewith, except where the failure to so apply for, obtain or maintain could not reasonably be expected to have a Material Adverse Effect.

7.11 Compliance with ERISA; ERISA Notices . (a) Comply in all material respects with all material requirements imposed by ERISA and the Internal Revenue Code, including, but not limited to, the minimum funding requirements for any Pension Plan, except to the extent that any noncompliance could not reasonably be expected to have a Material Adverse Effect.

(b) Promptly notify Agent upon the occurrence of any of the following events in writing: (i) the termination, other than a standard termination, as defined in ERISA, of any Pension Plan subject to Subtitle C of Title IV of ERISA by any Credit Party; (ii) the appointment of a trustee by a United States District Court to administer any Pension Plan subject to Title IV of ERISA; (iii) the commencement by the PBGC, of any proceeding to terminate any Pension Plan subject to Title IV of ERISA; (iv) the failure of any Credit Party to make any payment in respect of any Pension Plan required under Section 412 of the Internal Revenue Code or Section 302 of ERISA; (v) the withdrawal of any Credit Party from any Multiemployer Plan if any Credit Party reasonably believes that such withdrawal would give rise to the imposition of Withdrawal Liability with respect thereto; or (vi) the occurrence of (x) a “reportable event” which is required to be reported by a Credit Party under Section 4043 of ERISA other than any event for which the reporting requirement has been waived by the PBGC or (y) a “prohibited transaction” as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code other than a transaction for which a statutory exemption is available or an administrative exemption has been obtained.

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7.12 Defense of Collateral . Defend the Collateral from any Liens other than Liens permitted by Section 8.2.

7.13 Future Subsidiaries; Additional Collateral.

(a) With respect to each Person which becomes a Domestic Subsidiary of a Borrower (directly or indirectly) subsequent to the Effective Date, whether by Permitted Acquisition or otherwise, cause such new Domestic Subsidiary to execute and deliver to the Agent, for and on behalf of each of the Lenders (unless waived by Agent):

(i)

Within thirty (30) days after the date such Person becomes a Domestic Subsidiary (or such longer time period as the Agent may determine), a joinder agreement to this Agreement, whereby such Domestic Subsidiary shall become a co-Borrower hereunder; and

(ii)

within thirty (30) days after the date such Person becomes a Domestic Subsidiary (or such longer time period as the Agent may determine), a joinder agreement to the Security Agreement whereby such Domestic Subsidiary grants a Lien over its assets (other than Equity Interests which should be governed by (b) of this Section 7.13) as set forth in the Security Agreement, and such Domestic Subsidiary shall take such additional actions as may be necessary to ensure a valid first priority perfected Lien over such assets of such Domestic Subsidiary as are specified in the Security Agreement, subject only to the other Liens permitted pursuant to Section 8.2 of this Agreement;

(iii)

within the time period specified in and to the extent required under clause (c) of this Section 7.13, any Mortgage, Collateral Access Agreements and/or other documents required to be delivered in connection therewith;

(b) With respect to the Equity Interests of each Person which becomes (whether by Permitted Acquisition or otherwise) (i) a Domestic Subsidiary subsequent to the Effective Date, cause the Credit Party that holds such Equity Interests to execute and deliver such Pledge Agreements, and take such actions as may be necessary to ensure a valid first priority perfected Lien over one hundred percent (100%) of the Equity Interests of such Domestic Subsidiary held by a Credit Party, such Pledge Agreements to be executed and delivered (unless waived by Agent) within thirty (30) days after the date such Person becomes a Domestic Subsidiary (or such longer time period as Agent may determine); and (ii) a Foreign Subsidiary subsequent to the Effective Date, the Equity Interests of which is held directly by a Borrower or one of its Domestic Subsidiaries, cause the Credit Party that holds such Equity Interests to execute and deliver such Pledge Agreements and take such actions as may be necessary to ensure a valid first priority perfected Lien over sixty-five percent (65%) of the Equity Interests of such Subsidiary, such Pledge Agreements to be executed and delivered (unless waived by Agent) within thirty (30) days after the date such Person becomes a Foreign Subsidiary (or such longer time period as Agent may determine); and

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(c) (i) With respect to the acquisition of a fee interest in real property by any Credit Party after the Effective Date (whether by Permitted Acquisition or otherwise) where the fair market value of such real property is in excess of $1,000,000 or the fair market value of such real property, together with all other real property owned by the Credit Parties and not encumbered by a lien in the name of the Agent for the benefit of the Lenders is in excess of $2,500,000, not later than thirty (30) days after the acquisition is consummated or the owner of such property becomes a Domestic Subsidiary (or such longer time period as Agent may determine), such Credit Party shall execute or cause to be executed (unless waived by Agent), a Mortgage (or an amendment to an existing mortgage, where appropriate) covering such real property, together with such additional real estate documentation, environmental reports, title policies and surveys as may be reasonably required by Agent; and (ii) with respect to the acquisition of any leasehold interest in real property by any Credit Party after the Effective Date (whether by Permitted Acquisition or otherwise), not later than thirty (30) days after the acquisition is consummated or the owner of the applicable leasehold interest becomes a Domestic Subsidiary (or such longer time period as Agent may determine), the applicable Credit Party shall deliver to the Agent a copy of the applicable lease agreement and shall execute or cause to be executed, at Agent’s option, unless otherwise waived by Agent, a Collateral Access Agreement in form and substance reasonably acceptable to Agent together with such other documentation as may be reasonably required by Agent, provided, however the requirement of delivering such Collateral Access Agreements shall only apply to permanent leased facilities, and not to any temporary leased locations relating solely to jobs-in-progress;

in each case in form reasonably satisfactory to the Agent, in its reasonable discretion, together with such supporting documentation, including without limitation corporate authority items, certificates and opinions of counsel, as reasonably required by the Agent. Upon the Agent’s request, Credit Parties shall take, or cause to be taken, such additional steps as are necessary or advisable under applicable law to perfect and ensure the validity and priority of the Liens granted under this Section 7.13.

7.14 Accounts . Maintain all deposit accounts and securities accounts of any Credit Party with Agent, provided, however that the Credit Parties may maintain other deposit accounts with a bank other than Agent provided that the aggregate amount held in such other deposit accounts at any time shall not exceed $250,000.

7.15 Use of Proceeds . Use all Advances of the Revolving Credit as set forth in Section 2.12 hereof. No Borrower shall use any portion of the proceeds of any such advances for the purpose of purchasing or carrying any “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System) in any manner which violates the provisions of Regulation T, U or X of said Board of Governors or for any other purpose in violation of any applicable statute or regulation.

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7.16 Post-Closing Items . Within the time periods specified below (unless such time period is otherwise extended by the Agent in its sole discretion), the Borrowers shall provide the following materials to the Agent:

(a)

Within thirty (30) days of the Effective Date, execute and deliver Mortgages, in form and substance reasonably acceptable to the Agent for that certain real property located at (i) 20810 Fernbush Lane, Houston, Texas 77073, (ii) Loop 21050 Loop 494, New Caney, Montgomery County, Texas, (iii) 64.839 acres on Bauer Road, Cypress, Harris County, Texas, (iv) 50.7 acres on St. Hedwig Street (FM1346), San Antonio, Bexar County, Texas; (v) 4.466 acres at 5001 West Rock Island Road (CR 274), Grand Prairie, Dallas County, Texas and (vi) 5.0 acres at 20505 Essman, Houston, Harris County, Texas, together with all related documentation as Agent may request.

(b)

On the Effective Date, (i) the Joinder Agreement executed by Target; (ii) for any Lender requesting them, Revolving Credit Notes and for the Swing Line Lender, the Swing Note, executed by the Borrowers; (iii) officers’ certificates of the Target in the form required by Section 5.1(b) hereof; (iv) that certain Comerica Bank Merger Acknowledgment, executed by the Borrowers; (v) that certain Agreement re: No Oral Agreements, executed by the Borrowers; (vi) that certain Acknowledgment of Pledge executed by RHBL and (vii) that certain Acknowledgment of the Borrowers to the Comerica Intercreditor Agreement.

(c)

Within thirty (30) days of the Effective Date, amend the loan documents relating to the Comerica Debt in form and substance reasonably acceptable to the Agent;

(d)

Within fifteen (15) days of the Effective Date, deliver certificates of foreign qualification for OMC in the Commonwealth of Massachusetts, and for TSC in the State of Arizona;

(e)

Within fifteen (15) days of the Effective Date, deliver casualty and liability insurance certificates in form and substance reasonably acceptable to the Agent;

(f)

Within fifteen (15) days of the Effective Date, deliver an opinion as to the Target from counsel to the Borrowers in the State of Nevada, in form and substance reasonably acceptable to the Agent;

(g)

Within fifteen (15) days of the Effective Date, to the extent there is any outstanding intercompany Debt among any Credit Parties, execute Intercompany Notes evidencing such Debt and deliver such Intercompany Notes to the Agent;

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(h)

Unless within sixty (60) days of the Effective Date, any investment accounts held with Comerica Securities, Inc. have been closed, the applicable Credit Parties shall, upon the request of the Agent, execute and deliver an account control agreement regarding such accounts in form and substance reasonably acceptable to the Agent together with such other documents related thereto as Agent may reasonably request; and

(i)

Within thirty (30) days of the Effective Date, all vehicle titles for vehicles owned by the Borrowers.

7.17 Further Assurances and Information

. (a) Take such actions as the Agent or Majority Lenders may from time to time reasonably request to establish and maintain first priority perfected security interests in and Liens on all of the Collateral, subject only to those Liens permitted under Section 8.2 hereof, including executing and delivering such additional pledges, assignments, mortgages, lien instruments or other security instruments covering any or all of the Credit Parties’ assets as Agent may reasonably require, such documentation to be in form and substance reasonably acceptable to Agent, and prepared at the expense of the Borrowers; and

(b) Execute and deliver or cause to be executed and delivered to Agent within a reasonable time following Agent’s request, and at the expense of the Borrowers, such other documents or instruments as Agent may reasonably require to effectuate more fully the purposes of this Agreement or the other Loan Documents.

(c) Provide the Agent and the Lenders with any other information required by Section 326 of the Patriot Act or necessary for the Agent and the Lenders to verify the identity of any Credit Party as required by Section 326 of the Patriot Act.

8.NEGATIVE COVENANTS.

Each Borrower covenants and agrees that, so long as any Lender has any commitment to extend credit hereunder, or any of the Indebtedness remains outstanding and unpaid, it will not, and, as applicable, it will not permit any of its Subsidiaries to:

8.1 Limitation on Debt . Create, incur, assume or suffer to exist any Debt, except:

(a)

Indebtedness of any Credit Party to Agent and the Lenders under this Agreement and/or the other Loan Documents;

(b)

any Debt existing on the Effective Date and set forth in Schedule 8.1 attached hereto and any renewals or refinancing of such Debt (provided that (i) the aggregate principal amount of such renewed or refinanced Debt shall not exceed the aggregate principal amount of the original Debt outstanding on the Effective Date (less any principal payments and the amount of any commitment reductions made thereon on or prior to such renewal or refinancing), (ii) the renewal or refinancing of such Debt shall be on substantially the same or better terms as in effect with respect to such Debt on the Effective Date, and shall otherwise be in compliance with this Agreement, and (iii) at the time of such renewal or refinancing no Default or Event of Default has occurred and is continuing or would result from the renewal or refinancing of such Debt;

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(c)

any Debt of Borrowers or any Subsidiary incurred to finance the acquisition of fixed or capital assets, whether pursuant to a loan or a Capitalized Lease provided that both at the time of and immediately after giving effect to the incurrence thereof (i) no Default or Event of Default shall have occurred and be continuing, and (ii) the aggregate amount of all such Debt at any one time outstanding (including, without limitation, any Debt of the type described in this clause (c) which is set forth on Schedule 8.1 hereof) shall not exceed $5,000,000, and any renewals or refinancings of such Debt on terms substantially the same or better than those in effect at the time of the original incurrence of such Debt;

(d)

Debt under any Hedging Transactions, provided that such transaction is entered into for risk management purposes and not for speculative purposes;

(e)

Debt arising from judgments or decrees not deemed to be a Default or Event of Default under subsection (g) of Section 9.1;

(f)

Debt owing to a Person that is a Credit Party, but only to the extent permitted under Section 8.7 hereof;

(g)

the Comerica Debt and the Subordinated Debt;

(h)

Debt arising under the Surety Agreements, provided that the Borrowers shall promptly terminate the Liberty Mutual Indemnity Agreement and any other Bond Documents related thereto following the completion of the construction projects set forth on Schedule 8.1(i);

(i)

additional unsecured Debt not otherwise described above, provided that both at the time of and immediately after giving effect to the incurrence thereof (i) no Default or Event of Default shall have occurred and be continuing or result therefrom and (ii) the aggregate amount of all such Debt shall not exceed $1,000,000 at any one time outstanding.

8.2 Limitation on Liens . Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for:

(a)

Permitted Liens;

(b)

Liens securing Debt permitted by Section 8.1(c), provided that (i) such Liens are created upon fixed or capital assets acquired by the applicable Credit Party, (ii) any such Lien is created solely for the purpose of securing indebtedness representing or incurred to finance the cost of the acquisition of the item of property subject thereto, (iii) the principal amount of the Debt secured by any such Lien shall at no time exceed 100% of the sum of the purchase price or cost of the applicable property, equipment or improvements and the related costs and charges imposed by the vendors thereof and (iv) the Lien does not cover any property other than the fixed or capital asset acquired; provided, however, that no such Lien shall be created over any owned real property of any Credit Party for which Agent has received a Mortgage or for which such Credit Party is required to execute a Mortgage pursuant to the terms of this Agreement;

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(c)

Liens created pursuant to the Loan Documents;

(d)

Liens securing the Comerica Debt, as in effect on the Effective Date, and subject to the terms of the Comerica Intercreditor Agreement;

(e)

Liens arising under the Surety Agreements, provided that (i) no public filing of such Lien has been made, (ii) no action has been taken or threatened to be taken to perfect or enforce such Lien; and (iii) none of the surety companies party to the Surety Agreements have required that any Credit Party establish a cash collateral account or otherwise put cash on deposit for their benefit;

(f)

other Liens, existing on the Effective Date, set forth on Schedule 8.2 and renewals, refinancings and extensions thereof on substantially the same or better terms as in effect on the Effective Date and otherwise in compliance with this Agreement.

Regardless of the provisions of this Section 8.2, no Lien over the Equity Interests of Borrowers (other than Sterling) or any Subsidiary of any Borrower (except for those Liens for the benefit of Agent and the Lenders) shall be permitted under the terms of this Agreement.

8.3 Acquisitions . Except for the Acquisition, Permitted Acquisitions and acquisitions permitted under Section 8.7, if any, purchase or otherwise acquire or become obligated for the purchase of all or substantially all or any material portion of the assets or business interests or a division or other business unit of any Person, or any Equity Interest of any Person, or any business or going concern.

8.4 Limitation on Mergers, Dissolution or Sale of Assets . Enter into any merger or consolidation or convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, Equity Interests, receivables and leasehold interests), whether now owned or hereafter acquired or liquidate, wind up or dissolve, except:

(a)

inventory leased or sold in the ordinary course of business;

(b)

obsolete, damaged, uneconomic or worn out machinery, parts, property or equipment, or property or equipment no longer used or useful in the conduct of the applicable Credit Party’s business;

(c)

Permitted Acquisitions;

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(d)

mergers or consolidations of any Subsidiary of a Borrower with or into a Borrower or any Guarantor so long as such Borrower or such Guarantor shall be the continuing or surviving entity; provided that at the time of each such merger or consolidation, both before and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or result from such merger or consolidation;

(e)

any Subsidiary of a Borrower may liquidate or dissolve into a Borrower or a Guarantor if such Borrower determines in good faith that such liquidation or dissolution is in the best interests of such Borrower, so long as no Default or Event of Default has occurred and is continuing or would result therefrom;

(f)

sales or transfers, including without limitation upon voluntary liquidation from any Credit Party to a Borrower or a Guarantor, provided that the applicable Borrower or Guarantor takes such actions as Agent may reasonably request to ensure the perfection and priority of the Liens in favor of the Lenders over such transferred assets;

(g)

(i) Asset Sales (exclusive of asset sales permitted pursuant to all other subsections of this Section 8.4) in which the sales price is at least equal to the fair market value of the assets sold and the consideration received is cash or cash equivalents or Debt of any Credit Party being assumed by the purchaser, provided that, (A) for Asset Sales for assets other than real property, the aggregate amount of such Asset Sales does not exceed $2,000,000 in any Fiscal Year and (B) no Default or Event of Default has occurred and is continuing at the time of each such sale (both before and after giving effect to such Asset Sale), and (ii) other Asset Sales approved by the Majority Lenders in their sole discretion;

(h)

the sale or disposition of Permitted Investments and other cash equivalents in the ordinary course of business; and

(i)

dispositions of owned or leased vehicles in the ordinary course of business.

The Lenders hereby consent and agree to the release by Agent of any and all Liens on the property sold or otherwise disposed of in compliance with this Section 8.4.

8.5 Restricted Payments . Declare or make any distributions, dividend, payment or other distribution of assets, properties, cash, rights, obligations or securities (collectively, “Distributions”) on account of any of its Equity Interests, as applicable, or purchase, redeem or otherwise acquire for value any of its Equity Interests, as applicable, or any warrants, rights or options to acquire any of its Equity Interests, now or hereafter outstanding (collectively, “Purchases”), except that:

(a)

each Credit Party may pay cash Distributions to the Borrowers;

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(b)

each Credit Party may declare and make Distributions payable in the Equity Interests of such Credit Party, provided that the issuance of such Equity Interests does not otherwise violate the terms of this Agreement and no Default or Event of Default has occurred and is continuing at the time of making such Distribution or would result from the making of such Distribution; and

(c)

RBHL may make cash Distributions to Mr. Richard Buenting at the times and in the amounts set forth in the Purchase Agreement as in effect on the date hereof, provided that no Default or Event of Default has occurred and is continuing or could reasonably be expected to result therefrom.

8.6 Put and Call . Make any payments to Richard Buenting in respect of the Put (as defined in the Acquisition Documents) or otherwise exercise the Call (as defined in the Purchase Agreement) if a Default or Event of Default has occurred and is continuing or could reasonably be expected to result therefrom.

8.7 Limitation on Investments, Loans and Advances . Make or allow to remain outstanding any Investment in, or any loans or advances to, any Person other than:

(a)

Permitted Investments;

(b)

Investments existing on the Effective Date and listed on Schedule 8.7 hereof;

(c)

sales on open account in the ordinary course of business;

(d)

intercompany loans or intercompany Investments made amongst the Borrowers, provided, further, that in each case, no Default or Event of Default shall have occurred and be continuing at the time of making such intercompany loan or intercompany Investment or result from such intercompany loan or intercompany Investment being made and that any intercompany loans shall be evidenced by and funded under an Intercompany Note pledged to the Agent under the appropriate Collateral Documents;

(e)

Investments in respect of Hedging Transactions provided that such transaction is entered into for risk management purposes and not for speculative purposes;

(f)

loans and advances to employees, officers and directors of any Credit Party for moving, entertainment, travel and other similar expenses in the ordinary course of business not in excess of $250,000 in the aggregate amount at any time outstanding;

(g)

Permitted Acquisitions and Investments in any Person acquired pursuant to a Permitted Acquisition;

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(h)

Investments constituting deposits made in connection with the purchase of goods or services in the ordinary course of business in an aggregate amount for such deposits not to exceed $3,000,000 at any one time outstanding;

(i)

other Investments not described above provided that both at the time of and immediately after giving effect to any such Investment (i) no Default or Event of Default shall have occurred and be continuing or shall result from the making of such Investment and (ii) the aggregate amount of all such Investments shall not exceed $250,000 at any time outstanding.

In valuing any Investments for the purpose of applying the limitations set forth in this Section 8.7 (except as otherwise expressly provided herein), such Investment shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation, but less any amount repaid or recovered on account of capital or principal.

8.8 Transactions with Affiliates . Except as set forth in Schedule 8.8, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliates of the Credit Parties except: (a) transactions with Affiliates that are the Borrowers or Guarantors; (b) transactions otherwise permitted under this Agreement; and (c) transactions in the ordinary course of a Credit Party’s business and upon fair and reasonable terms no less favorable to such Credit Party than it would obtain in a comparable arms length transaction from unrelated third parties.

8.9 Sale-Leaseback Transactions ; Sale of Accounts or Notes Receivables ; Synthetic Leases . Enter into any arrangement with any Person providing for (a) the leasing by a Credit Party of real or personal property which has been or is to be sold or transferred by such Credit Party to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Credit Party, as the case may be, (b) sell any accounts or notes receivable or (c) enter into any synthetic lease (being an operating lease which has been structured so that it is not recorded as a liability on the balance sheet of any of the Credit Parties).

8.10 Limitations on Other Restrictions . Except for this Agreement or any other Loan Document, enter into any agreement, document or instrument which would (i) restrict the ability of any Subsidiary of the Borrowers to pay or make dividends or distributions in cash or kind to Borrowers or any Guarantor, to make loans, advances or other payments of whatever nature to any Credit Party, or to make transfers or distributions of all or any part of its assets to any Credit Party; or (ii) restrict or prevent any Credit Party from granting Agent on behalf of Lenders Liens upon, security interests in and pledges of their respective assets, except to the extent such restrictions exist in documents creating Liens permitted by Section 8.2(b) hereunder.

8.11 Prepayment of Debt . Make any prepayment (whether optional or mandatory), repurchase, redemption, defeasance or any other payment in respect of any Subordinated Debt , provided, however, that the applicable Credit Party may make certain payments in respect of the Subordinated Debt but only to the extent permitted under the applicable Subordinated Debt Documents and the applicable Subordination Agreement.

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8.12 Amendment of Certain Documents . Amend, modify or otherwise alter (or suffer to be amended, modified or altered) the Subordinated Debt Documents, the Acquisition Documents or the Surety Agreements except as permitted in the applicable Subordinated Debt Documents and Subordination Agreements, or if no such restrictions exist in the applicable Subordinated Debt Documents or Subordination Agreements, without the prior written consent of the Agent.

8.13 Modification of Certain Agreements . Make, permit or consent to any amendment or other modification to the constitutional documents of any Credit Party or any of the Bond Documents (other than the Surety Agreements which are subject to Section 8.12 above) except to the extent that any such amendment or modification (i) does not violate the terms and conditions of this Agreement or any of the other Loan Documents, (ii) does not materially adversely affect the interest of the Lenders as creditors and/or secured parties under any Loan Document and (iii) could not reasonably be expected to have a Material Adverse Effect.

8.14 Management Fees . Pay or otherwise advance, directly or indirectly, any management, consulting or other fees to an Affiliate (other than an Affiliate which is a Borrower or a Guarantor), other than fees not in excess of $250,000 in the aggregate amount in any year.

8.15 Fiscal Year . Permit the Fiscal Year of any Credit Party to end on a day other than December 31.

9.DEFAULTS.

9.1 Events of Default . The occurrence of any of the following events shall constitute an Event of Default hereunder:

(a)

non-payment when due of (i) the principal or interest on the Indebtedness under the Revolving Credit (including the Swing Line) or (ii) any Reimbursement Obligation;

(b)

non-payment of any other amounts due and owing by any Borrower under this Agreement or by any Credit Party under any of the other Loan Documents to which it is a party, other than as set forth in subsection (a) above, within three (3) Business Days after the same is due and payable;

(c)

default in the observance or performance of any of the conditions, covenants or agreements of any Borrower set forth in Sections 7.1, 7.2, 7.4(a) and (e), 7.5 (provided, however, if Credit Parties’ failure to comply with Section 7.5 arises from the Agent’s determination that the Credit Parties’ insurance is not of the kind customarily carried by similar companies, a failure to comply with Section 7.5 hereof shall not be an Event of Default until 30 days following Agent’s notification to the Borrower Representative that the Credit Parties’ insurance is not adequate), 7.6, 7.7, 7.9, 7.13, 7.14, 7.15, 7.16, 7.17 or Article 8 in its entirety, provided that an Event of Default arising from a breach of Sections 7.1 or 7.2 shall be deemed to have been cured upon delivery of the required item; and provided further that any Event of Default arising solely due to a breach of Section 7.7(a) shall be deemed cured upon the earlier of (x) the giving of the notice required by Section 7.7(a) and (y) the date upon which the Default or Event of Default giving rise to the notice obligation is cured or waived;

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(d)

default in the observance or performance of any of the other conditions, covenants or agreements set forth in this Agreement or any of the other Loan Documents by any Credit Party and continuance thereof for a period of thirty (30) consecutive days; ;

(e)

any representation or warranty made by any Credit Party herein or in any certificate, instrument or other document submitted pursuant hereto proves untrue or misleading in any material adverse respect when made;

(f)

(i) default by any Credit Party in the payment of any indebtedness for borrowed money, whether under a direct obligation or guaranty (other than Indebtedness hereunder) of any Credit Party in excess of One Million Dollars ($1,000,000) (or the equivalent thereof in any currency other than Dollars) individually or in the aggregate when due and continuance thereof beyond any applicable period of cure and or (ii) failure to comply with the terms of any other obligation of any Credit Party with respect to any indebtedness for borrowed money (other than Indebtedness hereunder) in excess of One Million Dollars ($1,000,000) (or the equivalent thereof in any currency other than Dollars) individually or in the aggregate, which continues beyond any applicable period of cure and which would permit the holder or holders thereto to accelerate such other indebtedness for borrowed money, or require the prepayment, repurchase, redemption or defeasance of such indebtedness;

(g)

the rendering of any judgment(s) (not covered by adequate insurance from a solvent carrier which is defending such action without reservation of rights) for the payment of money in excess of the sum of One Million Dollars ($1,000,000) (or the equivalent thereof in any currency other than Dollars) individually or in the aggregate against any Credit Party, and such judgments shall remain unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of forty-five (45) consecutive days from the date of its entry;

(h)

the occurrence of (i) a “reportable event”, as defined in ERISA, which is determined by the PBGC to constitute grounds for a distress termination of any Pension Plan subject to Title IV of ERISA maintained or contributed to by or on behalf of any Credit Party for the benefit of any of its employees or for the appointment by the appropriate United States District Court of a trustee to administer such Pension Plan and such reportable event is not corrected and such determination is not revoked within sixty (60) days after notice thereof has been given to the plan administrator of such Pension Plan (without limiting any of Agent’s or any Lender’s other rights or remedies hereunder), or (ii) the termination or the institution of proceedings by the PBGC to terminate any such Pension Plan, or (iii) the appointment of a trustee by the appropriate United States District Court to administer any such Pension Plan, or (iv) the reorganization (within the meaning of Section 4241 of ERISA) or insolvency (within the meaning of Section 4245 of ERISA) of any Multiemployer Plan, or receipt of notice from any Multiemployer Plan that it is in reorganization or insolvency, or the complete or partial withdrawal by any Credit Party from any Multiemployer Plan, which in the case of any of the foregoing, could reasonably be expected to have a Material Adverse Effect;

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(i)

except as expressly permitted under this Agreement, any Credit Party shall be dissolved (other than a dissolution of a Subsidiary of a Borrower which is not a Guarantor or a Borrower) or liquidated (or any judgment, order or decree therefor shall be entered) except as otherwise permitted herein; or if a creditors’ committee shall have been appointed for the business of any Credit Party; or if any Credit Party shall have made a general assignment for the benefit of creditors or shall have been adjudicated bankrupt and if not an adjudication based on a filing by a Credit Party, it shall not have been dismissed within sixty (60) days, or shall have filed a voluntary petition in bankruptcy or for reorganization or to effect a plan or arrangement with creditors or shall fail to pay its debts generally as such debts become due in the ordinary course of business (except as contested in good faith and for which adequate reserves are made in such party’s financial statements); or shall file an answer to a creditor’s petition or other petition filed against it, admitting the material allegations thereof for an adjudication in bankruptcy or for reorganization; or shall have applied for or permitted the appointment of a receiver or trustee or custodian for any of its property or assets; or such receiver, trustee or custodian shall have been appointed for any of its property or assets (otherwise than upon application or consent of a Credit Party ) and shall not have been removed within sixty (60) days; or if an order shall be entered approving any petition for reorganization of any Credit Party and shall not have been reversed or dismissed within sixty (60) days;

(j)

(i) any Person either alone or together with any of its Subsidiaries, shall acquire more than fifty percent (50%) of the issued and outstanding Equity Interests of Sterling, (ii) Sterling shall directly or indirectly cease to hold one hundred percent (100%) (or in the case of RHBL, at least 91%) of the issued and outstanding Equity Interests of any other Borrower or any Guarantor; (iii) any Person either alone or together with any of its Affiliates shall have the ability to elect a controlling majority of the Board of Directors of Sterling or (iv) any “change of control” or “change in control” occurs as defined in any Subordinated Debt Documents;

(k)

A default or event of default shall have occurred under any Bond Documents; or

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(l)

any Loan Document shall at any time for any reason cease to be in full force and effect (other than in accordance with the terms thereof or the terms of any other Loan Document), as applicable, or the validity, binding effect or enforceability thereof shall be contested by any party thereto (other than any Lender, Agent, Issuing Lender or Swing Line Lender), or any Person shall deny that it has any or further liability or obligation under any Loan Document, or any such Loan Document shall be terminated (other than in accordance with the terms thereof or the terms of any other Loan Document), invalidated, revoked or set aside or in any way cease to give or provide to the Lenders and the Agent the benefits purported to be created thereby, or any Loan Document purporting to grant a Lien to secure any Indebtedness shall, at any time after the delivery of such Loan Document, fail to create a valid and enforceable Lien on any Collateral purported to be covered thereby or such Lien shall fail to cease to be a perfected Lien with the priority required in the relevant Loan Document.

9.2 Exercise of Remedies . If an Event of Default has occurred and is continuing hereunder: (a) the Agent may, and shall, upon being directed to do so by the Majority Revolving Credit Lenders, declare the Revolving Credit Aggregate Commitment terminated; (b) the Agent may, and shall, upon being directed to do so by the Majority Lenders, upon notice to the Borrower Representative, declare the entire unpaid principal Indebtedness, including the Notes, immediately due and payable, without presentment, notice (other than as set forth in this Section) or demand, all of which are hereby expressly waived by the Borrowers; (c) upon the occurrence of any Event of Default specified in Section 9.1(i) and notwithstanding the lack of any declaration by Agent under preceding clauses (a) or (b), the entire unpaid principal Indebtedness shall become automatically and immediately due and payable, and the Revolving Credit Aggregate Commitment shall be automatically and immediately terminated; (d) the Agent shall, upon being directed to do so by the Majority Revolving Credit Lenders, demand immediate delivery of cash collateral, and each Borrower agrees to deliver such cash collateral upon demand, in an amount equal to 105% of the maximum amount that may be available to be drawn at any time prior to the stated expiry of all outstanding Letters of Credit, for deposit into an account controlled by the Agent; (e) the Agent may, and shall, upon being directed to do so by the Majority Lenders, notify Borrowers or any Credit Party that interest shall be payable on demand on all Indebtedness (other than Revolving Credit Advances and Swing Line Advances with respect to which Sections 2.6 hereof shall govern) owing from time to time to the Agent or any Lender, at a per annum rate equal to the then applicable Prime-based Rate plus two percent (2%); and (f) the Agent may, and shall, upon being directed to do so by the Majority Lenders or the Lenders, as applicable (subject to the terms hereof), exercise any remedy permitted by this Agreement, the other Loan Documents or law.

9.3 Rights Cumulative . No delay or failure of Agent and/or Lenders in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof preclude any further exercise thereof, or the exercise of any other power, right or privilege. The rights of Agent and Lenders under this Agreement are cumulative and not exclusive of any right or remedies which Lenders would otherwise have.

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9.4 Waiver by Borrowers of Certain Laws . To the extent permitted by applicable law, each Borrower hereby agrees to waive, and does hereby absolutely and irrevocably waive and relinquish the benefit and advantage of any valuation, stay, appraisement, extension or redemption laws now existing or which may hereafter exist, which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, on any claim for interest on the Notes, or any security interest or mortgage contemplated by or granted under or in connection with this Agreement. These waivers have been voluntarily given, with full knowledge of the consequences thereof.

9.5 Waiver of Defaults . No Event of Default shall be waived by the Lenders except in a writing signed by an officer of the Agent in accordance with Section 13.10 hereof. No single or partial exercise of any right, power or privilege hereunder, nor any delay in the exercise thereof, shall preclude other or further exercise of their rights by Agent or the Lenders. No waiver of any Event of Default shall extend to any other or further Event of Default. No forbearance on the part of the Agent or the Lenders in enforcing any of their rights shall constitute a waiver of any of their rights. Each Borrower expressly agrees that this Section may not be waived or modified by the Lenders or Agent by course of performance, estoppel or otherwise.

9.6 Set Off . Upon the occurrence and during the continuance of any Event of Default, each Lender may at any time and from time to time, without notice to Borrowers but subject to the provisions of Section 10.3 hereof (any requirement for such notice being expressly waived by Borrowers), setoff and apply against any and all of the obligations of Borrowers now or hereafter existing under this Agreement, whether owing to such Lender, any Affiliate of such Lender or any other Lender or the Agent, any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of Borrowers and any property of Borrowers from time to time in possession of such Lender, irrespective of whether or not such deposits held or indebtedness owing by such Lender may be contingent and unmatured and regardless of whether any Collateral then held by Agent or any Lender is adequate to cover the Indebtedness. Promptly following any such setoff, such Lender shall give written notice to Agent and Borrowers of the occurrence thereof. Each Borrower hereby grants to the Lenders and the Agent a lien on and security interest in all such deposits, indebtedness and property as collateral security for the payment and performance of all of the obligations of Borrowers under this Agreement. The rights of each Lender under this Section 9.6 are in addition to the other rights and remedies (including, without limitation, other rights of setoff) which such Lender may have.

10.PAYMENTS, RECOVERIES AND COLLECTIONS.

10.1 Payment Procedure .

(a) All payments to be made by Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise provided herein, all payments made by the Borrowers of principal, interest or fees hereunder shall be made without setoff or counterclaim on the date specified for payment under this Agreement and must be received by Agent not later than 1:00 p.m. (Detroit time) on the date such payment is required or intended to be made in Dollars in immediately available funds to Agent at Agent’s office located at One Detroit Center, Detroit, Michigan 48226-3289 for the ratable benefit of the Revolving Credit Lenders in the case of payments in respect of the Revolving Credit and any Letter of Credit Obligations. Any payment received by the Agent after 1:00 p.m. (Detroit time) shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. Upon receipt of each such payment, the Agent shall make prompt payment to each applicable Lender, or, in respect of Eurodollar-based Advances, such Lender’s Eurodollar Lending Office, in like funds and currencies, of all amounts received by it for the account of such Lender.

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(b) Unless the Agent shall have been notified in writing by Borrowers at least two (2) Business Days prior to the date on which any payment to be made by Borrowers is due that no Borrower intends to remit such payment, the Agent may, in its sole discretion and without obligation to do so, assume that Borrowers have remitted such payment when so due and the Agent may, in reliance upon such assumption, make available to each Revolving Credit Lender, on such payment date an amount equal to such Lender’s share of such assumed payment. If Borrowers have not in fact remitted such payment to the Agent, each Lender shall forthwith on demand repay to the Agent the amount of such assumed payment made available or transferred to such Lender, together with the interest thereon, in respect of each day from and including the date such amount was made available by the Agent to such Lender to the date such amount is repaid to the Agent at a rate per annum equal to the Federal Funds Effective Rate for the first two (2) Business Days that such amount remains unpaid, and thereafter at a rate of interest then applicable to such Revolving Credit Advances.

(c) Subject to the definition of “Interest Period” in Section 1 of this Agreement, whenever any payment to be made hereunder shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment.

(d) All payments to be made by Borrowers under this Agreement or any of the Notes (including without limitation payments under the Swing Line and/or Swing Line Note) shall be made without setoff or counterclaim, as aforesaid, and, subject to full compliance by each Lender (and each assignee and participant pursuant to Section 13.8) with Section 13.13, without deduction for or on account of any present or future withholding or other taxes of any nature imposed by any governmental authority or of any political subdivision thereof or any federation or organization of which such governmental authority may at the time of payment be a member (other than any taxes on the overall income, net income, net profits or net receipts or similar taxes (or any franchise taxes imposed in lieu of such taxes) on the Agent or any Lender (or any branch maintained by Agent or a Lender) as a result of a present or former connection between the Agent or such Lender and the governmental authority, political subdivision, federation or organization imposing such taxes), unless Borrowers are compelled by law to make payment subject to such tax. In such event, Borrowers shall:

(i)

pay to the Agent for Agent’s own account and/or, as the case may be, for the account of the Lenders such additional amounts as may be necessary to ensure that the Agent and/or such Lender or Lenders (including the Swing Line Lender) receive a net amount equal to the full amount which would have been receivable had payment not been made subject to such tax; and

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(ii)

remit such tax to the relevant taxing authorities according to applicable law, and send to the Agent or the applicable Lender or Lenders (including the Swing Line Lender), as the case may be, such certificates or certified copy receipts as the Agent or such Lender or Lenders shall reasonably require as proof of the payment by Borrowers of any such taxes payable by Borrowers.

As used herein, the terms “tax”, “taxes” and “taxation” include all taxes, levies, imposts, duties, fees, deductions and withholdings or similar charges together with interest (and any taxes payable upon the amounts paid or payable pursuant to this Section 10.1) thereon. Each Borrower shall be reimbursed by the applicable Lender for any payment made by such Borrower under this Section 10.1 if the applicable Lender is not in compliance with its obligations under Section 13.13 at the time of such Borrower’s payment.

10.2 Application of Proceeds of Collateral . Notwithstanding anything to the contrary in this Agreement, in the case of any Event of Default under Section 9.1(i), immediately following the occurrence thereof, and in the case of any other Event of Default, upon the termination of the Revolving Credit Aggregate Commitment, the acceleration of any Indebtedness arising under this Agreement and/or the exercise of any other remedy in each case by the requisite Lenders under Section 9.2 hereof, the Agent shall apply the proceeds of any Collateral, together with any offsets, voluntary payments by any Credit Party or others and any other sums received or collected in respect of the Indebtedness first, to pay all incurred and unpaid fees and expenses of the Agent under the Loan Documents and any protective advances made by Agent with respect to the Collateral under or pursuant to the terms of any Loan Document, next, to pay any fees and expenses owed to the Issuing Lender hereunder, next, to the Indebtedness under the Revolving Credit (including the Swing Line and any Reimbursement Obligations), any obligations owing by any Credit party under any Hedging Agreements or in connection with any Lender Products on a pro rata basis, next, to any other Indebtedness on a pro rata basis, and then, if there is any excess, to the Credit Parties or as otherwise required under applicable law, as the case may be.

10.3 Pro-rata Recovery . If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of principal of, or interest on, any of the Advances made by it, or the participations in Letter of Credit Obligations or Swing Line Advances held by it in excess of its pro rata share of payments then or thereafter obtained by all Lenders upon principal of and interest on all such Indebtedness, such Lender shall purchase from the other Lenders such participations in the Revolving Credit and/or the Letter of Credit Obligation held by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably in accordance with the applicable Percentages of the Lenders; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing holder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.

11.CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS.

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11.1 Reimbursement of Prepayment Costs . If (i) Borrowers make any payment of principal with respect to any Eurodollar-based Advance or Quoted Rate Advance on any day other than the last day of the Interest Period applicable thereto (whether voluntarily, pursuant to any mandatory provisions hereof, by acceleration, or otherwise); (ii) Borrowers convert or refund (or attempt to convert or refund) any such Advance on any day other than the last day of the Interest Period applicable thereto (except as described in Section 2.5(e)); (iii) Borrowers fail to borrow, refund or convert any Eurodollar-based Advance or Quoted Rate Advance after notice has been given by Borrowers to Agent in accordance with the terms hereof requesting such Advance; or (iv) or if the Borrowers fail to make any payment of principal in respect of a Eurodollar-based Advance or Quoted Rate Advance when due, the Borrowers shall jointly and severally reimburse Agent for itself and/or on behalf of any Lender, as the case may be, within ten (10) Business Days of written demand therefor for any resulting loss, cost or expense incurred (excluding the loss of any Applicable Margin) by Agent and Lenders, as the case may be, as a result thereof, including, without limitation, any such loss, cost or expense incurred in obtaining, liquidating, employing or redeploying deposits from third parties, whether or not Agent and Lenders, as the case may be, shall have funded or committed to fund such Advance. The amount payable hereunder by Borrowers (jointly and severally) and to Agent for itself and/or on behalf of any Lender, as the case may be, shall be deemed to equal an amount equal to the excess, if any, of (a) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, refunded or converted, for the period from the date of such prepayment or of such failure to borrow, refund or convert, through the last day of the relevant Interest Period, at the applicable rate of interest for said Advance(s) provided under this Agreement, over (b) the amount of interest (as reasonably determined by Agent and Lenders, as the case may be) which would have accrued to Agent and Lenders, as the case may be, on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurocurrency market. Calculation of any amounts payable to any Lender under this paragraph shall be made as though such Lender shall have actually funded or committed to fund the relevant Advance through the purchase of an underlying deposit in an amount equal to the amount of such Advance and having a maturity comparable to the relevant Interest Period; provided, however, that any Lender may fund any Eurodollar-based Advance or Quoted Rate Advance, as the case may be, in any manner it deems fit and the foregoing assumptions shall be utilized only for the purpose of the calculation of amounts payable under this paragraph. Upon the written request of Borrower Representative, Agent and Lenders shall deliver to Borrower Representative a certificate setting forth the basis for determining such losses, costs and expenses, which certificate shall be conclusively presumed correct, absent manifest error.

11.2 Eurodollar Lending Office . For any Eurodollar Advance, if Agent or a Lender, as applicable, shall designate a Eurodollar Lending Office which maintains books separate from those of the rest of Agent or such Lender, Agent or such Lender, as the case may be, shall have the option of maintaining and carrying the relevant Advance on the books of such Eurodollar Lending Office.

11.3 Circumstances Affecting Eurodollar-based Rate Availability . If, with respect to any Eurodollar-Interest Period, Agent or the Majority Lenders (after consultation with Agent) shall determine in good faith that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts are not being offered to the Agent or such Lenders for such Eurodollar-Interest Period, then Agent shall forthwith give notice thereof to Borrower Representative. Thereafter, until Agent notifies the Borrower Representative that such circumstances no longer exist, (i) the obligation of Lenders to make Eurodollar-based Advances, and the right of Borrowers to convert an Advance to or refund an Advance as a Eurodollar-based Advance, as the case may be, shall be suspended, and (ii) effective upon the last day of each Eurodollar-Interest Period related to any existing Eurodollar-based Advance, each such Eurodollar-based Advance shall automatically be converted into a Prime-based Advance (without regard to satisfaction of any conditions to conversion contained elsewhere herein).

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11.4 Laws Affecting Eurodollar-based Advance Availability . If, after the date of this Agreement, the adoption or introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any of the Lenders (or any of their respective Eurodollar Lending Offices) with any request or directive (whether or not having the force of law) of any such authority, shall make it unlawful or impossible for any of the Lenders (or any of their respective Eurodollar Lending Offices) to honor its obligations hereunder to make or maintain any Advance with interest at the Eurodollar-based Rate, such Lender shall forthwith give notice thereof to Borrower Representative and to Agent. Thereafter, (a) the obligations of the applicable Lenders to make Eurodollar-based Advances and the right of Borrowers to convert an Advance into or refund an Advance as a Eurodollar-based Advance shall be suspended and thereafter Borrowers may select as Applicable Interest Rates only those which remain available and which are permitted to be selected hereunder, and (b) if any of the Lenders may not lawfully continue to maintain an Advance to the end of the then current Eurodollar-Interest Period applicable thereto as a Eurodollar-based Advance, the applicable Advance shall immediately be converted to a Prime-based Advance and the Prime-based Rate shall be applicable thereto for the remainder of such Eurodollar-Interest Period. For purposes of this Section, a change in law, rule, regulation, interpretation or administration shall include, without limitation, any change made or which becomes effective on the basis of a law, rule, regulation, interpretation or administration presently in force, the effective date of which change is delayed by the terms of such law, rule, regulation, interpretation or administration.

11.5 Increased Cost of Eurodollar-based Advances . If, after the date of this Agreement, the adoption or introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any of the Lenders (or any of their respective Eurodollar Lending Offices) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:

(a)

shall subject any of the Lenders (or any of their respective Eurodollar Lending Offices) to any tax, duty or other charge with respect to any Advance or shall change the basis of taxation of payments to any of the Lenders (or any of their respective Eurodollar Lending Offices) of the principal of or interest on any Advance or any other amounts due under this Agreement in respect thereof (except for changes in the rate of tax on the overall net income of any of the Lenders or any of their respective Eurodollar Lending Offices); or

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(b)

shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any of the Lenders (or any of their respective Eurodollar Lending Offices) or shall impose on any of the Lenders (or any of their respective Eurodollar Lending Offices) or the foreign exchange and interbank markets any other condition affecting any Advance;

and the result of any of the foregoing matters is to increase the costs to any of the Lenders of maintaining any part of the Indebtedness hereunder as a Eurodollar-based Advance or to reduce the amount of any sum received or receivable by any of the Lenders under this Agreement in respect of a Eurodollar-based Advance, then such Lender shall promptly notify Agent, and Agent shall promptly notify Borrower Representative of such fact and demand compensation therefor and, within ten (10) Business Days after such notice, Borrowers jointly and severally agree to pay to such Lender or Lenders such additional amount or amounts as will compensate such Lender or Lenders for such increased cost or reduction, provided that each Lender agrees to take any reasonable action, to the extent such action could be taken without cost or administrative or other burden or restriction to such Lender, to mitigate or eliminate such cost or reduction, within a reasonable time after becoming aware of the foregoing matters. Agent will promptly notify Borrower Representative of any event of which it has knowledge which will entitle Lenders to compensation pursuant to this Section, or which will cause Borrowers to incur additional liability under Section 11.1 hereof, provided that Agent shall incur no liability whatsoever to the Lenders or Borrowers in the event it fails to do so. A certificate of Agent (or such Lender, if applicable) setting forth the basis for determining such additional amount or amounts necessary to compensate such Lender or Lenders shall accompany such demand and shall be conclusively presumed to be correct absent manifest error.

11.6 Capital Adequacy and Other Increased Costs .

(a)

If, after the date of this Agreement, the adoption or introduction of, or any change in any applicable law, treaty, rule or regulation (whether domestic or foreign) now or hereafter in effect and whether or not presently applicable to any Lender or Agent, or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Lender or Agent with any guideline, request or directive of any such authority (whether or not having the force of law), including any risk based capital guidelines, affects or would affect the amount of capital required to be maintained by such Lender or Agent (or any corporation controlling such Lender or Agent) and such Lender or Agent, as the case may be, determines that the amount of such capital is increased by or based upon the existence of such Lender’s or Agent’s obligations or Advances hereunder and such increase has the effect of reducing the rate of return on such Lender’s or Agent’s (or such controlling corporation’s) capital as a consequence of such obligations or Advances hereunder to a level below that which such Lender or Agent (or such controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Lender or Agent to be material (collectively, “Increased Costs”), then Agent or such Lender shall notify the Borrower Representative, and thereafter Borrowers shall pay, jointly and severally, to such Lender or Agent, as the case may be, within ten (10) Business Days of written demand therefor from such Lender or Agent, additional amounts sufficient to compensate such Lender or Agent (or such controlling corporation) for any increase in the amount of capital and reduced rate of return which such Lender or Agent reasonably determines to be allocable to the existence of such Lender’s or Agent’s obligations or Advances hereunder. A statement setting forth the amount of such compensation, the methodology for the calculation and the calculation thereof which shall also be prepared in good faith and in reasonable detail by such Lender or Agent, as the case may be, shall be submitted by such Lender or by Agent to Borrower Representative, reasonably promptly after becoming aware of any event described in this Section 11.6(a) and shall be conclusively presumed to be correct, absent manifest error.

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(b)

Notwithstanding the foregoing, however, Borrowers shall not be required to pay any increased costs under Sections 11.5, 11.6 or 3.4(c) for any period ending prior to the date that is 180 days prior to the making of a Lender’s initial request for such additional amounts unless the applicable change in law or other event resulting in such increased costs is effective retroactively to a date more than 180 days prior to the date of such request, in which case a Lender’s request for such additional amounts relating to the period more than 180 days prior to the making of the request must be given not more than 180 days after such Lender becomes aware of the applicable change in law or other event resulting in such increased costs.

11.7 Right of Lenders to Fund through Branches and Affiliates . Each Lender (including without limitation the Swing Line Lender) may, if it so elects, fulfill its commitment as to any Advance hereunder by designating a branch or Affiliate of such Lender to make such Advance; provided that (a) such Lender shall remain solely responsible for the performances of its obligations hereunder and (b) no such designation shall result in any material increased costs to Borrowers.

11.8 Margin Adjustment . Adjustments to the Applicable Margins and the Applicable Fee Percentages, based on Schedule 1.1, shall be implemented on a quarterly basis as follows:

(a)

Such adjustments shall be given prospective effect only, effective as to all Advances outstanding hereunder, the Applicable Fee Percentage and the Letter of Credit Fee, upon the date of delivery of the financial statements under Sections 7.1(a) and 7.1(b) hereunder and the Covenant Compliance Report under Section 7.2(a) hereof, in each case establishing applicability of the appropriate adjustment and in each case with no retroactivity or claw-back. In the event Borrowers shall fail timely to deliver such financial statements or the Covenant Compliance Report and such failure continues for three (3) days, then (but without affecting the Event of Default resulting therefrom) from the date delivery of such financial statements and report was required until such financial statements and report are delivered, the Applicable Margins and Applicable Fee Percentages shall be at the highest level on the Pricing Matrix attached to this Agreement as Schedule 1.1.

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(b)

From the Effective Date until the required date of delivery (or, if earlier, delivery) of the financial statements under Section 7.1(a) or 7.1(b) hereof, as applicable, and the Covenant Compliance Report under Section 7.2(a) hereof, for the fiscal quarter ending December 31, 2007, the Applicable Margins and Applicable Fee Percentages shall be those set forth under the Level II column of the pricing matrix attached to this Agreement as Schedule 1.1. Thereafter, Applicable Margins and Applicable Fee Percentages shall be based upon the quarterly financial statements and Covenant Compliance Reports, subject to recalculation as provided in Section 11.8(a) above.

(c)

Notwithstanding the foregoing, however, if, prior to the payment and discharge in full (in cash) of the Indebtedness and the termination of any and all commitments hereunder, as a result of any restatement of or adjustment to the financial statements of Sterling and any of its Subsidiaries (relating to the current or any prior fiscal period) or for any other miscalculation or error, Agent determines that the Applicable Margin and/or the Applicable Fee Percentages as calculated by Borrowers as of any applicable date of determination were inaccurate in any respect and a proper calculation thereof would have resulted in different pricing for any fiscal period, then (x) if the proper calculation thereof would have resulted in higher pricing for any such period, Borrowers shall automatically and retroactively be jointly and severally obligated to pay to Agent, promptly upon demand by Agent or the Majority Lenders, an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period and, if the current fiscal period is affected thereby, the Applicable Margin and/or the Applicable Fee Percentages for the current period shall be adjusted based on such recalculation; and (y) if the proper calculation thereof would have resulted in lower pricing for such period, Agent and Lenders shall have no obligation to recalculate such interest or fees or to repay any interest or fees to the Borrowers.

12.AGENT.

12.1 Appointment of Agent . Each Lender and the holder of each Note (if issued) irrevocably appoints and authorizes the Agent to act on behalf of such Lender or holder under this Agreement and the other Loan Documents and to exercise such powers hereunder and thereunder as are specifically delegated to Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto, including without limitation the power to execute or authorize the execution of financing or similar statements or notices, and other documents. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for any Credit Party.

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12.2 Deposit Account with Agent . Each Borrower authorizes Agent, in Agent’s sole discretion, upon notice to the Borrower Representative to charge its general deposit account(s), if any, maintained with the Agent for the amount of any principal, interest, or other amounts or costs due under this Agreement when the same become due and payable under the terms of this Agreement or the Notes.

12.3 Scope of Agent’s Duties . The Agent shall have no duties or responsibilities except those expressly set forth herein, and shall not, by reason of this Agreement or otherwise, have a fiduciary relationship with any Lender (and no implied covenants or other obligations shall be read into this Agreement against the Agent). None of Agent, its Affiliates nor any of their respective directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it or them under this Agreement or any document executed pursuant hereto, or in connection herewith or therewith with the consent or at the request of the Majority Lenders (or all of the Lenders for those acts requiring consent of all of the Lenders) (except for its or their own willful misconduct or gross negligence), nor be responsible for or have any duties to ascertain, inquire into or verify (a) any recitals or warranties made by the Credit Parties or any Affiliate of the Credit Parties, or any officer thereof contained herein or therein, (b) the effectiveness, enforceability, validity or due execution of this Agreement or any document executed pursuant hereto or any security thereunder, (c) the performance by the Credit Parties of their respective obligations hereunder or thereunder, or (d) the satisfaction of any condition hereunder or thereunder, including without limitation in connection with the making of any Advance or the issuance of any Letter of Credit. Agent and its Affiliates shall be entitled to rely upon any certificate, notice, document or other communication (including any cable, telegraph, telex, facsimile transmission or oral communication) believed by it to be genuine and correct and to have been sent or given by or on behalf of a proper person. Agent may treat the payee of any Note as the holder thereof. Agent may employ agents and may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable to the Lenders (except as to money or property received by them or their authorized agents), for the negligence or misconduct of any such agent selected by it with reasonable care or for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

12.4 Successor Agent . Agent may resign as such at any time upon at least thirty (30) days prior notice to Borrower Representative and each of the Lenders. If Agent at any time shall resign or if the office of Agent shall become vacant for any other reason, Majority Lenders shall, by written instrument, appoint successor agent(s) (“Successor Agent”) satisfactory to such Majority Lenders and, so long as no Default or Event of Default has occurred and is continuing, to Borrower Representative (which approval shall not be unreasonably withheld or delayed); provided, however that any such successor Agent shall be a bank or a trust company or other financial institution which maintains an office in the United States, or a commercial bank organized under the laws of the United States or any state thereof, or any Affiliate of such bank or trust company or other financial institution which is engaged in the banking business, and shall have a combined capital and surplus of at least $500,000,000. Such Successor Agent shall thereupon become the Agent hereunder, as applicable, and Agent shall deliver or cause to be delivered to any successor agent such documents of transfer and assignment as such Successor Agent may reasonably request. If a Successor Agent is not so appointed or does not accept such appointment before the resigning Agent’s resignation becomes effective, the resigning Agent may appoint a temporary successor to act until such appointment by the Majority Lenders and, if applicable, Borrower Representative, is made and accepted, or if no such temporary successor is appointed as provided above by the resigning Agent, the Majority Lenders shall thereafter perform all of the duties of the resigning Agent hereunder until such appointment by the Majority Lenders and, if applicable, Borrower Representative, is made and accepted. Such Successor Agent shall succeed to all of the rights and obligations of the resigning Agent as if originally named. The resigning Agent shall duly assign, transfer and deliver to such Successor Agent all moneys at the time held by the resigning Agent hereunder after deducting therefrom its expenses for which it is entitled to be reimbursed hereunder. Upon such succession of any such Successor Agent, the resigning Agent shall be discharged from its duties and obligations, in its capacity as Agent hereunder, except for its gross negligence or willful misconduct arising prior to its resignation hereunder, and the provisions of this Article 12 shall continue in effect for the benefit of the resigning Agent in respect of any actions taken or omitted to be taken by it while it was acting as Agent.

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12.5 Credit Decisions . Each Lender acknowledges that it has, independently of Agent and each other Lender and based on the financial statements of Borrowers and such other documents, information and investigations as it has deemed appropriate, made its own credit decision to extend credit hereunder from time to time. Each Lender also acknowledges that it will, independently of Agent and each other Lender and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement, any Loan Document or any other document executed pursuant hereto.

12.6 Authority of Agent to Enforce This Agreement . Each Lender, subject to the terms and conditions of this Agreement, grants the Agent full power and authority as attorney-in-fact to institute and maintain actions, suits or proceedings for the collection and enforcement of any Indebtedness outstanding under this Agreement or any other Loan Document and to file such proofs of debt or other documents as may be necessary to have the claims of the Lenders allowed in any proceeding relative to any Credit Party, or their respective creditors or affecting their respective properties, and to take such other actions which Agent considers to be necessary or desirable for the protection, collection and enforcement of the Notes, this Agreement or the other Loan Documents.

12.7 Indemnification of Agent . The Lenders agree (which agreement shall survive the expiration or termination of this Agreement) to indemnify the Agent and its Affiliates (to the extent not reimbursed by Borrowers, but without limiting any obligation of Borrowers to make such reimbursement), ratably according to their respective Percentages, from and against any and all claims, damages, losses, liabilities, costs or expenses of any kind or nature whatsoever (including, without limitation, reasonable fees and expenses of house and outside counsel) which may be imposed on, incurred by, or asserted against the Agent and its Affiliates in any way relating to or arising out of this Agreement, any of the other Loan Documents or the transactions contemplated hereby or any action taken or omitted by the Agent and its Affiliates under this Agreement or any of the Loan Documents; provided, however, that no Lender shall be liable for any portion of such claims, damages, losses, liabilities, costs or expenses resulting from the Agent’s or its Affiliate’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent and its Affiliates promptly upon demand for its ratable share of any reasonable out-of-pocket expenses (including, without limitation, reasonable fees and expenses of house and outside counsel) incurred by the Agent and its Affiliates in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any of the other Loan Documents, to the extent that the Agent and its Affiliates are not reimbursed for such expenses by Borrowers, but without limiting the obligation of Borrowers to make such reimbursement. Each Lender agrees to reimburse the Agent and its Affiliates promptly upon demand for its ratable share of any amounts owing to the Agent and its Affiliates by the Lenders pursuant to this Section, provided that, if the Agent or its Affiliates are subsequently reimbursed by Borrowers for such amounts, they shall refund to the Lenders on a pro rata basis the amount of any excess reimbursement. If the indemnity furnished to the Agent and its Affiliates under this Section shall become impaired as determined in the Agent’s reasonable judgment or Agent shall elect in its sole discretion to have such indemnity confirmed by the Lenders (as to specific matters or otherwise), Agent shall give notice thereof to each Lender and, until such additional indemnity is provided or such existing indemnity is confirmed, the Agent may cease, or not commence, to take any action. Any amounts paid by the Lenders hereunder to the Agent or its Affiliates shall be deemed to constitute part of the Indebtedness hereunder.

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12.8 Knowledge of Default . It is expressly understood and agreed that the Agent shall be entitled to assume that no Default or Event of Default has occurred and is continuing, unless the officers of the Agent immediately responsible for matters concerning this Agreement shall have received a written notice from a Lender or a Borrower specifying such Default or Event of Default and stating that such notice is a “notice of default”. Upon receiving such a notice, the Agent shall promptly notify each Lender of such Default or Event of Default and provide each Lender with a copy of such notice and shall endeavor to provide such notice to the Lenders within three (3) Business Days (but without any liability whatsoever in the event of its failure to do so).

12.9 Agent’s Authorization; Action by Lenders . Except as otherwise expressly provided herein, whenever the Agent is authorized and empowered hereunder on behalf of the Lenders to give any approval or consent, or to make any request, or to take any other action on behalf of the Lenders (including without limitation the exercise of any right or remedy hereunder or under the other Loan Documents), the Agent shall be required to give such approval or consent, or to make such request or to take such other action only when so requested in writing by the Majority Lenders or the Lenders, as applicable hereunder. Action that may be taken by the Majority Lenders, any other specified Percentage of the Lenders or all of the Lenders, as the case may be (as provided for hereunder) may be taken (i) pursuant to a vote of the requisite percentages of the Lenders as required hereunder at a meeting (which may be held by telephone conference call), provided that Agent exercises good faith, diligent efforts to give all of the Lenders reasonable advance notice of the meeting, or (ii) pursuant to the written consent of the requisite percentages of the Lenders as required hereunder, provided that all of the Lenders are given reasonable advance notice of the requests for such consent.

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12.10 Enforcement Actions by the Agent . Except as otherwise expressly provided under this Agreement or in any of the other Loan Documents and subject to the terms hereof, Agent will take such action, assert such rights and pursue such remedies under this Agreement and the other Loan Documents as the Majority Lenders or all of the Lenders, as the case may be (as provided for hereunder), shall direct; provided, however, that the Agent shall not be required to act or omit to act if, in the reasonable judgment of the Agent, such action or omission may expose the Agent to personal liability for which Agent has not been satisfactorily indemnified hereunder or is contrary to this Agreement, any of the Loan Documents or applicable law. Except as expressly provided above or elsewhere in this Agreement or the other Loan Documents, no Lender (other than the Agent, acting in its capacity as agent) shall be entitled to take any enforcement action of any kind under this Agreement or any of the other Loan Documents.

12.11 Collateral Matters.

(a) The Agent is authorized on behalf of all the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time to take any action with respect to any Collateral or the Collateral Documents which may be necessary to perfect and maintain a perfected security interest in and Liens upon the Collateral granted pursuant to the Loan Documents.

(b) The Lenders irrevocably authorize the Agent, in its reasonable discretion, to the full extent set forth in the post-amble to Section 13.10 hereof, (1) to release or terminate any Lien granted to or held by the Agent upon any Collateral (a) upon termination of the Revolving Credit Aggregate Commitment and payment in full of all Indebtedness payable under this Agreement and under any other Loan Document; (b) constituting property (including, without limitation, Equity Interests in any Person) sold or to be sold or disposed of as part of or in connection with any disposition (whether by sale, by merger or by any other form of transaction and including the property of any Subsidiary that is disposed of as permitted hereby) permitted in accordance with the terms of this Agreement; (c) constituting property in which a Credit Party owned no interest at the time the Lien was granted or at any time thereafter; or (d) if approved, authorized or ratified in writing by the Majority Lenders, or all the Lenders, as the case may be, as provided in Section 13.10; (2) to subordinate the Lien granted to or held by Agent on any Collateral to any other holder of a Lien on such Collateral which is permitted by Section 8.2(b) hereof; and (3) if all of the Equity Interests held by the Credit Parties in any Person are sold or otherwise transferred to any transferee other than a Borrower or a Subsidiary of a Borrower as part of or in connection with any disposition (whether by sale, by merger or by any other form of transaction) permitted in accordance with the terms of this Agreement, to release such Person from all of its obligations under the Loan Documents (including, without limitation, under any Guaranty). Upon request by the Agent at any time, the Lenders will confirm in writing the Agent’s authority to release particular types or items of Collateral pursuant to this Section 12.11(b).

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12.12 Agents in their Individual Capacities . Comerica Bank and its Affiliates, successors and assigns shall each have the same rights and powers hereunder as any other Lender and may exercise or refrain from exercising the same as though such Lender were not the Agent. Comerica Bank and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, and generally engage in any kind of banking, trust, financial advisory or other business with the Credit Parties as if such Lender were not acting as the Agent hereunder, and may accept fees and other consideration therefor without having to account for the same to the Lenders.

12.13 Agent’s Fees . Until the Indebtedness has been repaid and discharged in full and no commitment to extend any credit hereunder is outstanding, Borrowers are obligated, on a joint and several basis to pay to the Agent, as applicable, any agency or other fee(s) set forth (or to be set forth from time to time) in the applicable Fee Letter on the terms set forth therein. The agency fees referred to in this Section 12.13 shall not be refundable under any circumstances.

12.14 Documentation Agent or other Titles . Any Lender identified on the facing page or signature page of this Agreement or in any amendment hereto or as designated with consent of the Agent in any assignment agreement as Lead Arranger, Documentation Agent, Syndications Agent or any similar titles, shall not have any right, power, obligation, liability, responsibility or duty under this Agreement as a result of such title other than those applicable to all Lenders as such. Without limiting the foregoing, the Lenders so identified shall not have or be deemed to have any fiduciary relationship with any Lender as a result of such title. Each Lender acknowledges that it has not relied, and will not rely, on the Lender so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.

12.15 No Reliance on Agent’s Customer Identification Progra m .

(a) Each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may relay on the Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the Patriot Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with Borrowers or any of their Subsidiaries, any of their respective Affiliates or agents, the Loan Documents or the transactions hereunder: (i) any identify verification procedures, (ii) any record keeping, (iii) any comparisons with government lists, (iv) any customer notices or (v) any other procedures required under the CIP Regulations or such other laws.

(b) Each Lender or assignee or participant of a Lender that is not organized under the laws of the United States or a state thereof (and is not excepted from the certification requirement contained in Section 313 of the USA Patriot Act and the applicable regulations because it is both (i) an affiliate of a depository institution or foreign bank that maintains a physical presence in the United States or foreign country, and (ii) subject to provision by a banking authority regulating such affiliated depository institution or foreign bank) shall deliver to the Administrative Agent the certification, or, if applicable, recertification, certifying that such Lender is not a “shell” and certifying to other matters as required by Section 313 of the Patriot Act and the applicable regulations: (x) within 10 days after the Effective Date, and (y) at such other times as are required under the Patriot Act.

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13.MISCELLANEOUS.

13.1 Accounting Principles . Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, it shall be done, unless otherwise specified herein, in accordance with GAAP.

13.2 Consent to Jurisdiction . The Borrowers, the Agent and Lenders hereby irrevocably submit to the non-exclusive jurisdiction of any United States Federal Court or Texas state court sitting in Dallas, Texas in any action or proceeding arising out of or relating to this Agreement or any of the Loan Documents and the Borrowers, Agent and Lenders hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal Court or Texas state court. Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving tri-party accounts) does not apply to this Agreement or the Notes. Each Borrower irrevocably consents to the service of any and all process in any such action or proceeding brought in any court in or of the State of Texas by the delivery of copies of such process to it at the applicable addresses specified on the signature page hereto or by certified mail directed to such address or such other address as may be designated by it in a notice to the other parties that complies as to delivery with the terms of Section 13.6. Nothing in this Section shall affect the right of the Lenders and the Agent to serve process in any other manner permitted by law or limit the right of the Lenders or the Agent (or any of them) to bring any such action or proceeding against any Credit Party or any of their property in the courts with subject matter jurisdiction of any other jurisdiction. Each Borrower irrevocably waives any objection to the laying of venue of any such suit or proceeding in the above described courts.

13.3 Law of Texas . This Agreement, the Notes and, the other Loan Documents shall be governed by and construed and enforced in accordance with the laws of the State of Texas. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

13.4 Interest . Agent, Lenders, Borrowers and any other parties to the Loan Documents intend to contract in strict compliance with applicable usury law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither Borrowers, any other party to the Loan Documents nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Indebtedness shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully contracted for, charged, or received under applicable law from time to time in effect, and the provisions of this section shall control over all other provisions of the Loan Documents which may be in conflict or apparent conflict herewith. Agent and Lenders expressly disavow any intention to contract for, charge, or collect excessive unearned interest or finance charges in the event the maturity of any Indebtedness is accelerated. If (a) the maturity of any Indebtedness is accelerated for any reason, (b) any Indebtedness is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) Agent or any Lender or any other holder of any or all of the Indebtedness shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Indebtedness to an amount in excess of that permitted to be charged by applicable law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Indebtedness or, at such Lender’s or holder’s option, promptly returned to Borrower or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable law, Agent, Lenders, Borrowers (and any other payors thereof) shall to the greatest extent permitted under applicable Law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable law in order to lawfully contract for, charge, or receive the maximum amount of interest permitted under applicable Law. In the event applicable Law provides for an interest ceiling under Chapter 303 of the Texas Finance Code (the “Texas Finance Code”) as amended, for that day, the ceiling shall be the “weekly ceiling” as defined in the Texas Finance Code, provided that if any applicable Law permits greater interest, the Law permitting the greatest interest shall apply. As used in this section the term “applicable law” means the laws of the State of Texas or the laws of the United States of America, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

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13.5 Closing Costs and Other Costs; Indemnification. (a) Borrowers shall pay or reimburse, on a joint and several basis, (a) Agent and its Affiliates for payment of, on demand, all reasonable costs and expenses, including, by way of description and not limitation, reasonable in-house and outside attorney fees and advances, appraisal and accounting fees, lien search fees, and required travel costs, incurred by Agent and its Affiliates in connection with the commitment, consummation and closing of the loans contemplated hereby, or in connection with the administration or enforcement of this Agreement or the other Loan Documents (including the obtaining of legal advice regarding the rights and responsibilities of the parties hereto) or any refinancing or restructuring of the loans or Advances provided under this Agreement or the other Loan Documents, or any amendment or modification thereof requested by Borrowers, and (b) Agent and its Affiliates and each of the Lenders, as the case may be, for all stamp and other taxes and duties payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby, and any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes or duties. Furthermore, all reasonable costs and expenses, including without limitation attorney fees, incurred by Agent and its Affiliates and, after the occurrence and during the continuance of an Event of Default, by the Lenders in revising, preserving, protecting, exercising or enforcing any of its or any of the Lenders’ rights against Borrowers or any other Credit Party, or otherwise incurred by Agent and its Affiliates and the Lenders in connection with any Event of Default or the enforcement of the loans (whether incurred through negotiations, legal proceedings or otherwise), including by way of description and not limitation, such charges in any court or bankruptcy proceedings or arising out of any claim or action by any person against Agent, its Affiliates, or any Lender which would not have been asserted were it not for Agent’s or such Affiliate’s or Lender’s relationship with Borrowers hereunder or otherwise, shall also be paid, on a joint and several basis, by Borrowers. All of said amounts required to be paid by Borrowers hereunder and not paid forthwith upon demand, as aforesaid, shall bear interest, from the date incurred to the date payment is received by Agent, at the Prime-based Rate, plus two percent (2%).

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(b) Borrowers jointly and severally agree to indemnify and hold Agent and each of the Lenders (and their respective Affiliates) harmless from all loss, cost, damage, liability or expenses, including reasonable house and outside attorneys’ fees and disbursements (but without duplication of such fees and disbursements for the same services), incurred by Agent and each of the Lenders by reason of an Event of Default, or enforcing the obligations of any Credit Party under this Agreement or any of the other Loan Documents, as applicable, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement or any of the Loan Documents, excluding, however, any loss, cost, damage, liability or expenses to the extent arising as a result of the gross negligence or willful misconduct of the party seeking to be indemnified under this Section 13.5(b), provided that, the Borrowers shall be obligated to reimburse Agent and the Lenders for only a single financial consultant selected by Agent in consultation with the Lenders.

(c) The Borrowers agree on a joint and several basis to defend, indemnify and hold harmless Agent and each Lender (and their respective Affiliates), and their respective employees, agents, officers and directors from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature (including without limitation, reasonable attorneys and consultants fees, investigation and laboratory fees, environmental studies required by Agent or any Lender in connection with the violation of Hazardous Material Laws), court costs and litigation expenses, arising out of or related to (i) the presence, use, disposal, release or threatened release of any Hazardous Materials on, from or affecting any premises owned or occupied by any Credit Party in violation of or the non-compliance with applicable Hazardous Material Laws, (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials, (iii) any lawsuit or other proceeding brought or threatened, settlement reached or governmental order or decree relating to such Hazardous Materials, and/or (iv) complying or coming into compliance with all Hazardous Material Laws (including the cost of any remediation or monitoring required in connection therewith) or any other Requirement of Law; provided, however, that the Borrowers shall have no obligations under this Section 13.5(c) with respect to claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses to the extent arising as a result of the gross negligence or willful misconduct of the Agent or such Lender, as the case may be. The obligations of Borrowers under this Section 13.5(c) shall be in addition to any and all other obligations and liabilities Borrowers may have to Agent or any of the Lenders at common law or pursuant to any other agreement.

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13.6 Notices .

(a)

Except as expressly provided otherwise in this Agreement (and except as provided in clause (b) below), all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing and shall be given by personal delivery, by mail, by reputable overnight courier or by facsimile and addressed or delivered to it at its address set forth on Schedule 13.6 or at such other address as may be designated by such party in a notice to the other parties that complies as to delivery with the terms of this Section 13.6 or posted to an E-System set up by or at the direction of Agent (as set forth below). Any notice, if personally delivered or if mailed and properly addressed with postage prepaid and sent by registered or certified mail, shall be deemed given when received or when delivery is refused; any notice, if given to a reputable overnight courier and properly addressed, shall be deemed given two (2) Business Days after the date on which it was sent, unless it is actually received sooner by the named addressee; and any notice, if transmitted by facsimile, shall be deemed given when received. The Agent may, but, except as specifically provided herein, shall not be required to, take any action on the basis of any notice given to it by telephone, but the giver of any such notice shall promptly confirm such notice in writing, by facsimile, and such notice will not be deemed to have been received until such confirmation is deemed received in accordance with the provisions of this Section set forth above. If such telephonic notice conflicts with any such confirmation, the terms of such telephonic notice shall control. Any notice given by the Agent or any Lender to the Borrower Representative shall be deemed to be a notice to all of the Credit Parties.

(b)

Notices and other communications provided to the Agent and the Lenders party hereto under this Agreement or any other Loan Document may be delivered or furnished by electronic communication (including email and Internet or intranet websites) pursuant to procedures approved by the Agent. The Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications (including email and any E-System) pursuant to procedures approved by it. Unless otherwise agreed to in a writing by and among the parties to a particular communication, (i) notices and other communications sent to an email address shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, return email, or other written acknowledgment) and (ii) notices and other communications posted to any E-System shall be deemed received upon the deemed receipt by the intended recipient at its email address as described in the foregoing clause (i) of notification that such notice or other communication is available and identifying the website address therefore.

13.7 Further Action . Borrowers, from time to time, upon written request of Agent will make, execute, acknowledge and deliver or cause to be made, executed, acknowledged and delivered, all such further and additional instruments, and take all such further action as may reasonably be required to carry out the intent and purpose of this Agreement or the Loan Documents, and to provide for Advances under and payment of the Notes, according to the intent and purpose herein and therein expressed.

13.8 Successors and Assigns; Participations; Assignments.

(a) This Agreement shall be binding upon and shall inure to the benefit of the Borrowers and the Lenders and their respective successors and assigns.

(b) The foregoing shall not authorize any assignment by any Borrower of its rights or duties hereunder, and, except as otherwise provided herein, no such assignment shall be made (or be effective) without the prior written approval of the Lenders.

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(c) No Lenders may at any time assign or grant participations in such Lender’s rights and obligations hereunder and under the other Loan Documents except (i) by way of assignment to any Eligible Assignee in accordance with clause (d) of this Section, (ii) by way of a participation in accordance with the provisions of clause (e) of this Section or (iii) by way of a pledge or assignment of a security interest subject to the restrictions of clause (f) of this Section (and any other attempted assignment or transfer by any Lender shall be deemed to be null and void).

(d) Each assignment by a Lender of all or any portion of its rights and obligations hereunder and under the other Loan Documents, shall be subject to the following terms and conditions:

(i)

each such assignment shall be made on a pro rata basis, and shall be in a minimum amount of the lesser of (x) Five Million Dollars ($5,000,000) or such lesser amount as the Agent shall agree and (y) the entire remaining amount of assigning Lender’s aggregate interest in the Revolving Credit (and participations in any outstanding Letters of Credit); provided however that, after giving effect to such assignment, in no event shall the entire remaining amount (if any) of assigning Lender’s aggregate interest in the Revolving Credit (and participations in any outstanding Letters of Credit) be less than $5,000,000; and

(ii)

the parties to any assignment shall execute and deliver to Agent an Assignment Agreement substantially (as determined by Agent) in the form attached hereto as Exhibit H (with appropriate insertions acceptable to Agent), together with a processing and recordation fee in the amount, if any, required as set forth in the Assignment Agreement (provided however that such Lender need not deliver an Assignment Agreement in connection with assignments to such Lender’s Affiliates or to a Federal Reserve Bank).

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Until the Assignment Agreement becomes effective in accordance with its terms, and Agent has confirmed that the assignment satisfies the requirements of this Section 13.8, the Borrowers and the Agent shall be entitled to continue to deal solely and directly with the assigning Lender in connection with the interest so assigned. From and after the effective date of each Assignment Agreement that satisfies the requirements of this Section 13.8, the assignee thereunder shall be deemed to be a party to this Agreement, such assignee shall have the rights and obligations of a Lender under this Agreement and the other Loan Documents (including without limitation the right to receive fees payable hereunder in respect of the period following such assignment) and the assigning Lender shall relinquish its rights and be released from its obligations under this Agreement and the other Loan Documents.

Upon request, Borrowers shall execute and deliver to the Agent, new Note(s) payable to the order of the assignee in an amount equal to the amount assigned to the assigning Lender pursuant to such Assignment Agreement, and with respect to the portion of the Indebtedness retained by the assigning Lender, to the extent applicable, new Note(s) payable to the order of the assigning Lender in an amount equal to the amount retained by such Lender hereunder. The Agent, the Lenders and each Borrower acknowledges and agrees that any such new Note(s) shall be given in renewal and replacement of the Notes issued to the assigning lender prior to such assignment and shall not effect or constitute a novation or discharge of the Indebtedness evidenced by such prior Note, and each such new Note may contain a provision confirming such agreement.

(e) The Borrowers and the Agent acknowledge that each of the Lenders may at any time and from time to time, subject to the terms and conditions hereof, grant participations in such Lender’s rights and obligations hereunder (on a pro rata basis only) and under the other Loan Documents to any Person (other than a natural person or to any Borrower or any of Borrower’s Affiliates or Subsidiaries); provided that any participation permitted hereunder shall comply with all applicable laws and shall be subject to a participation agreement that incorporates the following restrictions:

(i)

such Lender shall remain the holder of its Notes hereunder (if such Notes are issued), notwithstanding any such participation;

(ii)

a participant shall not reassign or transfer, or grant any sub-participations in its participation interest hereunder or any part thereof; and

(iii)

such Lender shall retain the sole right and responsibility to enforce the obligations of the Credit Parties relating to the Notes and the other Loan Documents, including, without limitation, the right to proceed against any Guarantors, or cause the Agent to do so (subject to the terms and conditions hereof), and the right to approve any amendment, modification or waiver of any provision of this Agreement without the consent of the participant (unless such participant is an Affiliate of such Lender), except for those matters covered by Section 13.10(a) through (e) hereof (provided that a participant may exercise any of the approval rights granted above in this clause (iii) only on an indirect basis, acting through such Lender and the Credit Parties, Agent and the other Lenders may continue to deal directly with such Lender in connection with such Lender’s rights and duties hereunder). Notwithstanding the foregoing, however, in the case of any participation granted by any Lender hereunder, the participant shall not have any rights under this Agreement or any of the other Loan Documents against the Agent, any other Lender or any Credit Party; provided, however that the participant may have rights against such Lender in respect of such participation as may be set forth in the applicable participation agreement and all amounts payable by the Credit Parties hereunder shall be determined as if such Lender had not sold such participation. Each such participant shall be entitled to the benefits of Article 11 of this Agreement to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to clause (d) of this Section, provided that no participant shall be entitled to receive any greater amount pursuant to such the provisions of Article 11 than the issuing Lender would have been entitled to receive in respect of the amount of the participation transferred by such issuing Lender to such participant had no such transfer occurred and each such participant shall also be entitled to the benefits of Section 9.6 hereof as though it were a Lender, provided that such participant agrees to be subject to Section 10.3 hereof as though it were a Lender.

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(f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including its Notes, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledge or assignee for such Lender as a party hereto.

(g) The Agent shall maintain at its principal office a copy of each Assignment Agreement delivered to it and a register (the “Register”) for the recordation of the names and addresses of the Lenders, the Percentages of such Lenders and the principal amount of each type of Advance owing to each such Lender from time to time. The entries in the Register shall be conclusive evidence, absent manifest error, and the Borrowers, the Agent, and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Advances recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or any Lender upon reasonable notice to the Agent and a copy of such information shall be provided to any such party on their prior written request. The Agent shall give prompt written notice to the Borrower Representative of the making of any entry in the Register or any change in such entry.

(h) Each Borrower authorizes each Lender to disclose to any prospective assignee or participant which has satisfied the requirements hereunder, any and all financial information in such Lender’s possession concerning the Credit Parties which has been delivered to such Lender pursuant to this Agreement, provided that each such prospective assignee or participant shall execute a confidentiality agreement consistent with the terms of Section 13.11 hereof or shall otherwise agree to be bound by the terms thereof.

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(i) Nothing in this Agreement, the Notes or the other Loan Documents, expressed or implied, is intended to or shall confer on any Person other than the respective parties hereto and thereto and their successors and assignees and participants permitted hereunder and thereunder any benefit or any legal or equitable right, remedy or other claim under this Agreement, the Notes or the other Loan Documents.

13.9 Counterparts; Execution . This Agreement may be executed in several counterparts, and each executed copy shall constitute an original instrument, but such counterparts shall together constitute but one and the same instrument. This Agreement (and each other Loan Document) may be delivered by facsimile or electronic (e.g., .pdf or .tif file) transmission with the same effect as if an originally executed version of this Agreement (or such other Loan Document) had been personally delivered to each of the parties hereto, whether or not an original remains in existence.

13.10 Amendment and Waiver . No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent and the Majority Lenders (or by the Agent at the written request of the Majority Lenders) or, if this Agreement expressly so requires with respect to the subject matter thereof, by all Lenders (and, with respect to any amendments to this Agreement or the other Loan Documents, by any Credit Party or the Guarantors that are signatories thereto), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no amendment, waiver or consent shall, unless in writing and signed by the Lender or Lenders affected thereby, do any of the following: (a) increase the stated amount of such Lender’s commitment hereunder, (b) reduce the principal of, or interest on, any outstanding Indebtedness or any Fees or other amounts payable hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, any outstanding Indebtedness or any Fees or other amounts payable hereunder, (d) except as expressly permitted hereunder or under the Collateral Documents, release all or substantially all of the Collateral (provided that neither Agent nor any Lender shall be prohibited thereby from proposing or participating in a consensual or nonconsensual debtor-in-possession or similar financing), or release any material guaranty provided by any Person in favor of Agent and the Lenders, provided however that Agent shall be entitled, without notice to or any further action or consent of the Lenders, to release any Collateral which any Credit Party is permitted to sell, assign or otherwise transfer in compliance with this Agreement or the other Loan Documents or release any guaranty to the extent expressly permitted in this Agreement or any of the other Loan Documents (whether in connection with the sale, transfer or other disposition of the applicable Guarantor or otherwise), (e) terminate or modify any indemnity provided to the Lenders hereunder or under the other Loan Documents, except as shall be otherwise expressly provided in this Agreement or any other Loan Document, or (f) change the definitions of “Revolving Credit Percentage”, “Percentage”, “Interest Periods”, “Majority Lenders”, “Majority Revolving Credit Lenders”, Sections 10.2 or 10.3 hereof or this Section 13.10; provided , further , that notwithstanding the foregoing, the Revolving Credit Maturity Date may be postponed or extended, only with the consent of all of the Revolving Credit Lenders, and provided further , that no amendment, waiver or consent shall, unless in a writing signed by the Swing Line Lender, do any of the following: (x) reduce the principal of, or interest on, the Swing Line Note (y) postpone any date fixed for any payment of principal of, or interest on, the Swing Line Note or (z) alter the rights and duties of the Swing Line Lender hereunder and provided further , that no amendment, waiver or consent shall, unless in a writing signed by Issuing Lender affect the rights or duties of Issuing Lender under this Agreement or any of the other Loan Documents and no amendment, waiver, or consent shall, unless in a writing signed by the Agent affect the rights or duties of the Agent under this Agreement or any other Loan Document. All references in this Agreement to “Lenders” or “the Lenders” shall refer to all Lenders, unless expressly stated to refer to Majority Lenders (or the like).

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The Agent shall, upon the written request of the Borrower Representative, execute and deliver to the Credit Parties such documents as may be necessary to evidence (1) the release of any Lien granted to or held by the Agent upon any Collateral: (a) upon termination of the Revolving Credit Aggregate Commitment and payment in full of all Indebtedness payable under this Agreement and under any other Loan Document; (b) which constitutes property (including, without limitation, Equity Interests in any Person) sold or to be sold or disposed of as part of or in connection with any disposition (whether by sale, by merger or by any other form of transaction and including the property of any Subsidiary that is disposed of as permitted hereby) permitted in accordance with the terms of this Agreement; (c) which constitutes property in which a Credit Party owned no interest at the time the Lien was granted or at any time thereafter; or (d) if approved, authorized or ratified in writing by the Majority Lenders, or all the Lenders, as the case may be, as provided in this Section 13.10; or (2) the release of any Person from its obligations under the Loan Documents (including without limitation the Guaranty) if all of the Equity Interests of such Person that were held by a Credit Party are sold or otherwise transferred to any transferee other than a Borrower or a Subsidiary of a Borrower as part of or in connection with any disposition (whether by sale, by merger or by any other form of transaction) permitted in accordance with the terms of this Agreement; provided that (i) Agent shall not be required to execute any such release or subordination agreement under clauses (1) or (2) above on terms which, in the Agent’s opinion, would expose the Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty or such release shall not in any manner discharge, affect or impair the Indebtedness or any Liens upon any Collateral retained by any Credit Party, including (without limitation) the proceeds of the sale or other disposition, all of which shall constitute and remain part of the Collateral.

13.11 Confidentiality . Each Lender agrees that it will not disclose without the prior consent of the Borrower Representative (other than to its employees, its Subsidiaries, another Lender, an Affiliate of a Lender or to its auditors or counsel) any information with respect to the Credit Parties which is furnished pursuant to this Agreement or any of the other Loan Documents; provided that any Lender may disclose any such information (a) as has become generally available to the public or has been lawfully obtained by such Lender from any third party under no duty of confidentiality to any Credit Party, (b) as may be required or appropriate in any report, statement or testimony submitted to, or in respect to any inquiry, by, any municipal, state or federal regulatory body having or claiming to have jurisdiction over such Lender, including the Board of Governors of the Federal Reserve System of the United States, the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation, ruling or other requirement of law applicable to such Lender, and (e) to any prospective assignee or participant in accordance with Section 13.8(f) hereof.

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13.12 Substitution of Lenders . If (a) any Lender has failed to fund its Revolving Credit Percentage of any Revolving Credit Advance, or to fund a Revolving Credit Advance to repay a Swing Line Advance or any Reimbursement Obligations, (b) the obligation of any Lender to make Eurodollar-based Advances has been suspended pursuant to Section 11.3 or 11.4, (c) any Lender has demanded compensation under Section 3.4(c), 11.5 or 11.6 or (d) any Lender has not approved an amendment, waiver or other modification of this Agreement, if such amendment or waiver has been approved by the Majority Lenders and the consent of such Lender is required (in each case, an “Affected Lender”), then the Agent or the Borrowers shall have the right to make written demand on the Affected Lender (with a copy to the Borrower Representative in the case of a demand by the Agent or with a copy to the Agent in the case of a demand by the Borrowers) to assign and the Affected Lender shall assign, to one or more financial institutions that comply with the provisions of Section 13.8 hereof (the “Purchasing Lender” or “Purchasing Lenders”) to purchase the Advances of the Revolving Credit and/or Swing Line, as the case may be, of such Affected Lender (including, without limitation, its participating interests in outstanding Swing Line Advances and Letters of Credit) and assume the commitment of the Affected Lender to extend credit under the Revolving Credit (including without limitation its obligation to purchase participations interest in Swing Line Advances and Letters of Credit) under this Agreement. The Affected Lender shall be obligated to sell its Advances of the Revolving Credit and/or Swing Line, as the case may be, and assign its commitment to extend credit under the Revolving Credit (including without limitation its obligations to purchase participations in Swing Line Advances and Letters of Credit) to such Purchasing Lender or Purchasing Lenders within ten (10) days after receiving notice from the Borrowers requiring it to do so, at an aggregate price equal to the outstanding principal amount thereof, plus unpaid interest accrued thereon up to but excluding the date of the sale. In connection with any such sale, and as a condition thereof, the Borrowers shall pay to the Affected Lender all fees accrued for its account hereunder to but excluding the date of such sale, plus, if demanded by the Affected Lender within ten (10) Business Days after such sale, (i) the amount of any compensation which would be due to the Affected Lender under Section 11.1 if the Borrowers had prepaid the outstanding Eurodollar-based Advances of the Affected Lender on the date of such sale and (ii) any additional compensation accrued for its account under Sections 3.4(c), 11.5 and 11.6 to but excluding said date. Upon such sale, the Purchasing Lender or Purchasing Lenders shall assume the Affected Lender’s commitment, and the Affected Lender shall be released from its obligations hereunder to a corresponding extent. If any Purchasing Lender is not already one of the Lenders, the Affected Lender, as assignor, such Purchasing Lender, as assignee, the Borrower Representative and the Agent, shall enter into an Assignment Agreement pursuant to Section 13.8 hereof, whereupon such Purchasing Lender shall be a Lender party to this Agreement, shall be deemed to be an assignee hereunder and shall have all the rights and obligations of a Lender with a Revolving Credit Percentage equal to its ratable share of the then applicable Revolving Credit Aggregate Commitment of the Affected Lender. In connection with any assignment pursuant to this Section 13.12, the Borrowers or the Purchasing Lender shall pay to the Agent the administrative fee for processing such assignment referred to in Section 13.8.

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13.13 Withholding Taxes . If any Lender is not a “united states person” within the meaning of Section 7701(a)(30) of the Internal Revenue Code, such Lender shall promptly (but in any event prior to the initial payment of interest hereunder or prior to its accepting any assignment under Section 13.8 hereof, as applicable) deliver to the Agent two executed copies of (i) Internal Revenue Service Form W-8BEN or any successor form specifying the applicable tax treaty between the United States and the jurisdiction of such Lender’s domicile which provides for the exemption from withholding on interest payments to such Lender, (ii) Internal Revenue Service Form W-8ECI or any successor form evidencing that the income to be received by such Lender hereunder is effectively connected with the conduct of a trade or business in the United States or (iii) other evidence satisfactory to the Agent that such Lender is exempt from United States income tax withholding with respect to such income; provided, however, that such Lender shall not be required to deliver to Agent the aforesaid forms or other evidence with respect to Advances to Borrowers, if such Lender has assigned its entire interest hereunder (including its Revolving Credit Commitment Amount, any outstanding Advances hereunder and participations in Letters of Credit issued hereunder and any Notes issued to it by Borrowers), to an Affiliate which is incorporated under the laws of the United States or a state thereof, and so notifies the Agent. Such Lender shall amend or supplement any such form or evidence as required to insure that it is accurate, complete and non-misleading at all times. Promptly upon notice from the Agent of any determination by the Internal Revenue Service that any payments previously made to such Lender hereunder were subject to United States income tax withholding when made, such Lender shall pay to the Agent the excess of the aggregate amount required to be withheld from such payments over the aggregate amount actually withheld by the Agent. In addition, from time to time upon the reasonable request and the sole expense of Borrower, each Lender and the Agent shall (to the extent it is able to do so based upon applicable facts and circumstances), complete and provide Borrowers with such forms, certificates or other documents as may be reasonably necessary to allow Borrowers, as applicable, to make any payment under this Agreement or the other Loan Documents without any withholding for or on the account of any tax under Section 10.1(d) hereof (or with such withholding at a reduced rate), provided that the execution and delivery of such forms, certificates or other documents does not adversely affect or otherwise restrict the rights and benefits (including without limitation economic benefits) available to such Lender or the Agent, as the case may be, under this Agreement or any of the other Loan Documents, or under or in connection with any transactions not related to the transactions contemplated hereby.

13.14 Taxes and Fees . Should any tax (other than as a result of a Lender’s failure to comply with Section 13.13 or a tax based upon the net income or capitalization of any Lender or the Agent by any jurisdiction where a Lender or the Agent is or has been located), or recording or filing fee become payable in respect of this Agreement or any of the other Loan Documents or any amendment, modification or supplement hereof or thereof, Borrowers agrees to pay the same, together with any interest or penalties thereon arising from any Borrower’s actions or omissions, and agrees to hold the Agent and the Lenders harmless with respect thereto provided, however, that Borrowers shall not be responsible for any such interest or penalties which were incurred prior to the date that notice is given to the Credit Parties of such tax or fees. Notwithstanding the foregoing, nothing contained in this Section 13.14 shall affect or reduce the rights of any Lender or the Agent under Section 11.5 hereof.

13.15 WAIVER OF JURY TRIAL . THE LENDERS, THE AGENT AND THE BORROWERS KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTION OF ANY OF THEM. NEITHER THE LENDERS, THE AGENT NOR THE BORROWERS SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE LENDERS AND THE AGENT OR THE BORROWER EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.

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13.16 Patriot Act Notice . Pursuant to Section 326 of the USA Patriot Act, the Agent and the Lenders hereby notify the Credit Parties that if they or any of their Subsidiaries open an account, including any loan, deposit account, treasury management account, or other extension of credit with Agent or any Lender, the Agent or the applicable Lender will request the applicable Person’s name, tax identification number, business address and other information necessary to identify such Person (and may request such Person’s organizational documents or other identifying documents) to the extent necessary for the Agent and the applicable Lender to comply with the USA Patriot Act.

13.17 Complete Agreement; Conflicts . THIS AGREEMENT AND THE OTHER “LOAN AGREEMENTS” (AS DEFINED IN SECTION 26.02(A)(2) OF THE TEXAS BUSINESS & COMMERCE CODE, AS AMENDED) REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THIS AGREEMENT AND THE OTHER WRITTEN LOAN AGREEMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. In the event of any conflict between the terms of this Agreement and the other Loan Documents, this Agreement shall govern.

13.18 Severability . In case any one or more of the obligations of the Credit Parties under this Agreement, the Notes or any of the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Credit Parties shall not in any way be affected or impaired thereby, and such invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the obligations of the Credit Parties under this Agreement, the Notes or any of the other Loan Documents in any other jurisdiction.

13.19 Table of Contents and Headings; Section References . The table of contents and the headings of the various subdivisions hereof are for convenience of reference only and shall in no way modify or affect any of the terms or provisions hereof and references herein to “sections,” “subsections,” “clauses,” “paragraphs,” “subparagraphs,” “exhibits” and “schedules” shall be to sections, subsections, clauses, paragraphs, subparagraphs, exhibits and schedules, respectively, of this Agreement unless otherwise specifically provided herein or unless the context otherwise clearly indicates.

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13.20 Construction of Certain Provisions . If any provision of this Agreement or any of the Loan Documents refers to any action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, whether or not expressly specified in such provision.

13.21 Independence of Covenants . Each covenant hereunder shall be given independent effect (subject to any exceptions stated in such covenant) so that if a particular action or condition is not permitted by any such covenant (taking into account any such stated exception), the fact that it would be permitted by an exception to, or would be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default.

13.22 Electronic Transmissions .

(a)

Each of the Agent, the Credit Parties, the Lenders, and each of their Affiliates is authorized (but not required) to transmit, post or otherwise make or communicate, in its sole discretion, Electronic Transmissions in connection with any Loan Document and the transactions contemplated therein. Each Borrower and each other Credit Party hereby acknowledges and agrees that the use of Electronic Transmissions is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each indicates it assumes and accepts such risks by hereby authorizing the transmission of Electronic Transmissions.

(b)

All uses of an E-System shall be governed by and subject to, in addition to Section 13.6 and this Section 13.22, separate terms and conditions posted or referenced in such E-System and related contractual obligations executed by the Agent, the Credit Parties and the Lenders in connection with the use of such E-System.

(c)

All E-Systems and Electronic Transmissions shall be provided “as is” and “as available”. None of the Agent or any of its Affiliates warrants the accuracy, adequacy or completeness of any E-Systems or Electronic Transmission, and each disclaims all liability for errors or omissions therein. No warranty of any kind is made by the Agent or any of its Affiliates in connection with any E Systems or Electronic Transmission, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects. The Agent, the Credit Parties and the Lenders agree that the Agent has no responsibility for maintaining or providing any equipment, software, services or any testing required in connection with any Electronic Transmission or otherwise required for any E-System.

(d)

Notwithstanding the foregoing, any notice of Default, Event of Default or acceleration must be transmitted to the Borrower Representative either by mail, by reputable overnight courier, by facsimile or by email in accordance with Section 13.6.

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13.23 Advertisements . The Agent and the Lenders may disclose the names of the Credit Parties and the existence of the Indebtedness in general advertisements and trade publications.

13.24 Reliance on and Survival of Provisions . All terms, covenants, agreements, representations and warranties of the Credit Parties to any of the Loan Documents made herein or in any of the Loan Documents or in any certificate, report, financial statement or other document furnished by or on behalf of any Credit Party in connection with this Agreement or any of the Loan Documents shall be deemed to have been relied upon by the Lenders, notwithstanding any investigation heretofore or hereafter made by any Lender or on such Lender’s behalf, and those covenants and agreements of the Borrowers set forth in Section 13.5 hereof (together with any other indemnities of any Credit Party contained elsewhere in this Agreement or in any of the other Loan Documents) and of Lenders set forth in Section 12.7 hereof shall survive the repayment in full of the Indebtedness and the termination of any commitment to extend credit.

13.25 Joint and Several Liability .

(a)

Each of the Borrowers acknowledges and agrees that it is the intent of the parties that each such Borrower be primarily liable for the obligations as a joint and several obligor. It is the intention of the parties that with respect to liability of any Borrower hereunder arising solely by reason of its being jointly and severally liable for Advances and other extensions of credit taken by Borrower, the obligations of such Borrower shall be absolute, unconditional and irrevocable irrespective of:

(i)

any lack of validity, legality or enforceability of this Agreement or any Note as to any Borrower, as the case may be;

(ii)

the failure of any Lender or any holder of any Note:

(a) to enforce any right or remedy against any Borrower, as the case may be, or any other Person (including any Guarantor) under the provisions of this Agreement, such Note, or otherwise, or

(b) to exercise any right or remedy against any guarantor of, or collateral securing, any obligations;

(iii)

any change in the time, manner or place of payment of, or in any other term of, all or any of the Indebtedness, or any other extension, compromise or renewal of any Indebtedness;

(iv)

any reduction, limitation, impairment or termination of any Indebtedness with respect to any Borrower, as the case may be, for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each of the Borrowers hereby waives any right to or claim of) any defense (other than the defense of payment in full of the Indebtedness) or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Indebtedness with respect to any Borrower, as the case may be;

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(v)

any addition, exchange, release, surrender or nonperfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any guaranty, held by any Lender or any holder of the Notes securing any of the Indebtedness; or

(vi)

any other circumstance which might otherwise constitute a defense (other than the defense of payment in full of the Indebtedness) available to, or a legal or equitable discharge of, any Borrower, as the case may be, any surety or any guarantor.

(b)

Each of the Borrowers agrees that its joint and several liability hereunder shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Indebtedness is rescinded or must be restored by any Lender or any holder of any Note, upon the insolvency, bankruptcy or reorganization of any Borrower, as the case may be, as though such payment had not been made;

(c)

Each of the Borrowers hereby expressly waives: (i) notice of the Lenders’ acceptance of this Agreement; (ii) notice of the existence or creation or non payment of all or any of the Indebtedness other than notices expressly provided for in this Agreement; (iii) presentment, demand, notice of dishonor, protest, and all other notices whatsoever other than notices expressly provided for in this Agreement; (iv) any claim or defense based on an election of remedies; and (v) all diligence in collection or protection of or realization upon the Indebtedness or any part thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing.

(d)

No delay on any of the Lenders part in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by any of the Lenders of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No action of any of the Lenders permitted hereunder shall in any way affect or impair any such Lenders’ rights or any Borrower’s Indebtedness under this Agreement.

(e)

Each of the Borrowers hereby represents and warrants to each of the Lenders that it now has and will continue to have independent means of obtaining information concerning the Borrowers’ affairs, financial condition and business. Lenders shall not have any duty or responsibility to provide any Borrower with any credit or other information concerning such Borrower’s affairs, financial condition or business which may come into the Lenders’ possession.

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(f)

Each of the Borrowers represents and warrants (i) that the business operations of the Borrowers are interrelated and that the business operations of the Borrowers complement one another, and such entities have a common business purpose, and (ii) that, to permit their uninterrupted and continuous operations, such entities now require and will from time to time hereafter require funds and credit accommodations for general business purposes and that (iii) the proceeds of advances under the Revolving Credit, the Swing Line, and the other credit facilities extended hereunder will directly or indirectly benefit the Borrowers hereunder, severally and jointly, regardless of which Borrower receives part or all of the proceeds of such Advances.

(g)

Notwithstanding anything to the contrary contained herein, it is the intention of the Borrowers, Agent and the Lenders that the amount of the respective Borrowers’ obligations hereunder shall be in, but not in excess of, the maximum amount thereof not subject to avoidance or recovery by operation of applicable law governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws (collectively, “Applicable Insolvency Laws”). To that end, but only in the event and to the extent that the Borrowers’ respective obligations hereunder or any payment made pursuant thereto would, but for the operation of the foregoing proviso, be subject to avoidance or recovery under Applicable Insolvency Laws, the amount of the Borrowers’ respective obligations hereunder shall be limited to the largest amount which, after giving effect thereto, would not, under Applicable Insolvency Laws, render the Borrower’s respective obligations hereunder unenforceable or avoidable or subject to recovery under Applicable Insolvency Laws. To the extent any payment actually made hereunder exceeds the limitation contained in this Section 13.25(g), then the amount of such excess shall, from and after the time of payment by the Borrowers (or any of them), be reimbursed by the Lenders upon demand by such Borrowers. The foregoing proviso is intended solely to preserve the rights of the Agent and the Lenders hereunder against the Borrowers to the maximum extent permitted by Applicable Insolvency Laws and neither any Borrower nor any Guarantor nor any other Person shall have any right or claim under this Section 13.25(g) that would not otherwise be available under Applicable Insolvency Laws.

[Signatures Follow On Succeeding Page]

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WITNESS the due execution hereof as of the day and year first above written.

COMERICA BANK ,

as Administrative Agent

By:

Its:

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STERLING CONSTRUCTION

COMPANY, INC.

By:

Its:

TEXAS STERLING CONSTRUCTION CO.

By:

Its:

OAKHURST MANAGEMENT CORPORATION

By:

Its:

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COMERICA BANK ,

as a Lender, as Issuing Lender

and as Swing Line Lender

By:

Its:

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EXHIBIT G

JOINDER AGREEMENT

This Joinder Agreement (this “Joinder Agreement”) is executed and delivered as of the 31 st day of October, 2007 by each of the undersigned

WHEREAS , Sterling Construction Company, Inc., Texas Sterling Construction Co. and Oakhurst Management Corporation and Comerica Bank as Administrative Agent (“Agent”) and the other financial institutions party thereto from time to time (the “Lenders”) have executed and delivered that certain Sterling Construction Company, Inc. Credit Agreement dated as of October 31, 2007 (as the same may be amended, restated or otherwise modified from time to time, the “Credit Agreement”; capitalized terms not otherwise defined herein shall have the meanings set forth in the Credit Agreement), pursuant to which the Lenders have made and has agreed to make certain Advances pursuant to the terms and conditions set forth therein; and

WHEREAS , each of the undersigned have requested that they also be able to request Advances and receive extensions of credit under the Credit Agreement, and the Lenders have agreed to such request;

NOW, THEREFORE , in consideration of the provisions contained herein and in the Credit Agreement, each of the undersigned hereby agrees as follows :

1. By execution and delivery of this Joinder Agreement, each of the undersigned shall, and does hereby, become a Borrower under the Credit Agreement and a Debtor under the Security Agreement, in each case as if an original signatory thereto, and agrees to execute and deliver any such additional agreements, documents and instruments in connection therewith as Agent shall reasonably request.

2. Each of the undersigned (a) acknowledges and agrees that the undersigned has completely read and understands the Credit Agreement, the Security Agreement and any other Loan Documents; (b) consents to and agrees to be bound by all of the provisions of the Credit Agreement, the Security Agreement and any other Loan Documents executed in connection therewith relating to undersigned; (c) represents and warrants that (i) all of the representations and warranties set forth in the Credit Agreement, the Security Agreement and any other Loan Documents are, as to the undersigned, true and correct in all material respects as of the date hereof and (ii) the Acquisition has been consummated on the terms set forth in the Credit Agreement, and (d) acknowledges and agrees that this Agreement, the Credit Agreement, the Security Agreement and the other Loan Documents to which such undersigned is a party have been freely executed without duress and after an opportunity was provided to the undersigned for review by competent legal counsel of the undersigned's choice.

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3. Each of the undersigned acknowledges and agrees that it shall be jointly and severally liable with the other Borrowers for all of the loans and advances made by Agent and any of the Lenders and all of the indebtedness, obligations and liabilities to Agent and the Lenders under and pursuant to the terms of the Credit Agreement, the Security Agreement or any of the other Loan Documents, together with all of the Borrowers’ other indebtedness, obligations and liabilities whatsoever to Agent or any other Lender arising under or in connection with the Credit Agreement, the Security Agreement or any other Loan Documents, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising.

4. This Joinder Agreement may be executed in counterparts which, taken together, shall constitute an original. This Joinder Agreement may be delivered by facsimile or electronic (e.g., .pdf or .tif file) transmission with the same effect as if an originally executed version of this Fee Letter had been personally delivered to each of the parties hereto, whether or not an original remains in existence.

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ROAD AND HIGHWAY BUILDERS INC.

By:

Its:

ROAD AND HIGHWAY BUILDERS, LLC

By: Sterling Construction Company, Inc., its sole manager

By:

Its:

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Schedule 1.1

Applicable Margin Grid

Credit Agreement

(basis points per annum)

Basis for Pricing	Level I	Level II	Level III
Pricing Leverage Ratio*	<1.00	> 1.00 but <1.75	> 1.75
Revolving Credit Eurodollar Margin	125.00	175.00	225.00
Revolving Credit Prime-Based Rate Margin	0.00	25.00	50.00
Revolving Credit Facility Fee	25.00	25.00	25.00
Letter of Credit Fees (exclusive of facing fees)	125.00	175.00	225.00

* Definition as set forth in the Credit Agreement.

** Level II pricing shall be in effect until the delivery of the financial statements for the quarter ending December 31, 2007, after which time the pricing grid shall govern.

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Schedule 1.2

Percentages and Allocations

Credit Agreement

LENDERS	REVOLVING CREDIT PERCENTAGE	REVOLVING CREDIT ALLOCATIONS
Comerica Bank	100%	$75,000,000
TOTALS	100%	$75,000,000

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Schedule 1.3

Compliance Information

Correct Legal Name	Address	Type of Organization	Jurisdiction of Organization	Tax identification number and other identification numbers

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Schedule Number 1.4

Existing Comerica Loans

Term Loan maturing May 28, 2008 with a principal balance of $ 37,463.00

Term Loan maturing June 18, 2016 with a principal balance of $ 635,555.64

Term Loan (un-drawn) for $1,500,000

$35 Million Revolving Credit Facility:

No amounts are outstanding under, and no further draws will be made on, this facility.

__________________

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Schedule Number 1.5

List of Existing Letters of Credit

Standby letter of Credit benefiting Hartford Fire Insurance Company

Expiring April 1, 2008 in the amount of $1,484,000

____________________

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Schedule Number 5.1( c )

Credit Parties' jurisdiction of organization

See Schedule 1.3

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Schedule Number 5.2

Jurisdictions where each Credit Party is authorized to do business

Credit Party	Jurisdiction
Sterling Construction Company, Inc. 2751 Centerville Road — Suite 3131 Wilmington, Delaware 19803	Delaware
Oakhurst Management Corporation 20810 Fernbush Lane Houston Texas 77073	Texas & Massachusetts
Texas Sterling Construction Co. 20810 Fernbush Lane Houston Texas 77073	Delaware & Texas & Arizona ( sub nom . Texas Sterling Construction, L.P.)
Road and Highway Builders, LLC 96 Glen Carran Circle — Suite # 106 Sparks, Nevada 89431	Nevada
Road and Highway Builders Inc. 96 Glen Carran Circle — Suite # 106 Sparks, Nevada 89431	Nevada & California

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Schedule Number 6.3 (b)

List of all real property owned by each Credit Party

Credit Party	Description of Real Estate
Sterling Construction Company, Inc.	None
Oakhurst Management Corporation	None
Texas Sterling Construction Co.	20810 Fernbush Lane, Houston, Harris County, Texas — 6.359 acres Includes 14,400 sq. ft. office (tilt wall const.) and two maintenance facility buildings (steel) of 8,000 square feet and 7,500 square feet
	20810 Fernbush Lane, Houston, Harris County, Texas — 10.24 acres ( under contract) For expansion to the main facility (closing mid December 2007)
	Loop 21050 Loop 494, New Caney, Montgomery County, Texas — 4.33 acres Project yard with temporary buildings.
	Bauer Road, Cypress, Harris County, Texas — 64.839 acres Batch plant location and materials yard
	St. Hedwig Street, San Antonio, Bexar County, Texas — 50.7 acres Vacant lot
	5001 West Rock Island Road, Grand Prairie, Dallas County, Texas — 4.466 acres Vacant lot
	20505 Essman, Houston, Harris County, Texas — 5.0 acres Vacant storage lot
Road and Highway Builders, LLC	500 Nevada Blvd., Lovelock, Pershing County, Nevada — 4.56 acres 7,200 square-foot combined office and maintenance shop (steel)
	Nevada Blvd., Lovelock, Pershing County, Nevada — 39.99 acres Storage and materials yard with Quonset hut.
Road and Highway Builders Inc.	None

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Schedule Number 6.4

Exceptions to tax filings

NONE

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Schedule Number 6.7

List of any existing violations of law that would have a material adverse effect

NONE

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Schedule Number 6.9

List of any litigation that would have a material adverse effect

NONE

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Schedule Number 6.10

List of third party consents (if any) needed for the loan transaction

NONE

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Schedule Number 6.13

List of Benefit Plans

Credit Party	Plan
Sterling Construction Company, Inc.	None
Oakhurst Management Corporation	None
Texas Sterling Construction Co.	Health Insurance — Group & Pension Administrators
	Company-Paid Basic Life & AD&D — Guardian Life Insurance Company
	Dental & Voluntary Life Insurance — Guardian Life Insurance Company
	Vision – Group & Pension Administrators & Guardian Life Insurance Company
	Short–Term & Long-Term Disability — Guardian Life Insurance Company
	Employee Assistance Program – Guardian Life Insurance Company
	Credit Union – Smart Financial
	401K Plan — Fidelity Management Trust Company The Company matches employee contributions at a rate of 50% of the first 6% of employee contributions.
Oakhurst Management Corporation	None
Road and Highway Builders, LLC	None (Employees participated in the benefit plans of RHB LLC's 50% Member, Fisher Sand & Gravel Co.)
Road and Highway Builders Inc.	None

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Schedule Number 6.15

List of any violations or proceedings involving environmental laws

NONE

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Schedule Number 6.16

List of Subsidiaries of each Credit Party

Credit Party	Subsidiaries
Sterling Construction Company, Inc. 2751 Centerville Road — Suite 3131 Wilmington, Delaware 19803	Oakhurst Management Corporation Texas Sterling Construction Co. Road and Highway Builders, LLC Road and Highway Builders Inc.
Oakhurst Management Corporation 20810 Fernbush Lane Houston Texas 77073	None
Texas Sterling Construction Co. 20810 Fernbush Lane Houston Texas 77073	None
Road and Highway Builders, LLC 96 Glen Carran Circle — Suite # 106 Sparks, Nevada 89431	None
Road and Highway Builders Inc. 96 Glen Carran Circle — Suite # 106 Sparks, Nevada 89431	None

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Schedule Number 6.19

List of all trade names used by each Credit Party in the last five years.

Credit Party	Trade Names
Sterling Construction Company, Inc.	Sterling Construction Company
Oakhurst Management Corporation	None
Texas Sterling Construction Co.	Texas Sterling Construction RDI Foundation Drilling
Road and Highway Builders, LLC	Road and Highway Builders
Road and Highway Builders Inc.	None

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Schedule Number 6.20

Equity Interests of each Credit Party including —

(1)

All authorized, and issued and outstanding Equity Interests of each Credit Party.

(2)

The par value of such Equity Interests.

(3)

The holders of such Equity Interests (other than for Sterling).

(4)

List of any preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements for the purchase of such Equity Interests.

Authorized Equity	Issued & Outstanding	Par Value	Holder	Outstanding Rights
Sterling Construction Company, Inc.
14,000 Common 1,000,000 Preferred	11,017,890 (1) None	$0.01 per share $0.01 per share	Not required None	See footnote (2)
Oakhurst Management Corporation
1,000 Common	1,000	$1.00 per share	Sterling Construction Company, Inc.	None
Texas Sterling Construction Co.
1,000 Common	100	$0.01 per share	Sterling Construction Company, Inc.	None
Road and Highway Builders, LLC
N/A	N/A	N/A	Sterling Construction Company, Inc.	None
Road and Highway Builders Inc.
1,000	1,000	$10.00	Sterling Construction Company, Inc.	None

________________

(1)	At September 30, 2007.

(2)	At September 30, 2007, there were warrants outstanding and currently exercisable at $1.50 per share to purchase 356,266 shares of Sterling Construction Company, Inc.'s common stock. The warrants expire on July 18, 2011.

See attached report of options outstanding at September 30, 2007.

127

Sterling Construction Company, Inc.			OUTSTANDING AND EXERCISABLE BY PRICE AS OF 9/30/2007							Page: 1 File: Osprice Date: 10/26/2007 Time: 5:35:52 PM
Name	ID Number		Option Date	Expiration Date	Remaining Life in Years			Option Price		Shares Outstanding	Shares Exercisable
Abernathy, John D.	008 000517		5/7/2007	5/7/2008		0.60			$0.000	1,598	0
Abernathy, John D.	008 000395		5/19/2005	5/19/2015		7.63			$6.870	5,000	5,000
Abernathy, John D.	008 000258		7/23/2001	7/23/2011		3.81			$1.500	12,000	12,000
Abernathy, John D.	008 000225		5/1/2001	5/1/2011		3.58			$0.750	1,166	1,166
Abernathy, John D.	008 000217		5/1/2000	5/1/2010		2.58			$1.063	3,000	3,000
Abernathy, John D.	008 000194		5/1/1999	5/1/2009		1.58			$0.938	3,000	3,000
Abernathy, John D.	008 000189		5/1/1998	5/1/2008		0.58			$0.844	3,000	3,000
					Avg. Life	3.59	Avg. Out.		$2.147	28,764	27,166
	Account: Abernathy, John D.						Avg. Exer.		$2.273
Allen, James H	181 000521		8/7/2007	8/7/2017		9.85			$18.990	13,707	0
					Avg. Life	9.85	Avg. Out.		$18.990	13,707	0
	Account: Allen, James H						Avg. Exer.		$0.000
Barefield, Stephen	163 000476		8/8/2006	9/8/2011		3.94			$25.210	500	100
Barefield, Stephen	163 000440		8/12/2005	9/12/2010		2.95			$16.780	900	360
Barefield, Stephen	163 000332		8/12/2004	8/12/2014		6.87			$3.100	2,000	1,000
					Avg. Life	5.40	Avg. Out.		$9.973	3,400	1,460
	Account: Barefield, Stephen						Avg. Exer.		$7.988
Barzun, Roger M.	002 000477		8/8/2006	9/8/2011		3.94			$25.210	600	120
Barzun, Roger M.	002 000436		8/12/2005	9/12/2010		2.95			$16.780	1,000	400
Barzun, Roger M.	002 000383		8/12/2004	8/12/2014		6.87			$3.100	2,000	2,000
Barzun, Roger M.	002 000187		2/4/1998	2/4/2008		0.35			$0.875	3,980	3,980
					Avg. Life	2.69	Avg. Out.		$5.487	7,580	6,500
	Account: Barzun, Roger M.						Avg. Exer.		$2.988
Binford, Matthew	165	000478	8/8/2006	9/8/2011		3.94			$25.210	500	100
Binford, Matthew	165	000447	8/12/2005	9/12/2010		2.95			$16.780	600	240
Binford, Matthew	165	000333	8/12/2004	8/12/2014		6.87			$3.100	1,000	600
					Avg. Life	5.05	Avg. Out.		$12.273	2,100	940
	Account: Binford, Matthew						Avg. Exer.		$8.945
Callahan, Joseph	170 000335		8/12/2004	8/12/2014		6.87			$3.100	500	300
					Avg. Life	6.87	Avg. Out.		$3.100	500	300
	Account: Callahan, Joseph						Avg. Exer.		$3.100
Castro, Salvador	152 000336		8/12/2004	8/12/2014		6.87			$3.100	300	100
Castro, Salvador	152 000327		8/20/2003	8/20/2013		5.89			$3.050	320	160

128

Sterling Construction Company, Inc. OUTSTANDING AND EXERCISABLE BY PRICE Page: 2

AS OF 9/30/2007 File: Osprice

Date: 10/26/2007

Time: 5:35:52 PM

Name	ID Number		Option Date	Expiration Date	Remaining Life in Years		Option Price		Shares Outstanding	Shares Exercisable
					Avg. Life	6.36	Avg. Out.	$3.074
					Avg. Life	6.36	Avg. Out.	$3.074	620	260
	Account: Castro, Salvador						Avg. Exer.	$3.069
Chapa, Juan D.	144 000480		8/8/2006	9/8/2011		3.94		$25.210	400	80
Chapa, Juan D.	144 000441		8/12/2005	9/12/2010		2.95		$16.780	700	280
Chapa, Juan D.	144 000337		8/12/2004	8/12/2014		6.87		$3.100	2,000	1,200
Chapa, Juan D.	144 000321		8/20/2003	8/20/2013		5.89		$3.050	2,000	1,600
Chapa, Juan D.	144 000266		7/24/2002	7/24/2012		4.81		$1.725	2,000	2,000
					Avg. Life	5.46	Avg. Out.	$5.293	7,100	5,160
	Account: Chapa, Juan D						Avg. Exer.	$3.637
Clark, Samuel	136	000481	8/8/2006	9/8/2011		3.94		$25.210	600	120
Clark, Samuel	136	000451	8/12/2005	9/12/2010		2.95		$16.780	1,200	480
Clark, Samuel	136	000338	8/12/2004	8/12/2014		6.87		$3.100	2,500	1,500
Clark, Samuel	136	000313	8/20/2003	8/20/2013		5.89		$3.050	2,000	1,600
Clark, Samuel	136	000267	7/24/2002	7/24/2012		4.81		$1.725	2,000	2,000
Clark, Samuel	136	000232	7/23/2001	7/23/2011		3.81		$1.500	2,400	2,400
					Avg. Life	5.01	Avg. Out.	$5.249	10,700	8,100
	Account: Clark, Samuel						Avg. Exer.	$3.415
Coates, Garland P.	141	000339	8/12/2004	8/12/2014		6.87		$3.100	800	480
Coates, Garland P.	141	000318	8/20/2003	8/20/2013		5.89		$3.050	800	640
Coates, Garland P.	141	000268	7/24/2002	7/24/2012		4.81		$1.725	200	200
					Avg. Life	6.20	Avg. Out.	$2.925	1,800	1,320
	Account: Coates, Garland P.						Avg. Exer.	$2.867
Cohlmeyer, Roger	154	000340	8/12/2004	8/12/2014		6.87		$3.100	800	480
Cohlmeyer, Roger	154	000325	8/20/2003	8/20/2013		5.89		$3.050	800	640
Cohlmeyer, Roger	154	000270	7/24/2002	7/24/2012		4.81		$1.725	500	500
					Avg. Life	6.00	Avg. Out.	$2.754	2,100	1,620
	Account: Cohlmeyer, Roger						Avg. Exer.	$2.656
Colombo, Anthony F.	129	000482	8/8/2006	9/8/2011		3.94		$25.210	600	0
Colombo, Anthony F.	129	000483	8/8/2006	9/8/2011		3.94		$25.210	400	200
Colombo, Anthony F.	129	000465	7/18/2006	7/18/2011		3.80		$24.960	3,633	3,633
Colombo, Anthony F.	129	000466	7/18/2006	7/18/2011		3.80		$24.960	3,867	3,867
Colombo, Anthony F.	129	000416	8/12/2005	9/12/2010		2.95		$16.780	300	300
Colombo, Anthony F.	129	000438	8/12/2005	9/12/2010		2.95		$16.780	1,200	300
Colombo, Anthony F.	129	000406	7/18/2005	7/18/2010		2.80		$9.690	7,380	7,380
Colombo, Anthony F.	129	000407	7/18/2005	7/18/2010		2.80		$9.690	120	120

129

Sterling Construction Company, Inc.		OUTSTANDING AND EXERCISABLE BY PRICE AS OF 9/30/2007							Page: 3 File: Osprice Date: 10/26/2007 Time: 5:35:52 PM
Name	ID Number	Option Date	Expiration Date	Remaining Life in Years			Option Price		Shares Outstanding	Shares Exercisable
Colombo, Anthony F.	129 000341	8/12/2004	8/12/2014		6.87			$3.100	3,500	2,100
Colombo, Anthony F.	129 000381	8/12/2004	8/12/2009		1.87			$3.100	7,500	7,500
Colombo, Anthony F.	129 000305	8/20/2003	8/20/2013		5.89			$3.050	3,000	2,400
Colombo, Anthony F.	129 000271	7/24/2002	7/24/2012		4.81			$1.725	2,800	2,800
Colombo, Anthony F.	129 000234	7/23/2001	7/23/2011		3.81			$1.500	2,500	2,500
				Avg. Life	3.71	Avg. Out.		$9.839	36,800	33,100
	Account: Colombo, Anthony F.					Avg. Exer.		$9.687
Dolan, Timothy	142 000342	8/12/2004	8/12/2014		6.87			$3.100	800	480
Dolan, Timothy	142 000319	8/20/2003	8/20/2013		5.89			$3.050	800	640
Dolan, Timothy	142 000272	7/24/2002	7/24/2012		4.81			$1.725	1,000	1,000
				Avg. Life	5.78	Avg. Out.		$2.556	2,600	2,120
	Account: Dolan, Timothy					Avg. Exer.		$2.436
Flores, Pete	133 000484	8/8/2006	9/8/2011		3.94			$25.210	200	40
Flores, Pete	133 000417	8/12/2005	9/12/2010		2.95			$16.780	180	0
Flores, Pete	133 000343	8/12/2004	8/12/2014		6.87			$3.100	320	0
Flores, Pete	133 000311	8/20/2003	8/20/2013		5.89			$3.050	160	0
				Avg. Life	5.18	Avg. Out.		$11.096	860	40
	Account: Flores, Pete					Avg. Exer.		$25.210
Frickel, Robert W.	151 000513	5/7/2007	5/7/2008		0.60			$0.000	1,598	0
Frickel, Robert W.	151 000398	5/19/2005	5/19/2015		7.63			$6.870	5,000	5,000
Frickel, Robert W.	151 000260	7/23/2001	7/23/2011		3.81			$1.500	12,000	12,000
				Avg. Life	4.56	Avg. Out.		$2.815	18,598	17,000
	Account: Frickel, Robert W.					Avg. Exer.		$3.079
Fusilli, Jr., Donald P.	180 000511	5/7/2007	5/7/2008		0.60			$0.000	1,598	0
				Avg. Life	0.60	Avg. Out.		$0.000	1,598	0
	Account: Fusilli, Jr., Donald P.					Avg. Exer.		$0.000
Garnett, Corey	164 000344	8/12/2004	8/12/2014		6.87			$3.100	300	100
				Avg. Life	6.87	Avg. Out.		$3.100	300	100
	Account: Garnett, Corey					Avg. Exer.		$3.100
Garrison, Greg	155 000485	8/8/2006	9/8/2011		3.94			$25.210	700	140
Garrison, Greg	155 000418	8/12/2005	9/12/2010		2.95			$16.780	1,400	560
Garrison, Greg	155 000345	8/12/2004	8/12/2014		6.87			$3.100	3,000	1,800
Garrison, Greg	155 000307	8/20/2003	8/20/2013		5.89			$3.050	2,000	1,600

130

Sterling Construction Company, Inc.			OUTSTANDING AND EXERCISABLE BY PRICE AS OF 9/30/2007							Page: 4 File: Osprice Date: 10/26/2007 Time: 5:35:52 PM
			Option	Expiration	Remaining			Option		Shares	Shares
Name	ID	Number	Date	Date	Life in Years			Price		Outstanding	Exercisable
Garrison, Greg	155	000274	7/24/2002	7/24/2012		4.81			$1.725	1,500	1,500
					Avg. Life	5.40	Avg. Out.		$6.875	8,600	5,600
	Account: Garrison, Greg						Avg. Exer.		$4.638
Goldsmith, Dusty	143	000486	8/8/2006	9/8/2011		3.94			$25.210	400	80
Goldsmith, Dusty	143	000419	8/12/2005	9/12/2010		2.95			$16.780	560	140
Goldsmith, Dusty	143	000347	8/12/2004	8/12/2014		6.87			$3.100	1,000	0
Goldsmith, Dusty	143	000320	8/20/2003	8/20/2013		5.89			$3.050	400	0
					Avg. Life	5.28	Avg. Out.		$10.085	2,360	220
	Account: Goldsmith, Dusty						Avg. Exer.		$19.845
Gonzales, Rafael	145	000348	8/12/2004	8/12/2014		6.87			$3.100	500	300
Gonzales, Rafael	145	000322	8/20/2003	8/20/2013		5.89			$3.050	800	640
Gonzales, Rafael	145	000277	7/24/2002	7/24/2012		4.81			$1.725	500	500
Gonzales, Rafael	145	000239	7/23/2001	7/23/2011		3.81			$1.500	500	500
					Avg. Life	5.42	Avg. Out.		$2.436	2,300	1,940
	Account: Gonzales, Rafael						Avg. Exer.		$2.317
Green, Raymond	146	000349	8/12/2004	8/12/2014		6.87			$3.100	500	300
Green, Raymond	146	000323	8/20/2003	8/20/2013		5.89			$3.050	800	640
Green, Raymond	146	000278	7/24/2002	7/24/2012		4.81			$1.725	1,000	1,000
Green, Raymond	146	000240	7/23/2001	7/23/2011		3.81			$1.500	1,000	1,000
					Avg. Life	5.08	Avg. Out.		$2.186	3,300	2,940
	Account: Green, Raymond						Avg. Exer.		$2.077
Harper, Brien P.	138	000487	8/8/2006	9/8/2011		3.94			$25.210	500	100
Harper, Brien P.	138	000420	8/12/2005	9/12/2010		2.95			$16.780	1,000	400
Harper, Brien P.	138	000350	8/12/2004	8/12/2014		6.87			$3.100	1,500	500
Harper, Brien P.	138	000316	8/20/2003	8/20/2013		5.89			$3.050	800	400
Harper, Brien P.	138	000279	7/24/2002	7/24/2012		4.81			$1.725	400	400
					Avg. Life	5.20	Avg. Out.		$8.849	4,200	1,800
	Account: Harper, Brien P.						Avg. Exer.		$7.052
Harper, Jr., Joseph P.	130	000488	8/8/2006	9/8/2011		3.94			$25.210	600	0
Harper, Jr., Joseph P.	130	000489	8/8/2006	9/8/2011		3.94			$25.210	400	200
Harper, Jr., Joseph P.	130	000467	7/18/2006	7/18/2011		3.80			$24.960	3,633	3,633
Harper, Jr., Joseph P.	130	000468	7/18/2006	7/18/2011		3.80			$24.960	3,867	3,867
Harper, Jr., Joseph P.	130	000422	8/12/2005	9/12/2010		2.95			$16.780	300	300
Harper, Jr., Joseph P.	130	000421	8/12/2005	9/12/2010		2.95			$16.780	1,200	300
Harper, Jr., Joseph P.	130	000408	7/18/2005	7/18/2010		2.80			$9.690	7,390	7,390

131

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Name	ID	Number	Option Date	Expiration Date	Remaining Life in Years			Option Price		Shares Outstanding	Shares Exercisable
Harper, Jr., Joseph P.	130	000409	7/18/2005	7/18/2010		2.80			$9.690	110	110
Harper, Jr., Joseph P.	130	000351	8/12/2004	8/12/2014		6.87			$3.100	3,500	2,100
Harper, Jr., Joseph P.	130	000380	8/12/2004	8/12/2009		1.87			$3.100	7,500	7,500
Harper, Jr., Joseph P.	130	000306	8/20/2003	8/20/2013		5.89			$3.050	3,000	2,400
Harper, Jr., Joseph P.	130	000280	7/24/2002	7/24/2012		4.81			$1.725	2,500	2,500
Harper, Jr., Joseph P.	130	000244	7/23/2001	7/23/2011		3.81			$1.500	2,000	2,000
					Avg. Life	3.70	Avg. Out.		$10.023	36,000	32,300
	Account: Harper, Jr., Joseph P.						Avg. Exer.		$9.888
Harper, Sr., Joseph P.	125	000490	8/8/2006	9/8/2011		3.94			$25.210	600	0
Harper, Sr., Joseph P.	125	000491	8/8/2006	9/8/2011		3.94			$25.210	400	200
Harper, Sr., Joseph P.	125	000462	7/18/2006	7/18/2011		3.80			$24.960	3,804	3,804
Harper, Sr., Joseph P.	125	000463	7/18/2006	7/18/2011		3.80			$24.960	6,196	6,196
Harper, Sr., Joseph P.	125	000423	8/12/2005	9/12/2010		2.95			$16.780	1,200	300
Harper, Sr., Joseph P.	125	000424	8/12/2005	9/12/2010		2.95			$16.780	300	300
Harper, Sr., Joseph P.	125	000402	7/18/2005	7/18/2010		2.80			$9.690	6,747	6,747
Harper, Sr., Joseph P.	125	000403	7/18/2005	7/18/2010		2.80			$9.690	3,253	3,253
Harper, Sr., Joseph P.	125	000352	8/12/2004	8/12/2014		6.87			$3.100	3,500	3,500
Harper, Sr., Joseph P.	125	000379	8/12/2004	8/12/2009		1.87			$3.100	10,000	10,000
Harper, Sr., Joseph P.	125	000298	8/20/2003	8/20/2013		5.89			$3.050	3,500	3,500
Harper, Sr., Joseph P.	125	000281	7/24/2002	7/24/2012		4.81			$1.725	3,500	3,500
Harper, Sr., Joseph P.	125	000243	7/23/2001	7/23/2011		3.81			$1.500	3,700	3,700
					Avg. Life	3.61	Avg. Out.		$9.871	46,700	45,000
	Account: Harper, Sr., Joseph P.						Avg. Exer.		$9.461
Hemsley, Maarten D.	001	000522	7/18/2007	7/18/2012		4.80			$21.600	2,800	2,800
Hemsley, Maarten D.	001	000473	7/18/2006	7/18/2011		3.80			$24.960	2,800	2,800
Hemsley, Maarten D.	001	000452	7/18/2005	7/18/2010		2.80			$9.690	2,800	2,800
Hemsley, Maarten D.	001	000384	8/12/2004	8/12/2014		6.87			$3.100	5,000	5,000
Hemsley, Maarten D.	001	000176	1/13/1998	10/27/2013		6.07			$0.875	75,000	75,000
Hemsley, Maarten D.	001	000005	4/29/1994	2/11/2010		2.37			$2.750	100,000	100,000
					Avg. Life	4.03	Avg. Out.		$2.726	188,400	188,400
	Account: Hemsley, Maarten D.						Avg. Exer.		$2.726
Jones, William	156	000492	8/8/2006	9/8/2011		3.94			$25.210	500	100
Jones, William	156	000425	8/12/2005	9/12/2010		2.95			$16.780	900	360
Jones, William	156	000353	8/12/2004	8/12/2014		6.87			$3.100	2,000	1,200
Jones, William	156	000308	8/20/2003	8/20/2013		5.89			$3.050	1,800	1,440
Jones, William	156	000282	7/24/2002	7/24/2012		4.81			$1.725	1,500	1,500

132

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AS OF 9/30/2007 File: Osprice

Date: 10/26/2007

Time: 5:35:52 PM

Name	ID Number		Option Date	Expiration Date	Remaining Life in Years		Option Price		Shares Outstanding	Shares Exercisable
					Avg. Life	5.40	Avg. Out.	$6.266	6,700	4,600
	Account: Jones, William						Avg. Exer.	$4.187
Kelly, William	172 000493		8/8/2006	9/8/2011		3.94		$25.210	300	60
Kelly, William	172 000426		8/12/2005	9/12/2010		2.95		$16.780	600	240
Kelly, William	172 000354		8/12/2004	8/12/2014		6.87		$3.100	1,200	400
					Avg. Life	5.33	Avg. Out.	$10.167	2,100	700
	Account: Kelly, William						Avg. Exer.	$9.685
Leal, Richard Troy	147	000355	8/12/2004	8/12/2014		6.87		$3.100	500	300
Leal, Richard Troy	147	000324	8/20/2003	8/20/2013		5.89		$3.050	800	640
Leal, Richard Troy	147	000284	7/24/2002	7/24/2012		4.81		$1.725	1,000	1,000
					Avg. Life	5.63	Avg. Out.	$2.485	2,300	1,940
	Account: Leal, Richard Troy						Avg. Exer.	$2.375
Littlefield, Joel	161	000494	8/8/2006	9/8/2011		3.94		$25.210	1,000	200
Littlefield, Joel	161	000427	8/12/2005	9/12/2010		2.95		$16.780	1,400	560
Littlefield, Joel	161	000356	8/12/2004	8/12/2014		6.87		$3.100	3,000	1,800
Littlefield, Joel	161	000330	8/20/2003	8/20/2013		5.89		$3.050	1,500	1,200
					Avg. Life	5.43	Avg. Out.	$9.069	6,900	3,760
	Account: Littlefield, Joel						Avg. Exer.	$6.298
Lively, Richard	134	000495	8/8/2006	9/8/2011		3.94		$25.210	600	120
Lively, Richard	134	000428	8/12/2005	9/12/2010		2.95		$16.780	720	180
Lively, Richard	134	000357	8/12/2004	8/12/2014		6.87		$3.100	1,500	500
Lively, Richard	134	000312	8/20/2003	8/20/2013		5.89		$3.050	800	400
Lively, Richard	134	000285	7/24/2002	7/24/2012		4.81		$1.725	400	400
					Avg. Life	5.33	Avg. Out.	$8.703	4,020	1,600
	Account: Lively, Richard						Avg. Exer.	$5.941
Machada, Santos	169 000358		8/12/2004	8/12/2014		6.87		$3.100	500	300
					Avg. Life	6.87	Avg. Out.	$3.100	500	300
	Account: Machada, Santos						Avg. Exer.	$3.100
Manning, Brian R.	128 000496		8/8/2006	9/8/2011		3.94		$25.210	600	0
Manning, Brian R.	128 000497		8/8/2006	9/8/2011		3.94		$25.210	400	200
Manning, Brian R.	128 000469		7/18/2006	7/18/2011		3.80		$24.960	3,633	3,633
Manning, Brian R.	128 000470		7/18/2006	7/18/2011		3.80		$24.960	3,867	3,867
Manning, Brian R.	128 000432		8/12/2005	9/12/2010		2.95		$16.780	1,200	300
Manning, Brian R.	128 000433		8/12/2005	9/12/2010		2.95		$16.780	300	300

133

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Name	ID Number		Option Date	Expiration Date	Remaining Life in Years			Option Price		Shares Outstanding	Shares Exercisable
Manning, Brian R.	128 000411		7/18/2005	7/18/2010		2.80			$9.690	110	110
Manning, Brian R.	128 000410		7/18/2005	7/18/2010		2.80			$9.690	7,390	7,390
Manning, Brian R.	128 000361		8/12/2004	8/12/2014		6.87			$3.100	3,500	2,100
Manning, Brian R.	128 000377		8/12/2004	8/12/2009		1.87			$3.100	7,500	7,500
Manning, Brian R.	128 000302		8/20/2003	8/20/2013		5.89			$3.050	3,000	2,400
Manning, Brian R.	128 000288		7/24/2002	7/24/2012		4.81			$1.725	2,500	2,500
Manning, Brian R.	128 000249		7/23/2001	7/23/2011		3.81			$1.500	2,000	2,000
					Avg. Life	3.70	Avg. Out.		$10.023	36,000	32,300
	Account: Manning, Brian R.						Avg. Exer.		$9.888
Manning, James D.	123 000363		8/12/2004	8/12/2014		6.87			$3.100	833	833
					Avg. Life	6.87	Avg. Out.		$3.100	833	833
	Account: Manning, James D.						Avg. Exer.		$3.100
Manning, Jeffrey	127 000498		8/8/2006	9/8/2011		3.94			$25.210	600	0
Manning, Jeffrey	127 000499		8/8/2006	9/8/2011		3.94			$25.210	400	200
Manning, Jeffrey	127 000471		7/18/2006	7/18/2011		3.80			$24.960	3,647	3,647
Manning, Jeffrey	127 000472		7/18/2006	7/18/2011		3.80			$24.960	3,853	3,853
Manning, Jeffrey	127 000429		8/12/2005	9/12/2010		2.95			$16.780	1,200	300
Manning, Jeffrey	127 000430		8/12/2005	9/12/2010		2.95			$16.780	300	300
Manning, Jeffrey	127 000412		7/18/2005	7/18/2010		2.80			$9.690	7,437	7,437
Manning, Jeffrey	127 000413		7/18/2005	7/18/2010		2.80			$9.690	63	63
Manning, Jeffrey	127 000359		8/12/2004	8/12/2014		6.87			$3.100	3,500	2,100
Manning, Jeffrey	127 000378		8/12/2004	8/12/2009		1.87			$3.100	7,500	7,500
Manning, Jeffrey	127 000301		8/20/2003	8/20/2013		5.89			$3.050	2,500	2,000
Manning, Jeffrey	127 000287		7/24/2002	7/24/2012		4.81			$1.725	2,200	2,200
Manning, Jeffrey	127 000250		7/23/2001	7/23/2011		3.81			$1.500	2,000	2,000
					Avg. Life	3.66	Avg. Out.		$10.192	35,200	31,600
	Account: Manning, Jeffrey						Avg. Exer.		$10.052
Manning, Kevin	131 000502		8/8/2006	9/8/2011		3.94			$25.210	300	60
Manning, Kevin	131 000431		8/12/2005	9/12/2010		2.95			$16.780	500	200
Manning, Kevin	131 000360		8/12/2004	8/12/2014		6.87			$3.100	1,000	600
Manning, Kevin	131 000303		8/20/2003	8/20/2013		5.89			$3.050	1,000	800
Manning, Kevin	131 000289		7/24/2002	7/24/2012		4.81			$1.725	1,000	1,000
Manning, Kevin	131 000251		7/23/2001	7/23/2011		3.81			$1.500	1,000	1,000
					Avg. Life	5.01	Avg. Out.		$5.277	4,800	3,660
	Account: Manning, Kevin						Avg. Exer.		$3.386
Manning, Patrick T.	124	000500	8/8/2006	9/8/2011		3.94			$25.210	600	0
Manning, Patrick T.	124	000501	8/8/2006	9/8/2011		3.94			$25.210	400	200

134

Sterling Construction Company, Inc.		OUTSTANDING AND EXERCISABLE BY PRICE AS OF 9/30/2007							Page: 8 File: Osprice Date: 10/26/2007 Time: 5:35:52 PM
Name	ID Number	Option Date	Expiration Date	Remaining Life in Years			Option Price		Shares Outstanding	Shares Exercisable
Manning, Patrick T.	124 000460	7/18/2006	7/18/2011		3.80			$24.960	3,619	3,619
Manning, Patrick T.	124 000461	7/18/2006	7/18/2011		3.80			$24.960	6,381	6,381
Manning, Patrick T.	124 000434	8/12/2005	9/12/2010		2.95			$16.780	1,200	300
Manning, Patrick T.	124 000435	8/12/2005	9/12/2010		2.95			$16.780	300	300
Manning, Patrick T.	124 000400	7/18/2005	7/18/2010		2.80			$9.690	6,519	6,519
Manning, Patrick T.	124 000401	7/18/2005	7/18/2010		2.80			$9.690	3,481	3,481
Manning, Patrick T.	124 000362	8/12/2004	8/12/2014		6.87			$3.100	3,500	2,100
Manning, Patrick T.	124 000376	8/12/2004	8/12/2009		1.87			$3.100	10,000	10,000
Manning, Patrick T.	124 000300	8/20/2003	8/20/2013		5.89			$3.050	3,500	2,800
Manning, Patrick T.	124 000286	7/24/2002	7/24/2012		4.81			$1.725	3,500	3,500
Manning, Patrick T.	124 000252	7/23/2001	7/23/2011		3.81			$1.500	3,700	3,700
				Avg. Life	3.61	Avg. Out.		$9.871	46,700	42,900
	Account: Manning, Patrick T.					Avg. Exer.		$9.773
McCall, Jeff	166 000364	8/12/2004	8/12/2014		6.87			$3.100	480	160
				Avg. Life	6.87	Avg. Out.		$3.100	480	160
	Account: McCall, Jeff					Avg. Exer.		$3.100
Mills, Christopher H. B.	150 000514	5/7/2007	5/7/2008		0.60			$0.000	1,598	0
Mills, Christopher H. B.	150 000397	5/19/2005	5/19/2015		7.63			$6.870	5,000	5,000
				Avg. Life	5.93	Avg. Out.		$5.206	6,598	5,000
	Account: Mills, Christopher H. B.					Avg. Exer.		$6.870
Mitchell, William	178 000503	8/8/2006	9/8/2011		3.94			$25.210	1,000	200
Mitchell, William	178 000453	8/12/2005	9/12/2010		2.95			$16.780	1,000	400
				Avg. Life	3.45	Avg. Out.		$20.995	2,000	600
	Account: Mitchell, William					Avg. Exer.		$19.590
Scott, Milton L.	179 000515	5/7/2007	5/7/2008		0.60			$0.000	1,598	0
				Avg. Life	0.60	Avg. Out.		$0.000	1,598	0
	Account: Scott, Milton L.					Avg. Exer.		$0.000
Smith, Christine A.	137 000504	8/8/2006	9/8/2011		3.94			$25.210	800	160
Smith, Christine A.	137 000450	8/12/2005	9/12/2010		2.95			$16.780	1,200	480
Smith, Christine A.	137 000365	8/12/2004	8/12/2014		6.87			$3.100	2,500	1,500
Smith, Christine A.	137 000314	8/20/2003	8/20/2013		5.89			$3.050	2,000	1,600
Smith, Christine A.	137 000292	7/24/2002	7/24/2012		4.81			$1.725	2,000	2,000
				Avg. Life	5.32	Avg. Out.		$6.777	8,500	5,740
	Account: Smith, Christine A.					Avg. Exer.		$4.367

135

Sterling Construction Company, Inc.			OUTSTANDING AND EXERCISABLE BY PRICE AS OF 9/30/2007							Page: 9 File: Osprice Date: 10/26/2007 Time: 5:35:52 PM
			Option	Expiration	Remaining			Option		Shares	Shares
Name	ID	Number	Date	Date	Life in Years			Price		Outstanding	Exercisable
Steadman, David R. A.	177	000516	5/7/2007	5/7/2008		0.60			$0.000	1,598	0
Steadman, David R. A.	177	000399	5/19/2005	5/19/2015		7.63			$6.870	5,000	5,000
					Avg. Life	5.93	Avg. Out.		$5.206	6,598	5,000
	Account: Steadman, David R. A.						Avg. Exer.		$6.870
Stempinski, Karen A.	004	000510	8/8/2006	9/8/2011		3.94			$25.210	800	160
Stempinski, Karen A.	004	000437	8/12/2005	9/12/2010		2.95			$16.780	720	0
					Avg. Life	3.47	Avg. Out.		$21.217	1,520	160
	Account: Stempinski, Karen A.						Avg. Exer.		$25.210
Stevens, Robert L.	139	000505	8/8/2006	9/8/2011		3.94			$25.210	1,000	200
Stevens, Robert L.	139	000443	8/12/2005	9/12/2010		2.95			$16.780	1,400	560
Stevens, Robert L.	139	000366	8/12/2004	8/12/2014		6.87			$3.100	1,800	600
Stevens, Robert L.	139	000315	8/20/2003	8/20/2013		5.89			$3.050	800	400
Stevens, Robert L.	139	000293	7/24/2002	7/24/2012		4.81			$1.725	400	400
					Avg. Life	5.01	Avg. Out.		$10.632	5,400	2,160
	Account: Stevens, Robert L.						Avg. Exer.		$8.430
Surface, Jeffrey	148	000506	8/8/2006	9/8/2011		3.94			$25.210	600	120
Surface, Jeffrey	148	000442	8/12/2005	9/12/2010		2.95			$16.780	900	360
Surface, Jeffrey	148	000367	8/12/2004	8/12/2014		6.87			$3.100	1,500	500
Surface, Jeffrey	148	000326	8/20/2003	8/20/2013		5.89			$3.050	800	400
Surface, Jeffrey	148	000294	7/24/2002	7/24/2012		4.81			$1.725	400	400
					Avg. Life	5.23	Avg. Out.		$9.050	4,200	1,780
	Account: Surface, Jeffrey						Avg. Exer.		$7.037
Wall, Carl	159	000507	8/8/2006	9/8/2011		3.94			$25.210	200	40
Wall, Carl	159	000448	8/12/2005	9/12/2010		2.95			$16.780	300	120
Wall, Carl	159	000369	8/12/2004	8/12/2014		6.87			$3.100	2,000	1,200
Wall, Carl	159	000310	8/20/2003	8/20/2013		5.89			$3.050	400	0
					Avg. Life	6.12	Avg. Out.		$6.033	2,900	1,360
	Account: Wall, Carl						Avg. Exer.		$4.957
Warren, Clint	168 000370		8/12/2004	8/12/2014		6.87			$3.100	500	300
					Avg. Life	6.87	Avg. Out.		$3.100	500	300
	Account: Warren, Clint						Avg. Exer.		$3.100
Weir, James	167 000371		8/12/2004	8/12/2014		6.87			$3.100	500	300

136

Sterling Construction Company, Inc.

OUTSTANDING AND EXERCISABLE BY PRICE AS OF 9/30/2007

Page: 10

File: Osprice Date: 10/26/2007 Time: 5:35:52 PM

Name	ID Number	Option Date	Expiration Date	Remaining Life in Years		Option Price		Shares Outstanding	Shares Exercisable
				Avg. Life	6.87	Avg. Out.	$3.100	500	300
	Account: Weir, James					Avg. Exer.	$3.100
Williamson, Terry D.	126 000509	8/8/2006	9/8/2011		3.94		$25.210	400	200
Williamson, Terry D.	126 000508	8/8/2006	9/8/2011		3.94		$25.210	600	0
Williamson, Terry D.	126 000474	7/18/2006	7/18/2011		3.80		$24.960	3,619	3,619
Williamson, Terry D.	126 000475	7/18/2006	7/18/2011		3.80		$24.960	6,381	6,381
Williamson, Terry D.	126 000444	8/12/2005	9/12/2010		2.95		$16.780	1,200	300
Williamson, Terry D.	126 000445	8/12/2005	9/12/2010		2.95		$16.780	300	300
Williamson, Terry D.	126 000404	7/18/2005	7/18/2010		2.80		$9.690	6,519	6,519
Williamson, Terry D.	126 000405	7/18/2005	7/18/2010		2.80		$9.690	3,481	3,481
Williamson, Terry D.	126 000372	8/12/2004	8/12/2014		6.87		$3.100	3,500	2,100
Williamson, Terry D.	126 000375	8/12/2004	8/12/2009		1.87		$3.100	10,000	10,000
Williamson, Terry D.	126 000304	8/20/2003	8/20/2013		5.89		$3.050	3,500	2,800
Williamson, Terry D.	126 000296	7/24/2002	7/24/2012		4.81		$1.725	3,500	3,500
Williamson, Terry D.	126 000256	7/23/2001	7/23/2011		3.81		$1.500	3,500	3,500
				Avg. Life	3.61	Avg. Out.	$9.907	46,500	42,700
	Account: Williamson, Terry D.					Avg. Exer.	$9.811
Withrow, Forest	171 000373	8/12/2004	8/12/2014		6.87		$3.100	500	300
				Avg. Life	6.87	Avg. Out.	$3.100	500	300
	Account: Withrow, Forest					Avg. Exer.	$3.100
Wood, William A.	149 000374	8/12/2004	8/12/2014		6.87		$3.100	640	320
Wood, William A.	149 000328	8/20/2003	8/20/2013		5.89		$3.050	480	320
Wood, William A.	149 000297	7/24/2002	7/24/2012		4.81		$1.725	400	400
Wood, William A.	149 000257	7/23/2001	7/23/2011		3.81		$1.500	100	100
				Avg. Life	5.88	Avg. Out.	$2.647	1,620	1,140
	Account: Wood, William A.					Avg. Exer.	$2.463
	TOTALS			Avg. Life	4.21	Avg. Out.	$6.891	666,454	574,279
						Avg. Exer.	$6.195

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Schedule Number 6.23

List of all collective bargaining agreements & grievances

Agreement	Parties (1)
Master Agreement for Northern Nevada 2003—2008	Nevada Chapter, Associated General Contractors of America, Inc. Operating Engineers Local Union No. 3
Master Agreement July 1, 2003 through June 30, 2007	Southern California Contractors Association, Inc. The International Union of Operating Engineers Local 12
Master Agreement 2004 — 2010	Nevada Chapter, Associated General Contractors of America, Inc. Laborers' International Union of North America – A.F.L. – C.I.O. Local #169

___________________

(1)	These collective bargaining agreements relate to Road and Highway Builders, LLC. No other Credit Party is a party to a collective bargaining agreement.

* * * * *

Strikes, grievances etc .:

The Nevada Department of Transportation has withheld approximately $240,000 of amounts otherwise due RHB LLC claiming that RHB LLC underpaid certain union employees by paying them at a lower job classification rate than the employees were entitled to. RHB LLC is challenging decision.

_ ___________________

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Schedule Number 8.1

Existing debt

None other than is listed in Schedules 1.4 and 1.5

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Schedule Number 8.1 (i)

Liberty Mutual Insurance Company bonds remaining outstanding post closing

Owner	Job Number	Amount	Percent Complete
Nevada DOT	#3206	$9,500,000	100%
Nevada DOT	#3267	$16,540,000	98%
Nevada DOT	#3271	$6,056,000	100%
Elko Airport	N/A	$6,062,000	100%
Nevada DOT	#3296	$7,925,000	98%
Nevada DOT	#3303	$6,472,000	100%
Nevada DOT	#3312	$23,500,000	98%
Nevada DOT	#3323	$31,500,000	60%
Nevada State Licensing Board	N/A	$50,000	N/A

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Schedule Number 8.2

Existing liens

UCC Lien Search Summary

1.	Sterling Construction Company, Inc.
2.	Oakhurst Management Corporation
3.	Road and Highway Builders
4.	Steel City Products
5.	Sterling General, Inc.
6.	Sterling Houston Holdings, Inc.
7.	Texas Sterling Construction Co.
8.	Texas Sterling Construction, L.P.

1. Sterling Construction Company, Inc.

Jurisdiction: Delaware, Secretary of State

Search results certified through: 09/24/2007

Federal tax liens: Clear.

UCC liens:

Secured Party	Filing Information	Collateral
Comerica Bank-Texas	Filed: 07/27/2001 Number: 10737614	All of the debtor’s rights, titles, and interests in and to the equipment, inventory, accounts, general intangibles and any and all other personal property of any kind or character described in and covered by Security Agreement between the Debtor and Secured Party, a copy of which is attached hereto as Exhibit “A” and made a part hereof for all purposes , and the proceeds and products of such personal property.
	amendment filed 10/09/2001 to restate collateral;	Security Agreement attached as Exhibit “A” hereby replaces the Exhibit “A” attached to original Financing Statement filed under File Number 1073761 4 – 0000000.
	amendment filed 03/12/2002 to change debtor name from “Oakhurst Company, Inc.” to “Sterling Construction Company, Inc;”
	amendment filed 09/24/2002 to add collateral;	All of debtor’s rights, titles, and interests in and to the capital stock of Sterling Construction Company, a Delaware corporation (now known as Sterling Houston Holdings, Inc., a Delaware corporation) as described in that certain Security Agreement (Third Party Pledge) attached hereto as Exhibit “A,” as supplemented by that certain Supplemental Security Agreement (Third Party Pledge) attached hereto as Exhibit “B” (the “Collateral”). Proceeds and products of Collateral are also covered.
	amendment filed 10/30/2002 to add collateral;	All of debtor’s rights, titles, and interests in and to the capital stock of Sterling Houston Holdings, Inc., a Delaware corporation (formerly known as Sterling Construction Company, a Delaware corporation) as described in that certain Security Agreement (Third Party Pledge) attached hereto as Exhibit “A,” as supplemented by that certain Supplemental Security Agreement (Third Party Pledge) attached hereto as Exhibit “B” (the “Collateral”). Proceeds and products of Collateral are also covered.
	amendment filed 02/22/2005 to add collateral;	All of debtor’s rights, titles, and interests in and to the capital stock of Sterling Construction Company, a Delaware corporation (now known as Sterling Houston Holdings, Inc., a Delaware corporation) as described in that certain Security Agreement (Third Party Pledge) dated as of July 18, 2001, attached hereto as Exhibit “A,” as supplemented by that certain Supplemental Security Agreement (Third Party Pledge), dated as of September 23, 2002, attached hereto as Exhibit “B,” and as further supplemented by that certain Supplemental Security Agreement (Third Party Pledge), dated as of December 23, 2004, attached hereto as Exhibit “C” (the “Collateral”). Proceeds and products of Collateral are also covered.
	amendment filed 05/23/2006 to add collateral;	All of the Debtor’s right, title and interest in and to all equipment, fixtures, software, goods, instruments (including, without limitation, promissory notes), documents (including, without limitation, negotiable documents), policies and certificates of insurance, deposit accounts, money and investment property, motor vehicles, mobile goods and rolling stock together with all of Debtor’s right, title and interest in and to the capital stock of (i) Sterling Houston Holdings, Inc., a Delaware corporation, and (ii) Sterling General, Inc., a Delaware corporation, and all proceeds, interest, profits and other payments or rights to payment related thereto and all proceeds and products of the foregoing.
	continuation filed 07/07/2006.

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2. Oakhurst Management Corporation

Jurisdiction: Texas, Secretary of State

Search results certified through: 10/17/2007

Federal tax liens: Clear.

UCC liens: Clear.

3. Road and Highway Builders

Jurisdiction: Nevada, Secretary of State

Search results certified through: 10/18/2007

Tax liens: Clear.

UCC liens:

Debtor	Secured Party	Filing Information	Collateral
Road and Highway Builders, LLC	Volvo Commercial Finance LLC The Americas	Filed: 01/03/2000 Number: 0000157 continuation filed 12/06/2004; amendment filed 12/06/2004 to change debtor name from “Road & Highway Builders” to “Road and Highway Builders.”	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders LLC	Caterpillar Financial Services Corporation	Filed: 07/22/2002 Number: 2002019248-1 Termination filed 07/31/2002.	Specific equipment. Terminated.
Road and Highway Builders LLC	Arnold Machinery Company	Filed: 08/07/2002 Number: 2002021078-4 Termination filed 04/06/2004.	Specific equipment. Terminated.
Road and Highway Builders, LLC	Caterpillar Financial Services Corporation	Filed: 09/12/2002 Number: 2002024217-3 Termination filed 09/17/2002.	Specific equipment. Terminated.
Road and Highway Builders, LLC	Caterpillar Financial Services	Filed: 05/30/2003 Number: 2003014768-0 Termination filed 06/22/2004.	Specific equipment. Terminated.
Road and Highway Builders, LLC	Caterpillar Financial Services Corporation	Filed: 06/02/2003 Number: 2003014961-0	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders, LLC	Caterpillar Financial Services	Filed: 03/25/2004 Number: 2004009699-8 Termination filed 06/07/2006.	Specific equipment. Terminated.
Road and Highway Builders, LLC	Herc Exchange, LLC	Filed: 05/24/2004 Number: 2004016336-9	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders, LLC	CitiCapital Commercial Corporation	Filed: 06/17/2004 Number: 2004019063-3	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders, LLC	Caterpillar Financial Services	Filed: 09/13/2004 Number: 2004028029-2 Termination filed 08/31/2006.	Specific equipment. Terminated.
Road and Highway Builders, LLC	Herc Exchange, LLC	Filed: 11/16/2004 Number: 2004035055-6	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders Inc.	Caterpillar Financial Services Corporation	Filed: 12/10/2004 Number: 2004037392-2 Termination filed 11/09/2006.	Specific equipment. Terminated.
Road and Highway Builders, LLC	Herc Exchange, LLC	Filed: 06/21/2005 Number: 2005019052-2	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders, LLC	General Electric Capital Corporation	Filed: 06/28/2005 Number: 2005020003-2 amendment filed 01/26/2007 to restate collateral description; amendment filed 01/30/2007 to change debtor address.	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders, LLC	Caterpillar Financial Services Corporation	Filed: 12/21/2005 Number: 2005040137-9	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders, LLC	Herc Exchange, LLC	Filed: 03/06/2006 Number: 2006007082-3	Specific equipment, as more particularly described in the financing statement.
Road and Highway Builders, LLC	The CIT Group / Equipment Financing, Inc.	Filed: 12/29/2006 Number: 2006042626-0	Specific equipment, as more particularly described in the financing statement.

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4. Steel City Products

Jurisdiction: Delaware, Secretary of State

Search results certified through: 09/19/2007

Federal tax liens: Clear.

UCC liens:

Debtor	Secured Party	Filing Information	Collateral
Steel City Products Inc.	Marlin Leasing Corp.	Filed: 01/06/2003 Number: 3020467 0	Specific equipment, as more particularly described in the financing statement.
Steel City Products, Inc	Raymond Leasing Corporation	Filed: 02/11/2005 Number: 5047836 3	Specific equipment, as more particularly described in the financing statement.

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5. Sterling General, Inc.

Jurisdiction: Delaware, Secretary of State

Search results certified through: 09/19/2007

Federal tax liens: Clear.

UCC liens:

Secured Party	Filing Information	Collateral
Comerica Bank	Filed: 06/01/2006 Number: 6185554 3	All of the Debtor’s right, title and interest in and to all equipment, fixtures, software, goods, instruments (including, without limitation, promissory notes), documents (including, without limitation, negotiable documents), policies and certificates of insurance, deposit accounts, money and investment property, motor vehicles, mobile goods and rolling stock together with Debtor’s general partnership interest in Texas Sterling Construction, L.P., a Texas limited partnership, and all proceeds, interest, profits and other payments or rights to payment related thereto and all proceeds and products of the foregoing.

6. Sterling Houston Holdings, Inc.

Jurisdiction: Delaware Secretary of State

Search results certified through: 10/17/2007

UCC liens:

Secured Party	Filing Information	Collateral
Comerica Bank	Filed: 8/7/2003 Number: 32052853	All of debtor’s right, title and interest, whether now owned or hereafter acquired, in and to (i) that certain Promissory Note dated as of April 28, 2003, in the original principal amount of $3,200,000, executed by Sterling Construction Company, Inc., and payable to Debtor… All of Debtor’s right, title and interest in and to all equipment, fixtures, software, goods, instruments (including, without limitation, promissory notes), documents (including, without limitation, negotiable documents), policies and certificates of insurance, deposit accounts, money and investment property, motor vehicles, mobile goods and rolling stock together with Debtor’s limited partnership interest in Texas Sterling Construction, L.P., a Texas limited liability partnership, and all proceeds, interest, profits and other payments or rights to payment related thereto and all proceeds and products of the foregoing. as further described in the UCC filings.

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Jurisdiction: Texas, Secretary of State

Search results certified through: 10/17/2007

UCC liens: Clear.

7. Texas Sterling Construction Co.

Jurisdiction: Delaware, Secretary of State

Search results certified through: 09/19/2007

Federal tax liens: Clear.

UCC liens: Clear.

8. Texas Sterling Construction, L.P.

Jurisdiction: Texas, Secretary of State

Search results certified through: 10/17/2007

Federal tax liens: Clear.

UCC liens:

Secured Party	Filing Information	Collateral
Comerica Bank - Texas	Filed: 11/04/1982 Number: 82-00214385 Comments:	All accounts, contract rights, chattel paper, instruments, general intangibles and rights to payment of every kind now or at any time hereafter arising out of the business of the debtor; all interest of the debtor in any goods and services, the sale of which shall have given or shall give rise to any of the foregoing.
Comerica Bank - Texas	Filed: 11/04/1982 Number: 82-00214386 Comments:	Equipment as per attached Exhibit “A” (exhibit A not provided with search results)
Comerica Bank - Texas	Filed: 10/10/1985 Number: 85-00261190 Comments:	All business equipment, machinery and furnishings and all attachments and accessories thereto, now owned or hereafter acquired including but not limited to the attached Exhibit “III”
Comerica Bank - Texas	Filed: 11/13/1985 Number: 85-00297256 Comments:	All business equipment, machinery and furnishings and all attachments and accessories thereto, now owned or hereafter acquired including but not limited to the attached Exhibit “III”
Comerica Bank – Texas	Filed: 06/14/1989 Number: 89-00135359 Comments:	Any and all accounts, contract rights, chattel paper and general intangibles now existing or hereafter arising out of the business of the debtor, as well as any and all returned, reported and repossessed goods and the proceeds resulting therefrom.
Comerica Bank – Texas	Filed: 10/04/1989 Number: 89-00224602 Comments:	All business equipment and machinery and accessories thereto, now owned or hereafter acquired, including but not limited to the attached “Exhibit A”.
Comerica Bank - Texas	Filed: 05/01/1992 Number: 92-00086748 Comments:	All accounts (as defined in the Texas Business and Commerce Code) and accounts receivable of debtor now existing or hereafter arising; the rights and interests of debtor in and to the goods, the sale and delivery of which gave rise to such accounts receivable, and the proceeds of such accounts and accounts receivable. All of debtor’s equipment, including, without limitation, all furniture, furnishings, fixtures, machinery, parts and tools, now owned or hereafter acquired by debtor, and all additions, accessions, substitutions, replacements, and attachments thereof or thereto.
Comerica Bank - Texas	Filed: 12/05/1994 Number: 94-00234327 Comments:	All right, title, and interest of Debtor in and to a Hitachi EX 700 Hydraulic Excavator, and certain related equipment, as more particularly described in Exhibit “A” attached hereto. All substitutions and replacements for, accessions, attachments and other additions to, tools, parts and equipment used in connection with, and proceeds and products of, the above Collateral; all certificates of title, manufacturer’s statements of origin, other documents, accounts and chattel paper arising from or related to the above Collateral, any of which, if received by Debtor, upon request shall be delivered immediately to Secured Party.
Comerica Bank – Texas	Filed: 03/15/1996 Number: 96-00047946 Comments: Sterling Construction Company also listed as Debtor.	All of the equipment and fixtures of the Debtor (including, without limitation, all equipment, furniture and fixtures), both now owned and hereafter acquired, together with (i) all additions, parts, fittings, accessories, special tools, attachments, and accessions now and hereafter affixed thereto and/or used in connection therewith, (ii) all replacements thereof and substitutions therefor, and (iii) all cash and non-cash proceeds and products thereof. Proceeds and products of the collateral are also covered.
Comerica Bank – Texas	Filed: 06/22/1998 Number: 98-00125328 Comments:	The items described in the Description of Collateral attached hereto as Exhibit “A” and incorporated herein by reference for all purposes, as the same relate to the land (“Real Property”) described in Exhibit “B” attached hereto and the improvements thereon or thereto (collectively, the “Mortgaged Property”). Proceeds of the above-described Collateral are also covered. Contract Rights, General Intangibles, Equipment, Fixtures. Real Estate described as property in Harris County, TX.
Comerica Bank – Texas	Filed: 02/20/2002 Number: 02-0019932086 Comments:	Specific equipment, as more particularly described in the financing statement.
Comerica Bank – Texas	Filed: 09/23/2002 Number: 03-0002265725 Comments: this is an “in-lieu” filing of a Michigan UCC.	Second Lien Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated June 18, 2001. as to Real Estate described as located in Harris Co., TX.
Comerica Bank - Texas	Filed: 9/23/2002 Number: 03-0002265836 Comments: this is an “in-lieu” filing of a Michigan UCC.	Second Lien Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement dated June 18, 2001
Comerica Bank – Texas	Filed: 09/24/2002 Number: 03-0002456666 Comments: this is an “in-lieu” filing of a Michigan UCC.	Third Lien Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated July 18, 2001. First Modification Agreement dated September 23, 2002. as to Real Estate described as located in Harris Co., TX.
Comerica Bank – Texas	Filed: 09/24/2002 Number: 03-0002457798 Comments: this is an “in-lieu” filing of a Michigan UCC.	Security Agreement (all assets) dated July 18, 2001. Supplemental Security Agreement (all assets) dated September 23, 2002. Supplemental Security Agreement (all assets) dated December 23, 2004.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009654077	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009654300	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009654411	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009654522	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009655109	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009655543	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009655654	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009655765	Specific equipment, as more particularly described in the financing statement.
Caterpillar Financial Services Corporation	Filed: 12/03/2002 Number: 03-0009655876	Specific equipment, as more particularly described in the financing statement.
CitiCapital Commercial Corporation	Filed: 05/02/2003 Number: 03-0026341382	Specific equipment, as more particularly described in the financing statement.
Comerica Bank	Filed: 08/07/2003 Number: 03-0037123514	All of Debtor’s right, title and interest, whether now owned or hereafter acquired, in and to (i) that certain Promissory Note dated as of April 28, 2003, in the original principal amount of $3,200,000, executed by Sterling Houston Holdings, Inc., and payable to Debtor. as further described in the UCC filing.
CIT Financial USA, Inc.	Filed: 11/22/2004 Number: 04-0089199868	Specific computer equipment as to Loan Agreement dated November 12, 2004. as further described in the UCC filing.
CitiCapital Commercial Leasing Corporation	Filed: 05/25/2005 Number: 05-0016473824	Specific equipment, as more particularly described in the financing statement.
CitiCapital Commercial Leasing Corporation	Filed: 05/25/2005 Number: 05-0016473935	Specific equipment, as more particularly described in the financing statement.
ROMCO Equipment Co., L.P.	Filed: 10/17/2005 Number: 05-0032204056	Specific equipment, as more particularly described in the financing statement.
HOLT CAT	Filed: 02/22/2006 Number: 06-0005958881	Specific equipment, as more particularly described in the financing statement.
Comerica Bank, successor by merger with Comerica Bank - Texas	Filed: 04/21/2006 Number: 06-0013702766 Comments: this is an “in-lieu” of two MI UCC filings.	Second Lien Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated June 18, 2001. as to Real Estate described as located in Harris Co., TX.
Comerica Bank, successor by merger with Comerica Bank - Texas	Filed: 05/15/2006 Number: 06-0016474301 Comments: this is an “in-lieu” of two MI UCC filings.	Third Lien Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated July 18, 2001. as to Real Estate described as located in Harris Co., TX.
Comerica Bank, successor by merger with Comerica Bank - Texas	Filed: 05/22/2006 Number: 06-0017374068 Comments: this is an “in-lieu” of one DE UCC filing.	Security Agreement (Third Party Pledge) dated July 18, 2001.
Comerica Bank, successor by merger with Comerica Bank - Texas	Filed: 06/06/2006 Number: 06-0019072863	All of Debtor’s equipment, now owned or hereafter acquired including but not limited to the Exhibits “A” and “B” attached hereto… as further described in the UCC filing. Exhibits A and B not provided with search results.
ROMCO Equipment Co., L.P.	Filed: 07/17/2006 Number: 06-0024047790	Specific equipment, as more particularly described in the financing statement.
ROMCO Equipment Co., L.P.	Filed: 07/21/2006 Number: 06-0024684686	Specific equipment, as more particularly described in the financing statement.
Union Bank and Trust Company	Filed: 09/15/2006 Number: 06-0030878789	Specific equipment, as more particularly described in the financing statement.
Union Bank and Trust Company	Filed: 09/15/2006 Number: 06-0030879033	Specific equipment, as more particularly described in the financing statement.
Comerica Leasing Corporation	Filed: 09/22/2006 Number: 06-0031671600	Specific equipment, as more particularly described in the financing statement.
Protection Services Inc.	Filed: 01/30/2007 Number: 07-0003459452	Specific equipment, as more particularly described in the financing statement.
Comerica Leasing Corporation	Filed: 03/22/2007 Number: 07-0009612691	Specific equipment, as more particularly described in the financing statement.
ROMCO Equipment Co., L.P.	Filed: 04/10/2007 Number: 07-0011834296	Specific equipment, as more particularly described in the financing statement.
Herc Exchange, LLC	Filed: 05/01/2007 Number: 07-0014662056	Specific equipment, as more particularly described in the financing statement.
ROMCO Equipment Co., L.P.	Filed: 05/24/2007 Number: 07-0017670381	Specific equipment, as more particularly described in the financing statement.
JP Morgan Chase Bank	Filed: 05/25/2007 Number: 07-0017684821	Specific equipment, as more particularly described in the financing statement.
Comerica Leasing Corporation	Filed: 08/23/2007 Number: 07-0028864106	Specific equipment, as more particularly described in the financing statement.
ROMCO Equipment Co., L.P.	Filed: 09/21/2007 Number: 07-0032422212	Specific equipment, as more particularly described in the financing statement.
ROMCO Equipment Co., L.P.	Filed: 09/21/2007 Number: 07-0032422323	Specific equipment, as more particularly described in the financing statement.
ROMCO Equipment Co., L.P.	Filed: 10/05/2007 Number: 07-0034208307	Specific equipment, as more particularly described in the financing statement.

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Texas Sterling Construction, L.P.

Jurisdiction: Texas, Secretary of State

Terminated UCC Financing Statements:

Secured Party	Filing Information	Collateral
NationsRent, Inc.	Filed: 12/08/2004 Number: 04-0090663735	Specific equipment. Terminated.
National Trench Safety, LLC	Filed: 3/10/2006 Number: 06-0007900901	Terminated
National Trench Safety, LLC	Filed: 5/25/2006 Number: 06-0017898069	Terminated
National Trench Safety, LLC	Filed: 5/8/2007 Number: 07-0015628261	Terminated
National Trench Safety, LLC	Filed: 5/8/2007 Number: 07-00156228372	Terminated
National Trench Safety, LLC	Filed: 5/23/2007 Number: 07-0017438929	Terminated
National Trench Safety, LLC	Filed: 8/17/2007 Number: 07-0028106589	Terminated
NTS Mikedon, LLC	Filed: 9/12/07 Number: 07-0031174124	Terminated

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Schedule Number 8.7

Existing Investments

NONE

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Schedule Number 8.8

Transactions with Affiliates

NONE

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Schedule Number 13.6

Notice Addresses

Notice to Borrowers :

Sterling Construction Company, Inc.

Texas Sterling Construction Co.

Oakhurst Management Corporation

Road and Highway Builders, LLC

Road and Highway Builders Inc.

Mail:

20810 Fernbush Lane

Houston, Texas 77073

Attention: Joseph P. Harper, Sr., President

Telephone: (281) 821-9091

Facsimile: (281) 821-2995

E-mail: JoeH@texas-sterling.com

With a copy, not, however, constituting notice to:

Mail:

Roger M. Barzun, Esq.

60 Hubbard Street

Concord, Massachusetts 01742

Telephone: (978) 287-4275

Facsimile: (978) 405-5024

E-mail: Rbarzun@Verizon.net

Notice to Agent :

Comerica Bank

Corporate Finance

500 Woodward Ave.

Detroit, Michigan 48226

Fax: 313-222-5272

Email for reporting requirements: corporatefinance@comerica.com

Email for Requests for Advance and Payments: corpfinadmin@comerica.com

149

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 16, 2009, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Sterling Construction Company, Inc. on Form 10-K/A for the year ended December 31, 2008. We hereby consent to the incorporation by reference of said reports in the Registration Statement of Sterling Construction Company, Inc. on Form S-3 (File no. 333-152371, effective July 16, 2008) and Forms S-8 (File No. 333-88228, effective May 14, 2002, File No. 333-135666, effective July 10, 2006, and File No. 333-152371, effective August 4, 2008).

/s/ GRANT THORNTON LLP

Houston, Texas

September 9, 2009

Exhibit 31.1

Section 302 Certifications

CERTIFICATION FOR ANNUAL REPORTS ON FORM 10-K/A

I, Patrick T. Manning, certify that:

I have reviewed this annual report on Form 10-K/A of Sterling Construction Company, Inc.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation, and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 9, 2009

By: /s/ Patrick T. Manning

Patrick T. Manning

Chairman and Chief Executive Officer

Exhibit 31.2

Section 302 Certifications

CERTIFICATION FOR ANNUAL REPORTS ON FORM 10-K/A

I, James H. Allen, Jr., certify that:

I have reviewed this annual report on Form 10-K/A of Sterling Construction Company, Inc.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 9, 2009

By: /s/ James H. Allen, Jr.

James H. Allen, Jr.

Senior Vice-President and Chief Financial Officer

Exhibit 32.0

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Sterling Construction Company, Inc., a Delaware corporation ( the “Company”), does hereby certify that, to his knowledge:

(i)	the Annual Report on Form 10-K/A for the year ended December 31, 2008 (the “Form 10-K/A ”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii)	the information contained in the Form 10-K/A fairly represents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 9, 2009 /s/ Patrick T. Manning

Patrick T. Manning

Chief Executive Officer

Dated: September 9, 2009 /s/ James H. Allen, Jr.

James H. Allen, Jr.

Senior Vice-President and Chief Financial Officer