FORT HOWARD CORP, S-1, 1994-11-23

FORT HOWARD CORP
S-1, 1994-11-23
PAPER MILLS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1994

REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
FORT HOWARD CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 2676 39-1090992
(State or other jurisdiction of (Primary standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
-------------------

1919 SOUTH BROADWAY
GREEN BAY, WISCONSIN 54304
(414) 435-8821
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------

JAMES W. NELLEN II
VICE PRESIDENT AND SECRETARY
FORT HOWARD CORPORATION
1919 SOUTH BROADWAY
GREEN BAY, WISCONSIN 54304
(414) 435-8821
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------

COPIES TO:
<TABLE>
<S> <C>
FAITH D. GROSSNICKLE RICHARD J. SANDLER
SHEARMAN & STERLING DAVIS POLK & WARDWELL
599 LEXINGTON AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 848-4000 (212) 450-4000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the
Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: / /
-------------------

CALCULATION OF REGISTRATION FEE
[CAPTION]

<TABLE>
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF NUMBER OF SHARES OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
Share............................ 15,000,000 Shares $23.00 $345,000,000 $118,966
</TABLE>

(1) Includes 1,900,000 shares subject to the Underwriters' over-allotment
option.

(2) Estimated solely for the purpose of determining the registration fee.
-------------------

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

This registration statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the registrant's
Common Stock (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the Common Stock (the "International
Prospectus" and, together with the U.S. Prospectus, the "Prospectuses"). The
International Prospectus will be identical to the U.S. Prospectus except that it
will have a different front cover page. The U.S. Prospectus is included herein
and is followed by the front cover page to be used in the International
Prospectus. The front cover page for the International Prospectus included
herein has been labeled "Alternate Page for International Prospectus."

If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, as amended, ten copies of each of the
Prospectuses in the forms in which they are used will be filed with the
Securities and Exchange Commission.
<PAGE>
FORT HOWARD CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K

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

<PAGE>
PROSPECTUS (Subject to Completion)

Issued November 23, 1994

Shares
Fort Howard Corporation
COMMON STOCK
-------------------

ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE
SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
TO BE CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.

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

THE COMPANY INTENDS TO APPLY TO HAVE THE COMMON STOCK APPROVED FOR LISTING ON
THE
UNDER THE TRADING SYMBOL " ".

-------------------
SEE "CERTAIN RISK FACTORS" FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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

PRICE $ A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------- --------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(3)............................................. $ $ $
</TABLE>

- ---------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(2) Before deducting expenses payable by the Company estimated at $ .

(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of
additional shares at the price to public less underwriting discounts and
commissions, for the purpose of covering over-allotments, if any. If the
U.S. Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."

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

The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1995, at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in New York funds.

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

MORGAN STANLEY & CO.
Incorporated

CS FIRST BOSTON

SALOMON BROTHERS INC

, 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
[PICTURES]

2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

No action has been or will be taken in any jurisdiction by the Company or
any Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.

In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons are short tons.

MARDI GRAS(R), SOFT'N GENTLE(R), SO-DRI(R), PAGE(R), GREEN FOREST(R),
ENVISION(R), GENERATION II(R) and NOUVELLE(R)are trademarks of the Company that
are registered or otherwise protected under laws of various jurisdictions.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE , IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

3
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 5
Certain Risk Factors.................. 11
Use of Proceeds....................... 16
Dividend Policy....................... 17
Dilution.............................. 17
Capitalization........................ 18
Selected Historical Consolidated
Financial Data...................... 19
Pro Forma Financial Data.............. 21
Management's Discussion and Analysis
of Consolidated Financial Condition
and Results of Operations........... 27
Business.............................. 37
Management............................ 55

<CAPTION>
PAGE
----
<S> <C>
Ownership of Common Stock............. 68
Certain Transactions.................. 69
Description of Certain Indebtedness... 72
Description of Capital Stock.......... 80
Shares Eligible for Future Sale....... 83
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 84
Underwriters.......................... 87
Legal Matters......................... 90
Experts............................... 90
Additional Information................ 90
Index to Financial Statements......... F-1
</TABLE>

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

The principal executive offices of the Company are located at 1919 South
Broadway, Green Bay, Wisconsin 54304, and the Company's telephone number is
(414) 435-8821. The Company was incorporated in Delaware in 1967.

The Company intends to make available annual reports to its shareholders
containing audited consolidated financial statements and a report thereon by the
Company's independent auditors and quarterly reports containing unaudited
consolidated financial data for the first three quarters of each fiscal year.

4
<PAGE>
PROSPECTUS SUMMARY

The following information is qualified in its entirety by the detailed
information and financial statements found elsewhere in this Prospectus. As used
in this Prospectus, unless the context indicates otherwise: (i) the "Company" or
"Fort Howard" means Fort Howard Corporation, and where appropriate, its
subsidiaries; (ii) "Common Stock" means the Common Stock, par value $.01 per
share, of Fort Howard Corporation; (iii) "Offering" means the offering of
shares of Common Stock in the underwritten public offering to which this
Prospectus relates and (iv) numbers and percentage of shares outstanding assume
that the U.S. Underwriters' over-allotment option is not exercised and have been
adjusted to reflect a 6.5-for-one split of the Common Stock which is expected to
occur two days prior to the effective date of the Registration Statement to
which this Prospectus relates. The market share information and, unless
otherwise indicated, the industry statistical information presented herein
reflect the Company's best estimates based on publicly available information,
and no assurance can be given regarding the accuracy of such estimates and
statistics.

THE COMPANY

Founded in 1919, Fort Howard is a leading manufacturer, converter and
marketer of sanitary tissue products, including specialty dry form products, in
the United States and the United Kingdom. Its principal products, which are sold
in the commercial (away-from-home) and consumer (at-home) markets, include paper
towels, bath tissue, table napkins, wipers and boxed facial tissue manufactured
from virtually 100% recycled fibers. The Company believes that it is the leading
producer of tissue products in the domestic commercial market with a 26% market
share and has focused two-thirds of its capacity on this faster growing segment
of the tissue market. In the domestic consumer market, where the Company has a
9% market share, its principal brands include Mardi Gras printed napkins (which
hold the leading domestic market position) and paper towels, Soft 'N Gentle bath
and facial tissue, So-Dri paper towels, Page paper towels, bath tissue and table
napkins, and Green Forest, the leading domestic line of environmentally
positioned, recycled tissue paper products. Fort Howard also manufactures and
distributes its products in the United Kingdom where it currently has the fourth
largest market share, primarily in the consumer segment of that market.

For the past 20 years Fort Howard has maintained EBITDA margins in excess of
30%, approximately double those publicly reported by the Company's competitors
over the past five years. At the same time, the Company has achieved strong
market share growth on the basis of its position as a low cost producer in the
markets in which it competes. From 1983 to 1993, the Company has doubled its
production capacity by constructing world-class, integrated, regional tissue
mills which utilize the Company's proprietary de-inking technology to produce
quality tissue from a broad range of wastepaper grades. These mills enable the
Company to produce low cost, quality tissue products because they: (i) include
state-of-the-art wastepaper de-inking and processing systems that process
relatively low grades of wastepaper to produce low cost fiber for making tissue
paper; (ii) contain eight of the eleven largest (270-inch) tissue paper machines
in the world, which significantly increase labor productivity; (iii) are
geographically located to minimize distribution costs; (iv) generate their own
steam and electrical power and (v) manufacture certain of their own process
chemicals and converting materials.

The Company's business strategy is focused on increasing its profitability
by maintaining and enhancing its position in the United States and
internationally. The Company's strategy involves: (i) maintaining its position
as a low cost producer of tissue products in the markets in which it competes;
(ii) sustaining its growth in domestic commercial market shipments and market
share by selectively increasing sales to large distributors and national
accounts, improving its position with club warehouses and expanding its
specialty dry form business; (iii) sustaining its growth in domestic consumer
market shipments and market share by focusing on the value segment of that
market; (iv) developing opportunities for further international growth and (v)
improving its financial flexibility. The Company's current plans to support
growth in domestic tissue shipments include, subject to market conditions and

5
<PAGE>
the successful completion of the Recapitalization described below, adding one
world-class (270-inch) tissue paper machine over the next five years.

The Company was acquired by The Morgan Stanley Leveraged Equity Fund II,
L.P. ("MSLEF II") and other investors in 1988 (the "Acquisition"). Morgan
Stanley Group Inc. ("Morgan Stanley Group"), directly and through certain
affiliated entities which it controls, including MSLEF II, currently
beneficially owns 62.8% of the outstanding Common Stock of Fort Howard. Upon
consummation of the Offering, Morgan Stanley Group and its affiliates will own
% of the outstanding Common Stock ( % if the U.S. Underwriters'
over-allotment option is exercised in full). Morgan Stanley Group and MSLEF II
are affiliates of both Morgan Stanley & Co. Incorporated ("MS&Co"), a
representative of the U.S. Underwriters, and Morgan Stanley & Co. International
Limited ("MS&Co International"), a representative of the International
Underwriters.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company:
U.S. Offering.............................. shares
International Offering..................... shares
Total.................................. shares
Common Stock to be outstanding following
the Offering............................... shares(a)
Use of Proceeds.............................. The net proceeds to the Company from the
Offering will be used to repay or refinance
certain indebtedness of the Company. See
"Use of Proceeds."
Symbol....................................... " "
</TABLE>

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

(a) Excludes 3,746,015 shares of Common Stock issuable upon exercise of
outstanding options. Also excludes 650,000 shares of Common Stock issuable
upon exercise of options the Company intends to grant under the 1995 Stock
Incentive Plan concurrently with or as promptly as practicable after
consummation of the Offering. See "Management--Compensation of Executive
Officers and Directors."

THE PROPOSED RECAPITALIZATION

The Company is implementing a recapitalization plan (the "Recapitalization")
to prepay or redeem a substantial portion of its indebtedness in order to reduce
the level and overall cost of its debt, extend certain maturities, increase
shareholders' equity and enhance its access to capital markets.

The Recapitalization includes the following components:

(1) The offering by the Company of shares of Common Stock in the
United States and internationally;

(2) Entering into a consolidated, amended and restated bank credit
agreement (the "New Bank Credit Agreement") consisting of a $400 million
revolving credit facility (the "1995 Revolving Credit Facility"), a $900
million term loan (the "1995 Term Loan A") and a $300 million delayed term
loan (the "1995 Term Loan B" and, together with the 1995 Term Loan A, the
"New Term Loans");

(3) The application of the net proceeds of the Offering, together with
borrowings under the New Term Loans, to prepay or redeem all of the
Company's indebtedness outstanding under (a) the Company's Amended and
Restated Credit Agreement, dated as of October 24, 1988, as amended (the
"1988 Bank Credit Agreement"), (b) the Company's term loan agreement dated
as of March 22, 1993 (the "1993 Term Loan Agreement;" the prepayment of the
1988 Bank Credit

6
<PAGE>

Agreement and the 1993 Term Loan Agreement are collectively referred to as
the "Bank Refinancing") and (c) all outstanding Senior Secured Floating Rate
Notes (the "Senior Secured Notes") due 1997 through 2000 (the "Senior
Secured Note Redemption"); and

(4) The application approximately one month following the closing of the
Offering of borrowings under the New Term Loans and the 1995 Revolving
Credit Facility to redeem (a) all outstanding 14 1/8% Junior Subordinated
Discount Debentures (the "14 1/8% Debentures") due 2004 ("the 14 1/8%
Debenture Redemption") and (b) all outstanding 12 5/8% Subordinated
Debentures (the "12 5/8% Debentures") due 2000 (the "12 5/8% Debenture
Redemption"), at 102.5% of the principal amount thereof. The Senior Secured
Note Redemption, 12 5/8% Debenture Redemption and 14 1/8% Debenture
Redemption are collectively referred to as the "1995 Debt Redemptions."

Consummation of the Offering is conditioned on the concurrent consummation
of the other components of the Recapitalization (other than the 14 1/8%
Debenture Redemption and the 12 5/8% Debenture Redemption) and the provision by
the Company of notices of redemption to the respective trustees of the 14 1/8%
Debentures and the 12 5/8% Debentures.

The estimated sources and uses of funds required to complete the
Recapitalization, assuming that the Recapitalization is consummated on
, 1995, are as follows (in millions):

<TABLE>
<CAPTION>
Sources of Funds: AMOUNT
<S> <C>
Proceeds of the Offering.......................................... $ 300.0
1995 Term Loan A.................................................. 900.0
1995 Term Loan B.................................................. 300.0
1995 Revolving Credit Facility.................................... 116.4
--------
Total Sources of Funds............................................ $1,616.4
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Term Loan Prepayment......................................... 224.5
1988 Revolving Credit Facility Prepayment......................... 200.0
12 5/8% Debenture Redemption (including 2.5% redemption premium).. 149.5
1993 Term Loan Prepayment......................................... 100.0
Company Transaction Fees and Expenses(a).......................... 75.5
--------
Total Uses of Funds............................................... $1,616.4
--------
--------
</TABLE>

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

(a) Includes underwriters' commissions and other transaction fees and
expenses of the Recapitalization payable or reimbursable by the Company.

For more information concerning the Recapitalization, see "Use of Proceeds."

7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following table sets forth summary historical consolidated financial
data of the Company for the years ended December 31, 1993, 1992 and 1991, that
were derived from the consolidated financial statements of the Company, which
were audited by Arthur Andersen LLP, independent public accountants, whose
report thereon appears elsewhere in this Prospectus. Reference is made to such
report which calls attention to changes in methods of accounting for
postretirement benefits other than pensions and income taxes. The following
table also sets forth summary historical consolidated financial data of the
Company for the nine-month periods ended September 30, 1994 and 1993. The
information presented for the interim periods is unaudited but in the opinion of
management, such information reflects all adjustments (which, with the exception
of the extraordinary losses in 1994 and 1993 on debt repurchases and the
goodwill write-off in 1993, consist only of normal recurring accruals) necessary
for a fair presentation of the financial data for the interim periods. The
results for the interim periods presented are not necessarily indicative of the
results for a full year.

The following table also sets forth summary unaudited pro forma consolidated
financial data of the Company derived from the unaudited pro forma condensed
consolidated statements of income and pro forma condensed consolidated balance
sheet and notes thereto included elsewhere in this Prospectus. The pro forma
financial data were prepared as if the Recapitalization had occurred on
September 30, 1994, for consolidated balance sheet purposes, and as if the
Recapitalization had occurred on January 1, 1993 for consolidated statement of
income purposes. In addition, the sale of the Company's 8 1/4% Senior Notes due
2002 (the "8 1/4% Notes") and the Company's 9% Senior Subordinated Notes due
2006 (the "9% Notes"), the redemption of $238 million of the 12 5/8% Debentures,
the redemption of all the Company's 12 3/8% Senior Subordinated Notes due 1997
(the "12 3/8% Notes") and a $100 million prepayment of the term indebtedness
(the "1988 Term Loan") under the 1988 Bank Credit Agreement, all of which
occurred in February and March 1994 (collectively, the "1994 Refinancing"), the
sale of the Company's 9 1/4% Senior Unsecured Notes due 2001 (the "9 1/4%
Notes") and the Company's 10% Subordinated Notes due 2003 (the "10% Notes"), the
borrowings under the 1993 Term Loan, the redemption of all the Company's 14 5/8%
Junior Subordinated Debentures due 2004 (the "14 5/8% Debentures") and a $250
million prepayment on the 1988 Term Loan, all of which occurred in March and
April 1993, and the redemption on November 1, 1993 of $50 million aggregate
principal amount of 12 3/8% Notes (collectively, the "1993 Refinancing") are
also treated for consolidated statement of income purposes as if they occurred
on January 1, 1993. See "Pro Forma Financial Data."

THE PRO FORMA FINANCIAL DATA DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF THE
RECAPITALIZATION IN FACT HAD OCCURRED AT SEPTEMBER 30, 1994, OR IF THE
RECAPITALIZATION AND THE 1994 AND 1993 REFINANCINGS HAD OCCURRED ON JANUARY 1,
1993 OR TO PROJECT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR
ANY FUTURE DATE OR PERIOD.

The following financial information should be read in conjunction with
"Capitalization," "Selected Historical Consolidated Financial Data," "Pro Forma
Financial Data," "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations," the audited consolidated financial
statements and the related notes thereto and the unaudited condensed
consolidated financial statements and the related notes thereto included
elsewhere in this Prospectus.

8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE><CAPTION>

PRO FORMA(A) HISTORICAL
---------------------------- ---------------------------------------------------
NINE MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ------------------ -----------------------------
1994 1993 1994 1993 1993 1992 1991
------------- ------------ ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 930 $ 1,187 $ 930 $ 896 $ 1,187 $ 1,151 $ 1,138
Cost of sales(b)................... 624 784 624 590 784 726 713
------ ------ ------- ------- ------- ------- -------
Gross income....................... 306 403 306 306 403 425 425
Selling, general and
administrative(b)(c)............. 82 97 82 71 97 97 98
Amortization of goodwill(d)........ -- 43 -- 43 43 57 57
Goodwill write-off(d).............. -- 1,980 -- 1,980 1,980 -- --
------ ------ ------- ------- ------- ------- -------
Operating income (loss)............ 224 (1,717) 224 (1,788) (1,717) 271 270
Interest expense................... 209 289 252 259 342 338 371
Other (income) expense, net........ -- (3) -- (5) (3) 2 (3)
------ ------ ------- ------- ------- ------- -------
Income (loss) before taxes......... 15 (2,003) (28) (2,042) (2,056) (69) (98)
Income taxes (credit).............. 6 4 (11) (6) (16) -- (24)
------ ------ ------- ------- ------- ------- -------
Income (loss) before equity
earnings, extraordinary items and
adjustment for accounting
change........................... 9 (2,007) (17) (2,036) (2,040) (69) (74)
Equity in net loss of
unconsolidated subsidiaries(e)... -- -- -- -- -- -- (32)
------ ------ ------- ------- ------- ------- -------
Net income (loss) before
extraordinary items and
adjustment for accounting change. 9 (2,007) (17) (2,036) (2,040) (69) (106)
Extraordinary items--losses on debt
repurchases (net of income
taxes)........................... -- -- (28) (10) (12) -- (5)
Adjustment for adoption of SFAS No.
106 (net of income taxes)(f)..... -- -- -- -- -- (11) --
------ ------ ------- ------- ------- ------- -------
Net income (loss).................. $ 9 $ (2,007) $ (45) $(2,046) $(2,052) $ (80) $ (111)
------ ------ ------- ------- ------- ------- -------
------ ------ ------- ------- ------- ------- -------
Earnings (loss) per share(g)....... $ $ ( ) $ (1.18) $(53.69) $(53.85) $ (2.10) $ (3.17)
OTHER DATA:
EBITDA(h).......................... $ 294 $ 387 $ 294 $ 290 $ 387 $ 410 $ 444
EBITDA as a percent of net
sales(h)......................... 31.6% 32.6% 31.6% 32.4% 32.6% 35.6% 39.0%
Depreciation of property, plant and
equipment......................... $ 70 $ 88 $ 70 $ 63 $ 88 $ 81 $ 116
Non-cash interest expense(i)....... 10 13 65 80 101 140 141
Capital expenditures............... 65 166 65 107 166 233 144
Weighted average number of shares
of Common Stock outstanding (in
thousands)(g).................... 38,104 38,107 38,107 38,107 34,868
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets....................... $ 1,705 $ 1,678 $ 1,619 $ 1,650 $ 3,575 $ 3,470
Working capital (deficit).......... 52 45 14 (92) (124) 2
Long-term debt (including current
portion) and Common Stock with
put right........................ 3,117 3,350 3,197 3,234 3,104 2,947
Shareholders' equity (deficit)..... (1,852) (2,123) (2,074) (2,081) (29) 62
</TABLE>
- ------------
(a) For a discussion of the pro forma adjustments, see "Pro Forma Financial
Data."

(b) Effective January 1, 1992, the Company prospectively changed its estimates
of the depreciable lives of certain machinery and equipment. The change had
the effect of reducing depreciation expense by approximately $38 million and
net loss by $24 million in 1992.

(c) Selling, general and administrative expense in 1993 reflects an $8 million
reduction for the reversal of all employee stock compensation expense
accrued prior to 1993. See Note 13 of the Company's audited consolidated
financial statements included elsewhere in this Prospectus.

(d) During the third quarter of 1993, the Company wrote off the remaining
unamortized balance of its goodwill of $1.98 billion and, accordingly, there
is no amortization of goodwill related to the Acquisition for periods
subsequent to September 30, 1993. See "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations" and Note 4 of
the Company's audited consolidated financial statements included elsewhere
in this Prospectus.

(e) In 1989, the Company transferred all the capital stock of Fort Howard Cup
Corporation ("Fort Howard Cup") to Sweetheart Holdings Inc. ("Sweetheart")
for a 49.9% equity interest in Sweetheart and other assets for a total
consideration of $620 million (the "Cup Transfer"). The Company also
undertook a plan to divest all its remaining international cup operations.
As of
(Footnotes continued on following page)
9
<PAGE>
(Footnotes continued from preceding page)
December 31, 1991, the Company had sold all its international cup operations
and had discontinued recording equity in net losses of Sweetheart because
the carrying value of the Company's investment in Sweetheart was reduced to
zero.

(f) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." This change in accounting principle, excluding the cumulative
effect, decreased operating income for 1992 by $1.2 million.

(g) The computation of earnings (loss) per share is based on the weighted
average number of shares of Common Stock outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of shares of
Common Stock contingently issuable upon the exercise of stock options. The
pro forma earnings (loss) per share also assumes the issuance of million
shares of Common Stock at an initial public offering price of $ per share.

(h) EBITDA represents operating income plus depreciation of property, plant and
equipment, amortization of goodwill, the goodwill write-off and the effects
of employee stock compensation (credits). EBITDA is presented here as a
measure of the Company's debt service ability. Certain financial and other
restrictive covenants in the New Bank Credit Agreement and other instruments
governing the Company's indebtedness are based on the Company's EBITDA,
subject to certain adjustments.

(i) Following the Recapitalization, the Company will no longer have zero coupon
or pay-in-kind indebtedness. Accordingly, non-cash interest expense will
consist solely of amortization of debt issuance costs.

CERTAIN RISK FACTORS

For a discussion of certain factors that should be considered in evaluating
an investment in the Common Stock, including: pricing of the Company's products;
increasing wastepaper prices; competition; recent net losses and deficit in
shareholders' equity; the Company's highly leveraged position and ability to
service debt; the Company's sensitivity to interest rates; covenant restrictions
that may limit the Company's operating flexibility; environmental matters;
control by Morgan Stanley Group and its affiliates; restrictions on dividends;
effect on the public market of shares of Common Stock eligible for future sale;
dilution; anti-takeover effects of certain provisions of the Restated
Certificate of Incorporation and Amended and Restated By-laws of the Company and
the absence of a prior public market for the Common Stock, see "Certain Risk
Factors."

10
<PAGE>
CERTAIN RISK FACTORS

In evaluating an investment in the Common Stock, purchasers of the Common
Stock should carefully consider the following factors as well as the other
information set forth in this Prospectus.

PRICING

Prices for tissue paper products are significantly affected by the levels of
industry capacity and operating rates, demand, general economic conditions and
competitive conduct, all of which are beyond the Company's control. The high
level of growth in tissue industry capacity from 1990 through 1992, coupled with
weakening commercial demand resulting from the recession and competitive new
product introductions in the consumer market, caused industry operating rates
and pricing to fall. The Company's average domestic net selling prices declined
by approximately 5% in each of 1991 and 1992 and by 1.2% in 1993 which adversely
affected the Company's operating results. Due to the impact of industry
conditions on the Company's then projected operating results, which assumed that
net selling prices and cost increases would approximate 1% per year and that
further capacity expansion would not be justifiable given the Company's high
leverage and adverse tissue industry operating conditions, the Company wrote off
its remaining goodwill balance of $1.98 billion in the third quarter of 1993. As
discussed in "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations," although the Company believes that the
adverse economic and industry operating conditions which persisted from 1991 and
into 1994 are beginning to improve, there can be no assurance that such
improvement, which is not within the Company's control, will continue, or that
industry operating rates and pricing will not decline from current levels. See
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and "Business--Industry Overview."

INCREASING WASTEPAPER PRICES

Fort Howard uses wastepaper for substantially all its fiber requirements.
The price of wastepaper is affected by demand which is primarily dependent upon
de-inking and recycling capacity levels in the paper industry overall and by the
price of market pulp. Since August 1994, wastepaper prices for the grades of
wastepaper used in Fort Howard's products have increased sharply. Such
wastepaper prices are expected to increase further because of increased demand
resulting from substantial additions of de-inking and recycling capacity in the
paper industry which are expected to come on line during 1995 and 1996,
increasing market pulp prices and other factors. If the current trend in the
Company's wastepaper costs continues, there can be no assurance that the Company
will be able to recoup increases in the cost of wastepaper through price
increases for its products and the Company's earnings could be materially
adversely affected. Further, a reduction in supply of wastepaper due to
increased demand or other factors could have an adverse effect on the Company's
business. See "Business--Industry Overview."

COMPETITION

The manufacture and sale of tissue products are highly competitive. The
Company's tissue products compete directly with those of a number of large
diversified paper companies, including Chesapeake Corporation, Georgia-Pacific
Corporation, James River Corporation of Virginia, Kimberly-Clark Corporation,
Pope & Talbot, Inc., Scott Paper Company and The Procter & Gamble Company, as
well as regional manufacturers, including converters of tissue into finished
products who buy tissue directly from tissue mills. Over the last four years,
price has become a more important competitive factor affecting tissue producers.
Many of the Company's competitors are larger and more strongly capitalized than
the Company which may enable them to better withstand periods of declining
prices and adverse operating conditions in the tissue industry. See
"Business--Competition."

RECENT NET LOSSES AND DEFICIT IN SHAREHOLDERS' EQUITY

The Company has experienced net losses for the nine-month period ended
September 30, 1994 of $45 million and for the fiscal years ended December 31,
1993, 1992 and 1991 of $2,052 million

11
<PAGE>

(including the write-off in 1993 of the Company's then remaining goodwill), $80
million and $111 million, respectively. Improvements in the Company's
consolidated results of operations depend largely upon its ability to increase
prices of its products; accordingly, there can be no assurance as to the
Company's ability to generate net income in future periods. See "--Pricing" and
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations." The Company has a substantial deficit in common
shareholders' equity. At September 30, 1994, the Company's deficit in common
shareholders' equity was approximately $2,123 million. On a pro forma basis
after giving effect to the Recapitalization, the Company's deficit in common
shareholders' equity would have been approximately $1,852 million at September
30, 1994. See "Capitalization."

HIGHLY LEVERAGED POSITION AND ABILITY TO SERVICE DEBT

The Company has substantial consolidated indebtedness. At September 30,
1994, the Company's consolidated debt was approximately $3,350 million. On a pro
forma basis after giving effect to the Recapitalization, the Company's
consolidated debt would have been approximately $3,117 million at September 30,
1994. See "Capitalization."

For the nine-month period ended September 30, 1994 and the year ended
December 31, 1993, the Company's earnings before fixed charges (excluding the
write-off in 1993 of its then remaining goodwill balance of $1.98 billion and
amortization of goodwill of $43 million) were inadequate to cover its fixed
charges by $31 million and $42 million, respectively. On a pro forma basis after
giving effect to the Recapitalization and excluding the goodwill write-off and
amortization of goodwill in 1993, the ratio of earnings to fixed charges would
have been 1.05 to 1.00 for the nine months ended September 30, 1994 and 1.04 to
1.00 for the year ended December 31, 1993. Although the consummation of the
Recapitalization will reduce the Company's consolidated interest expense over
the next several years, the Company will remain obligated to make substantial
interest and principal payments on its indebtedness. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations--Financial Condition" and "Description of Certain Indebtedness."

The ability of the Company to meet its obligations and to comply with the
financial covenants contained in the agreements relating to the Company's
indebtedness is largely dependent upon the future performance of the Company,
which is subject to financial, business and other factors affecting it. Many of
these factors, such as economic conditions, interest rate levels, job formation,
demand for and selling prices of its products, costs of its raw materials,
environmental regulation and other factors relating to its industry generally or
to specific competitors are beyond the Company's control. There can be no
assurance that the Company will generate sufficient cash flow to meet its
obligations under its indebtedness, which include repayment obligations,
assuming consummation of the Recapitalization, of $8 million in 1995, $114
million in 1996, $142 million in 1997, $164 million in 1998 and $166 million in
1999 (and increasing thereafter). If the Company is unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments on its indebtedness, or if the Company fails to comply with the various
covenants in such indebtedness, it would be in default under the terms thereof,
which would permit the lenders thereunder to accelerate the maturity of such
indebtedness and could cause defaults under other indebtedness of the Company or
result in a bankruptcy of the Company. See "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations--Financial
Condition" and "Description of Certain Indebtedness."

SENSITIVITY TO INTEREST RATES

At September 30, 1994, the Company's indebtedness had a weighted average
interest rate of 9.83% and approximately $910 million of the Company's
indebtedness bore interest at a floating rate. Pursuant to the Recapitalization,
the Company will become more sensitive to prevailing interest rates, as $1.4
billion (or 45%) of its outstanding indebtedness will bear interest at a
floating rate. Of this amount, $500 million will be subject to an interest rate
cap of 8.50% pursuant to an agreement which will expire in June 1996. Interest
rates were at comparatively low levels in 1993 and began to increase in 1994. If
interest rates continue to increase in 1995, the Company may be less able to
meet its debt

12
<PAGE>
service obligations. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations--Financial Condition" and
"Description of Certain Indebtedness."

COVENANT RESTRICTIONS MAY LIMIT COMPANY'S OPERATING FLEXIBILITY

The limitations contained in the agreements relating to the Company's
indebtedness, together with the highly leveraged position of the Company could
limit the ability of the Company to effect future debt or equity financings and
may otherwise restrict corporate activities, including its ability to avoid
defaults and to respond to competitive market conditions, to provide for capital
expenditures beyond those permitted or to take advantage of business
opportunities. If the Company cannot generate sufficient cash flow from
operations to meet its obligations, then its indebtedness might have to be
refinanced. There can be no assurance that any such refinancing could be
effected successfully or on terms that are acceptable to the Company. In the
absence of such refinancing, the Company could be forced to dispose of assets in
order to make up for any shortfall in the payments due on its indebtedness under
circumstances that might not be favorable to realizing the best price for such
assets. Further, there can be no assurance that any assets could be sold quickly
enough, or for amounts sufficient, to enable the Company to make any such
payments. See "Description of Certain Indebtedness."

ENVIRONMENTAL MATTERS

The Company is subject to substantial regulation by various federal, state
and local authorities in the U.S. and national and local authorities in the U.K.
concerned with the impact of the environment on human health, the limitation and
control of emissions and discharges to the air and waters, the quality of
ambient air and bodies of water and the handling, use and disposal of specified
substances and solid waste at, among other locations, the Company's process
waste landfills. Financial responsibility for the clean-up or other remediation
of contaminated property or for natural resource liability can extend to
previously owned or used properties, waterways and properties owned by third
parties, as well as to properties currently owned and used by the Company even
if contamination is attributable entirely to prior owners. The Company is
involved in a voluntary investigation and potential clean-up of the Lower Fox
River in Wisconsin and has been named as a potentially responsible party ("PRP")
for natural resource damages related to the Lower Fox River and Green Bay
system. There can be no assurance that the costs associated with the Lower Fox
River will not be material. In addition, there can be no assurance that the
Company will not be named a PRP at other sites in the future or that the costs
associated with such future sites would not be material. Finally, environmental
legislation and regulations and the interpretation and enforcement thereof are
expected to become increasingly stringent and to further limit emission and
discharge levels and may increase the likelihood and cost of environmental
clean-ups or related costs, all of which are likely to increase certain
operating expenses, require continuing capital expenditures and adversely affect
the operating flexibility of the Company's manufacturing operations. While the
Company has budgeted for future capital and operating expenditures to maintain
such compliance, indeterminable significant expenditures in connection with such
compliance or other environmental matters could have a material adverse effect
on the Company's financial condition and results of operations. See
"Business--Environmental Matters" and "--Legal Proceedings."

CONTROL BY MORGAN STANLEY GROUP

Upon consummation of the Offering, Morgan Stanley Group, directly and
through certain affiliated entities which it controls, including MSLEF II,
collectively will beneficially own % of the outstanding shares of Common
Stock ( % if the U.S. Underwriters' over-allotment option is exercised in
full). Currently, four of the seven directors of the Company are officers of
MS&Co, a subsidiary of Morgan Stanley Group. Pursuant to the terms of the
Stockholders Agreement (as defined), holders of Common Stock that are parties
thereto are required to vote for director designees of Morgan Stanley Group and
its affiliates, including: (i) one director designated by MSLEF II, if MSLEF II
owns at least 5% of the then outstanding Common Stock; (ii) one director
designated by Morgan Stanley Group, if Morgan Stanley Group owns at least 5% of
the then outstanding Common

13
<PAGE>

Stock; (iii) for as long as Morgan Stanley Group and its affiliates have not
disposed of more than 5% of the number of shares of Common Stock owned by them
in the aggregate on the date of completion of the Offering, all Morgan Stanley
Group director designees subject to reelection (or replacements designated by
Morgan Stanley Group) plus, up to two additional Morgan Stanley Group director
designees as would bring the total number of directors to not more than 11
members, and only to the extent required to increase the representation of
Morgan Stanley Group and its affiliates to a majority of the board of directors
and (iv) after such time as Morgan Stanley Group and its affiliates have
disposed of more than 5% of the number of shares of Common Stock owned by them
in the aggregate on the date of completion of the Offering, a number of director
designees which, together with the other Morgan Stanley Group and MSLEF II
designees already on the board of directors, equals the integer obtained by
multiplying the number of post-election directors by the percentage of
outstanding Common Stock eligible to vote in the election owned by Morgan
Stanley Group and its affiliates in the aggregate, rounding to the nearest
integer, subject to (i) and (ii) above. As a result of its board representation,
Morgan Stanley Group and its affiliates currently have control over the
management policies of the Company. In addition, Morgan Stanley Group and its
affiliates will have significant control over all other matters requiring
shareholder approval, including the election of all directors, the adoption of
amendments to the Company's Restated Certificate of Incorporation and the
approval of mergers and sales of all or substantially all of the Company's
assets which may deter a potential acquirer from making a tender offer or
otherwise attempting to obtain control of the Company, even if such events might
be favorable to the Company's shareholders. See "--Anti-Takeover Effects of
Provisions of the Restated Certificate of Incorporation and By-laws" and
"Certain Transactions-- Stockholders Agreement."

Since the Acquisition, MS&Co has acted as lead underwriter in connection
with the public offerings of the Company's various debt securities and as
financial advisor to the Company. Since 1991, MS&Co has received an aggregate of
$54.3 million of underwriting and financial advisory fees in connection
therewith. See "Certain Transactions--Other Transactions."

RESTRICTIONS ON DIVIDENDS

Since the Acquisition, the Company has not declared or paid any cash
dividends on any class of its capital stock, and currently does not intend to
pay dividends on the Common Stock. The New Bank Credit Agreement and the
indentures and other agreements governing the Company's indebtedness limit the
payment of cash dividends on the Common Stock. See "Dividend Policy" and
"Description of Certain Indebtedness."

EFFECT ON PUBLIC MARKET OF SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, there will be shares of Common Stock
outstanding, of which the shares sold pursuant to the Offering will be
tradeable without restrictions by persons other than "affiliates" of the
Company. The remaining shares of Common Stock will be "restricted" securities
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and may not be sold in the absence of registration under the Securities
Act or an exemption therefrom, including the exemptions contained in Rule 144
under the Securities Act. No prediction can be made as to the effect, if any,
that future sales of shares of Common Stock, or the availability of such shares
for future sale, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of stock options) in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Common Stock or the ability of the Company to raise capital
through a public offering of its equity securities.

Pursuant to the Stockholders Agreement, Morgan Stanley Group, MSLEF II and
other shareholders of the Company have certain registration rights with respect
to the shares of Common Stock that they currently own. Morgan Stanley Group,
MSLEF II and their affiliates may choose to dispose of the Common Stock owned by
them. The timing of such sales or other dispositions by such shareholders

14
<PAGE>

(which could include distributions to MSLEF II's partners) will depend on market
and other conditions, but could occur relatively soon after the 180-day hold
back period described below, including pursuant to the exercise of their
registration rights. MSLEF II is unable to predict the timing of sales by any of
its limited partners in the event of a distribution to them. Such dispositions
could be privately negotiated transactions or public sales.

The Company and substantially all current shareholders of the Company (who
beneficially own an aggregate of million shares of Common Stock) have
agreed with the Underwriters, subject to certain exceptions, not to offer,
pledge, sell, contract to sell, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after the
date of the Underwriting Agreement without the prior written consent of MS&Co
(except with respect to shares of Common Stock held by Morgan Stanley Group and
its affiliates, for which the prior written consent of all the U.S.
representatives of the U.S. Underwriters will be required). See "Shares Eligible
for Future Sale" and "Underwriters."

DILUTION

The deficit in net tangible book value of the Company at September 30, 1994
was $2,191 million or $57.51 per share. Based upon an initial public offering
price of $ per share, purchasers of the Common Stock offered hereby will
incur immediate dilution in net tangible book value of $ per share of
Common Stock purchased. See "Dilution."

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS

Certain provisions of the Restated Certificate of Incorporation (the
"Certificate of Incorporation") and the Amended and Restated By-laws (the
"By-laws") of the Company that will become operative immediately prior to
consummation of the Offering may be deemed to have anti-takeover effects and may
discourage or make more difficult a takeover attempt that a shareholder might
consider in its best interest. Such provisions also may adversely affect
prevailing market prices for the Common Stock. These provisions, among other
things: (i) classify the Company's Board of Directors into three classes, each
of which will serve for different three-year periods; (ii) provide that only the
Board of Directors or the Chairman of the Board of Directors of the Company may
call special meetings of the shareholders; (iii) eliminate the ability of the
shareholders to take any action without a meeting; (iv) permit the adjournment
of shareholder meetings in certain circumstances and (v) limit the ability of
the shareholders to amend or repeal the By-laws or any of the foregoing
provisions of the Certificate, except with the consent of holders of at least
80% of the Company's outstanding Common Stock. In addition, the By-laws
establish certain advance notice procedures for nomination of candidates for
election as directors and for shareholder proposals to be considered at
shareholders' meetings. See "Description of Capital Stock--Anti-Takeover Effects
of Provisions of the Company's Restated Certificate of Incorporation and
By-laws."

ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK

Since the Acquisition, there has been no public market for the Common Stock.
Although the Company intends to apply to have the Common Stock approved for
listing on the , there can be no assurance
that an active trading market will develop for the Common Stock. The initial
public offering price for the Common Stock will be determined by negotiations
among the Company and the representatives of the Underwriters in accordance with
the recommendation of CS First Boston Corporation ("CS First Boston"), the
"qualified independent underwriter," as is required by the by-laws of the
National Association of Securities Dealers, Inc. (the "NASD") and may not be
indicative of the market price for the Common Stock after the Offering.

15
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the Offering are
estimated to be approximately $ million, assuming an initial public offering
price of $ per share, after deducting estimated underwriting commissions and
expenses of the Offering.

Following consummation of the Offering, the Company intends to use the net
proceeds of the Offering, together with borrowings under the New Bank Credit
Agreement, to: (i) redeem in full all outstanding 14 1/8% Debentures which
mature in 2004; (ii) redeem in full all outstanding 12 5/8% Debentures which
mature in 2000, at 102.5% of the principal amount thereof; (iii) redeem in full
all outstanding Senior Secured Notes, which bear interest at floating rates (a
weighted average rate of 8.08% at September 30, 1994) and mature between 1997
and 2000; (iv) prepay in full $224.5 million of the 1988 Term Loan, which bears
interest at floating rates (a weighted average rate of 7.26% at September 30,
1994); (v) repay $200.0 million of the Company's indebtedness under the 1988
Revolving Credit Facility which is part of the 1988 Bank Credit Agreement (the
"1988 Revolving Credit Facility"), which bears interest at floating rates (a
weighted average rate of 7.43% at September 30, 1994); (vi) prepay in full the
1993 Term Loan which bears interest at floating rates (a weighted average rate
of 7.63% at September 30, 1994) and (vii) pay certain fees and expenses incurred
in connection with the Recapitalization.

Consummation of the Offering is conditioned upon the concurrent consummation
of the other components of the Recapitalization (other than the 14 1/8%
Debenture Redemption and the 12 5/8% Debenture Redemption) and the provision by
the Company of notices of redemption to the respective trustees of the 14 1/8%
Debentures and the 12 5/8% Debentures.

The estimated sources and uses of funds required to complete the
Recapitalization, assuming that the Recapitalization is consummated on
, 1995, are as follows (in millions):

Sources of Funds: AMOUNT
Proceeds of the Offering.......................................... $ 300.0
1995 Term Loan A.................................................. 900.0
1995 Term Loan B.................................................. 300.0
1995 Revolving Credit Facility.................................... 116.4
--------
Total Sources of Funds............................................ $1,616.4
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Term Loan Prepayment......................................... 224.5
1988 Revolving Credit Facility Prepayment(a)...................... 200.0
12 5/8% Debenture Redemption (including 2.5% redemption premium).. 149.5
1993 Term Loan Prepayment......................................... 100.0
Company Transaction Fees and Expenses(b).......................... 75.5
--------
Total Uses of Funds............................................... $1,616.4
--------
--------

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

(a) Includes estimated accrued interest on all indebtedness to be prepaid or
redeemed in connection with the Recapitalization.

(b) Includes underwriters' commissions and other transaction fees and
expenses of the Recapitalization payable or reimbursable by the Company.

16
<PAGE>
DIVIDEND POLICY

The Company anticipates that all its earnings in the near future will be
used for the repayment of indebtedness and for the development and expansion of
its business and, therefore, does not anticipate paying dividends on the Common
Stock in the foreseeable future. The New Bank Credit Agreement and the
indentures governing the 8 1/4% Notes, the 9% Notes, the 9 1/4% Notes and the
10% Notes limit, in each case with certain exceptions, the ability of the
Company to pay dividends on the Common Stock. Delaware law generally requires
that dividends are payable only out of a company's surplus or current net
profits. Subject to such restrictions, any determination to pay cash dividends
in the future will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant at the time by the
Board of Directors. See "Description of Certain Indebtedness."

DILUTION

At September 30, 1994, the deficit in net tangible book value of the Company
was $2,191 million or $57.51 per share of Common Stock. After giving effect to
the sale by the Company of shares of Common Stock offered hereby at an
assumed initial public offering price of $ per share (after deducting
estimated underwriting commissions and other Offering expenses), the pro forma
deficit in net tangible book value of the Company at September 30, 1994, would
have been $ million or $ per share. This represents an immediate
increase in pro forma net tangible book value per share of $ to existing
shareholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:

Assumed initial public offering price per share.......... $
Deficit in net tangible book value per share prior to
the Offering(a)...................................... $(57.51)
Increase in net tangible book value per share
attributable to new investors........................
-------
Pro forma deficit in net tangible book value per share
after the Offering(b)..................................
------
Dilution in net tangible book value per share to a new
investor(c).............................................. $
------
------

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

(a) Deficit in net tangible book value per share is determined by dividing the
number of shares of Common Stock outstanding into the deficit in net
tangible book value of the Company (shareholders' deficit plus intangible
assets). Intangible assets consist of the excess of purchase cost over net
assets acquired and debt issuance costs.

(b) Pro forma deficit in net tangible book value per share is determined by
dividing the number of shares of Common Stock outstanding (after giving
effect to the Offering) into the deficit in net tangible book value of the
Company (shareholders' deficit plus intangible assets) after the Offering.

(c) Dilution is determined by subtracting the pro forma deficit in net tangible
book value per share of Common Stock after the Offering from the amount of
cash paid by a new investor for a share of Common Stock.

The following table summarizes on a pro forma basis as of September 30,
1994, the differences in the total consideration paid and the average price per
share paid by the existing shareholders with respect to the outstanding Common
Stock and by the new investors with respect to the shares of Common
Stock to be issued by the Company at an assumed initial public offering price of
$ per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- -------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........................ % $ % $
New investors................................ % %
------ ----- ------ ----- ---------
Total.................................... 100% $ 100% $
</TABLE>

17
<PAGE>
CAPITALIZATION

Set forth below is the actual consolidated capitalization of the Company at
September 30, 1994, and the pro forma consolidated capitalization of the Company
as of that date after giving effect to the Recapitalization. The information
presented below should be read in conjunction with the Company's audited
consolidated financial statements, unaudited condensed consolidated financial
statements and the Pro Forma Financial Data included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1994
--------------------------
ACTUAL PRO FORMA (A)
--------- -------------
(IN MILLIONS)
<S> <C> <C>
Current portion of long-term debt................................... $ 15.5 $ 8.3
--------- -------------
Long-Term Debt, less current portion(b):
1995 Term Loan A.................................................. -- 900.0
1995 Term Loan B.................................................. -- 300.0
1995 Revolving Credit Facility(c)................................. -- 147.7
1988 Term Loan.................................................... 224.5 --
1988 Revolving Credit Facility.................................... 230.3 --
1993 Term Loan.................................................... 100.0 --
Senior Secured Notes.............................................. 300.0 --
9 1/4% Notes...................................................... 450.0 450.0
8 1/4% Notes...................................................... 100.0 100.0
9% Notes.......................................................... 650.0 650.0
12 5/8% Debentures................................................ 145.8 --
10% Notes......................................................... 300.0 300.0
14 1/8% Debentures................................................ 560.6 --
Capital lease obligations......................................... 175.4 175.4
Other long-term debt.............................................. 85.8 85.8
--------- -------------
Total Long-Term Debt, less current portion.......................... 3,322.4 3,108.9
Common Stock with put right(d)...................................... 11.7 --
--------- -------------
Total Indebtedness................................................ 3,349.6 3,117.2
Shareholders' Equity (Deficit):
Common Stock, par value $.01 per share,
shares authorized, 38,101,245 shares
issued and outstanding and shares issued and
outstanding on a pro forma basis................................ 0.4
Paid-in capital................................................... 600.1
Cumulative translation adjustment................................. (2.0) (2.0)
Retained earnings (deficit)....................................... (2,721.4) (2,739.9)
--------- -------------
Total Shareholders' Equity (Deficit)............................ (2,122.9) (1,852.2)
--------- -------------
Total Capitalization............................................ $ 1,226.7 $ 1,265.0
--------- -------------
--------- -------------
</TABLE>

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

<TABLE>
<C> <S>
(a) Calculated based upon estimated proceeds to the Company from the Recapitalization. See
"Use of Proceeds" and "Pro Forma Financial Data."

(b) See Note 8 of the Company's audited consolidated financial statements and Note 5 of the
Company's unaudited condensed consolidated financial statements for additional
information with respect to long-term debt.

(c) Upon the consummation of the Offering, borrowings under the 1995 Revolving Credit
Facility are expected to be $116.4 million.

(d) The put right will terminate prior to or upon consummation of the Offering. See Note 12
of the Company's audited consolidated financial statements included elsewhere in this
Prospectus.
</TABLE>

18
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical consolidated financial
data of the Company for the years ended December 31, 1993, 1992, 1991, 1990 and
1989 that were derived from the consolidated financial statements of the
Company, which were audited by Arthur Andersen LLP, independent public
accountants. The report of such accountants with respect to the years ended
December 31, 1993, 1992 and 1991 appears elsewhere in this Prospectus. Reference
is made to such report which calls attention to changes in methods of accounting
for postretirement benefits other than pensions and income taxes. The following
table also sets forth historical consolidated financial data of the Company for
the nine-month periods ended September 30, 1994 and 1993. The information
presented for the interim periods is unaudited but in the opinion of management,
such information reflects all adjustments (which, with the exception of the
extraordinary losses on debt repurchases in 1994 and 1993 and the goodwill
write-off in 1993, consist only of normal recurring accruals) necessary for a
fair presentation of the financial data for the interim periods. The results for
the interim periods presented are not necessarily indicative of the results for
a full year.

The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations," the audited consolidated financial statements and the
related notes thereto and the unaudited condensed consolidated financial
statements and the related notes thereto included elsewhere in this Prospectus.

19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.............................................. $ 930 $ 896 $ 1,187 $ 1,151 $ 1,138 $ 1,151 $ 1,054
Cost of sales(a)....................................... 624 590 784 726 713 719 660
------- ------- ------- ------- ------- ------- -------
Gross income........................................... 306 306 403 425 425 432 394
Selling, general and administrative(a)(b).............. 82 71 97 97 98 105 96
Amortization of goodwill(c)............................ -- 43 43 57 57 57 57
Goodwill write-off(c).................................. -- 1,980 1,980 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income (loss)................................ 224 (1,788) (1,717) 271 270 270 241
Interest expense....................................... 252 259 342 338 371 423 410
Other (income) expense, net............................ -- (5) (3) 2 (3) (33) (11)
------- ------- ------- ------- ------- ------- -------
Loss before taxes...................................... (28) (2,042) (2,056) (69) (98) (120) (158)
Income taxes (credit).................................. (11) (6) (16) -- (24) (37) 14
------- ------- ------- ------- ------- ------- -------
Loss before equity earnings, extraordinary items and
adjustment for accounting change........................ (17) (2,036) (2,040) (69) (74) (83) (172)
Equity in net loss of unconsolidated subsidiaries(d)... -- -- -- -- (32) (23) (67)
------- ------- ------- ------- ------- ------- -------
Net loss before extraordinary items and adjustment for
accounting change.................................... (17) (2,036) (2,040) (69) (106) (106) (239)
Extraordinary items--losses on debt repurchases (net of
income taxes)........................................ (28) (10) (12) -- (5) -- --
Adjustment for adoption of SFAS No. 106 (net of income
taxes)(e)............................................ -- -- -- (11) -- -- --
------- ------- ------- ------- ------- ------- -------
Net loss............................................... $ (45) $(2,046) $(2,052) $ (80) $ (111) $ (106) $ (239)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Loss per share(f)...................................... $ (1.18) $(53.69) $(53.85) $ (2.10) $ (3.17) $ (3.64) $ (8.19)

OTHER DATA:
EBITDA(g).............................................. $ 294 $ 290 $ 387 $ 410 $ 444 $ 441 $ 411
EBITDA as a percent of net sales(g).................... 31.6% 32.4% 32.6% 35.6% 39.0% 38.3% 39.0%
Depreciation of property, plant and equipment.......... $ 70 $ 63 $ 88 $ 81 $ 116 $ 112 $ 109
Non-cash interest expense.............................. 65 80 101 140 141 145 132
Capital expenditures................................... 65 107 166 233 144 97 101
Weighted average number of shares of Common Stock
outstanding
(in thousands)(f)..................................... 38,104 38,107 38,107 38,107 34,868 29,197 29,231

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................... $ 1,678 $ 1,619 $ 1,650 $ 3,575 $ 3,470 $ 3,627 $ 3,948
Working capital (deficit).............................. 45 14 (92) (124) 2 (80) (119)
Long-term debt (including current portion) and Common
Stock with put right................................. 3,350 3,197 3,234 3,104 2,947 3,125 3,333
Shareholders' equity (deficit)......................... (2,123) (2,074) (2,081) (29) 62 13 111
</TABLE>

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

<TABLE>
<C> <S>
(a) Effective January 1, 1992, the Company prospectively changed its estimates of the depreciable
lives of certain machinery and equipment. The change had the effect of reducing depreciation
expense by approximately $38 million and net loss by $24 million in 1992.

(b) Selling, general and administrative expense in 1993 reflects an $8 million reduction for the
reversal of all employee stock compensation expense accrued prior to 1993. See Note 13 of the
Company's audited consolidated financial statements included elsewhere in this Prospectus.

(c) During the third quarter of 1993, the Company wrote off the remaining unamortized balance of its
goodwill of $1.98 billion and, accordingly, there is no amortization of goodwill related to the
Acquisition for periods subsequent to September 30, 1993. See "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations" and Note 4 of the
Company's audited consolidated financial statements included elsewhere in this Prospectus.

(d) In 1989, the Company transferred all the capital stock of Fort Howard Cup to Sweetheart for a
49.9% equity interest in Sweetheart and other assets for a total consideration of $620 million.
The Company also undertook a plan to divest all its remaining international cup operations. As a
result, the Company recorded a $120 million charge in 1989. As of December 31, 1991, the Company
had sold all its international cup operations and had discontinued recording equity in net losses
of Sweetheart because the carrying value of the Company's investment in Sweetheart was reduced to
zero.

(e) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This change in accounting principle,
excluding the cumulative effect, decreased operating income for 1992 by $1.2 million.

(f) The computation of earnings (loss) per share is based on the weighted average number of shares of
Common Stock outstanding during the period plus (in periods in which they have a dilutive effect)
the effect of shares of Common Stock contingently issuable upon the exercise of stock options.

(g) EBITDA represents operating income plus depreciation of property, plant and equipment,
amortization of goodwill, the goodwill write-off and the effects of employee stock compensation
(credits). EBITDA is presented here as a measure of the Company's debt service ability. Certain
financial and other restrictive covenants in the New Bank Credit Agreement and other instruments
governing the Company's indebtedness are based on the Company's EBITDA, subject to certain
adjustments. See "Description of Certain Indebtedness."
</TABLE>

<PAGE>
PRO FORMA FINANCIAL DATA

The following unaudited pro forma condensed consolidated statements of
income and condensed consolidated balance sheet (collectively, the "Pro Forma
Statements") were prepared to illustrate the estimated effects of the
Recapitalization as if it had occurred for consolidated statement of income
presentation purposes on January 1, 1993, and for consolidated balance sheet
presentation purposes on September 30, 1994. The 1994 and 1993 Refinancings are
treated for consolidated statement of income purposes as if such transactions
had occurred on January 1, 1993.

The Pro Forma Statements assume an offering of shares at an initial
public offering price of $ per share. The estimated transaction fees and
expenses included in the following Pro Forma Statements are provided solely for
the purpose of presenting the Pro Forma Statements set forth below. The actual
transaction fees and expenses may differ from the assumptions set forth below.

THE PRO FORMA STATEMENTS DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF THE
RECAPITALIZATION IN FACT HAD OCCURRED AT SEPTEMBER 30, 1994, OR IF THE
RECAPITALIZATION AND THE 1994 AND 1993 REFINANCINGS HAD OCCURRED ON JANUARY 1,
1993 OR TO PROJECT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR
ANY FUTURE DATE OR PERIOD.

The following financial information should be read in conjunction with
"Capitalization," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations," the audited consolidated financial statements and the
related notes thereto and the unaudited condensed consolidated financial
statements and the related notes thereto included elsewhere in this Prospectus.

21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1994 AND 1993
RECAPITALIZATION REFINANCINGS
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ---------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Net sales............................ $ 1,187,387 $ 1,187,387
Cost of sales........................ 784,054 784,054
----------- -----------
Gross income......................... 403,333 403,333
Selling, general and
administrative(a).................. 96,966 96,966
Amortization of goodwill(b).......... 42,576 42,576
Goodwill write-off(b)................ 1,980,427 1,980,427
----------- -----------
Operating loss....................... (1,716,636) (1,716,636)
Interest expense..................... 342,792 $ (25,252)(c) $ (28,310)(c) 289,230
Other income, net.................... 2,996 -- -- 2,996
----------- ---------------- ------------- -----------
Loss before taxes.................... (2,056,432) 25,252 28,310 (2,002,870)
Income taxes (credit)................ (16,314) 9,848(d) 11,041(d) 4,575
----------- ---------------- ------------- -----------
Loss before extraordinary item....... (2,040,118) 15,404 17,269 (2,007,445)
Extraordinary item................... (11,964) -- 11,964(e) --
----------- ---------------- ------------- -----------
Net loss............................. $(2,052,082) $ 15,404 $ 29,233 $(2,007,445)
----------- ---------------- ------------- -----------
----------- ---------------- ------------- -----------
Loss per share(f).................... $ (53.85) $ $ $
----------- ---------------- ------------- -----------
----------- ---------------- ------------- -----------
Weighted average number of shares
outstanding (in thousands)(f)...... 38,107

NINE MONTHS ENDED SEPTEMBER 30, 1994:
Net sales............................ $ 930,697 $ 930,697
Cost of sales........................ 624,399 624,399
----------- -----------
Gross income......................... 306,298 306,298
Selling, general and
administrative..................... 82,092 82,092
----------- -----------
Operating income..................... 224,206 224,206
Interest expense..................... 251,562 $ (33,935)(c) $ (8,119)(c) 209,508
Other expense, net................... (215) -- -- (215)
----------- ---------------- ------------- -----------
Income (loss) before taxes........... (27,571) 33,935 8,119 14,483
Income taxes (credit)................ (10,640) 13,235(d) 3,166(d) 5,761
----------- ---------------- ------------- -----------
Net income (loss) before
extraordinary item................. (16,931) 20,700 4,953 8,722
Extraordinary item................... (28,170) -- 28,170(e) --
----------- ---------------- ------------- -----------
Net income (loss).................... $ (45,101) $ 20,700 $ 33,123 $ 8,722
----------- ---------------- ------------- -----------
----------- ---------------- ------------- -----------
Earnings (loss) per share(f)......... $ (1.18) $ $ $
----------- ---------------- ------------- -----------
----------- ---------------- ------------- -----------
Weighted average number of shares
outstanding (in thousands)(f)...... 38,104
</TABLE>

See Notes to Pro Forma Condensed Consolidated Statements of Income

22
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<C> <S>
(a) Selling, general and administrative expense in 1993 reflects an $8 million reduction
for the reversal of all employee stock compensation expense accrued prior to 1993. See
Note 13 of the Company's audited consolidated financial statements included elsewhere
in this Prospectus.
(b) During the third quarter of 1993, the Company wrote off the remaining unamortized
balance of its goodwill of $1.98 billion and, accordingly, there is no amortization of
goodwill related to the Acquisition for periods subsequent to September 30, 1993. See
"Management's Discussion and Analysis of Consolidated Financial Condition and Results
of Operations" and Note 4 of the Company's audited consolidated financial statements
included elsewhere in this Prospectus.
(c) Decreased interest expense is based upon the pro forma consolidated debt of the Company
as if the Recapitalization and the 1994 and 1993 Refinancings had been consummated on
January 1, 1993, as follows (in thousands):
</TABLE>

<TABLE>
<CAPTION>
RECAPITALIZATION 1994 AND 1993 REFINANCINGS
----------------------------- -----------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1993 1994 1993 1994
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
1995 Term Loan A(1)(2)................. $ 76,500 $ 57,375
1995 Term Loan B(1)(2)................. 27,000 20,250
1995 Revolving Credit
Facility(1)(2)(3)...................... -- --
8 1/4% Notes........................... -- -- $ 8,250 $ 1,009
9% Notes............................... -- -- 58,500 7,073
9 1/4% Notes........................... -- -- 10,016 --
10% Notes.............................. -- -- 7,184 --
1993 Term Loan......................... (1,570) -- 1,570 --
Amortization of debt issuance
costs(4)............................. 7,394 5,546 2,832 262
Elimination of historical interest
expense including amortization of
debt issuance costs(5)............... (134,576) (117,106) (116,662) (16,463)
------------ ------------- ------------ -------------
$ (25,252) $ (33,935) $ (28,310) $ (8,119)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>

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

(1) The interest rates utilized in the calculation of the pro forma
adjustments for the borrowings under the New Bank Credit Agreement
assume a reserve adjusted Eurodollar rate of 6.0% and a margin of
2.5% for the 1995 Revolving Credit Facility and the 1995 Term Loan A
and a margin of 3.0% for the 1995 Term Loan B.

(2) A change in the interest rate of 0.25% would change interest expense
and income (loss) before taxes as follows (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1993 1994
----------------- -----------------
<S> <C> <C>
1995 Term Loan A...................... $ 2,250 $ 1,688
1995 Term Loan B...................... 750 563
1995 Revolving Credit Facility........ -- --
----- -----
$ 3,000 $ 2,251
----- -----
----- -----
</TABLE>

(3) Because interest on the 14 1/8% Debentures accrued to principal until
November 1, 1994, the $566.9 million of proceeds required to retire
the 14 1/8% Debentures in 1995 exceeds the $441.6 million of
principal amount of 14 1/8% Debentures outstanding at January 1, 1993
by $125.3 million (the "Excess Principal Amount"). For purposes of
the Pro Forma Condensed Consolidated Statements of Income, the excess
proceeds which will be used to retire the Excess Principal Amount
have been assumed to be applied to the elimination of borrowings
under the 1995 Revolving Credit Facility and to reduce borrowings
assumed to be outstanding under the 1988 Revolving Credit Facility.

(4) Debt issuance costs with respect to the New Bank Credit Agreement are
amortized over the life of the related new debt, ranging from 7 to 8
years. The Pro Forma Condensed Consolidated Statements of Income do
not include nonrecurring charges of approximately $30.3 million
representing the write-off of debt issuance costs of $26.6 million
and redemption premiums of $3.7 million to be charged to expense in
connection with the Recapitalization.

23
<PAGE>
(5) Reflects the elimination of interest expense, including amortization
of debt issuance costs, associated with debt retired in connection
with the Recapitalization and the 1994 and 1993 Refinancings.
Floating rate debt assumed to be retired as of January 1, 1993 of
$1.2 billion bore interest at a weighted average rate of 5.49% in
1993 and 7.09% in the nine months ended September 30, 1994. The 1995
Term Loan A and 1995 Term Loan B which are being issued to retire
such floating rate debt are assumed to bear interest at substantially
higher interest rates of 8.50% and 9.00%, respectively, because the
reserve adjusted Eurodollar rate is assumed to be 6.0%, a substantial
increase over interest rates in effect in 1993 and for the nine
months ended September 30, 1994.

(d) Reflects the adjustment of income taxes (credit) at an effective rate of
39% as a result of the pro forma adjustments described in these notes.
(e) Reflects the elimination of an extraordinary loss resulting from the 1994
and 1993 Refinancings.
(f) The computation of earnings (loss) per share is based on the weighted
average number of shares of Common Stock outstanding during the period
plus (in periods in which they have a dilutive effect) the effect of
shares of Common Stock contingently issuable upon the exercise of stock
options. The pro forma earnings (loss) per share also assumes the
issuance of million shares of Common Stock in the Offering.

24
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
-------------------------------------------------
RECAPITALIZATION
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 637 $ 637
Receivables--net................................ 132,731 132,731
Inventories..................................... 123,891 123,891
Deferred income taxes........................... 14,000 14,000
Income taxes receivable......................... 5,600 5,600
----------- -----------
Total current assets........................ 276,859 276,859
Property, plant and equipment..................... 1,917,811 1,917,811
Less: Accumulated depreciation.................. 588,009 588,009
----------- -----------
Net property, plant and equipment............... 1,329,802 1,329,802
Other assets...................................... 71,675 $ 26,377(a) 98,052
----------- ---------------- -----------
Total assets................................ $ 1,678,336 $ 26,377 $ 1,704,713
----------- ---------------- -----------
----------- ---------------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 102,751 $ 102,751
Interest payable................................ 35,084 35,084
Income taxes payable............................ 12,137 12,137
Other current liabilities....................... 66,326 66,326
Current portion of long-term debt............... 15,474 $ (7,219)(b) 8,255
----------- ---------------- -----------
Total current liabilities................... 231,772 (7,219) 224,553
Long-term debt:...................................
1995 Term Loan A................................ -- 900,000(b) 900,000
1995 Term Loan B................................ -- 300,000(b) 300,000
1995 Revolving Credit Facility.................. -- 147,650(b) 147,650
1988 Term Loan.................................. 224,534 (224,534)(b) --
1988 Revolving Credit Facility.................. 230,300 (230,300)(b) --
1993 Term Loan.................................. 100,000 (100,000)(b) --
Senior Secured Notes............................ 300,000 (300,000)(b) --
9 1/4% Notes.................................... 450,000 -- 450,000
8 1/4% Notes.................................... 100,000 -- 100,000
9% Notes........................................ 650,000 -- 650,000
12 5/8% Debentures.............................. 145,815 (145,815)(b) --
10% Notes....................................... 300,000 -- 300,000
14 1/8% Debentures.............................. 560,637 (560,637)(b) --
Capital lease obligations....................... 175,354 -- 175,354
Other........................................... 85,842 -- 85,842
----------- ---------------- -----------
Total long-term debt........................ 3,322,482 (213,636) 3,108,846
Deferred income taxes............................. 211,817 (11,804)(c) 200,013
Other liabilities................................. 23,438 -- 23,438
Common Stock with put right....................... 11,711 (11,711)(d) --
Shareholders' equity (deficit):
Common Stock and additional paid-in capital..... 600,471 289,211(b)(e) 889,682
Cumulative translation adjustment............... (1,961) -- (1,961)
Retained earnings (deficit)..................... (2,721,394) (18,464)(f) (2,739,858)
----------- ---------------- -----------
Total shareholders' equity (deficit)........ (2,122,884) 270,747 (1,852,137)
----------- ---------------- -----------
Total liabilities and shareholders' equity
(deficit)................................. $ 1,678,336 $ 26,377 $ 1,704,713
----------- ---------------- -----------
----------- ---------------- -----------
</TABLE>

See Notes to Pro Forma Condensed Consolidated Balance Sheet

25
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(a) Net increase in other assets is summarized as follows (in thousands):

Estimated debt issuance costs associated with the
Recapitalization................................................. $ 53,000
Write-off of debt issuance costs related to existing long-term
debt to be repaid or retired................................... (26,623)
--------
$ 26,377
--------
--------

(b) Represents (i) the issuance of $300 million of Common Stock, (ii) prepayment
or redemption of existing indebtedness, (iii) issuance of new indebtedness
under the New Bank Credit Agreement and (iv) payment of fees and expenses
related to the Recapitalization of $75.5 million (including estimated
underwriting fees and the redemption premium associated with the 12 5/8%
Debenture Redemption).

(c) Reflects income tax benefit associated with the extraordinary loss on early
extinguishment of debt arising from the Recapitalization as calculated in
Note (f).

(d) Reclassification of 791,362 shares of Common Stock with put right to Common
Stock as the put terminates with respect to such shares prior to or at the
time of the Offering.

(e) Includes issuance of $300 million of Common Stock in the Offering less
estimated underwriting fees of $ million and $ million in expenses
related to the Offering and the reclassification from Common Stock with put
right described in Note (d).

(f) Represents the after-tax costs related to the extraordinary loss from early
extinguishment of debt as a result of the Recapitalization, summarized as
follows (in thousands):

Write-off of debt issuance costs related to existing long-term
debt to be repaid or retired................................... $ 26,623
Redemption premium associated with 12 5/8%
Debenture Redemption........................................... 3,645
--------
30,268
Assumed tax benefit at 39%....................................... (11,804)
--------
$ 18,464
--------
--------

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Industry Conditions

Sales of the Company's tissue products are generally subject to changes in
industry capacity and cyclical changes in the economy, both of which can
significantly impact net selling prices and the Company's profitability. From
1990 through 1992, tissue industry capacity additions significantly exceeded
historic capacity addition rates. At the same time, commercial demand weakened
as a result of the recession. These and other factors caused industry operating
rates and pricing to fall. The Company's average domestic net selling prices
declined by approximately 5% in each of 1991 and 1992 and by 1.2% in 1993. Due
to the impact of industry conditions on the Company's then projected operating
results, which assumed that net selling price and cost increases would
approximate 1% per year and that further capacity expansion would not be
justifiable given the Company's high leverage and adverse tissue industry
operating conditions, the Company wrote off its remaining goodwill balance of
$1.98 billion in the third quarter of 1993. Low industry operating rates,
competitive pricing and other factors continued to adversely affect the
Company's operating results through the first nine months of 1994.

The Company currently believes that pricing and demand in the tissue sector
of the paper industry are beginning to improve. While the Company's introduction
of three price increases in the commercial market in 1993 and one in April 1994
led to a decline in commercial volume for the first nine months of 1994 compared
to the same period in 1993, the Company believes that its commercial volume has
stabilized. The Company believes that retail shelf prices in the consumer market
improved slightly in 1993 and 1994 but remained competitive. Overall
domestically, the Company has realized average price increases of 5.5% for the
nine months ended September 30, 1994 as compared to the same period in 1993.
Another commercial price increase was introduced in mid-October 1994. Because a
substantial portion of the Company's commercial sales are pursuant to contracts
which generally specify pricing over periods of six months to one year, there is
a time lag before the Company realizes the benefit of commercial market price
increases. The Company believes that a strong near term economy and normal
population growth should provide a basis for improved demand in 1995 and 1996.
Taking into account both announced tissue papermaking capacity shut-downs and
additions, the Company believes that the rate of capacity growth in 1995 and
1996 will fall short of the demand increase, resulting in higher industry
operating rates for the period. Historically, tissue manufacturers have sought
price increases during periods of higher operating rates.

The Company's operating results are also affected by the price it pays for
wastepaper. Wastepaper is the principal raw material used in manufacturing the
Company's tissue products. Industry costs for wastepaper and market pulp have
recently begun to increase sharply. Wastepaper prices are expected to increase
further because of increased demand resulting from substantial additions of
de-inking and recycling capacity in the paper industry which are expected to
come on line during 1995 and 1996, increasing market pulp prices and other
factors. Since late 1993, market pulp prices have been increasing as a result of
increased demand. The Company also expects market pulp prices to continue to
increase due to worldwide tightening supply/demand conditions for market pulp.
Historically, as market pulp and wastepaper prices increase, commercial tissue
producers have sought to increase prices to maintain profitability.

Based on all of these factors, although no assurances can be given, the
Company believes that further industry price increases are likely in 1995.

27
<PAGE>
RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED SEPTEMBER
SEPTEMBER 30, 30, YEAR ENDED DECEMBER 31,
--------------- --------------- -------------------------
1994 1993 1994 1993 1993 1992 1991
----- ------- ----- ------- ------- ------ ------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Domestic tissue..................... $ 278 $ 261 $ 776 $ 757 $ 1,004 $ 978 $ 994
International operations............ 34 38 96 110 143 143 110
Other............................... 28 10 58 29 40 30 34
----- ------- ----- ------- ------- ------ ------
Consolidated........................ $ 340 $ 309 $ 930 $ 896 $ 1,187 $1,151 $1,138
----- ------- ----- ------- ------- ------ ------
----- ------- ----- ------- ------- ------ ------
Operating income (loss):
Domestic tissue (a)(b)(c)........... $ 80 $(1,898) $ 215 $(1,788) $(1,715) $ 252 $ 251
International operations (a)........ 3 (7) 6 (1) (1) 17 16
Other (a)........................... 2 -- 3 1 (1) 2 3
----- ------- ----- ------- ------- ------ ------
Consolidated (a)(b)(c).............. 85 (1,905) 224 (1,788) (1,717) 271 270
Amortization of purchase accounting
(a)(c).............................. 3 17 9 52 57 75 85
Goodwill write-off (a)................ -- 1,980 -- 1,980 1,980 -- --
Employee stock compensation (b)....... -- (8) -- (8) (8) 1 1
----- ------- ----- ------- ------- ------ ------
Adjusted operating income........... 88 84 233 236 312 347 356
Other depreciation (c)................ 21 18 61 54 75 63 88
----- ------- ----- ------- ------- ------ ------
EBITDA.............................. $ 109 $ 102 $ 294 $ 290 $ 387 $ 410 $ 444
----- ------- ----- ------- ------- ------ ------
----- ------- ----- ------- ------- ------ ------
Consolidated net income (loss)........ $ 0.3 $(1,986) $ (45) $(2,046) $(2,052) $ (80) $ (111)
----- ------- ----- ------- ------- ------ ------
----- ------- ----- ------- ------- ------ ------
EBITDA as a percent of net sales...... 32.1% 33.1% 31.6% 32.4% 32.6% 35.6% 39.0%
</TABLE>

- ------------
(a) The Company was acquired by MSLEF II and other investors in 1988. The
acquisition was accounted for using the purchase method of accounting
resulting in, among other things, an increase of property, plant and
equipment to fair value and the allocation of $2.3 billion of purchase cost
to goodwill. Such increase in property, plant and equipment is amortized
over the lives of the respective assets. The increase in goodwill was
amortized over 40 years until the third quarter of 1993, when the Company
wrote off its remaining goodwill balance of $1.98 billion. See Note 4 to the
Company's audited consolidated financial statements included elsewhere in
this Prospectus.

(b) See Note 13 to the Company's audited consolidated financial statements
included elsewhere in this Prospectus.

(c) Effective January 1, 1992, the Company prospectively changed its estimates
of the depreciable lives of certain machinery and equipment. The change had
the effect of reducing depreciation expense and increasing operating income
by approximately $38 million in 1992.

NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1994
COMPARED TO NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1993

Net Sales. Consolidated net sales for the first nine months of 1994
increased 3.9% compared to the first nine months of 1993, while consolidated net
sales for the third quarter of 1994 increased 10.2% as compared to the
comparable quarter in 1993. These increases were due to increases in domestic
tissue net sales and significant net sales increases by the Company's wastepaper
brokerage subsidiary. Domestic tissue net sales increased 2.4% during the first
nine months and 6.6% during the third quarter of 1994, in each case as compared
to 1993, due to higher net selling prices principally in the commercial market
and higher volume in the consumer market that were partially offset by volume
decreases in the commercial market. The Company's decision to implement net
selling price increases in the commercial market during each of the first three
quarters of 1993 and to follow with a price increase in the second quarter of
1994 led to the decline in commercial volume during the first nine months of
1994. The Company announced another price increase in the commercial market
effective mid-October 1994. Because a substantial portion of the Company's
commercial sales are pursuant to contracts which generally specify pricing over
periods of six months to one year, there is a time lag before the Company
realizes the benefit of commercial market price increases. Net sales of the
Company's international

28
<PAGE>
operations decreased 12.3% for the first nine months of 1994 and 10.5% for the
third quarter of 1994 as compared to 1993, primarily due to significantly lower
net selling prices on flat volume. The international net selling price declines
were attributable to product mix changes and continued competitive conditions.
The significant increase in net sales of the Company's wastepaper brokerage
subsidiary during the first nine months and the third quarter of 1994 compared
to 1993 reflected higher net selling prices.

Gross income. For the first nine months of 1994, consolidated gross margins
decreased to 32.9% from 34.1% in 1993 principally due to the increased
proportion of net sales represented by the Company's wastepaper brokerage
subsidiary which typically has lower margins than domestic tissue operations. In
addition, in the domestic tissue operations the effects of the higher net
selling prices were offset by higher unit manufacturing costs primarily
resulting from lower converting volume. Higher wastepaper and other raw material
costs, depreciation expense resulting from the start-up of a new paper machine
at the Muskogee mill late in the first quarter of 1994 and maintenance costs
also affected domestic tissue gross margins during the nine-month period. For
the third quarter of 1994, consolidated gross margins decreased to 33.1% from
35.3% in 1993 principally due to the increased proportion of net sales
represented by the Company's wastepaper brokerage subsidiary and due to the rate
of cost increases exceeding the rate of net selling price increases in domestic
tissue operations. During the third quarter of 1994, wastepaper costs began to
increase sharply and are expected to increase further due to increased demand
for those wastepaper grades used by the Company. In addition, depreciation
expense was higher during this period. Gross margins of international operations
declined in both the first nine months and the third quarter of 1994 compared to
1993 principally due to the lower net selling prices.

Selling, General and Administrative Expenses. In the third quarter of 1993,
the Company reversed all previously accrued employee stock compensation expense
resulting in a reduction of selling, general and administrative expenses of $8
million for both the first nine months and the third quarter of 1993. Excluding
the effects of the reversal, selling, general and administrative expenses, as a
percent of net sales, were 8.8% and 8.1% for the first nine months and third
quarter of 1994, compared to 8.8% and 9.0% for the first nine months and third
quarter of 1993, respectively. The decrease in the third quarter of 1994
compared to 1993, results principally from the increased proportion of net sales
represented by the Company's wastepaper brokerage subsidiary and, to a lesser
degree, cost containment.

Amortization of Goodwill. As a result of the goodwill write-off in the third
quarter of 1993, there was no amortization of goodwill in the first nine months
and third quarter of 1994 compared to $43 million and $14 million in the first
nine months and third quarter of 1993, respectively.

Operating Income (Loss). Operating income increased to $224 million and $85
million for the first nine months and third quarter of 1994, respectively,
compared to operating losses of $1,788 million and $1,905 million for the first
nine months and third quarter of 1993, respectively. The operating losses in
1993 resulted entirely from the goodwill write-off in the third quarter of 1993.
The depreciation of asset write-ups to fair market value in purchase accounting
is charged against the Company's cost of sales and selling, general and
administrative expenses. Excluding this purchase accounting depreciation,
amortization of goodwill, the goodwill write-off and the reversal of employee
stock compensation, adjusted operating income (as reported in the preceding
table) was $233 million and $88 million for the first nine months and third
quarter of 1994 compared to $236 million and $84 million for the first nine
months and third quarter of 1993, respectively. Although adjusted operating
income increased in the third quarter of 1994 compared to 1993 principally due
to the effects of higher domestic net selling prices, adjusted operating income
for the first nine months of 1994 was down slightly compared to 1993 because
decreases in volume and higher depreciation expense over the nine month period
offset the price increases achieved during the latter part of 1994.

Other Income, Net. During the third quarter of 1993, the Company sold its
remaining equity interest in Sweetheart Holdings Inc. ("Sweetheart") for $5.1
million recognizing a gain of the same

29
<PAGE>
amount. The Company had previously reduced the carrying value of its investment
in Sweetheart to zero in 1991.

Income Taxes. The income tax credits for the nine month periods ended
September 30, 1994 and 1993 principally reflect the reversal of previously
provided deferred income taxes.

Extraordinary Losses. The Company's net loss in the first nine months of
1994 was increased by an extraordinary loss of $28 million (net of income taxes
of $15 million) representing the redemption premiums on the repurchases of all
the Company's remaining 12 3/8% Notes at the redemption price of 105% of the
principal amount thereof and of $238 million of 12 5/8% Debentures at the
redemption price of 105% of the principal amount thereof on March 11, 1994, and
the write off of deferred loan costs associated with the prepayment of $100
million of the 1988 Term Loan on February 10, 1994, and the repurchases of the
12 3/8% Notes and the 12 5/8% Debentures. The Company's net loss in the first
nine months of 1993 was increased by an extraordinary loss of $10 million (net
of income taxes of $6 million) representing the write-off of deferred loan costs
associated with the prepayment of $250 million of the 1988 Term Loan on March
23, 1993, and the repurchase of all outstanding 14 5/8% Debentures on April 21,
1993.

Net Loss. The Company reported a net loss of $45 million and net income of
$290,000 for the first nine months and the third quarter of 1994, respectively,
as compared to a net loss of $2,046 million and $1,986 million for the same
periods in 1993. The significant net losses in 1993 resulted principally from
the goodwill write-off in the third quarter of 1993.

FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992

Net Sales. Consolidated net sales for 1993 increased 3.1% compared to 1992.
Domestic tissue net sales for 1993 increased 2.7% compared to 1992 due to volume
increases that were largely offset by lower net selling prices. In mid-1992,
average net selling prices rose principally as a result of an attempted price
increase in the commercial market but then fell to pre-price increase levels in
the fourth quarter of 1992 and fell again in the first quarter of 1993, periods
of seasonally lower volume shipments. Average net selling prices held flat from
the first quarter of 1993 to the second quarter of 1993 and increased in each of
the third and fourth quarters of 1993 from the previous quarter levels. However,
in spite of introductions of net selling price increases in each of the first
three quarters of 1993, average net selling prices for 1993 were below average
net selling prices for 1992. Net sales of the Company's international operations
were flat in 1993 compared to 1992 primarily due to significantly lower net
selling prices and lower exchange rates offset by volume increases resulting
from the acquisition of Stuart Edgar Limited ("Stuart Edgar") and the start-up
of a new paper machine. United Kingdom retailers engaged in increasingly
competitive pricing activity in 1993 across a broad range of consumer products
including disposable paper products.

Gross Income. Consolidated gross margins decreased to 34.0% in 1993 compared
to 36.9% in 1992. Domestic tissue gross margins decreased to 37.4% in 1993 from
40.0% in 1992 primarily due to lower net selling prices and an increase in
wastepaper costs as prices for wastepaper grades utilized by the Company
returned to pre-recession levels. Gross margins of international operations also
declined in 1993 principally due to the lower net selling prices. Unit
manufacturing costs of international operations declined in 1993 compared to
1992 as a result of the start-up of a new paper machine and related facilities
in the first quarter of 1993 at the Company's United Kingdom tissue operations.

Selling, General and Administrative Expenses. Due to the effects of adverse
tissue industry operating conditions on its long-term earnings forecast, the
Company decreased the estimated fair market valuation of its Common Stock.
Accordingly, in 1993 the Company reversed all previously accrued employee stock
compensation expense of $8 million, resulting in a decrease in selling, general
and administrative expenses, as a percent of net sales, to 8.2% in 1993 from
8.5% in 1992. Excluding the effects of employee stock compensation from both
years, selling, general and administrative expenses, as a percent of net sales,
would have increased slightly in 1993 to 8.8% from 8.4% for 1992.

30
<PAGE>
Goodwill Write-Off. As further described below, low industry operating rates
and aggressive competitive pricing among tissue producers resulting from the
1991-1992 recession, additions to industry capacity and other factors adversely
affected tissue industry operating conditions and the Company's operating
results beginning in 1991 and through the third quarter of 1993.

Declining selling prices. Although sales volume increased, industry
pricing was very competitive due to the factors discussed below. The
Company's average domestic net selling prices declined by approximately 5%
in each of 1991 and 1992. Commercial market price increases attempted in
mid-1992 were not achieved as commercial market pricing fell to pre-price
increase levels in the fourth quarter of 1992 and fell again in the first
quarter of 1993, periods of seasonally lower volume shipments. Average net
selling prices held flat from the first quarter of 1993 to the second
quarter of 1993 and increased from the second to the third quarter of 1993.
However, in spite of introductions of net selling price increases in each of
the first three quarters of 1993, average net selling prices for the first
nine months of 1993 were below average net selling prices for the same
period in 1992. Pricing in the Company's international markets declined
significantly over this time period as well.

Industry Operating Rates. Based on publicly available information,
including data collected by the American Forest & Paper Association
("AFPA"), industry capacity additions in 1990 through 1992 significantly
exceeded historic capacity addition rates. Such additions and weak demand
caused industry operating rates to fall to very low levels in 1991 and 1992
in comparison to historic rates. Tissue industry operating rates increased
only slightly during the first nine months of 1993 from the low levels
experienced in 1991 and 1992. Announced tissue industry capacity additions
through 1995, as reported by the AFPA through the first three quarters of
1993, approximated average industry shipment growth rates after 1990. For
the first nine months of 1993, the industry shipment growth rate fell
sharply from the already low rates in 1991 and 1992. Consequently, without
an improved economic recovery and improved industry demand, tissue industry
operating rates were expected to remain at relatively low levels for the
near term, adversely affecting industry pricing.

Economic Conditions. The 1991-1992 recession and weak recovery adversely
affected tissue market growth. Job formation is an important stimulus for
growth in the commercial tissue market where approximately two-thirds of the
Company's domestic tissue sales are targeted. From 1990 through the first
nine months of 1993, job formation was weak and was projected to improve
only slightly in 1994. Accordingly, demand growth was weak in 1991, 1992 and
in the first nine months of 1993, and did not appear to offer any
substantial relief to the outlook for industry operating rates and pricing
for the near term.

Gross Margins. The Company's gross margins steadily declined in 1991,
1992 and 1993 as a result of three factors noted above. In the first nine
months of 1993, the Company's gross margins were also affected by increased
wastepaper costs as prices for wastepaper grades utilized by the Company
returned to pre-recession levels.

As a result of these conditions, the Company expected that the
significant pricing deterioration experienced in 1991 through mid-1993 would
be followed by average annual price increases that approximated the
Company's annual historical price increase trend for the years 1984 through
1993 of approximately 1% per year. Accordingly, during the second quarter of
1993, the Company commenced an evaluation of the carrying value of its
goodwill for possible impairment. The Company revised its projections and
concluded its evaluation in the third quarter of 1993 determining that its
forecasted cumulative net income before goodwill amortization was inadequate
to recover the future amortization of the Company's goodwill balance over
the remaining amortization period of the goodwill.

31
<PAGE>
For a more detailed discussion of the methodology and assumptions
employed to assess the recoverability of the Company's goodwill, refer to
Note 4 of the Company's audited consolidated financial statements included
elsewhere in this Prospectus.

Operating Income (Loss). As a result of the goodwill write-off, the
Company's operating loss was $1,717 million for 1993 compared to operating
income of $271 million for 1992. Excluding purchase accounting depreciation,
amortization of goodwill, the goodwill write-off and the reversal of employee
stock compensation expense, adjusted operating income (as reported in the
preceding table) declined to $312 million for 1993 from $347 million for 1992.
Adjusted operating income declined in 1993 compared to 1992 principally due to
effects of lower domestic and foreign net selling prices, higher wastepaper
costs in the U.S. and lower exchange rates.

Other Income, Net. In 1993, the Company sold its remaining equity interest
in Sweetheart for $5.1 million recognizing a gain of the same amount. The
Company had previously reduced the carrying value of its investment in
Sweetheart to zero in 1991.

Income Taxes. The income tax credit for 1993 principally reflects the
reversal of previously provided deferred income taxes. The income tax credit for
1992 reflects the reversal of previously provided deferred income taxes related
to domestic tissue operations offset almost entirely by foreign income taxes.

Extraordinary Loss and Accounting Change. The Company's net loss in 1993 was
increased by an extraordinary loss of $12 million (net of income taxes of $7
million) representing the write-off of unamortized deferred loan costs
associated with the repayment of $250 million of indebtedness under the 1993
Term Loan, the repurchase of all the 14 5/8% Debentures and the repurchase of
$50 million of the 12 3/8% Notes. The net loss for 1992 was increased by the
Company's adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
No. 106"). The cumulative effect on years prior to 1992 of adopting SFAS No. 106
is stated separately in the Company's unaudited condensed consolidated statement
of income for 1992 as a one-time, after-tax charge of $11 million.

Net Loss. For 1993, the Company's net loss increased, principally due to the
goodwill write-off, to $2,052 million compared to $80 million for 1992.

FISCAL YEAR 1992 COMPARED TO FISCAL YEAR 1991

Net sales. Domestic tissue net sales decreased 1.6% in 1992 compared to
1991. The decrease was attributable to lower net selling prices which were
partially offset by volume increases. Net sales of the Company's United Kingdom
tissue operations increased 30.0% in 1992 compared to 1991. The increase was
primarily due to volume increases in both the consumer and commercial markets,
and to a lesser extent, due to the acquisition of Stuart Edgar in September
1992, partially offset by lower net selling prices and lower exchange rates.

Gross Income. Effective January 1, 1992, the Company prospectively changed
its estimates of the depreciable lives of certain machinery and equipment. These
changes were made to better reflect the estimated periods during which such
assets will remain in service. As a result, the Company believes, based
primarily on an analysis of publicly available information, that the lives over
which the Company depreciates the cost of its operating equipment and other
capital assets more closely approximates industry norms. For 1992, the change
had the effect of reducing depreciation expense by $38 million and reducing net
loss by $24 million. Domestic tissue gross margins increased slightly in 1992 to
40.0% compared to 39.4% in 1991 due to lower depreciation expense and lower raw
materials costs, which were largely offset by the decline in net selling prices.
Excluding the effects of the changes in depreciable lives, domestic tissue gross
margins would have declined to 36.1% in 1992. Gross margins for international
operations declined in 1992 due to purchases of parent rolls to support volume
increases in

32
<PAGE>
anticipation of the start-up of a new paper machine in 1993 and the effects of
the acquisition of Stuart Edgar.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, decreased to 8.5% in 1992
compared to 8.6% in 1991. These results occurred principally due to an overall
cost containment effort on the part of the Company, partially offset by the
effects of the lower net selling prices and higher volume.

Operating Income. Operating income of $271 million in 1992 was flat with
operating income in 1991. Excluding purchase accounting depreciation,
amortization of goodwill and employee stock compensation expense, adjusted
operating income (as reported in the preceding table) would have been $347
million and $356 million, or 30.1% and 31.3% as a percent of net sales, in 1992
and 1991, respectively. Adjusted operating income as a percent of net sales
declined in 1992 from 1991 due to the effects in 1992 of lower net selling
prices, the higher volume growth rate of the lower margin international
operations compared to domestic operations and the acquisition of Stuart Edgar,
partially offset by the effects of the changes in depreciable lives.

Interest Expense. Interest expense declined approximately $33 million in
1992 as compared to 1991. Debt repurchased with the proceeds of a private
placement of Common Stock in 1991 reduced the Company's average outstanding
indebtedness in 1992 compared to 1991. Lower average interest rates, in part due
to borrowings under the 1988 Revolving Credit Facility to repurchase high yield
subordinated debt, also contributed to lower interest expense in 1992 as
compared to 1991.

Income Taxes. The lower income tax credit for 1992 reflects the Company's
lower domestic net loss for the year, offset by foreign income taxes. The income
tax credit for 1991 principally reflects the reversal of previously provided
deferred income taxes.

Extraordinary Loss and Accounting Change. Results for 1991 were impacted by
an extraordinary loss of $5 million (net of income taxes) related to debt
repurchases. As of January 1, 1992, the Company adopted SFAS No. 106. The
standard requires that the expected cost of postretirement health care benefits
be charged to expense during the years that employees render service. The
cumulative effect on years prior to 1992 of adopting SFAS No. 106 is stated
separately in the Company's consolidated statement of income for 1992 as a
one-time after-tax charge of $11 million. This change in accounting principle,
excluding the cumulative effect, decreased operating income for 1992 by $1
million.

Net Loss. For 1992, the Company's net loss decreased 27.9% to $80 million
from $111 million in 1991. Excluding the effects of the changes in depreciable
lives and the change in accounting principle for postretirement benefits in
1992, and excluding the extraordinary item attributable to debt repurchases and
equity in net losses incurred by unconsolidated subsidiaries in 1991, the net
loss for 1992 would have increased 7.3% compared to 1991.

FINANCIAL CONDITION

Nine Months Ended September 30, 1994

For the first nine months of 1994, cash increased $410,000. Capital
additions of $65 million and debt repayments of $721 million, including the
prepayment of $100 million of the 1988 Term Loan, the repurchases of all
outstanding 12 3/8% Notes and of $238 million of the 12 5/8% Debentures and a
reduction in the 1988 Revolving Credit Facility, were funded by cash provided
from operations of $58 million and net proceeds of the sale of 8 1/4% Notes and
9% Notes of $728 million in February 1994. Receivables increased $27 million
during the first nine months of 1994 due principally to a seasonal increase in
net sales and higher net selling prices in the domestic tissue and wastepaper
brokerage operations. The Company increased inventories by $6 million
principally to improve service levels. The liability for interest payable
decreased $20 million due to a change in interest payment schedules resulting
from the 1994 debt repurchases from the net proceeds of the sale of the 8 1/4%
Notes and 9%

33
<PAGE>
Notes in 1994. The liability for current income taxes increased $12 million
principally due to an $11 million reclassification from the liability for other
long-term income taxes to reflect payments totaling $9 million made in October
1994 to the Internal Revenue Service (the "IRS") in anticipation of an appeal of
a U.S. Tax Court decision related to the Company's 1988 tax year. See
"Business-- Litigation." As a result of all these changes and the repayment of
$100 million of the $107 million scheduled 1994 payment on its 1988 Term Loan
from the net proceeds of the sale of the 8 1/4% Notes and 9% Notes, net working
capital increased to $45 million at September 30, 1994, from a deficit of $92
million at December 31, 1993.

Cash provided from operations declined in the first nine months of 1994
compared to 1993 principally due to increased interest payments resulting from
the 1993 repurchases of all outstanding 14 5/8% Debentures (which accrued
interest in kind) from the net proceeds of the sale of the 9 1/4% Notes and 10%
Notes in 1993 (which accrue interest in cash), the reduction in interest payable
due to the change in interest payment schedules and higher floating interest
rates. Cash provided from operations was further impacted by the increases in
receivables and inventories.

Year Ended December 31, 1993

During 1993, cash increased $39,000. Capital additions of $166 million and
debt repayments of $841 million, including the prepayment of $250 million of the
1988 Term Loan, the repurchase of all outstanding 14 5/8% Debentures, and the
repurchase of $50 million of the 12 3/8% Notes, were funded principally by cash
provided from operations of $151 million, net proceeds from the sale of the 9
1/4% Notes and 10% Notes of $729 million, net proceeds of the 1993 Term Loan of
$95 million, borrowings of $28 million under the 1988 Revolving Credit Facility
and borrowings of $9 million by Fort Sterling Limited ("Fort Sterling"), the
Company's United Kingdom tissue operations subsidiary, under its credit
agreements.

Inventories and interest payable increased $17 million and $22 million,
respectively, during 1993. The Company increased inventories principally to
improve its service levels, and secondarily due to the effects of lower volume
resulting from increases to net selling prices in the third quarter of 1993,
immediately preceding a period of seasonally lower volume. Interest payable
increased in 1993 principally due to the repurchase of all outstanding 14 5/8%
Debentures (which accrued interest in kind) from the net proceeds of the sale of
the 9 1/4% Notes and 10% Notes (which accrue interest in cash). The net working
capital deficit declined $32 million from $124 million at December 31, 1992 to
$92 million at December 31, 1993, principally due to a $25 million reduction in
the current portion of long-term debt as a result of lower current maturities
under the 1988 Term Loan.

Year Ended December 31, 1992

During 1992, cash decreased $9 million. Capital additions of $233 million,
the acquisition of Stuart Edgar for $8 million (net of debt assumed of $17
million) and debt repayments of $168 million, principally for the retirement of
the Company's 7% Notes, were funded principally by cash provided from operations
of $210 million, borrowings under the 1988 Revolving Credit Facility of $141
million and borrowings of $49 million by Fort Sterling under its credit
agreements.

Receivables and accounts payable increased $13 million and $23 million,
respectively, in 1992. Receivables increased principally at Fort Sterling as
sales increased in advance of the start-up of a new paper machine in the first
quarter of 1993. Accounts payable increased as a result of higher accruals for
capacity expansions at the Company's Green Bay, Wisconsin, Muskogee, Oklahoma
and United Kingdom mills. As a result of the issuance of $300 million of Senior
Secured Notes in 1991, the scheduled 1992 payment on its 1988 Term Loan was
accelerated into 1991 resulting in reduced current maturities of long-term debt
and net working capital of $2 million at December 31, 1991, compared to a net
working capital deficit of $124 million at December 31, 1992, which reflected a
scheduled 1993 payment on its 1988 Term Loan maturity of $132 million.

34
<PAGE>
Long-term other liabilities increased $26 million in 1992 due to an accrual
of $18 million related to the adoption of SFAS No. 106 and due to the accrual of
a long-term liability related to the capacity expansion at the United Kingdom
mill.

Liquidity and Capital Resources; The Recapitalization

The Company's principal uses of cash for the next several years will be
interest and principal payments on its indebtedness and capital expenditures.

The Company is implementing the Recapitalization to prepay or redeem a
substantial portion of its indebtedness in order to reduce the level and overall
cost of its debt, extend certain maturities, increase shareholders' equity and
enhance its access to capital markets. The Recapitalization includes the
following primary components: (i) the Offering; (ii) the Bank Refinancing and
(iii) the 1995 Debt Redemptions. Proceeds of the Recapitalization will be used
to prepay or redeem all of the Company's remaining indebtedness under its 1988
Bank Credit Agreement, the Senior Secured Notes, the 1993 Term Loan, the 12 5/8%
Debentures and the 14 1/8% Debentures. After giving effect to the
Recapitalization, on a pro forma basis as of September 30, 1994, the Company
would have had approximately $3,117 million of long-term debt outstanding.
Following the Recapitalization, the Company will have repayment obligations of
$8 million in 1995, $114 million in 1996, $142 million in 1997, $164 million in
1998 and $166 million in 1999 (and increasing thereafter). In addition, there
may be additional required payments under the New Bank Credit Agreement out of
excess cash flow, if any, and from proceeds of asset sales, if any. See
"Description of Certain Indebtedness--The New Bank Credit Agreement."

Capital expenditures were $65 million for the nine months ended September
30, 1994 and $166 million, $233 million and $144 million in 1993, 1992 and 1991,
respectively, including an aggregate of over $450 million during those periods
for capacity expansions. Subject to market conditions and the successful
completion of the Recapitalization, the Company's current plans to support
growth in domestic tissue shipments include adding one world-class (270-inch)
tissue paper machine over the next five years and the start up of another dry
form machine in the next few years. The New Bank Credit Agreement will impose
limits for domestic capital expenditures, with certain exceptions, of $75
million in each of 1995, 1996 and 1997. This amount increases to $100 million
per year commencing in 1998. The Company will also be permitted to spend up to
$ million for domestic expansion projects including, without restriction, an
additional tissue paper machine at one of its existing domestic mills. Other
domestic expansion projects are restricted unless the Company's ratio of EBITDA
to interest expense exceeds certain amounts. In addition, the Company will be
permitted to make capital expenditures of up to $100 million through 2002 for
international expansion. However, the Company is restricted to spending no more
than $40 million on international expansion unless the Company's ratio of EBITDA
to interest expense exceeds certain amounts. Under the New Bank Credit
Agreement, the Company may carry over to one or more years (thereby increasing
the scheduled permitted limit for capital expenditures in respect of such year)
the sum of all previously unutilized amounts in 1995 and subsequent years (up to
$ million per year) by which the scheduled permitted limit for each year
exceeded the capital expenditures actually made in respect of such prior year.
The Company does not believe such limitations will impair its plans for capital
expenditures. Capital expenditures are projected to approximate $55 to $75
million annually for the next several years, plus $180 million of domestic
expansion capital spending that is subject to market conditions and successful
completion of the Recapitalization. The portion of the above capital
expenditures which are attributable to environmental matters are described in
"Business--Environmental Matters." For more information regarding the
restrictions on capital expenditures contained in the New Bank Credit Agreement,
see "Description of Certain Indebtedness."

35
<PAGE>
The 1995 Revolving Credit Facility is expected to have a final maturity of
, 2002 (the seventh anniversary of the completion of the Offering).
Following completion of the Recapitalization, the Company expects to have
$ million in available capacity under the 1995 Revolving Credit Facility.

Upon completion of the Recapitalization, approximately $1.4 billion of the
Company's outstanding indebtedness is expected to bear interest at floating
rates. The Company's policy is to enter into interest rate cap and swap
agreements as a hedge to effectively fix or limit its exposure to floating
interest rates to, at a minimum, comply with the terms of its senior secured
debt agreements. The Company is a party to an interest rate cap agreement which,
following the Recapitalization, will limit the interest cost to the Company to
8.50% (including the Company's borrowing margin on Eurodollar rate loans) until
June 1, 1996 with respect to $500 million of floating rate obligations. Prior to
expiration of the interest rate cap agreement on June 1, 1996, the Company
intends to enter into one or more new interest rate cap or swap agreements to
continue to limit its exposure to floating interest rates with respect to a
substantial portion of its floating rate debt. The Company monitors the risk of
default by the counterparties to the interest rate cap agreement and does not
anticipate nonperformance. See Note 8 to the Company's audited consolidated
financial statements included elsewhere in this Prospectus for additional
information concerning this agreement.

The limitations contained in the New Bank Credit Agreement and in the
Company's indentures on the ability of the Company and its subsidiaries to incur
indebtedness, together with the highly leveraged position of the Company, could
limit the Company's ability to effect future financings and may otherwise
restrict corporate activities, including the Company's ability to respond to
market conditions, to provide for unanticipated capital expenditures (including
capital expenditures for environmental matters) or to take advantage of business
opportunities which may arise or to take actions that require funds in excess of
those available to the Company. However, the Company believes that cash provided
by operations, unused borrowing capacity under the 1995 Revolving Credit
Facility and access to financing in public and private markets will be
sufficient to enable it to fund capital expenditures (including planned capital
expenditures for environmental matters) and meet its debt service requirements
for the foreseeable future.

Assuming a favorable resolution of the U.S. Tax Court appeal discussed in
"Business--Legal Proceedings," as of December 31, 1994 the Company expects to
have approximately $ million of net operating loss ("NOL") carryforwards
for federal income tax purposes which, if not utilized, expire in 2007 through
2009 and which can be reduced because of tax adjustments for prior tax years.
(For example, the aggregate amount of NOL carryforwards available to the Company
as of December 31, 1994 could be reduced to below $ million if the U.S. Tax
Court decision is affirmed.) Further, under the Internal Revenue Code of 1986,
as amended (the "Code"), the utilization of NOL carryforwards against future
taxable income is potentially limited if the Company experiences an "ownership
change," as defined in the Code. Although the Company does not believe that it
will experience an ownership change upon consummation of the Offering, it is
possible that following the Offering, future events that are beyond the control
of the Company (such as transfers of Common Stock by shareholders), or certain
Common Stock issuances could cause the Company to experience an "ownership
change." Depending on the circumstances, such an ownership change could limit
the Company's ability to utilize NOL carryforwards existing at such time to
offset future taxable income.

Refer to Note 7 to the audited consolidated financial statements and Note 6
to the unaudited condensed consolidated financial statements included elsewhere
in this Prospectus for a description of certain matters related to income taxes.
See "Business--Legal Proceedings."

Seasonality

During the nine months ended September 30, 1994 and the years ended December
31, 1993, 1992, and 1991, a slightly higher amount of the Company's revenues and
EBITDA have been recognized during the second and third quarters. Following the
Recapitalization, the Company expects to fund seasonal working capital needs
from the 1995 Revolving Credit Facility.

36
<PAGE>
BUSINESS

THE COMPANY

INDUSTRY OVERVIEW

United States

Demand

According to statistics compiled by the AFPA, sanitary tissue paper
converted product shipments in the United States were approximately 5.3 million
tons in 1993. Shipments to the commercial and consumer markets represent
approximately 38% and 62% of total shipments, respectively.

Historically, sanitary tissue demand as evidenced by product shipments has
fluctuated somewhat less than demand in the paper industry overall. Although the
rate of growth in tissue market shipments slackened during the industry's
recessionary period between 1991 and 1993, tissue market shipments continued to
grow because of population growth, which has a stabilizing effect on demand.
Total domestic tissue shipments grew from 4.1 million tons in 1983 to 5.3
million tons in 1993 for a compound annual growth rate of 2.4%. The Company
believes that except in recessionary years, commercial market shipment growth
rates have generally exceeded consumer market shipment growth rates. The Company
also believes that, because of the increasing number of dual income households,
more frequent travel and recreation and longer life expectancy, which result in
increased use of away-from-home facilities, the commercial market will continue
to grow faster on average than the consumer market. Shipments tend to be
stronger in the second and third quarters because of seasonal demand.

37
<PAGE>
The following table shows sanitary tissue paper converted product shipments
in the United States over the past 11 years according to the AFPA.
<TABLE>
<CAPTION>
1983-1993
COMPOUND
ANNUAL
GROWTH
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 RATE
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial(1)............. 1,481 1,522 1,554 1,576 1,671 1,783 1,918 1,971 1,987 2,012 2,003 3.1%
Consumer.................. 2,663 2,716 2,718 2,820 2,846 2,903 2,992 3,025 3,080 3,176 3,268 2.1%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total.................. 4,144 4,238 4,272 4,396 4,517 4,686 4,910 4,996 5,067 5,188 5,271 2.4%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>

- ------------
(1) Club warehouse production and shipments are not separately reported to the
AFPA. Prior to 1994, AFPA member companies reporting tissue production and
shipments to the AFPA ("Reporting Companies") had varying practices with
respect to classifying reported shipments to club warehouses as either
commercial market or consumer market shipments. Although Fort Howard
reported all shipments to club warehouses as commercial market shipments
prior to 1994, it is unclear what practices had been followed by other
Reporting Companies. During 1993, it appeared that certain Reporting
Companies had changed their reporting of club warehouse shipments.
Accordingly, beginning in 1994, Reporting Companies were requested by the
AFPA to classify reported shipments to club warehouses as either commercial
market or consumer market shipments based on Reporting Companies' estimates
of whether the finished product was used in the commercial or consumer
market.

According to the AFPA, sanitary tissue paper shipments grew 2.7% to
4,022,000 tons for the nine months ended September 30, 1994 as compared to
3,915,000 tons for the same period in 1993. Commercial market shipments for the
nine months ended September 30, 1994 were 1,470,000 tons and consumer market
shipments for that period were 2,552,000 tons as compared to 1,490,000 tons and
2,425,000 tons, respectively, for the nine months ended September 30, 1993. The
Company believes that the decreases in commercial market shipments in 1993 and
for the nine months ended September 30, 1994 are attributable to
reclassifications of reported club warehouse shipments between the commercial
and consumer markets as described in footnote (1) above. Consequently, while
total tissue shipment growth as reported by the AFPA improved to 2.7% for the
first nine months in 1994 from 1.4% for the same period in 1993, the Company
believes that shipment growth rates in the commercial and consumer markets in
1993 and 1994 as reported by the AFPA may not reflect actual shipments in the
respective markets.

Commercial Market. In the commercial market, domestic tissue shipments grew
from 1.5 million tons in 1983 to 2.0 million tons in 1993 for a compound annual
growth rate of 3.1%. The Company believes that shipment growth rates in the
commercial market are affected principally by job formation, the strength of
other cyclical economic variables and changing demographic and socio-economic
trends. For the three-year period prior to 1990, commercial tissue shipments
showed strong growth as a result of favorable economic conditions and strong job
formation during the period. From 1990 through 1993, job formation was weak and
unemployment was high, adversely affecting commercial tissue market shipments
during this period. According to U.S. Department of Labor statistics, in late
1993 and in 1994, job formation began to improve. To the extent economic
recovery continues, the Company believes that job formation should provide an
important stimulus for commercial market demand.

The commercial market is comprised of a few large tissue producers that have
large market positions and a significant number of small, regional
manufacturers. While the full range of premium, value and economy products exist
in this market, the value and economy ranges of products are predominant in the
commercial market. The Company believes that advertising does not have a
significant influence on commercial demand.

Consumer Market. In the consumer market, domestic tissue shipments grew from
2.7 million tons in 1983 to 3.3 million tons in 1993, for a compound annual
growth rate of 2.1%. The Company believes

38
<PAGE>
that shipment growth rates in the consumer market are principally affected by
population growth trends and general economic conditions including the level of
consumer confidence.

The consumer market is comprised of a few large, mostly branded premium
product manufacturers that actively advertise to stimulate consumer demand for
their products. The product range in this market covers branded premium products
(46% of market), branded value products (38%) and private label products (16%).
Discount retailers have been emphasizing the development of private label
products to achieve higher gross margins and to lower retail shelf prices to
appeal to increasingly price conscious consumers.

Capacity

For the ten years ended December 31, 1989, tissue industry capacity grew at
a 1.8% average annual growth rate and operating rates remained at a relatively
strong average level of 92.7%. The Company believes that tissue industry
operating rates of approximately 93% represent balanced supply and demand in the
tissue market. Tissue industry operating rates peaked at 97.0% in 1989.
Subsequently, tissue industry capacity additions in 1990 through 1992
significantly exceeded historic capacity addition rates. At the same time,
commercial demand slackened due to the recession. These and other factors caused
annual operating rates to fall to a low of 89.8% in 1992. Tissue industry
operating rates have increased slightly in 1993 and 1994 from the low levels
experienced in 1992.

Tissue industry operating rates in 1995 and future years will depend upon
the level of demand and capacity growth. The Company believes that growing
consumer market shipments resulting from normal population growth and growing
commercial market shipments related to a strong economy, should provide a basis
for improved demand in 1995 and 1996. Taking into account both announced tissue
papermaking capacity shut-downs and additions, the Company believes that the
rate of capacity growth in 1995 and 1996 will fall short of the demand increase,
resulting in higher industry operating rates for the period.

Pricing

Since 1983, pricing has correlated strongly with the levels of industry
operating rates. The high level of growth in tissue industry capacity from 1990
through 1992, coupled with the weakening commercial demand resulting from the
recession and competitive new product introductions in the consumer market,
caused industry operating rates and pricing to fall. Although specific industry
pricing information is not available, the Company believes that industry pricing
fell in each of 1991 and 1992 and may have fallen in 1993. In the commercial
market, three industry price increases were introduced in 1993 and two were
introduced in April and mid-October 1994. The Company believes that retail shelf
prices in the consumer market improved slightly in 1993 and 1994, but remained
competitive. Overall domestically, the Company has realized average price
increases of 5.5% for the nine months ended September 30, 1994 as compared to
the same period in 1993. Because a substantial portion of commercial sales are
pursuant to contracts which generally specify pricing over periods of six months
to one year, there is a time lag before the benefit of commerical market price
increases are realized.

The Company believes that growing consumer market shipments resulting from
normal population growth and growing commercial market shipments related to a
strong economy, should provide a basis for improved demand and, together with a
reduced rate of net announced capacity growth, will result in higher industry
operating rates in 1995 and 1996. In addition, as further discussed below,
because market pulp and wastepaper prices are expected to continue to increase,
commercial tissue producers may seek to increase prices to maintain
profitability. As a result of these factors, while there can be no assurance
that industry pricing will continue to increase, the Company believes that
further industry price increases are likely in 1995.

39
<PAGE>
Raw Material Supply

Fiber, which constitutes the principal raw material for making paper, is
obtained either by processing virgin wood pulp or by de-inking and processing
wastepaper. The Company estimates that approximately 43% of domestic total
tissue production in 1992 was manufactured using wastepaper. In 1992, the latest
year for which independent industry data is available, 88 million tons of
wastepaper were generated in the United States of which 34 million tons were
collected for recycling (including 6 million tons that were exported) and 54
million tons that were put into landfills. Different grades of wastepaper are
available from different sources. For example, newsprint is primarily generated
by curb-side collection, corrugated containers by retailers and mid to
higher-grade papers by printers and through the collection of office wastepaper.
Although virtually any grade of wastepaper can be used in some form of tissue
production, generally only mid to higher grades of wastepaper, representing
about one-third of recycled wastepaper in 1992, are used in tissue production.

Historically, most large tissue manufacturers have had integrated virgin
wood pulp operations and have therefore been less dependent upon market pulp for
their wood pulp requirements. Recently, some large tissue producers have sold or
announced an intent to consider the sale of their pulp operations and,
accordingly, tissue producers increasingly are or may become more dependent on
market pulp for their wood pulp requirements.

According to statistics compiled in independent industry reports, the
following table shows the price per ton for wastepaper and market pulp for the
periods indicated. Wastepaper prices are not directly comparable to market pulp
prices because wastepaper yields are generally lower than market pulp yields and
wastepaper processing costs are generally higher than those associated with
market pulp.

<TABLE>
<CAPTION>
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994(A)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Pulp(b)................. $440 $505 $400 $480 $610 $760 $830 $765 $500 $570 $415 $ 700
Wastepaper(c).................. $116 $135 $ 97 $136 $101 $196 $206 $171 $136 $178 $142 $ 236
</TABLE>

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

<TABLE>
<C> <S>
(a) Average market prices at October 1, 1994.
(b) Year-end average market prices for Northern Bleached Softwood Kraft.
(c) Year-end composite average market prices for the following grades of wastepaper: hard
white shavings, manifold color, laser computer printout and coated book. The Company
believes that these grades of wastepaper are broadly used by tissue manufacturers. Fort
Howard does not use all of these grades of wastepaper in its products. The average
market prices shown in this table are not necessarily indicative of Fort Howard's or
any other tissue manufacturer's actual costs, which will depend on the particular
grades of wastepaper used.
</TABLE>

Beginning in the third quarter of 1994, wastepaper prices for the grades
represented in the table above increased significantly. Wastepaper prices are
expected to increase further because of increased demand resulting from
substantial additions of de-inking and recycling capacity in the paper industry
which are expected to come on line during 1995 and 1996, increasing market pulp
prices and other factors. Since late 1993, market pulp prices have increased
sharply as a result of increased demand. The Company also expects market pulp
prices to continue to increase due to worldwide tightening supply/demand
conditions for market pulp. Historically, as market pulp and wastepaper prices
increase, commercial tissue producers have sought to increase prices to maintain
profitability.

United Kingdom

General

The tissue market in the United Kingdom is roughly one-eighth the size of
the U.S. market or approximately 684,000 tons in 1993. The commercial market
represents approximately one-third of the total market and the consumer market
represents approximately two-thirds. Fort Sterling's operations are primarily in
the consumer market. Because no definitive industry reports covering the U.K.
market are available, the following information is based in part on reports
commissioned by the Company and on the Company's estimates.

40
<PAGE>
Demand

Total U.K. tissue shipments increased from 540,000 tons in 1983 to 684,000
tons in 1993 for a compound annual growth rate of 2.4%. In the consumer market,
U.K. tissue shipments grew from 361,000 tons in 1983 to 458,000 tons in 1993 for
a compound annual growth rate of 2.4%. In the commercial market, U.K. tissue
shipments increased from 179,000 tons in 1983 to 226,000 tons in 1993, for a
compound annual growth rate of 2.4%. Growth in the U.K. commercial market is
affected by the same factors that affect growth in the U.S. commercial market.
Unlike the U.S. commercial market, however, the U.K. commercial market has been
growing at the same rate as the consumer market. In comparison to the U.S.
commercial market, the commercial market in the U.K. has an underdeveloped
distribution network and more limited product penetration, thereby offering
opportunities for improved shipment growth.

Fort Sterling is one of the four largest tissue producers in the U.K. and
has the fourth largest market share of the total tissue market. The U.K. tissue
market is characterized by low consumption of paper towels and table napkins as
compared to the U.S. tissue market. Private label products command an equal and
growing consumer market share compared to branded products. Private label
products are more likely to be premium quality/high priced than economy/value
priced. However, beginning in late 1992, as Europe began to experience a
recession and as U.K. grocery price competition increased due to the emergence
of grocery discounters and the introduction of club warehouses to the U.K.
market, U.K. consumers began to move more heavily to economy products. From 1991
to 1993, the market share of grocery discounters in the consumer grocery market
increased from 8% to 15%. The Company believes that shipment growth rates in the
consumer market are principally affected by population growth trends, and to a
lesser extent, changing consumption habits as the acceptance and use of paper
towels and table napkins develops further.

Capacity

For the period from 1983 to 1993, U.K. tissue papermaking capacity grew at a
compound annual growth rate of 2.6% to 668,000 tons from 518,000 tons. Taking
into account waste on conversion to finished products of 6%-9%, U.K. tissue
papermaking production capacity falls significantly short of U.K. tissue
consumption. Unlike the U.S. market, there are a large number of small,
partially integrated or non-integrated tissue converters that purchase parent
rolls (unconverted rolls of finished tissue) and hold a combined U.K. market
share of tissue shipments of approximately 25%. Also, all the large U.K. tissue
manufacturers, with the exception of Fort Sterling, purchase significant
quantities of market pulp or parent rolls because there is no U.K. timber
harvesting to support fully integrated, virgin wood pulp production. Taking into
account announced papermaking capacity shut-downs and additions, as well as an
anticipated modest consolidation of independent tissue converters, the Company
expects supply conditions to begin to tighten in 1995 and 1996.

Pricing

U.K. retailers have engaged in increasingly competitive pricing activity in
1993 and 1994 across a broad range of consumer products, including sanitary
tissue paper products, due in part to the greater penetration of large discount
chains, the entry of club warehouse chains from the U.S. and the recession in
the U.K. As a result, tissue prices have declined significantly in the U.K. from
1992 through late 1994.

Effective mid-October 1994, consumer and commercial market price increases
were announced by tissue producers. Although there can be no assurances, due to
expected tightening supply conditions in 1995 and 1996, an improving U.K.
economy and recent pressure on worldwide prices for market pulp and wastepaper,
the Company believes that further price increases are likely in 1995.

Raw Material Supply

Market pulp and wastepaper supply and demand and cost trends in the U.K. are
substantially similar to those in the United States.

41
<PAGE>
STRATEGIC POSITION

The Company currently believes that pricing and demand in the tissue sector
of the paper industry are beginning to improve. This improvement comes after an
unprecedented period of depressed industry pricing over the past three years,
which led the Company to write off its remaining goodwill balance of $1.98
billion in the third quarter of 1993. See "--Industry Overview," "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" and the Company's audited consolidated financial statements included
elsewhere in this Prospectus. The Company introduced three price increases in
the commercial market in 1993 and one in April 1994. The Company believes that
retail shelf prices in the consumer market improved slightly in 1993 and 1994,
but remained competitive. Overall domestically, the Company has realized average
price increases of 5.5% for the nine months ended September 30, 1994 as compared
to the same period in 1993. Another commercial market price increase was
introduced in mid-October 1994. Because a substantial portion of the Company's
commercial market sales are pursuant to contracts which generally specify
pricing over periods of six months to one year, there is a time lag before the
Company realizes the benefit of commercial market price increases. The Company
believes that a strong near term economy and normal population growth should
provide a basis for improved demand in 1995 and 1996. Taking into account both
announced tissue papermaking capacity shut-downs and additions, the Company
believes that the rate of capacity growth in 1995 and 1996 will fall short of
the demand increase, resulting in higher industry operating rates for the
period. In addition, industry costs for market pulp and wastepaper have recently
begun to increase sharply. Historically, as market pulp and wastepaper prices
increase, commercial tissue producers have sought to increase prices to maintain
profitability. Accordingly, while there can be no assurance that industry
pricing will continue to increase, the Company believes that further industry
price increases are likely in 1995.

BUSINESS STRATEGY

Fort Howard's business strategy is focused on increasing its profitability
by maintaining and enhancing its position in the United States and
internationally. The Company's strategy involves:

Maintaining Position as Low Cost Producer. Fort Howard is committed to
maintaining its position as a low cost producer of tissue products in the
markets in which it competes. The Company believes that its use of
wastepaper for substantially all of its fiber requirements and, in
particular, its increasingly effective consumption of lower cost wastepaper
grades without sacrificing end product quality, are key components of its
low cost producer strategy. Over the last ten years, because of continuous
improvements in its proprietary de-inking process, Fort Howard has been able
to shift significantly the mix of wastepaper to lower cost grades, thereby
achieving substantial cost savings. In addition, Fort Howard owns a
wastepaper brokerage company which provides it with access to sources of
supply and market information for all grades of wastepaper. The Company
believes that it has a competitive advantage because of the Company's
proprietary de-inking technology and know-how and the substantial capital
investment in new equipment and

42
<PAGE>
technologies required by competitors to achieve operating income margins
comparable to those of the Company. The Company's annual capital spending
program for 1995, 1996 and 1997 includes significant amounts for the ongoing
modernization of its mills, including the addition of a new coal-fired
boiler in Savannah, productivity projects and continued development of
improved de-inking technologies, all of which should produce additional cost
savings in the near term. See "Operations--Domestic Tissue."

Sustaining Growth in Commercial Market Shipments and Market
Share. Approximately two-thirds of the Company's tissue shipments are to the
commercial market. Fort Howard intends to continue its focus on the
commercial market which has grown at a 3.1% compound annual growth rate for
the decade ending December 31, 1993, compared to the consumer market which
has grown at a 2.1% rate during the same period. The commercial market is
expected to continue to grow at a faster rate. The Company intends to use
its leading commercial market share position to capture incremental growth
in the commercial market by focusing on increased sales to large
distributors and national accounts, by emerging as a major supplier to club
warehouses and by expanding its specialty dry form business as described
below:

Increasing Sales to Large Distributors and National Accounts. The
Company has developed an aggressive sales team of over 200 salaried
representatives that is focused on meeting the special requirements of
large distributors and national accounts in the foodservice, health care,
lodging, buildings and industrial subsegments of the commercial market.
Such requirements include, for example, the ability to offer a full line
of tissue products, strict sanitary production requirements, the ability
to service locations nationwide, Electronic Data Interchange ("EDI")
capabilities, and superior on-time and complete order shipping
performance. The Company believes it is well-positioned to increase sales
to these key customers as demand improves.

Improving Position With Club Warehouses. The growing patronage of
club warehouses represents an important growth opportunity for the
Company. Its newly organized club warehouse sales and marketing team
focuses on the special requirements of these customers, including unique
product specifications, packaging sizes and design, palletized
distribution, EDI capabilities, the ability to service locations
nationwide, superior on-time and complete order shipping performance and
the ability to grow rapidly to support new warehouse openings. The
Company is relatively new to club warehouse distribution and still
underrepresented in this distribution channel. The Company, however, has
increased its volume in this channel substantially. In 1993, sales to
club warehouses increased by 22%.

Expanding Specialty Dry Form Business. Fort Howard maintains the
leading market position in the domestic production of dry form paper, the
principal base fiber for baby wet wipes and a key component for feminine
hygiene products. The Company believes the growth rate for the baby wet
wipe industry to date has exceeded the growth rate of the tissue industry
as a whole. Subject to market conditions and the successful completion of
the Recapitalization, the Company's current plans are to start-up its
third dry form machine in the next few years to meet the demand in this
rapidly expanding market.

Sustaining Growth in Consumer Market Shipments and Market Share. The
Company is continuing to grow its share in the domestic consumer market and
has developed the leading branded napkin, Mardi Gras, the leading
environmental brand of tissue products, Green Forest, and the leading
private label market share. Management expects the value segment of the 3.3
million ton consumer market, a part of the market in which the Company
competes, to grow at a faster rate than the premium brand segment of that
market as consumers become more value conscious. The Company continues to
work toward full national distribution and greater market penetration of its
key value brands Soft 'N Gentle, Mardi Gras, Green Forest and So-Dri and has
recently added a distribution center to serve customers in Southern
California. The Company seeks to offer its retailers margins which are among
the highest in the trade and emphasizes promotional

43
<PAGE>
spending rather than advertising. The Company's strategy of expanding its
private label market share should also enable it to benefit from the
continuing growth in the value segment of the consumer market.

Expanding Internationally. The Company views expansion of its
international operations as an increasingly important component of its
long-term business strategy and intends to focus on the following:

Sustaining Growth in U.K. Shipments and Market Share. Management
believes that its commercial market share in the United Kingdom is
underdeveloped and that its experience in building its commercial market
share in the U.S. can continue to be applied to improve results in the
United Kingdom. In addition to consolidating its commercial brands, Fort
Sterling is acquiring new converting capacity to fill key gaps in its
napkin and wiper product lines in an effort to achieve full penetration
of the foodservice channel. Fort Sterling also has restaged its Nouvelle
bath tissue with enhanced attributes and is consolidating its other
consumer branded products.

Expanding into New International Markets. The Company also believes
that significant opportunities may exist for additional growth by
applying its low cost producer technology to international markets
outside of the United Kingdom. The Company is exploring new international
markets in Asia and Latin America whose size, competitive profile and end
use tendencies will allow it to capitalize on its proprietary de-inking
technologies and its experience in the United Kingdom.

Improving Financial Flexibility. The Company has undertaken the
Recapitalization to improve its operating and financial flexibility by
reducing the level and overall cost of its debt, extending maturities of
indebtedness, increasing shareholders' equity and enhancing its access to
capital markets. In addition, as a result of the Recapitalization, the
Company believes that it will be able to execute better its strategy and
take advantage of growth opportunities.

The Company's current plans to support growth in domestic tissue shipments
include, subject to market conditions and the successful completion of the
Recapitalization, adding one world-class (270-inch) tissue paper machine over
the next five years. Any such expansion would only be undertaken after a careful
evaluation of industry capacity conditions in 1995 and 1996. The Company
believes that this rate of expansion will contribute to improved long-term
tissue industry operating conditions.

DOMESTIC TISSUE OPERATIONS

Fort Howard produces its domestic tissue products at three facilities: its
original facility in Green Bay, Wisconsin; its Muskogee, Oklahoma mill
constructed as a greenfield site which commenced papermaking production in 1978;
and its greenfield mill near Savannah, Georgia which commenced production in
1987. Each of these facilities is a world-class, fully integrated tissue mill
that can de-ink and process fiber from low cost wastepaper to provide virtually
all of the mill's tissue fiber. In addition, each mill contains at least two
270-inch tissue paper machines, is geographically located to minimize
distribution costs to its regional markets, produces all its steam and
electrical power, manufactures some of the chemicals used in whitening tissue
fiber and some of its converting materials, and converts, prints and packages
Fort Howard's tissue products.

Fort Howard has installed eight of the eleven largest (270-inch) tissue
paper machines in the world which provide long-term productivity advantages.
Approximately 90% of Fort Howard's domestic production comes from tissue paper
machines capable of making 50,000 tons or more annually, whereas the Company
believes that approximately one-quarter of competitors' production comes from
machines with a capacity of 50,000 tons or more. Approximately 50% of Fort
Howard's papermaking capacity came on-line during the last 10 years, while the
Company believes that approximately three-quarters of competitors' tissue paper
machines in the U.S. were built over 10 years ago, with approximately one-third
over 30 years old. Because tissue paper machines are often operated for over 50
years, the Company believes that its new large machines offer a long-term
competitive advantage. In addition,

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with each new capacity expansion, Fort Howard installed new, world-class
supporting equipment consisting of large scale wastepaper processing and
cleaning systems and converting equipment that provide further productivity
advantages.

Facilities. In Green Bay, Wisconsin, the Company operates nine tissue paper
machines, including two world-class 270-inch tissue paper machines completed in
1984 and 1992. In addition, the Green Bay mill contains two dry form machines
which commenced operation in 1978 and 1989. Although the Green Bay mill is the
Company's original facility, having commenced production in 1920, it is well
maintained, includes virtually all of Fort Howard's latest technologies and
equipment and is cost competitive with the Company's newer facilities. The
Company's Muskogee, Oklahoma mill contains a new 270-inch tissue paper machine
which was added during the first quarter of 1994, and another 270-inch and three
200-inch tissue paper machines which were installed between 1978 and 1985. Fort
Howard's greenfield mill located near Savannah, Georgia contains four 270-inch
tissue paper machines that commenced production in 1987, 1988, 1989 and 1991.

Each of the Company's mills also includes a coal-fired cogeneration power
plant capable of producing all of the mill's steam and electricity, a modern
de-inking and pulp processing plant that processes virtually all of the mill's
fiber requirements from wastepaper, a chemical plant that produces high volume
chemicals used in whitening fibers, high speed converting equipment for cutting,
folding, printing and packaging paper into the Company's finished products and
related facilities and warehousing. The Muskogee mill also includes a polywrap
manufacturing plant that processes approximately one-half of the polywrap
required by the Company's domestic mills and the Green Bay mill includes a large
machine shop that services all the Company's domestic mills.

Wastepaper. Fort Howard has led the industry in developing sanitary tissue
paper products from recycled wastepaper. Fort Howard uses 100% wastepaper for
all but a limited number of dry form and specialty products representing
approximately 3% of its volume. Currently, Fort Howard recycles over 1.3 million
tons of wastepaper annually into tissue products--about four times as much as
any other U.S. tissue company. The Company believes that its use of wastepaper
for substantially all of its fiber requirements gives it a cost advantage over
its competitors.

The Company has developed the largest network for obtaining de-inking grades
of wastepaper in the domestic tissue industry. A large portion of its wastepaper
requirements is sourced through Harmon Associates Corp. ("Harmon"), the
Company's 100% owned wastepaper brokerage subsidiary. The remainder of the
Company's wastepaper requirements are sourced through an in-house wastepaper
purchasing group. As a wastepaper broker, Harmon can accept the total wastepaper
generation from a supplier whether or not all the wastepaper is needed to meet
Fort Howard's production requirements. This ability effectively increases the
sources of supply to Fort Howard. In addition, Harmon's activities in export
markets, as well as in grades not usually purchased by Fort Howard, provide the
Company with valuable intelligence on trends in the worldwide wastepaper market.
The Company also maintains innovative curbside collection programs with several
municipalities and enters into contracts with large office complexes to
effectively increase its sources of wastepaper supply.

Energy. Each of the Company's mills includes a coal-fired cogeneration plant
for the production of all its steam, which Fort Howard uses both in
manufacturing tissue and in generating virtually all its electricity. The
Company believes that its energy cost is significantly lower than the cost of
energy available to it from public utilities. In recent years, the Company has
installed fluidized bed boilers to burn lower cost coal and petroleum coke
efficiently and in conformity with environmental standards.

Chemical, Printing and Packaging. The Company operates chemical plants at
all three mills to produce some of the whitening agents used in high volumes in
processing fiber. The Muskogee mill also operates a plant to process resin into
polywrap to supply much of the Company's polywrap needs. The Company's own
artists and graphic designers create the many and varied colored print designs
for certain of Fort Howard's tissue products. In addition, all the cores and a
large percentage of the labels and boxes used in packaging tissue products are
manufactured at each mill using Company manufactured or purchased paper and
chipboard.

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Distribution. The Company has geographically sited its tissue mills to serve
its largest regional markets in the Midwest, Northeast and Southeast which
permits it to ship its products at a low cost. The Company maintains a small
number of distribution points enabling it to ship full truckloads of its broad
product line at a low cost. The Company uses independent haulers to transport
most of its shipments. The Company seeks to maximize the productivity of its
haulers by applying a "round trip" transport concept for shipping finished goods
out and hauling wastepaper back. The Company's own truck fleet is used to
minimize truckload carrying costs to select markets and to handle "rush"
shipments to meet customer requirements.

Capital Expenditures. The Company has invested heavily in its manufacturing
operations. Capital expenditures in the Company's tissue business were
approximately $741 million for the five year period ended December 31, 1993,
over $550 million of which was incurred for capacity expansion projects. In
addition, the Company's annual capital spending program includes significant
investments for the ongoing modernization of each of its mills. For example, as
new de-inking technologies and converting equipment are developed, the Company
adds such technology and equipment at each mill to maintain low cost structures.

A significant portion of the Company's capital budget since 1985 has been
invested in the Savannah mill, which was completed in 1991. Total expenditures
for the Savannah mill were $570 million. In 1993, the Company completed an
expansion of its Green Bay tissue mill, including the addition of a new tissue
paper machine and related environmental protection, pulp processing, converting,
and steam generation equipment. The new tissue paper machine at the Green Bay
mill commenced production in August 1992. Total expenditures for the expansion
project were $180 million. In 1994, the Company completed the installation of a
fifth tissue paper machine, environmental protection equipment and associated
facilitates at its Muskogee tissue mill. Total expenditures for the expansion
were approximately $140 million.

Research and Development. The Company maintains laboratory facilities with a
permanent staff of engineers, scientists and technicians who are responsible for
improving existing products, development of new products and processes, product
quality, process control and providing technical assistance in adhering to
regulatory standards. Continuing emphasis is being placed upon expanding the
Company's capability to de-ink a broader range of wastepaper grades, designing
new products, further automating manufacturing operations and developing
improved manufacturing and environmental processes.

Engineering and Maintenance. The Company's internal engineering staff
provides the engineering expertise to assist in the designing, constructing,
upgrading and maintenance of the Company's tissue mills. The Company's
engineering staff has managed the start-up of eight of the world's largest
tissue paper machines since 1984, and has designed many vital components of the
tissue paper machines, wastepaper processing systems and converting equipment
related to these expansions. In addition, the Company's engineers have designed
key wastepaper processing and converting equipment which is manufactured in the
Company's Green Bay machine shop. The Company's maintenance program at each of
its domestic mills emphasizes preventive maintenance to minimize production
stoppages.

Products

Commercial Products. Fort Howard's commercial tissue products include folded
and roll towels, bath and facial tissue, bulk and dispenser napkins, disposable
wipers, specialty printed merchandise and dispensers. Because commercial market
manufacturers offer similar product attributes to this value conscious market,
competition principally involves value pricing and service. Management believes
that Fort Howard's commitment to quality and service and its competitive pricing
strategy afforded by its low cost producer status have provided the foundation
for the continuation of its leading commercial market share of approximately
26%.

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The Company constantly strives to grow in new or underdeveloped subsegments
of its commercial products business. With the Envision line, made from 100%
recycled paper, Fort Howard was the first company to position a line of tissue
paper products as made from recycled paper that meet or exceed U.S.
Environmental Protection Agency ("U.S. EPA") guidelines for post-consumer
wastepaper ("PCW") content of 5% to 40%. The Company believes Envision is the
market leader in the rapidly growing environmental segment of the commercial
market. Utilizing its advanced de-inking technology, Fort Howard set the
standard dramatically higher for PCW content in commercial products by
increasing the minimum PCW content of its Envision line to 90% or higher and by
commissioning an outside audit of its internal controls which are maintained to
assure that Envision manufacturing processes yield the stated minimum PCW
content.

In addition, the Company also produces parent rolls for sale to converters
in international markets, including Latin America and the Middle East.

Specialty Dry Form Products. In another growing product area, dry form
products (used to make baby wet wipes and a key component in feminine hygiene
products), the Company believes it is the largest domestic producer and one of
only 13 manufacturers in the world. Dry form production is a process that
converts soft, randomly laid fibers made from wood pulp into a sturdy and
absorbent pulp web using air instead of water to transfer the pulp. Synthetic
bonding agents are then sprayed on the pulp web, creating a sheet of fabric-like
paper. Dry form is principally sold in parent roll form to meet rigorous
specifications for large consumer product companies which convert it into their
branded products. The Company believes that it is the leading marketer of dry
form to companies in the domestic private label baby wipe market. The growth
rate for this business to date has exceeded the growth rate of the tissue
industry as a whole. In addition, the Company converts dry form paper into
premium wipers and dinner napkins for the commercial market.

Consumer Products. Fort Howard's consumer product growth strategy has
targeted the branded value and private label segments of the market, where the
Company enjoys a competitive advantage as a low cost producer. Management
believes that these segments will continue to grow as consumers become more
price conscious.

The Company's value branded products such as Mardi Gras, Soft 'N Gentle and
Green Forest offer a high level of softness, absorbency and brightness at
substantial price savings. The appeal of Mardi Gras napkins and paper towels is
enhanced by their multi-color prints with changing patterns and special seasonal
designs. The attractiveness of the Mardi Gras designs and its value positioning
have enabled the Company to increase the Mardi Gras napkin market share to
approximately 14% in 1994, giving the Company the leading consumer napkin share.

Soft 'N Gentle bath tissue is the Company's largest selling consumer brand.
Soft 'N Gentle bath tissue is a quality product that targets retail pricing at
20-25% below premium tissue products. The Company introduced the Green Forest
line of bath tissue, paper towels and napkins in 1990 on the 20th anniversary of
Earth Day. Environmentally oriented consumers have made the Green Forest line
the leading brand in the environmentally positioned segment.

The Company's Page bath tissue, paper towels and napkins and So-Dri paper
towels are targeted to the more price conscious shopper in the economy segment
of the consumer market. The retail prices of these products are typically
targeted at 25-30% below the premium brands.

Fort Howard is the leading tissue producer in the growing consumer private
label business with an estimated one-third market share in 1994. Many national
grocery chains have focused on the development of private label tissue products
to support the positioning of the chain with their shoppers as well as to
enhance margins. Since 1984, Fort Howard's private label business has tripled
and in 1994 represented approximately one-third of Fort Howard's consumer tissue
sales. Typically offered on a limited supplier basis, private label products
enable the Company to form close relationships with many of the nation's fastest
growing, leading grocery chains and mass merchandisers and afford opportunities
for Fort Howard's branded products with these same customers. The Company
believes that its ability

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to position branded and private label tissue products with the same grocer or
mass merchandiser is a major competitive advantage, as no other major competitor
emphasizes, to the same extent as Fort Howard, both branded and private label
tissue products.

Marketing

Approximately two-thirds of the Company's products are sold through paper,
institutional food and janitorial distributors into the commercial market, with
the balance being principally sold through brokers to major food store chains,
wholesale grocers and mass merchandisers for household (or "consumer") use.
These products are produced in a broad range of weights, textures, sizes, colors
and package configurations providing Fort Howard with distinct advantages as a
full-line manufacturer. The Company also creates and prints logos, commercial
messages and artistic designs on paper napkins and place mats for commercial
customers and party goods and specialty print merchandisers. Most products are
sold under Company-owned brand names, with an increasing percentage of products
being sold under private labels. In the commercial segment the Company sells its
products primarily under the Fort Howard name. Principal brand names of consumer
products include Soft 'N Gentle, Mardi Gras, Green Forest, So-Dri and Page.

Commercial Market. Fort Howard's commercial sales force of over 200 salaried
representatives combines broad geographical reach and frequency of contact with
the Company's major commercial customers, including large distributors, national
accounts and club warehouses. Because the commercial sales force is dedicated to
the sale of the Company's commercial tissue products, the Company's sales
representatives are able to devote substantial time to developing end user
demand, an important selling point for the Company's distributors.

The Company is forging a growing number of strategic alliances with
customers. The Company believes Fort Howard offers customers a number of
important competitive advantages, including: (i) a profitable market growth
strategy; (ii) a broad line of tissue paper products that permits distributors
to limit the number of suppliers they use, increase inventory turns and profits,
and reduce warehouse requirements and (iii) significant end user demand that
makes Fort Howard an attractive product line.

The continued development of the Company's national accounts business in the
foodservice, health care, lodging, buildings and industrial subsegments of the
commercial market has been an important factor in growing the Company's leading
commercial market share. The Company's national accounts sales team focuses on
meeting the special requirements of these large customers who prefer to
negotiate purchases directly with the Company. Such requirements include, for
example, strict sanitary production requirements, the ability to service
locations nationwide, EDI capabilities and superior on-time and complete order
shipping performance. Certain of these customers, particularly the large,
environmentally conscious fast food or other national chains, increasingly
require the ability to offer 100% recycled paper products.

The Company's newly organized club warehouse sales and marketing team
focuses on the special requirements of these customers, including unique product
specifications, packaging sizes and design, palletized distribution, EDI
capabilities, the ability to service locations nationwide, superior on-time and
complete order shipping performance and the ability to grow rapidly to support
new warehouse openings.

Consumer Market. Sales of the Company's consumer products are principally
made through a nationwide network of independent food brokers. Regional sales
managers focus on sustaining close relationships with brokers and retailers by
emphasizing Fort Howard's historic strengths--value, competitive pricing and
enhanced margins for retailers. The Company's national accounts sales force
focuses on mass merchandisers and on implementing their "everyday low pricing"
strategies. The private label sales team deals with both national accounts and
food brokers and their customers. In contrast to tissue producers who emphasize
marketing of their consumer products through advertising and promotion to the
end consumer, Fort Howard incurs minimal advertising expense. Rather, the

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Company focuses its marketing efforts for consumer products on trade promotion
and incentive programs targeted to grocery and mass merchandising retailers.

INTERNATIONAL TISSUE OPERATIONS

When it was acquired by Fort Howard in 1982, Fort Sterling was an
independent recycler of wastepaper into sanitary tissue paper products sold
principally under private labels into the consumer market. Since 1982, Fort
Sterling has funded significant investments in recycling and other process
technologies and equipment through strong cash flow from operations and
borrowings, doubled its U.K. market share, introduced premium quality Nouvelle
tissue paper products produced from 100% wastepaper to the United Kingdom
consumer market, expanded into the commercial market and developed a strong
local management team and workforce. Today, Fort Sterling is one of the four
fully integrated tissue companies in the United Kingdom. For an analysis of net
sales, operating income (loss) and identifiable operating assets in the United
States and the U.K., see Note 16 to the audited consolidated financial
statements included elsewhere in this Prospectus.

Facilities. Fort Sterling currently operates three tissue paper machines and
a de-inking and wastepaper processing plant at its Ramsbottom paper mill and
cuts, folds, prints and packages paper into finished tissue products at its
Bolton and Wigan converting facilities, all of which are located in Greater
Manchester, England.

In recent years, Fort Sterling has increased its capital spending to expand
significantly the productive capacity of its two older tissue paper machines and
to improve the capacity and productivity of its converting operations. In 1993,
Fort Sterling completed a $96 million expansion which doubled the capacity of
its paper mill. The expansion project added a 206-inch tissue paper machine and
related de-inking and pulp processing plants. In September 1992, Fort Sterling
acquired Stuart Edgar, a converter of consumer tissue products. The acquisition
significantly increased Fort Sterling's converting capacity at a low capital
cost and provided Fort Sterling with a modern converting plant.

Fort Sterling's expansion provided an opportunity for significant market
share growth. Since 1984, Fort Sterling's converted volume has increased at a
compound annual growth rate of 9.2% per year. The additional tissue paper
machine capacity and de-inking technologies have enabled Fort Sterling to
significantly reduce its manufacturing costs. In addition, the Company believes
that these improvements should better position Fort Sterling to take advantage
of rising market prices if industry operating rates continue to improve and the
U.K. economy continues to recover.

Products

Consumer Products. Unlike the Company's domestic tissue operations, Fort
Sterling's primary thrust has been in the larger consumer segment of the United
Kingdom tissue market where over 85% of its sales are targeted. In a market
where private label represents slightly less than half of all tissue sales, the
Company believes that Fort Sterling maintains a leading share of the consumer
private label market, with a market share in 1994 of approximately %.
Approximately two-thirds of Fort Sterling's consumer business in 1994 was sold
under private labels to large grocers and convenience stores. Fort Sterling's
principal brand is its Nouvelle line of tissue paper products. The Nouvelle line
was positioned at its introduction in 1990 as 100% recycled with the product
attributes approaching those of the leading United Kingdom premium brands.

Commercial Products. Fort Sterling's commercial market volume in the United
Kingdom has grown from less than 1% of the U.K. commercial market upon its
acquisition in 1982 to 5% in 1994, and management intends to use its expanded
capacity to increase its position in the commercial market.

Marketing

Fort Sterling maintains a direct sales force serving large and independent
grocers and mass merchandisers in the consumer market. Fort Sterling has a
commercial sales force which markets the Company's products via a network of
independent distributors. A separate national accounts sales team targets
commercial foodservice, health care and national industrial accounts.

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PATENTS, LICENSES, TRADEMARKS AND TRADE NAMES

While the Company owns or is a licensee of a number of patents, its
operations and products are not materially dependent on any patent. The Company
relies on trade secret protection for its proprietary de-inking technology which
is not covered by patent. The Company's domestic tissue products for at-home use
are sold under the principal brand names Soft 'N Gentle, Mardi Gras, Green
Forest, So-Dri and Page. For the Company's domestic commercial tissue business,
principal brand names include Envision and Generation II. All brand names are
registered trademarks of the Company. A portion of the Company's tissue products
are sold under private labels or brand names owned by customers.

QUALITY MANAGEMENT

In 1989, the Company commenced a program to educate and train all employees
at its three domestic mills in the principles of "Total Quality" and to adopt
total quality principles. Employees at all levels of the Company are encouraged
to understand customer and supplier requirements, measure performance, develop
systems and procedures to prevent nonconformance with requirements and produce
continuous improvement in all work processes. Since the introduction of the
program, the Company has reduced its lead times, improved on-time and complete
order shipping performance, delivered improved adherence to key product
specifications and fostered and implemented improvement opportunity ideas from
employees that have yielded significant annual cost savings. Most recently, in
May 1994, the Company's Savannah mill became the first domestic recycled tissue
mill to obtain ISO-9002 certification, an achievement recognizing the Company's
commitment to Total Quality. The Company's other two domestic mills will seek
certification in 1995. Fort Sterling achieved similar certification, BS5750, in
1991.

RAW MATERIALS AND ENERGY SOURCES

The principal raw materials and supplies used to manufacture tissue products
are wastepaper (which is processed to reclaim fiber), chemicals, corrugated
shipping cases and packaging materials. Raw material costs are approximately
one-third of the Company's total costs. Virtually all of the Company's tissue
products are made with 100% recycled fiber derived from wastepaper. The
de-inking technology employed by the Company allows it to use a broad range of
wastepaper grades, which effectively increases both the number of sources and
the quantity of wastepaper available for its manufacturing process. The Company
manufactures some of the process chemicals required for the Company's tissue
production at each of its domestic mill locations. The balance of its chemical
requirements is purchased from outside sources. The Company also purchases
significant quantities of coal for generation of electrical power and steam at
all three of its domestic tissue mills. The Company seeks to maintain
inventories of wastepaper, other raw materials and supplies which are adequate
to meet its anticipated manufacturing needs.

The Company's major sources of energy for its domestic tissue mills are coal
and other fuels which are burned to produce the heat necessary to dry paper,
process wastepaper, provide steam and produce virtually all the electric power
at those mills. Coal is received in Green Bay in self-unloading vessels during
the Great Lakes shipping season and at the Muskogee and Savannah mills by truck
and rail. The Company maintains inventories of coal and other fuels at all
mills. The Savannah mill can also generate electrical power by burning natural
gas in combustion turbines. The primary sources of energy for the Company's
United Kingdom tissue facilities are purchased electrical power and natural gas.

CUSTOMERS AND BACKLOG

The Company principally markets its products to customers in the United
States and, to a lesser extent, the United Kingdom, Mexico, Canada and the
Middle East. The business of the Company is not dependent on a single customer.
Currently, a substantial portion of the Company's sales are pursuant to
contracts which generally specify pricing over periods of six months to one
year.

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The Company's products are manufactured with relatively short production
time from basic materials. Products marketed under the Company's trademarks and
stock items are sold from inventory. The backlog of customer orders is not
significant in relation to sales.

COMPETITION

All the markets in which the Company sells its products are extremely
competitive. The Company's tissue products compete directly with those of a
number of large diversified paper companies, including Chesapeake Corporation,
Georgia-Pacific Corporation, James River Corporation of Virginia, Kimberly-Clark
Corporation, Pope & Talbot, Inc., Scott Paper Company and The Procter & Gamble
Company, as well as regional manufacturers, including converters of tissue into
finished products who buy tissue directly from tissue mills. Many of the
Company's competitors are larger and more strongly capitalized than the Company
which may enable them to better withstand periods of declining prices and
adverse operating conditions in the tissue industry. Although customers
generally take into account price, quality, distribution and service as factors
when considering the purchase of products from the Company, over the last four
years, price has become a more important competitive factor affecting tissue
producers.

PROPERTIES

Except for certain facilities and equipment constructed or acquired in
connection with sale and leaseback transactions pursuant to which the Company
continues to possess and operate such facilities and equipment, substantially
all the Company's manufacturing facilities and equipment are owned in fee. The
Company's domestic and United Kingdom tissue manufacturing facilities are
pledged as collateral under the terms of the Company's debt agreements. See Note
8 to the audited consolidated financial statements included elsewhere in this
Prospectus.

The Green Bay, Muskogee, Savannah, and United Kingdom facilities generally
operate tissue paper machines at full capacity seven days per week, except for
downtime for routine maintenance and the temporary shut-downs of one or two
small tissue paper machines at the Green Bay mill. Converting facilities are
generally operated on a 3-shift, 5-day per week basis or a 7-day per week
schedule. Converting capacity could be expanded by working additional hours
and/or adding converting equipment.

EMPLOYEES

At September 30, 1994, the Company's world-wide employment was approximately
6,800, of which 5,800 persons were employed in the United States and 1,000
persons were employed in the United Kingdom. There is no union representation at
any of the Company's domestic facilities. The Company's employees at its
facilities in the United Kingdom are unionized and the union contracts generally
require annual renegotiation of employee wage awards. The Company considers its
relationship with its employees to be good.

ENVIRONMENTAL MATTERS

The Company is subject to substantial regulation by various federal, state
and local authorities in the U.S., and by national and local authorities in the
U.K. concerned with the impact of the environment on human health, the
limitation and control of emissions and discharges to the air and waters, the
quality of ambient air and bodies of water and the handling, use and disposal of
specified substances and solid waste at, among other locations, the Company's
process waste landfills.

Compliance with existing laws and regulations presently requires the Company
to incur substantial capital expenditures and operating costs. In addition,
environmental legislation and regulations and the interpretation and enforcement
thereof are expected to become increasingly stringent and to further limit
emission and discharge levels and to expand the scope of regulation. As a
result, it is likely that certain of the Company's operating expenses will
increase and that the Company will be required to make additional capital
expenditures. In addition, the operating flexibility of the Company's
manufacturing operations is likely to be adversely impacted. Because other paper
manufacturers are generally

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subject to similar environmental restrictions, the Company believes that
compliance with environmental laws and regulations is not likely to have a
material adverse effect on its competitive position. It is possible, however,
that such compliance could have a material adverse effect on the Company's
financial condition and results of operations at some point in the future.

In 1993, the Company made capital expenditures of $13.2 million with respect
to pollution abatement and environmental compliance. Included in the 1993
capital expenditures was $11.1 million for pollution abatement equipment in
connection with mill expansions in Green Bay, Wisconsin; Muskogee, Oklahoma;
Savannah, Georgia and the United Kingdom. The Company expects to commit to
approximately $18.2 million of capital expenditures to maintain compliance with
environmental control standards at its facilities during 1994 and 1995. Included
in the 1994-1995 expected expenditures is $5.2 million for pollution abatement
equipment in connection with completing expansion projects initiated in 1993 and
prior years. Although some pollution abatement and solid waste disposal
facilities produce improvements in operating efficiency, most increase product
costs without enhancing capacity or operating efficiency. Because the impact of
new environmental laws and regulations and the implementation and enforcement of
existing laws and regulations cannot be determined with certainty at this time,
it is possible that there will be additional capital expenditures during these
years, including but not limited to those described below.

The U.S. EPA has proposed guidance for basin-wide water quality standards
pursuant to the Great Lakes Water Quality Agreement between the U.S. and Canada
regarding the development of water quality standards for the Great Lakes and
their tributaries. This guidance is required by Court order to be issued in
final form by March of 1995, with a two-year period to follow in which the
affected states will be required to utilize the guidance to implement specific
regulations. Dischargers would then have an additional period of up to three
years in which to comply with such regulations. Many manufacturers, municipal
wastewater treatment authorities and others believe that the present terms of
the guidance are unnecessarily complex, burdensome and environmentally
unjustified. Whether the U.S. EPA will revise the proposed guidance in response
to those concerns, however, cannot be determined at this time.

The guidance, as currently drafted and if not modified, would impose
limitations on the Company's wastewater discharge from its Green Bay mill into
the Fox River that as a practical matter would prohibit the Company from
discharging any wastewater into the Fox River. The Company is exploring
alternative technologies to enable it to discontinue all wastewater discharge to
the Fox River, if required, and presently estimates cumulative capital
expenditures of approximately $65 million (which includes $20 million of
currently planned capital expenditures) over a several year period would be
required to discontinue wastewater discharge to the Fox River. The costs to
attain compliance with the guidance as proposed could vary depending upon
several factors, including, among others: (i) the ultimate form of the final
guidance, which could vary from the proposed guidance; (ii) the form and
substance of state laws or regulations implementing the final guidance; (iii)
delays or changes resulting from potential administrative and judicial
challenges to the guidance which might be filed and (iv) new developments in
control and process technology.

The U.S. EPA has proposed new air emission and revised wastewater discharge
standards for the pulp and paper industry which are commonly known as the
"Cluster Rules." The components of the Cluster Rules that deal with wastewater
discharges are expected to be finalized by late 1995 or early 1996. If the final
rules on wastewater discharges are substantially the same as the proposed rules,
the Company estimates that it will incur additional aggregate capital
expenditures of approximately $1.2 million.

Components of the currently proposed Cluster Rules that address air
emissions will have little impact on de-inking paper mills such as the Company's
mills. However, additional installments of the Cluster Rules, expected to be
proposed during 1996 with expected compliance deadlines as late as the year
2000, are expected to specifically address chloroform and other air emissions
from de-inking mills and likely will have a greater impact on the Company. The
Company is presently unable to estimate

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that impact since the applicable rules have not been proposed and therefore no
assurances can be given as to whether the impact will be material to the
Company.

The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or to the legality of the
original action, on certain classes of persons (referred to as potentially
responsible parties or PRPs) associated with a release or threat of a release of
hazardous substance into the environment. Financial responsibility for the
clean-up or other remediation of contaminated property or for natural resource
liability can extend to previously owned or used properties, waterways and
properties owned by third parties, as well as to properties currently owned and
used by the Company even if contamination is attributable entirely to prior
owners. The Company is involved in a voluntary investigation and potential
clean-up of the Lower Fox River and has been named a PRP for natural resource
damages at the Fox River, both of which are discussed in "Legal Proceedings"
below. Except for the United States Department of Interior, Fish and Wildlife
Service ("FWS") assessment of the Fox River discussed below, the Company is not
presently named as a PRP at any CERCLA-related sites. However, there can be no
certainty that the Company will not be named as a PRP at any other sites in the
future or that the costs associated with additional sites would not be material
to the Company's financial condition or results of operations.

LEGAL PROCEEDINGS

The Company and its subsidiaries are parties to lawsuits and state and
federal administrative proceedings in connection with their businesses. Although
the final results in such suits and proceedings cannot be predicted with
certainty, the Company presently believes that, aside from what is discussed
below, such suits and proceedings will not have a material adverse effect on the
Company's financial condition or results of operations.

Since July 1992, the Company has been participating with a coalition
consisting of industry, local government, state regulatory commission and public
interest members studying the nature and extent of PCB (polychlorinated
biphenyl) and other sediment contamination of the Lower Fox River in northeast
Wisconsin. The objective of the coalition is to identify, recommend and
implement cost effective remediation of contaminated deposits which can be
implemented on a voluntary basis. One of the industry coalition members, in
cooperation with the Wisconsin Department of National Resources, is in the
process of undertaking a demonstration of river remediation techniques on the
Lower Fox River to remediate one sediment deposit located approximately 35 miles
upstream from the Company's Green Bay, Wisconsin mill.

The Company's participation in the studies undertaken by the coalition is
voluntary and its contributions to funding those activities, to date, have not
been significant. Based upon presently available information, the Company
believes that there are additional parties, some of which may have substantial
resources, who may in the future contribute to the remediation effort. Because
the methods to be employed and the remediation standards to be achieved to
remediate the Lower Fox River sediment contamination have not been determined
and because the number of additional parties and their resources at the time
remediation is undertaken has not been determined, the Company cannot estimate
its ultimate share of the liability arising out of this matter, and it cannot
conclude that its share would not be material.

On June 20, 1994, the FWS, a federal natural resources trustee, informed the
Company that it had identified the Company and four other companies with
facilities located along the Lower Fox River as PRPs for purposes of natural
resource liability under CERCLA, commonly known as the "Superfund Act," and the
Federal Water Pollution Control Act arising from alleged releases of PCBs to the
Fox River and Green Bay system. The FWS alleges that natural resources including
endangered species, fish, birds and tribal lands or lands held by the United
States in trust for various tribes have been exposed to PCBs that were released
from facilities located along the Fox River. The FWS has stated that it intends
to undertake an assessment to determine and quantify the nature and extent of
injury to natural resources. The FWS has invited the Company and the other four
companies to participate in the development of the type and scope of the
assessment and in the performance of the assessment, pursuant

53
<PAGE>
to federal regulations. It is anticipated that any assessment would require
considerable time to complete. Given the preliminary nature of this action and
the absence of any factual analysis, it is not possible at this time to estimate
the Company's potential liability on this matter, but it cannot conclude that
such liability would not be material.

On July 15, 1992, Region V of the U.S. EPA issued a Finding of Violation to
the Company concerning the No. 8 boiler at its Green Bay, Wisconsin mill. The
Finding alleged violation of regulations issued by the U.S. EPA under the Clean
Air Act relating to New Source Performance Standards for Fossil Fuel Fired Steam
Generators. In response to an accompanying Request for Information, the Company
furnished certain information concerning the operation of the boiler. The
Company met with representatives of the U.S. EPA in August 1992 and February
1993 to discuss the alleged violations. On January 11, 1994, the U.S. EPA
informally advised the Company that, due to its internal guidelines that limit
the authority of the agency to administratively resolve matters that include
alleged violations extending over a period of more than one year, disposition of
the Finding of Violation was being transferred to the U.S. Department of
Justice. The Company met with representatives of the U.S. EPA and the U.S.
Department of Justice in September 1994. On October 5, 1994, the Company and the
U.S. EPA, with concurrence from the U.S. Department of Justice, reached an
agreement in principle whereby the Company, without admitting any wrongdoing,
has agreed to make certain modifications to the boiler which will limit its
physical capacity to the level specified in the alleged relevant New Source
Performance Standards. The physical modifications, which require expenditures of
approximately $40,000, will not affect the utility of the No. 8 boiler. In
addition, the Company has agreed to pay $350,000 to settle this matter.

In 1992, the IRS issued a statutory notice of deficiency (the "Notice") to
the Company for additional income tax due for the 1988 tax year. In the Notice,
the IRS disallowed deductions for its 1988 tax year for fees and expenses, other
than interest, related to the 1988 debt financing and refinancing transactions.
In disallowing these deductions, the IRS relied on Code Section 162(k) (which
denies deductions for otherwise deductible amounts paid or incurred in
connection with stock redemptions). The Company had deducted a portion of the
disallowed fees and expenses in 1988 and has been deducting the balance of the
fees and expenses over the terms of the 1988 long-term debt financing and
refinancing. Following receipt of the Notice, the Company filed a petition in
the U.S. Tax Court contesting the deficiency. In August 1994, the U.S. Tax Court
issued its opinion in which it essentially adopted the interpretation of Code
Section 162(k) advanced by the IRS and disallowed the deductions claimed by the
Company. At present, the U.S. Tax Court is preparing an order in which it will
determine the amount of the tax deficiency owed by the Company as a result of
the court's decision. The Company intends to appeal the U.S. Tax Court decision
to the U.S. Court of Appeals for the Seventh Circuit. If the decision of the
U.S. Tax Court is ultimately sustained, the Company estimates that the potential
amount of additional taxes due on account of such disallowance for the period
1988 through 1994 would be approximately $39 million and for the period after
1994 (assuming current statutory tax rates) would be approximately $4 million,
in each case exclusive of interest. In anticipation of its appeal, the Company
has paid to the IRS additional tax of approximately $5 million potentially due
for its 1988 tax year pursuant to the U.S. Tax Court opinion along with $4
million for the interest accrued on such additional taxes. While the Company is
unable to predict the final result of its appeal of the U.S. Tax Court decision
with certainty, it has accrued for the potential tax liability as well as for
the interest charges thereon for the period 1988 through 1994 and thus the
Company believes that the ultimate resolution of this case will not have a
material adverse effect on the Company's financial condition or on its results
of operations.

54
<PAGE>
MANAGEMENT

DIRECTORS OF THE COMPANY

The following table provides certain information about each of the current
directors of the Company as of September 30, 1994.

Within months following completion of the Offering, the Company will
appoint at least two independent directors to the Board of Directors who are not
employees of the Company or Morgan Stanley Group and its affiliates. Upon
consummation of the Offering, the Company's Board of Directors will be divided
into three classes of directors serving staggered three-year terms. The terms of
office of Messrs. , and expire in 199 , Messrs.
, and expire in 199 and Messrs. , ,
and in 199 . See "Description of Capital Stock--Restated Certificate of
Incorporation and By-laws."

<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER
WITH THE COMPANY AGE DIRECTORSHIPS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Donald H. DeMeuse......................... 58 Chairman of the Board of Directors and
Chairman of the Board Chief Executive Officer since March
1992; President and Chief Executive
Officer from July 1990 to March 1992.
Prior to March 1992, President for more
than five years. Director of Associated
Bank Green Bay.
Kathleen J. Hempel........................ 44 Vice Chairman and Chief Financial Officer
Vice Chairman since March 1992; Senior Executive Vice
President and Chief Financial Officer
prior to that time. Director of
Whirlpool Corporation.
Michael T. Riordan........................ 44 President and Chief Operating Officer
Director since March 1992; Vice President prior to
that time.
Donald P. Brennan......................... 53 Managing Director of MS&Co since prior to
Director 1988 and head of MS&Co's Merchant
Banking Division. Chairman and President
of Morgan Stanley Leveraged Equity Fund
II, Inc. ("MSLEF II, Inc.") and Chairman
of Morgan Stanley Capital Partners III,
Inc. ("MSCP III"). Director of A/S
Bulkhandling, Container Corporation of
America, Hamilton Services Limited,
Jefferson Smurfit Corporation, Jefferson
Smurfit Corporation (U.S.), PSF Finance
Holdings, Inc., Stanklav Holdings, Inc.,
Waterford Wedgwood plc (Deputy Chairman)
and Waterford Wedgwood U.K. plc.
Robert H. Niehaus......................... 39 Managing Director of MS&Co since 1990;
Director Principal of MS&Co prior to that time.
Vice President and Director of MSLEF II,
Inc. and Vice Chairman of MSCP III.
Director of American Italian Pasta
Company, PSF Finance Holdings, Inc.,
Randall's Food Markets, Inc., Silgan
Corporation, Silgan Holdings Inc.,
Waterford Wedgwood U.K. plc (Chairman)
and Waterford Crystal Ltd.
</TABLE>

55
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER
WITH THE COMPANY AGE DIRECTORSHIPS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Frank V. Sica............................. 43 Managing Director of MS&Co since 1988.
Director Vice President and Director of MSLEF II,
Inc. since 1989 and Vice Chairman of
MSCP III. Director of ARM Financial
Group, Inc., Consolidated Hydro, Inc.,
Emmis Broadcasting Corporation,
Integrity Life Insurance Company,
Interstate Natural Gas Company, Kohl's
Corporation, Kohl's Department Stores,
Inc., National Integrity Life Insurance
Company, PageMart, Inc., Southern
Pacific Rail Corporation, Sullivan
Communications, Inc. and Sullivan
Graphics, Inc.
James S. Hoch............................. 34 Principal of MS&Co since February 1993;
Director Vice President of MS&Co from January
1991 to February 1993; Associate of
MS&Co prior to that time. Director of
Silgan Holdings Inc. and Sullivan
Communications, Inc.
</TABLE>

EXECUTIVE OFFICERS OF THE COMPANY

The following table provides certain information about each of the current
executive officers of the Company as of September 30, 1994. All executive
officers are elected by, and serve at the discretion of, the Board of Directors.
None of the executive officers of the Company is related by blood, marriage or
adoption to any other executive officer or director of the Company.

<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER
WITH THE COMPANY AGE DIRECTORSHIPS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Donald H. DeMeuse......................... 58 See description under "--Directors of the
Chairman of the Board and Chief Company."
Executive Officer
Kathleen J. Hempel........................ 44 See description under "--Directors of the
Vice Chairman and Chief Financial Officer Company."
Michael T. Riordan........................ 44 See description under "--Directors of the
President and Chief Operating Officer Company."
Andrew W. Donnelly........................ 52 Executive Vice President for more than
Executive Vice President five years.
John F. Rowley............................ 54 Executive Vice President for more than
Executive Vice President five years.
George F. Hartmann, Jr.................... 51 Vice President for more than five years.
Vice President
R. Michael Lempke......................... 42 Vice President since September 1994;
Vice President and Treasurer Treasurer since November 1989; Assistant
Treasurer prior to that time.
James W. Nellen II........................ 47 Vice President and Secretary for more than
Vice President and Secretary five years.
Daniel J. Platkowski...................... 43 Vice President for more than five years.
Vice President
Timothy G. Reilly......................... 44 Vice President for more than five years.
Vice President
Donald J. Schneider....................... 57 Vice President for more than five years.
Vice President
</TABLE>

56
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER
WITH THE COMPANY AGE DIRECTORSHIPS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Charles L. Szews.......................... 38 Vice President since September 1994;
Vice President and Controller Controller since November 1989; Director
of Financial Reporting prior to that
time.
Charles D. Wilson......................... 49 Vice President since June 1994; Director
Vice President of Government Affairs prior to that time.
David K. Wong............................. 45 Vice President since June 1993; Director
Vice President of Personnel from September 1990 until
June 1993. Director of Recruiting and
Training prior to that time.
David A. Stevens.......................... 45 Assistant Vice President for more than
Assistant Vice President five years.
</TABLE>

COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Board of Directors currently has two committees: an Executive
Committee and an Audit Committee. The Board of Directors intends to appoint a
Compensation Committee.

The Executive Committee is authorized to exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Company, except that it does not have the power or authority to
amend the Company's Certificate of Incorporation or By-laws, adopt an agreement
of merger or consolidation, recommend to the shareholders the sale, lease or
exchange of all or substantially all of the Company's property and assets,
recommend to the shareholders the dissolution of the Company, declare a dividend
or authorize the issuance of shares of stock. The Executive Committee currently
acts as a compensation committee. See "--Compensation Committee Interlocks and
Insider Participation."

The responsibilities of the Audit Committee include: recommending to the
Board of Directors the independent public accountants to be selected to conduct
the annual audit of the accounts of the Company; reviewing the proposed scope of
such audit and approving the audit fees to be paid; and reviewing the adequacy
and effectiveness of the internal auditing, accounting and financial controls of
the Company with the independent public accountants and the Company's financial
and accounting staff. The Audit Committee will be comprised of non-management
directors.

The responsibilities of the Compensation Committee will include
administering the Company's 1995 Stock Incentive Plan. See "--Compensation
Committee Interlocks and Insider Participation."

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

The following table presents information concerning compensation paid for
services to the Company during the last three fiscal years to the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company (the "Named Executive Officers").

57
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER ANNUAL NUMBER OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A) OPTIONS/SARS COMPENSATION(B)
- ------------------------------- ---- -------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. DeMeuse.............. 1993 $653,846 $55,250 $ 4,840 0 $62,742
Chairman and Chief 1992 675,000 55,250 3,831 0 57,480
Executive Officer 1991 525,000 0 3,125 110,500 50,383
Kathleen J. Hempel............. 1993 453,077 38,381 0 0 27,388
Vice Chairman and Chief 1992 456,923 37,400 0 0 27,222
Financial Officer 1991 404,616 0 0 32,500 27,610
Michael T. Riordan............. 1993 302,885 25,500 0 48,750 18,437
President and Chief 1992 248,846 20,171 317 0 15,028
Operating Officer 1991 161,346 0 0 45,500 11,323
Andrew W. Donnelly............. 1993 350,000 29,750 0 0 20,859
Executive Vice President 1992 342,692 28,050 0 0 20,133
1991 293,077 0 0 52,000 19,693
John F. Rowley................. 1993 255,000 21,675 0 0 15,111
Executive Vice President 1992 244,039 19,975 0 0 14,561
1991 210,962 0 0 45,500 14,405
</TABLE>

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

(a) Includes amounts reimbursed for the payment of taxes.

(b) Includes Company contributions to the Company's profit sharing plan,
supplemental retirement plan and Company contributions to the supplemental
retirement plan which were paid to the participant.

The following table presents information concerning individual grants of
stock options made during the last completed fiscal year to each of the Named
Executive Officers.

OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM
- ---------------------------------------------------------------------------------------- ---------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
- ------------------------------ ------------ -------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald H. DeMeuse............. -- -- -- -- -- --
Kathleen J. Hempel............ -- -- -- -- -- --
Michael T. Riordan............ 48,750(a) 49% $ 18.46 4/30/03 $566,005 $1,434,368
Andrew W. Donnelly............ -- -- -- -- -- --
John F. Rowley................ -- -- -- -- -- --
</TABLE>

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

(a) The stock options granted in 1993 to Equity Investors (as defined below
under "--Management Equity Plan"), including the options granted to Mr.
Riordan, were granted pursuant to the Management Equity Plan (as defined
below under "-- Management Equity Plan"). Prior to the Offering, the options
will become fully vested. See "--Management Equity Plan."

58
<PAGE>
The following table presents information concerning unexercised stock
options for the Named Executive Officers. No stock options were exercised by the
Named Executive Officers during 1993.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT DECEMBER 31, IN-THE-MONEY OPTIONS HELD
1993 AT DECEMBER 31, 1993(A)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald H. DeMeuse............................ 483,437 59,800 -- --
Kathleen J. Hempel........................... 555,847 19,500 -- --
Michael T. Riordan........................... 100,158 73,450 -- --
Andrew W. Donnelly........................... 131,527 27,300 -- --
John F. Rowley............................... 93,223 24,700 -- --
</TABLE>

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

(a) Prior to the Offering, the Common Stock was not registered or publicly
traded and, therefore, a public market price for the Common Stock was not
available. The Company believes that none of the exercisable or
unexercisable stock options held at December 31, 1993 were in-the-money as
of such date. See Notes 12 and 13 of the Company's audited consolidated
financial statements included elsewhere in this Prospectus.

DIRECTORS' COMPENSATION

Prior to the completion of the Offering, directors of the Company did not
receive any compensation for service on the Board of Directors. Following the
completion of the Offering, the Company intends to pay all of its directors who
are not officers of the Company an annual fee (the "Annual Fee") of $30,000 plus
$2,000 for attendance at each meeting, plus $1,000 for attendance at each
committee meeting. In addition, the Company intends to reimburse all of its
directors for their travel expenses in connection with their attendance at board
and committee meetings. The Company intends to pay 50% of the Annual Fee in the
form of cash and 50% of the Annual Fee in the form of shares of Common Stock
pursuant to a Non-Employee Director Stock Plan to be adopted by the Company. The
payment of the cash portion of the Annual Fee may be deferred by any director at
such director's election.

EMPLOYMENT AGREEMENTS

The Named Executive Officers have three-year employment agreements with the
Company (the "Employment Agreements") which took effect in 1993. The Employment
Agreements contain customary employment terms, have an initial duration of three
years beginning October 15, 1993 for Mr. DeMeuse, Ms. Hempel and Mr. Riordan,
and December 10, 1993 for Mr. Donnelly and Mr. Rowley, provide for automatic
one-year extensions (unless notice not to extend is given by either party at
least six months prior to the end of the effective term) and provide for base
annual salaries and annual incentive bonuses. The Company intends to extend the
terms of the Employment Agreements to December 31, 1997 prior to consummation of
the Offering. The present base salaries for Mr. DeMeuse, Ms. Hempel, Mr.
Riordan, Mr. Donnelly and Mr. Rowley are $750,000, $480,000, $375,000, $330,000
and $250,000, respectively. In addition, the Employment Agreements for Mr.
DeMeuse, Ms. Hempel and Mr. Riordan provide for participation in additional
bonus arrangements which may be agreed upon in good faith from time to time with
the Company. The Employment Agreements provide that certain payments in lieu of
salary and bonus are to be made and certain benefits are to be continued for a
stated period following termination of employment. The time periods for such
payments vary depending on the cause of termination. The amount of the payments
to be made to each individual would vary depending upon such individual's level
of compensation and benefits at the time of termination and whether such
employment is terminated prior to the end of the term by the Company for "cause"
or by the employee for "good reason" (as such terms are defined in the
Employment Agreements) or otherwise during the term of the agreements. In
addition, the Employment Agreements for Mr. DeMeuse, Ms. Hempel and Mr. Riordan
include noncompetition and confidentiality provisions.

59
<PAGE>
MANAGEMENT INCENTIVE PLAN

The Company maintains a Management Incentive Plan which is administered by
the Executive Committee. Participation is based upon individual selection by the
Executive Committee from among the full-time salaried employees who, in the
judgment of the Chief Executive Officer, serve in key executive, administrative,
professional or technical capacities. Presently, approximately 85 individuals
participate in the Management Incentive Plan. Awards are based upon the extent
to which the Company's financial performance (in terms of net income, operating
income, earnings per share, cash flow, return on equity or assets, pre-tax
profits, earnings growth, revenue growth, comparison to peer companies and/or
other appropriate measures) during the year has met or exceeded certain
performance goals specified by the Executive Committee. Some performance goals
applicable to senior managers may include elements which specify individual
achievement objectives directly related to such individual's areas of management
responsibility. In determining whether performance goals have been satisfied,
the Executive Committee in its discretion may direct that adjustments be made to
the performance goals or actual financial performance as reported to reflect
extraordinary changes that have occurred during the year. The Executive
Committee may, in its discretion, also grant a discretionary bonus, provided,
that in no event will any such discretionary bonus exceed 100% of a
participant's base salary. Except in the case of death, disability or retirement
after age 55, a participant must be employed by the Company on the last day of
the year in order to receive a bonus for such year, in which case such
participant would receive a pro rata bonus. In the event of termination of a
participant's employment following a "change in control" (as defined below under
"1995 Stock Incentive Plan"), participants will receive a pro rata bonus for
such year calculated as if the applicable performance targets have been
attained.

Because the performance goals under the Management Incentive Plan are
determined by the Executive Committee in its discretion, it is not possible to
determine the benefits and amounts that will be received by any individual
participant or group of participants in the future.

The Board of Directors may terminate or amend the Management Incentive Plan
in whole or in part, at any time; provided that no such termination or amendment
will impair any rights which may have accrued under such plan.

SUPPLEMENTAL RETIREMENT PLAN

In 1983, the Company adopted a Supplemental Retirement Plan (the
"Supplemental Retirement Plan"). Participation is limited to employees of the
Company who are selected to participate by the Chief Executive Officer.
Presently, nine individuals participate in the Supplemental Retirement Plan.
Benefits under the Supplemental Retirement Plan are specified in agreements
entered into between the Company and each participant. Any benefit granted in
favor of an employee also serving as a director must be approved by the
Executive Committee. Benefits accrued from the Company are substantially equal
to the additional amount that could have been allocated to each participant's
account under the Company's Profit Sharing Retirement Plan (the "Profit Sharing
Plan") (which is a tax-qualified defined contribution plan with "401(k)"
features) if, in the absence of the Code limitations on retirement plan
contributions, the participant's entire contribution had been made to the Profit
Sharing Plan. Vesting of benefits is determined by reference to each
participant's vested percentage under the Profit Sharing Plan. Participants'
account balances are credited with earnings based upon the investment
performance of the Profit Sharing Plan. Benefits under the Supplemental
Retirement Plan are distributable upon death, disability, retirement or
separation from service and are payable from the general assets of the Company.
The agreement with Mr. DeMeuse provides for an annual cash payment determined by
reference to the difference in the amount of the Company's contribution to the
Profit Sharing Plan allocated to his Profit Sharing Plan account and the amount
which would have been allocated to such account in the absence of the
limitations imposed by the Code.

60
<PAGE>
Because benefits under the Supplemental Retirement Plan are based on Company
contributions to the Profit Sharing Plan, the amount of which is not presently
ascertainable, it is not possible to determine the benefits and amounts that
will be received by any individual participant or group of participants in the
future. The Company may amend or discontinue the Supplemental Retirement Plan at
any time.

1995 STOCK INCENTIVE PLAN

The Company intends to adopt a 1995 Stock Incentive Plan (the "1995 Plan")
prior to consummation of the Offering. The 1995 Plan will be administered by the
Compensation Committee, which will be comprised exclusively of non-employee
Directors, each of whom will be "disinterested" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The 1995 Plan will provide for the granting of incentive and nonqualified
stock options, stock appreciation rights, restricted stock, performance shares,
stock equivalents and dividend equivalents (individually, an "Award" or
collectively, "Awards"). Employees who are eligible to receive Awards are those
officers or other key employees with potential to contribute to the future
success of the Company or its subsidiaries. The Compensation Committee will have
discretion to select the employees to whom Awards will be granted (from among
those eligible), to determine the type, size and terms and conditions applicable
to each Award and the authority to interpret, construe and implement the
provisions of the 1995 Plan. The Compensation Committee's decisions will be
binding on the Company and employees eligible to participate in the 1995 Plan.
It is presently anticipated that approximately 130 individuals will initially
participate in the 1995 Plan.

A total of 3,355,112 shares of Common Stock may be subject to Awards under
the 1995 Plan, subject to adjustment in accordance with the terms of the 1995
Plan. Common Stock issued under the 1995 Plan may be either authorized but
unissued shares, treasury shares, or any combination thereof. Unless prohibited
by Rule 16b-3 under the Exchange Act, if any shares of Common Stock are
reacquired by the Company upon forfeiture or if any Award is cancelled,
terminates or expires unexercised, the shares of Common Stock which were issued
or would have been issuable pursuant thereto will become available for new
Awards. The number of dividend equivalents which may be granted under the 1995
Plan will be determined by the Compensation Committee in its discretion;
provided, however, that in no event will such number correspond to a greater
number of shares than the maximum number of shares available for issuance under
the 1995 Plan.

The Company intends to grant options to purchase up to approximately 650,000
shares of Common Stock at an exercise price to be determined by the Compensation
Committee under the 1995 Plan to certain executive officers and key employees
concurrently with or as promptly as practicable after consummation of the
Offering. It is expected that such options will vest at the rate of 20% per
year.

Awards under the 1995 Plan are determined by the Compensation Committee in
its discretion. For this reason, it is not possible to determine additional
benefits and amounts that will be received by any individual participant or
group of participants in the future.

Set forth below is a description of the types of Awards which may be granted
under the 1995 Plan:

Stock Options. Options (each, an "Option") to purchase shares of Common
Stock, which may be nonqualified or incentive stock options, may be granted
under the 1995 Plan at an exercise price (the "Option Price") determined by the
Compensation Committee in its discretion, provided that the Option Price may be
no less than the fair market value of the underlying Common Stock on the date of
grant.

Options will expire not later than ten years after the date on which they
are granted. Options become exercisable at such times and in such installments
as the Compensation Committee shall determine, and such exercisability will
generally be based on (i) length of service or (ii) the attainment of
performance goals established by the Compensation Committee, provided that no
Option may be exercised within the first six months following the date of grant.
The Compensation Committee may

61
<PAGE>
also accelerate the period for the exercise of any or all Options held by an
optionee. Payment of the Option Price must be made in full at the time of
exercise in cash, certified or bank check, note or other instrument acceptable
to the Compensation Committee. As determined by the Compensation Committee,
payment in full or in part may also be made by tendering to the Company shares
of Common Stock having a fair market value equal to the Option Price, by
cashless exercise or by such other means that the Compensation Committee deems
appropriate.

Stock Appreciation Rights. A stock appreciation right ("SAR") may be granted
alone or in tandem with Options. An SAR is an Award entitling an employee to
receive an amount equal to (or if the Compensation Committee determines at the
time of grant, less than) the excess of the fair market value of a share of
Common Stock on the date of exercise over the fair market value of a share of
Common Stock on the date of grant of the SAR, or such other price as determined
by the Compensation Committee, multiplied by the number of shares of Common
Stock with respect to which the SAR was exercised. An SAR granted in connection
with an Option will be exercisable to the extent that the related Option is
exercisable. Upon the exercise of an SAR related to an Option, the Option
related thereto will be cancelled to the extent of the number of shares covered
by such exercise, and such shares will no longer be available for grant under
the 1995 Plan. Upon the exercise of a related Option, the SAR will be cancelled
automatically to the extent of the number of shares covered by the exercise of
the Option. SARs unrelated to an Option will contain such terms and conditions
as to exercisability, vesting and duration as the Compensation Committee may
determine, but such duration will not be greater than ten years. The
Compensation Committee may accelerate the period for the exercise of an SAR
unrelated to an Option. Payment upon exercise of an SAR will be made, at the
election of the Compensation Committee, in cash, in shares of Common Stock or a
combination thereof.

The Compensation Committee may grant limited stock appreciation rights (an
"LSAR") under the 1995 Plan. An LSAR is an SAR which becomes exercisable only in
the event of a "change in control" (as defined below). Any such LSAR will be
settled solely in cash. An LSAR must be exercised within the 30-day period
following a change in control.

Restricted Stock. An Award of restricted stock ("Restricted Stock") is an
Award of Common Stock which is subject to forfeiture and/or a restriction
against transfer for a period specified by the Compensation Committee.
Restricted Stock Awards may be granted under the Plan for or without
consideration. Restrictions on Restricted Stock may lapse in installments based
on factors selected by the Compensation Committee. The Compensation Committee,
in its sole discretion, may waive or accelerate the lapsing of restrictions in
whole or in part. Prior to the expiration of the restricted period, except as
otherwise provided by the Compensation Committee, a grantee who has received a
Restricted Stock Award has the rights of a shareholder of the Company, including
the right to vote and to receive cash dividends on the shares subject to the
Award. Stock dividends issued with respect to shares covered by a Restricted
Stock Award will be treated as additional shares under such Award and will be
subject to the same restrictions and other terms and conditions that apply to
the shares with respect to which such dividends are issued.

Performance Shares. A performance share Award (a "Performance Share") is an
Award of a number of units which represent the right to receive a specified
number of shares of Common Stock upon satisfaction of certain specified
performance criteria and subject to such other terms and conditions as the
Compensation Committee deems appropriate. Performance objectives will be
established before, or as soon as practicable after, the commencement of the
performance period (the "Performance Period") and may be based on return on
equity, earnings growth, revenue growth, comparisons to peer companies and/or
such other measures as the Compensation Committee deems appropriate. Prior to
the end of a Performance Period, the Compensation Committee, in its discretion
and only under conditions which do not affect the deductibility of compensation
attributable to Performance Shares under Section 162(m) of the Code, may adjust
the performance objectives to reflect an event which may materially affect the
performance of the Company, a subsidiary or a division, including, but not
limited to, market conditions or a significant acquisition or disposition of
assets or

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<PAGE>
other property by the Company, a subsidiary or a division. The extent to which a
grantee is entitled to payment of a Performance Share Award at the end of the
Performance Period will be determined by the Compensation Committee, in its sole
discretion, based on whether the performance criteria have been met.

Payment in settlement of a Performance Share will be made as soon as
practicable following the last day of the Performance Period, or at such other
time as the Compensation Committee may determine, in shares of Common Stock.

Stock Equivalents. A stock equivalent Award (a "Stock Equivalent") is a
grant of a number of units valued, in whole or in part by reference to, or
otherwise based on, shares of Common Stock. At the discretion of the
Compensation Committee, Stock Equivalent Awards may relate in whole or in part
to the attainment by the grantee of certain specified performance criteria.

The Compensation Committee in its discretion will determine the basis for
the value of units granted under a Stock Equivalent Award at the time of grant
of the Award. In determining unit value, the Committee may use such measures as
fair market value or appreciation in the value of a share of Common Stock and
may specify the date or dates over which the appreciation shall be measured, in
such manner as it deems appropriate.

Payment in settlement of a Stock Equivalent Award will be made as soon as
practicable after the Award is earned, or at such other time as the Compensation
Committee will determine, in cash, in shares of Common Stock, or some
combination, as the Compensation Committee will determine.

Dividend Equivalents. A dividend equivalent Award (a "Dividend Equivalent")
is an Award which entitles an employee to receive from the Company cash
payments, in the same amount that the holder of record of a share of Common
Stock on the dividend record date would be entitled to receive as cash dividends
on such share of Common Stock.

Grants of Options, SARs, and Performance Share Awards may, in the discretion
of the Compensation Committee, earn Dividend Equivalents. For shares of Common
Stock covered by Dividend Equivalent Awards outstanding on a dividend record
date for Common Stock, the employee will be credited with an amount equal to the
amount of cash dividends that would have been paid had such shares covered by
such Dividend Equivalent Awards been issued and outstanding on such dividend
record date.

The Compensation Committee will establish such rules and procedures
governing the crediting of Dividend Equivalents, including the timing, and
payment contingencies of such Dividend Equivalents, as it deems appropriate or
necessary.

Additional Information. Under the 1995 Plan, if there is any change in the
outstanding shares of Common Stock by reason of any stock dividend,
recapitalization, merger, consolidation, stock split, combination or exchange of
shares or other form of reorganization, or any other change involving the Common
Stock, such proportionate adjustments will be made with respect to the aggregate
number of shares of Common Stock for which Awards in respect thereof may be
granted under the 1995 Plan, the number of shares of Common Stock covered by
each outstanding Award, and the price per share in respect thereof. The
Committee may accelerate vesting, exercisability or lapse of restrictions on all
or any portion of any Award at any time, other than to the extent that such
acceleration would jeopardize the Company's tax deduction for the payment or
exercise of the Award under Section 162(m) of the Code.

In the event of a change in control and except as the Compensation Committee
(as constituted prior to such change in control) may expressly provide
otherwise: (i) all Stock Options or SARs then outstanding will become fully
exercisable as of the date of the change in control, whether or not then
exercisable; (ii) all restrictions and conditions of all Restricted Stock Awards
then outstanding will lapse as of the date of the change in control; (iii) all
Performance Share Awards will be deemed to have

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<PAGE>
been fully earned as of the date of the change in control and (iv) all Stock
Equivalent Awards will be deemed to be free of any restrictions or conditions
and fully earned as of the date of the change in control. The above
notwithstanding, any Award granted within six (6) months of a change in control
will not be afforded any such acceleration as to exercise, vesting and payment
rights. For purposes of the 1995 Plan, a "change in control" shall have occurred
when any person (other than the Company, any subsidiary of the Company, any
employee benefit plan of the Company or of any subsidiary of the Company, or any
person or entity organized, appointed or established by the Company or any
subsidiary of the Company for or pursuant to the terms of any such plans), alone
or together with its affiliates and associates, shall become the beneficial
owner of % or more of the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding voting securities
(except pursuant to an offer for all outstanding shares of the Company's Common
Stock at a price and upon such terms and conditions as a majority of the
directors (the "Continuing Directors") who are unaffiliated with such person and
who were directors prior to such change in control (or who are successors of
such directors elected or recommended by a majority of the Continuing Directors)
determine to be in the best interests of the Company and its shareholders), and
the Continuing Directors no longer constitute a majority of the Board of
Directors.

Generally, an individual's rights under the 1995 Plan may not be assigned or
transferred (except in the event of death). The Compensation Committee may
permit an individual to pay taxes required to be withheld with respect to an
Award in any appropriate manner (including, without limitation, by the surrender
of Common Stock of the Company owned by such person or Common Stock that would
otherwise be distributed, or have been distributed, as the case may be, pursuant
to such Award).

The 1995 Plan will remain in effect until terminated by the Board of
Directors and thereafter until all Awards granted thereunder are satisfied by
the issuance of shares of Common Stock or the payment of cash or otherwise
terminated pursuant to the terms of the 1995 Plan or under any Award agreements.
Notwithstanding the foregoing, no Awards may be granted under the 1995 Plan
after the tenth anniversary of the effective date of the 1995 Plan. The Board of
Directors may at any time terminate, modify or amend the 1995 Plan; provided,
however, that no such amendment, modification or termination shall affect an
optionee's or grantee's rights under any Award theretofore granted under the
1995 Plan, except with the consent of such optionee or grantee, and no such
amendment or modification shall be effective unless and until the same is
approved by the shareholders of the Company where such shareholder approval is
required to comply with Rule 16b-3 under the Exchange Act, or other applicable
law, regulation or stock exchange rule. Rule 16b-3 currently requires
shareholder approval if the amendment would, among other things, materially
increase the benefits accruing to optionees or grantees under the 1995 Plan.

Certain Federal Income Tax Consequences of Options. Certain of the federal
income tax consequences to optionees and the Company of Options granted under
the 1995 Plan should generally be as set forth in the following summary.

An employee to whom an incentive stock option ("ISO") which qualifies under
Section 422 of the Code is granted will not recognize income at the time of
grant or exercise of such Option. No federal income tax deduction will be
allowable to the employee's employer upon the grant or exercise of such ISO.
However, upon the exercise of an ISO, any excess in the fair market price of the
Common Stock over the Option Price constitutes a tax preference item which may
have alternative minimum tax consequences for the employee. When the employee
sells such shares more than one year after the date of transfer of such shares
and more than two years after the date of grant of such ISO, the employee will
normally recognize a long-term capital gain or loss equal to the difference, if
any, between the sale prices of such shares and the Option Price. If the
employee does not hold such shares for this period, when the employee sells such
shares, the employee will recognize ordinary compensation income and possibly
capital gain or loss in such amounts as are prescribed by the Code and
regulations thereunder and the Company will generally be entitled to a federal
income tax deduction in the amount of such ordinary compensation income.

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<PAGE>
An individual to whom a nonqualified Option ("NSO") is granted will not
recognize income at the time of grant of such Option. When such optionee
exercises such NSO, the optionee will recognize ordinary compensation income
equal to the difference, if any, between the Option Price paid and the fair
market value, as of the date of Option exercise, of the shares the optionee
receives. The tax basis of such shares to such optionee will be equal to the
Option Price paid plus the amount includible in the optionee's gross income, and
the optionee's holding period for such shares will commence on the date on which
the optionee recognized taxable income in respect of such shares. Subject to the
applicable provisions of the Code and regulations thereunder, the Company will
generally be entitled to a federal income tax deduction in respect of a NSO in
an amount equal to the ordinary compensation income recognized by the optionee.

MANAGEMENT EQUITY PLAN

Effective as of April 29, 1991, the Board of Directors adopted the Fort
Howard Corporation Management Equity Plan (the "Management Equity Plan"). The
Management Equity Plan provides for the offer of Common Stock and the grant of
options to purchase Common Stock to executive officers and certain other key
employees of the Company.

Executive officers or other key employees of the Company who hold shares of
Common Stock or options pursuant to the Management Equity Plan ("Equity
Investors") have entered into a Management Equity Plan Agreement with the
Company, and agreed to become bound by the terms of the Company's shareholders
agreement. See "Certain Transactions--Stockholders Agreement."

Options granted pursuant to the Management Equity Plan vest in accordance
with a schedule determined at the time of grant and set forth in the applicable
Management Equity Plan Agreement. Any such options will be subject to partial
acceleration of vesting in the event of death or disability.

Options, whether or not vested, may not be transferred, except that vested
options may be transferred in certain limited circumstances. Subject to certain
exceptions, options which have not vested at the time an Equity Investor's
employment is terminated are forfeited to the Company.

In April 1991, certain executive officers and other key employees of the
Company purchased an aggregate of 40,300 shares of Common Stock at $18.46 per
share pursuant to the Management Equity Plan. In addition, options to purchase a
total of 722,150 shares of Common Stock at an exercise price of $18.46 per share
were granted in 1991, 1992 and 1993 pursuant to the Management Equity Plan to
certain executive officers and other key employees of the Company. Such options
will become fully vested prior to consummation of the Offering. Further, the
terms and conditions of options to purchase 100,750 shares of Common Stock
granted in December 1988 at an exercise price of $15.38 per share pursuant to a
predecessor plan are now governed by the Management Equity Plan. The federal
income tax consequences of the options granted under the Management Equity Plan
are substantially similar to those for nonqualified options to be granted under
the 1995 Plan, as described above. See "1995 Stock Incentive Plan--Federal
Income Tax Consequences." It is expected that no additional shares of Common
Stock or options will be sold or granted under the Management Equity Plan after
the consummation of the Offering.

MANAGEMENT EQUITY PARTICIPATION AGREEMENT

Mr. DeMeuse, Ms. Hempel, Mr. Riordan and other current executive officers
and members of the Company's senior management (the "Management Investors") are
parties to an Amended and Restated Management Equity Participation Agreement, as
amended, with the Company, Morgan Stanley Group and MSLEF II (the "Management
Equity Participation Agreement"), pursuant to which the Management Investors
purchased 410,196 shares of Common Stock in 1988 and 31,824 shares of Common
Stock in 1990 at $15.38 and $20.77 per share, respectively. Management Investors
who purchased shares of Common Stock pursuant to the Management Equity
Participation Agreement were also granted stock options to acquire 1,807,338 and
275,990 shares of Common Stock pursuant to

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<PAGE>
the Management Equity Participation Agreement at exercises prices of $15.38 and
$18.46 per share, respectively. Such options will become fully vested prior to
consummation of the Offering. Certain of the Management Investors have also
purchased shares of Common Stock and have been granted options to acquire
additional shares of Common Stock pursuant to the terms of the Management Equity
Plan. See "--Management Equity Plan."

The Management Equity Participation Agreement prohibits, except in certain
limited circumstances with respect to vested options ("Vested Options"), the
transfer of options, whether vested or not vested, held by the Management
Investors.

The Management Equity Participation Agreement also provides that the Company
will indemnify Management Investors for taxes on income which may be recognized
upon the vesting of shares of Common Stock under certain circumstances. The
indemnity is limited to the tax benefit to the Company, and if the tax benefit
has not yet been received by the Company in cash at the time when the taxes must
be paid by a Management Investor, the Company will make a nonrecourse loan to
the Management Investor (secured by Common Stock and Vested Options) until the
time the tax benefit is actually received.

The Management Equity Participation Agreement contains noncompetition
provisions applicable to each Management Investor except Mr. DeMeuse, Ms. Hempel
and Mr. Riordan, whose noncompetition agreements are contained in their
respective Employment Agreements. (Similar noncompetition provisions are
applicable to the Equity Investors under the Management Equity Plan.)

The federal income tax consequences of the options granted under the
Management Equity Participation Agreement are substantially similar to those for
nonqualified options granted under the 1995 Plan, as described above. See "1995
Stock Incentive Plan--Federal Income Tax Consequences."

In 1988 and 1990, the Company's former chairman of the board and chief
executive officer acquired shares of Common Stock and was granted options to
acquire additional shares of Common Stock pursuant to the Management Equity
Participation Agreement. Under the terms of an agreement entered into with the
Company at the time of his resignation in July 1990, he retained his entire
interest in the Company's Common Stock and all options to acquire additional
shares thereof granted to him pursuant to the Management Equity Participation
Agreement were vested. In addition, all the shares of the Company's Common Stock
then owned by him became putable to the Company, and he retained certain other
put rights previously granted to him with respect to such options and the shares
issuable upon the exercise thereof. Such put rights will expire upon
consummation of the Offering except in certain limited circumstances. Except as
set forth above, the former chairman and chief executive officer's interest in
the Company's Common Stock remains subject to terms substantially equivalent to
the relevant terms of the Management Equity Participation Agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Executive Committee currently acts as a compensation committee for
determining certain aspects of the compensation of the executive officers of the
Company. The members of the Executive Committee are Donald H. DeMeuse, the
Company's Chairman and Chief Executive Officer, and Donald P. Brennan.

The Executive Committee administers the Company's Management Equity Plan
which provides for the offer of Common Stock and the grant of options to
purchase Common Stock to executive officers and certain other key employees of
the Company. The Executive Committee selects the officers and key employees to
whom Common Stock will be offered or options will be granted.

The Executive Committee also administers the Company's Management Incentive
Plan under which annual cash awards are paid to employees serving in key
executive, administrative, professional

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<PAGE>
and technical capacities. Awards are based upon the extent to which the
Company's financial performance during the year has met or exceeded certain
performance goals specified by the Executive Committee.

The Board of Directors intends to appoint a Compensation Committee that will
be comprised of Donald P. Brennan and Robert H. Niehaus. The Compensation
Committee will administer the Company's 1995 Plan and select the officers and
key employees to whom awards will be granted.

Salaries and employment contract terms are determined by the entire Board of
Directors for the Chief Executive Officer, by the Executive Committee for other
executive officers who also serve as directors of the Company and by the
Company's Chief Executive Officer for other executive officers of the Company.

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<PAGE>
OWNERSHIP OF COMMON STOCK

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1994, by holders
having beneficial ownership of more than five percent of the Company's Common
Stock, by certain other principal holders, by each of the Company's directors,
by the Named Executive Officers, and by all directors and all executive officers
of the Company as a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ ------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
NAME SHARES OF CLASS SHARES OF CLASS
- ----------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Morgan Stanley Leveraged................... 20,889,290(a) 54.8% 20,889,290(a)
Equity Fund II, L.P.
1221 Avenue of the Americas
New York, New York 10020
Mellon Bank, N.A., as Trustee for.............. 6,715,507(b) 17.6 6,715,507(b)
First Plaza Group Trust
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Leeway & Co.................................... 3,357,750 8.8 3,357,750
1 Monarch Drive
North Quincy, Massachusetts 02171
Morgan Stanley Group Inc....................... 3,036,884(c) 8.0 3,036,884(c)
1221 Avenue of the Americas
New York, New York 10020
Donald H. DeMeuse.............................. 672,750(d) 1.7 672,750(d)
Kathleen J. Hempel............................. 594,691(e) 1.5 594,691(e)
Michael T. Riordan............................. 135,421(f) * 135,421(f)
Donald P. Brennan.............................. 0 -- 0
Frank V. Sica.................................. 0 -- 0
Robert H. Niehaus.............................. 0 -- 0
James S. Hoch.................................. 0 -- 0
Andrew W. Donnelly............................. 158,177(g) * 158,177(g)
John F. Rowley................................. 113,373(h) * 113,373(h)
All Directors and Executive Officers as a
Group........................................ 2,300,005(i) 5.8 2,300,005(i)
</TABLE>

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

<TABLE>
<C> <S>
* Less than 1%.

(a) MSLEF II, Inc. is the sole general partner of MSLEF II and is a wholly owned subsidiary
of Morgan Stanley Group. Includes 1,701,290 shares held by Fort Howard Equity Investors
II, L.P. and 663,000 shares held by Fort Howard Equity Investors, L.P. Morgan Stanley
Equity Investors Inc. is the sole general partner of both of these partnerships and is
a wholly owned subsidiary of Morgan Stanley Group.

(b) Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza Group Trust
("First Plaza"), a trust under and for the benefit of certain employee benefit plans of
General Motors Corporation ("GM") and its subsidiaries. These shares may be deemed to
be owned beneficially by General Motors Investment Management Corporation ("GMIMCo"), a
wholly-owned subsidiary of GM. GMIMCo's principal business is providing investment
advice and investment management services with respect to the assets of certain
employee benefit plans of GM and its subsidiaries and with respect to the assets of
certain direct and indirect subsidiaries of GM and associated entities. GMIMCo is
serving as First Plaza's investment manager with respect to these shares and in that
capacity it has the sole power to direct the Trustee as to the voting and disposition
of these shares. Because of the Trustee's limited role, beneficial ownership of the
shares by the Trustee is disclaimed.
</TABLE>

(Footnotes continued on following page)

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<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(c) Includes 260,000 shares for which Morgan Stanley Group exercises exclusive voting
rights but as to which it disclaims beneficial ownership.
(d) Includes 505,537 shares subject to acquisition within 60 days by exercise of employee
stock options.
(e) Includes 562,347 shares subject to acquisition within 60 days by exercise of employee
stock options.
(f) Includes 119,008 shares subject to acquisition within 60 days by exercise of employee
stock options.
(g) Includes 141,927 shares subject to acquisition within 60 days by exercise of employee
stock options.
(h) Includes 102,323 shares subject to acquisition within 60 days by exercise of employee
stock options.
(i) Includes 1,895,991 shares subject to acquisition within 60 days by exercise of employee
stock options.
</TABLE>

CERTAIN TRANSACTIONS

STOCKHOLDERS AGREEMENT

The Company, Morgan Stanley Group, MSLEF II, certain other investors and the
Management Investors have entered into a shareholders agreement (the
"Stockholders Agreement"), which contains certain restrictions with respect to
the transferability of Common Stock by the parties thereunder, certain
registration rights granted by the Company with respect to such shares and
certain voting arrangements.

Pursuant to the terms of the Stockholders Agreement, no holder of Common
Stock who is a party or becomes a party to the Stockholders Agreement (a
"Holder") may sell or otherwise encumber Common Stock beneficially owned by such
Holder unless such transfer is to: (i) certain permitted transferees (related
persons or affiliated entities) of such Holder; (ii) the Company, or in certain
cases, its designees; (iii) any person, subject to certain rights of first
refusal by the other Holders and the Company, if (a) immediately after such sale
the transferee and its affiliates do not in the aggregate beneficially own more
than 15% of the Common Stock then outstanding, (b) a legal opinion that such
sale does not require the Common Stock to be registered under the Securities Act
is received and (c) such transferee is not determined by the Board of Directors
of the Company to be an "Adverse Person" (as defined in the Stockholders
Agreement); (iv) any person pursuant to a public offering or (v) any person
pursuant to Rule 144. Notwithstanding the above, however, Morgan Stanley Group
and MSLEF II have the right to transfer all or any portion of the Common Stock
beneficially owned by them (i) at any time in connection with the refinancing of
the Company's outstanding indebtedness or (ii) at any time in connection with
one transaction or a series of transactions in which Morgan Stanley Group and/or
MSLEF II intends to sell such number of shares of Common Stock then constituting
a majority of the outstanding shares of Common Stock subject to the Stockholders
Agreement.

In the event that one or more Holders (each a "Controlling Shareholder")
sells a majority of the shares of Common Stock subject to the Stockholders
Agreement to a third party, each other Holder has the right to elect to sell on
the same terms the same percentage of such other Holder's shares to the third
party as the Controlling Shareholder is selling of its shares of Common Stock.
In addition, if a Controlling Shareholder sells all of its shares of Common
Stock to a third party, the Controlling Shareholder has the right to require
that the remaining Holders sell all of their shares to the third party on the
same terms.

Pursuant to the terms of the Stockholders Agreement, Holders of specified
percentages of Common Stock will be entitled to certain demand registration
rights ("Demand Rights") with respect to shares of Common Stock held by them;
provided, however, that the Company (or purchasers designated by the

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<PAGE>
Company) shall have the right to purchase at fair market value the shares which
are the subject of Demand Rights in lieu of registering such shares of Common
Stock. In addition to the Demand Rights, Holders are, subject to certain
limitations, entitled to register shares of Common Stock in connection
with a registration statement prepared by the Company to register its equity
securities. The Stockholders Agreement contains customary terms and provisions
with respect to, among other things, registration procedures and certain rights
to indemnification granted by parties thereunder in connection with the
registration of Common Stock subject to such agreement.

The Stockholders Agreement also requires the Holders to vote for director
designees of Morgan Stanley Group and its affiliates, including: (i) one
director designated by MSLEF II, if MSLEF II owns at least 5% of the then
outstanding Common Stock; (ii) one director designated by Morgan Stanley Group,
if Morgan Stanley Group owns at least 5% of the then outstanding Common Stock;
(iii) for as long as Morgan Stanley Group and its affiliates have not disposed
of more than 5% of the number of shares of Common Stock owned by them in the
aggregate on the date of completion of the Offering, all Morgan Stanley Group
director designees subject to reelection (or replacements designated by Morgan
Stanley Group) plus, up to two additional Morgan Stanley Group director
designees as would bring the total number of directors to not more than 11
members, and only to the extent required to increase the representation of
Morgan Stanley Group and its affiliates to a majority of the board of directors
and (iv) after such time as Morgan Stanley Group and its affiliates have
disposed of more than 5% of the number of shares of Common Stock owned by them
in the aggregate on the date of completion of the Offering, a number of director
designees which, together with the other Morgan Stanley Group and MSLEF II
designees already on the board of directors, equals the integer obtained by
multiplying the number of post-election directors by the percentage of
outstanding Common Stock eligible to vote in the election owned by Morgan
Stanley Group and its affiliates in the aggregate, rounding to the nearest
integer, subject to (i) and (ii) above.

Pursuant to the Stockholders Agreement, Holders have certain preemptive
rights, subject to certain exceptions, with respect to future issuances of
shares or share equivalents of Common Stock so that such Holders may maintain
their proportional equity ownership interest in the Company.

THE CUP TRANSFER AND CUP SALES

On November 14, 1989, the Company transferred all the capital stock of Fort
Howard Cup to Sweetheart, a new company organized on behalf of MSLEF II, the
Company and certain executive officers of Sweetheart and other investors in the
Cup Transfer. The business transferred to Sweetheart constituted all the
Company's U.S. and Canadian disposable foodservice operations.

As a result of the Cup Transfer, the Company received: (i) $532.25 million
in cash; (ii) 430,172 shares of Sweetheart Class B Common Stock representing
49.9% of the Sweetheart Common Stock then outstanding, with a fair value of
$87.4 million and (iii) certain other adjustments. The total value of the cash
and other assets received by the Company as a result of the Cup Transfer was
approximately $620 million. The Company has not undertaken any guarantees of
Sweetheart's indebtedness as a result of the Cup Transfer.

On the date of the Cup Transfer, the Sweetheart Class B Common Stock owned
by the Company constituted 49.9% of the shares of Sweetheart Common Stock then
outstanding, and the Sweetheart Class A Common Stock owned by MSLEF II, Morgan
Stanley and certain executive officers and key employees of Sweetheart and other
investors constituted 22.4%, 14% and 13.7%, respectively, of the shares of
Sweetheart Common Stock then outstanding.

On December 29, 1989, the Company sold its Pacific Basin cup business for
approximately $10.7 million in cash as part of a program to divest its remaining
international cup operations. The Company sold its European disposable
foodservice operations for a net selling price of approximately $49 million on
December 30, 1991. On August 30, 1993, the Company sold all of its Sweetheart
Class B Common Stock for $5.1 million.

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<PAGE>
As a result of the completion of the Cup Transfer and the sales of its
remaining international cup operations, the Company has divested all of its
operating interests in those businesses.

OTHER TRANSACTIONS

The Company has entered into an agreement with MS&Co for financial advisory
services in consideration for which the Company pays MS&Co an annual fee of $1
million. MS&Co is also entitled to reimbursement for all reasonable expenses
incurred in performance of the foregoing services. The Company paid MS&Co
approximately $1.0 million, $1.1 million and $1.1 million for these and other
miscellaneous services in 1993, 1992 and 1991, respectively. This agreement will
be terminated effective December 31, 1994.

In connection with the sale of the 8 1/4% Notes and the 9% Notes in 1994,
MS&Co received approximately $20.4 million in underwriting fees. In connection
with the sale of the 9 1/4% Notes and the 10% Notes in 1993, MS&Co received
approximately $19.5 million of underwriting fees. In 1992, MS&Co received
approximately $0.7 million in connection with the underwriting of the reissuance
of the Company's Development Authority of Effingham County Pollution Control
Revenue Refunding Bonds, Series 1988. In connection with the issuance of the
Pass Through Certificates in 1991, MS&Co received approximately $2.9 million of
advisory and underwriting fees. In connection with the Company's sale of Senior
Secured Notes in 1991, MS&Co received approximately $6.8 million of advisory
fees.

Based on transactions of similar size and nature, the Company believes the
foregoing fees received by MS&Co are no less favorable to the Company than would
be available from unaffiliated third parties.

MS&Co served as lead underwriter for the initial public offering of the 9
1/4% Notes, the 10% Notes, the 8 1/4% Notes, the 9% Notes, the 12 3/8% Notes,
the 12 5/8% Debentures, the 14 1/8% Debentures and Pass Through Certificates and
is a market-maker with respect to such securities. In connection with the
repurchases of certain of the Company's securities as described in Note 8 to the
audited consolidated financial statements included elsewhere in the Prospectus,
$52.8 million aggregate principal amount at maturity of the 14 5/8% Debentures
and $132.7 million aggregate principal amount at maturity of the 14 1/8%
Debentures were purchased through MS&Co. In addition, $46.5 million and $77.5
million aggregate principal amount at maturity of the 14 1/8% Debentures were
purchased from Leeway & Co. and First Plaza Group Trust, respectively,
shareholders of the Company. The purchases were made in negotiated transactions
at market prices.

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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS

The following summary of the instruments governing certain indebtedness of
the Company does not purport to be complete and is qualified in its entirety by
reference to such instruments, copies of which have been filed, or incorporated
by reference, as exhibits to the Registration Statement of which this Prospectus
is a part. Capitalized terms used but not defined herein have the meanings
ascribed to them in such instruments.

THE NEW BANK CREDIT AGREEMENT

The Company has entered into a commitment letter dated November 2, 1994 (the
"Commitment Letter") with Bankers Trust Company ("Bankers Trust"), Chemical Bank
and Bank of America National Trust and Savings Association. Set forth below is a
description of the New Bank Credit Agreement as contemplated (unless otherwise
specified) by the Commitment Letter.

General. The New Bank Credit Agreement will provide for the 1995 Term Loan A
(in an amount of $900 million), the 1995 Term Loan B (in an amount of $300
million) and the 1995 Revolving Credit Facility (in an amount of $400 million).
The 1995 Term Loan A and the 1995 Revolving Credit Facility will each have a
final maturity on the seventh anniversary of the consummation of the Offering.
The 1995 Term Loan B will have a final maturity of December 31, 2002. It is
anticipated that $116.4 million will be borrowed under the 1995 Revolving Credit
Facility in connection with the Recapitalization and that the Company will have
$283.6 million in available capacity under the 1995 Revolving Credit Facility
after the consummation of the Recapitalization.

As part of the 1995 Revolving Credit Facility, the New Bank Credit Agreement
will provide for the issuance of letters of credit in the normal course of
business of up to $50 million. Bankers Trust will provide a $25 million swing
line facility within the 1995 Revolving Credit Facility, which is available for
general corporate purposes. It is anticipated that upon the consummation of the
Recapitalization no letters of credit will be outstanding under the New Bank
Credit Agreement.

Interest. The 1995 Term Loan A and the 1995 Revolving Credit Facility will
bear interest, at the Company's option, at Bankers Trust's prime rate, plus
1.50% or, subject to certain limitations, at a reserve adjusted Eurodollar rate,
plus 2.50%; the foregoing rates will be subject to adjustment downward based on
the ratings by Standard & Poor's Ratings Group or Moody's Investors Services,
Inc. of the Company's long-term senior unsecured debt and/or certain operating
performance measures. The 1995 Term Loan B will bear interest, at the Company's
option, at Bankers Trust's prime rate, plus 2.00% or, subject to certain
limitations, at a reserve adjusted Eurodollar rate, plus 3.00%.

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Repayment. The 1995 Term Loan A, the 1995 Term Loan B and the 1995 Revolving
Credit Facility will be subject to mandatory and optional repayments and
prepayments. As indicated below, the Company will be required to make scheduled
repayments of the 1995 Term Loan A and the 1995 Term Loan B. The 1995 Term Loan
A and the 1995 Term Loan B will be payable in installments as follows:

6-MONTH PERIOD 1995 TERM 1995 TERM
AFTER INITIAL FUNDING LOAN A LOAN B
- ------------------------------------------------------ --------- ---------
(IN MILLIONS)
1st.................................................. $ 0.0 $ 0.000
2nd.................................................. $ 0.0 $ 0.000
3rd.................................................. $ 50.0 $ 1.875
4th.................................................. $ 50.0 $ 1.875
5th.................................................. $ 62.5 $ 1.875
6th.................................................. $ 62.5 $ 1.875
7th.................................................. $ 75.0 $ 1.875
8th.................................................. $ 75.0 $ 1.875
9th.................................................. $ 75.0 $ 1.875
10th.................................................. $ 75.0 $ 1.875
11th.................................................. $ 87.5 $ 1.500
12th.................................................. $ 87.5 $ 1.500
13th.................................................. $ 100.0 $ 41.000
14th.................................................. $ 100.0 $ 41.000
15th.................................................. $ 0.0 $ 100.000
16th.................................................. $ 0.0 $ 100.000

The Company will also be required to make mandatory prepayments of the 1995
Term Loan A and the 1995 Term Loan B on or before the last day of March of each
year beginning in in an amount equal to 50% of Excess Cash Flow (as such
term shall be defined in the New Bank Credit Agreement) for the year ending on
the immediately preceding December 31. Excess Cash Flow prepayments under the
New Bank Credit Agreement will be allocated pro rata between the 1995 Term Loan
A and the 1995 Term Loan B. The portion of any such prepayment allocable to the
1995 Term Loan A will be applied in the direct order of maturity until such
application results in the prepayment in whole of all the amortization payments
scheduled to become due in the 12-month period following such date of
prepayment, and then on a pro rata basis to the remaining scheduled amortization
installment. The portion of any such prepayment allocable to the 1995 Term Loan
B will be applied pro rata to the remaining installments. In the event that any
such prepayment is due at a time when the 1995 Term Loan A and 1995 Term Loan B
have been fully repaid, the 1995 Revolving Credit Facility commitments will be
reduced by an amount equal to the amount of such prepayment and the Company will
be required to (a) prepay the 1995 Revolving Credit Facility in an amount equal
to the excess, if any, of the aggregate principal amount of the 1995 Revolving
Credit Facility then outstanding over the aggregate amount of the 1995 Revolving
Credit Facility commitments (after giving effect to such reduction) and (b)
retain the remaining amount of such prepayment.

The 1995 Term Loan A and the 1995 Term Loan B will also provide for
mandatory prepayments from proceeds of Asset Sales (as such term shall be
defined in the New Bank Credit Agreement). So long as the New Bank Credit
Agreement remains in effect, the net cash proceeds of Asset Sales are to be
applied to prepay the indebtedness under the New Bank Credit Agreement. It is
contemplated that the net cash proceeds from Asset Sales will be applied in the
same manner as the Excess Cash Flow prepayments.

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If the utilization of the 1995 Revolving Credit Facility exceeds the
commitment thereunder, the Company will be required to prepay the 1995 Revolving
Credit Facility by an amount equal to such excess.

The 1995 Term Loan A, the 1995 Term Loan B and the 1995 Revolving Credit
Facility may be prepaid in whole or in part at any time without premium or
penalty (subject to reimbursement of the lender's redeployment costs in the case
of a prepayment of Eurodollar loans other than on the last day of the relevant
interest period), and the 1995 Revolving Credit Facility commitment may be
reduced by the Company in whole or in part at any time without premium or
penalty.

Guarantees and Security. The Commitment Letter contemplates that the
indebtedness under the New Bank Credit Agreement will be secured by a perfected
security interest (subject to permitted liens) in the Collateral (as such term
shall be defined in the New Bank Credit Agreement).

Covenants; Events of Default. The New Bank Credit Agreement will contain two
financial covenants that require the Company to maintain certain specified
ratios at specified times. These financial covenants will be as follows:

(i) A requirement that the Company maintain a ratio of (a) Consolidated
EBITDA to (b) Consolidated Interest Expense (as such terms shall be defined
in the New Bank Credit Agreement) of not less than to 1.00 for the first
full fiscal quarter following the Recapitalization, to 1.00 for the first
and second full fiscal quarters (taken as one accounting period) following
the Recapitalization and for any period of four consecutive fiscal quarters
(in each case taken as one accounting period) not less than the ratio shown
below during the indicated period:

1996-- to 1.00
1997-- to 1.00
1998-- to 1.00
1999-- to 1.00
2000-- to 1.00
Thereafter-- to 1.00

(ii) A requirement that the Company maintain at all times a ratio of (a)
Consolidated Senior Secured Debt (as such term shall be defined in the New
Bank Credit Agreement) to (b) Consolidated EBITDA, of not more than the
ratio shown below during the indicated period:

1995-- to 1.00
1996-- to 1.00
1997-- to 1.00
1998-- to 1.00
1999-- to 1.00
2000-- to 1.00
Thereafter-- to 1.00

The New Bank Credit Agreement will contain additional covenants which, among
other things, require the Company: (i) to maintain the properties of the Company
and its subsidiaries, together with insurance thereon; (ii) to enter into
interest rate agreements with respect to a certain portion of the New Bank
Credit Agreement; (iii) to provide certain reports to the Banks and permit
inspections by the Banks; (iv) with certain exceptions, to cause certain
subsidiaries accounting for more than 10% of consolidated assets or consolidated
revenues of the Company (each a "Material Subsidiary") to provide a guarantee of
the Company's obligations under the New Bank Credit Agreement and to secure the
same with a pledge of inventory and receivables and (v) with certain exceptions,
to pledge the stock of each Material Subsidiary. The New Bank Credit Agreement
will exclude from the definition of

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"Material Subsidiary" referred to in clause (v) above, among others, Sterling
International Limited, Fort Sterling, each wholly owned subsidiary of Fort
Sterling and Sterling International Limited, and, subject to certain conditions,
Fort Howard Holdings Inc.

The New Bank Credit Agreement will also contain covenants which, among other
things (in each case, subject to certain exceptions): (i) limit the ability of
the Company and its subsidiaries to incur additional indebtedness and contingent
obligations or grant liens or additional negative pledges in respect of their
assets; (ii) limit the investments and capital expenditures which may be made by
the Company and its subsidiaries; (iii) limit the ability of the Company and its
subsidiaries to make prepayments of subordinated debt and limit the ability of
the Company to pay dividends or make other distributions on account of any
shares of any class of its capital stock (other than dividends payable solely in
other shares of such class of capital stock and cash dividends up to certain
specified amounts); (iv) limit the ability of the Company and its subsidiaries
to incur obligations under leases or to enter into sale and leaseback
transactions; (v) limit the ability of the Company and its subsidiaries to enter
into certain transactions or arrangements with certain affiliates of the Company
or any holder of 5% or more of any class of its equity securities or affiliates
of such holders; (vi) restrict the ability of the Company and its subsidiaries
to make fundamental changes and to enter into new lines of business and (vii)
limit the ability of the Company or its subsidiaries to dispose of their
respective assets.

The New Bank Credit Agreement will contain certain events of default which
permit the Banks to cease making loans and to declare all amounts outstanding
under the 1995 Term Loan A, the 1995 Term Loan B and the 1995 Revolving Credit
Facility to be due and payable. These events will include, among other things:
failure to pay any installment of principal when due, failure to pay for a
certain specified number of days after the due date any interest under the New
Bank Credit Agreement, default in or relating to other indebtedness of the
Company or certain of its subsidiaries in a principal amount to be specified in
the New Bank Credit Agreement, breach of certain covenants, any representation
or warranty proving to have been false in a material respect when made, default
in the performance of any other terms contained in the New Bank Credit Agreement
or certain other related documents without being remedied or waived within 30
days after receipt of notice of default, bankruptcy of the Company or any of its
Material Subsidiaries, a judgment or attachment involving an amount in excess of
a certain specified amount which is not discharged within a specified period,
certain ERISA defaults, the invalidity of any guarantee given by a subsidiary of
the Company in connection with the New Bank Credit Agreement, failure to
maintain the validity and perfection of any security interest (to the extent
required under the New Bank Credit Agreement) with respect to collateral with a
value greater than a certain specified amount, and a Change of Control (as shall
be specified in the New Bank Credit Agreement).

Fees and Expenses. A commitment fee of 0.5% per annum on the unused portion
of each Bank's commitment under the 1995 Revolving Credit Facility and the 1995
Term Loan A will be payable to the Banks. In addition, an annual Agent's
commission of $500,000 will be payable to Bankers Trust. Additional facility and
syndication fees will be payable to certain of the lenders in connection with
the initial funding under the New Bank Credit Agreement in an aggregate amount
of $ . It is contemplated that the Company will agree to pay certain of the
Banks' expenses incurred in connection with the New Bank Credit Agreement and to
provide the Banks and their respective directors, officers, employees and
affiliates with customary indemnification.

PASS THROUGH CERTIFICATES, SERIES 1991

The Pass Through Certificates were issued pursuant to the Amended and
Restated Pass Through Trust Agreement dated as of December 13, 1991 between the
Company and Wilmington Trust Company, as trustee. The Pass Through Certificates
bear interest at 11% per annum and have a final distribution date of January 2,
2002.

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The Pass Through Certificates represent fractional undivided interests in a
pass through trust (the "Pass Through Trust") holding the Pass Through Secured
Notes issued on a nonrecourse basis by an owner trustee (the "Owner Trustee") in
connection with leveraged lease transactions to finance or refinance not more
than 85% of the cost to the Owner Trustee of acquiring the Company's interest in
a paper manufacturing facility, power plant and certain equipment related
thereto located at the Company's Savannah River mill (the "Pass Through
Assets"). Simultaneously with the acquisition of the Pass Through Assets by the
Owner Trustee, it leased the Pass Through Assets back to the Company pursuant to
the Pass Through Certificate Leases. Amounts payable under the Pass Through
Certificate Leases will be at least sufficient to pay in full when due all
payments of principal and interest on the Pass Through Secured Notes. However,
neither the Pass Through Certificates nor the Pass Through Secured Notes are
direct obligations of, or guaranteed by, the Company.

Prior to December 20, 1998, the Pass Through Certificates may not be
redeemed except in connection with an event of loss to a Pass Through Asset, or
in certain cases of obsolescence of any Pass Through Asset and during the
continuance of any lease event of default with respect to a Pass Through Asset.
On or after December 20, 1998, the Pass Through Certificates may be redeemed at
any time. Unless earlier redeemed, 74.20% (or $62,041,625) of the principal
amount of the Pass Through Certificates will be distributed to the holders
thereof on the final distribution date.

The Company's obligations under the Pass Through Certificate Leases, which
are treated as capital leases, rank pari passu in right of payment with all
other general obligations of the Company and are secured by a security interest
in all of the Pass Through Assets. The Company's obligations under the New Bank
Credit Agreement are secured by essentially all of the Company's assets,
including the Company's leasehold interest in the Pass Through Assets. The
holders of such indebtedness will be entitled to payment of their indebtedness
out of the proceeds of such collateral prior to the holders of any general
unsecured obligations of the Company, including the 8 1/4% Notes and the 9%
Notes.

As of September 30, 1994, $84 million under the Pass Through Certificate
Leases was outstanding.

8 1/4% NOTES

The 8 1/4% Notes were issued under an Indenture, dated as of February 1,
1994 (the "8 1/4% Note Indenture"), between the Company and Norwest Bank
Wisconsin, N.A. ("Norwest"), as Trustee.

The 8 1/4% Notes are senior unsecured obligations of the Company, and rank
pari passu in right of payment with other senior indebtedness of the Company and
are senior to all existing and future subordinated indebtedness of the Company.
The 8 1/4% Notes mature on February 1, 2002, and bear interest at a rate of 8
1/4% per annum. The 8 1/4% Notes currently have a face amount outstanding of
$100 million, and may not be redeemed prior to maturity.

The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 8 1/4% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement. The 8 1/4% Note
Indenture also contains a covenant limiting the optional redemption of the 9%
Notes.

The 8 1/4% Note Indenture contains certain restrictive covenants which
impose limitations on the Company and certain of its subsidiaries' ability to,
among other things: (i) incur additional indebtedness; (ii) pay dividends and
make certain other payments and distributions; (iii) create liens and (iv) merge
or consolidate or sell substantially all of the Company's assets.

As of September 30, 1994, $100 million of aggregate principal amount of 8
1/4% Notes was outstanding.

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9 1/4% NOTES

The 9 1/4% Notes were issued under an Indenture, dated as of March 15, 1993
(the "9 1/4% Note Indenture"), between the Company and Norwest, as Trustee.

The 9 1/4% Notes constitute senior unsecured obligations of the Company,
limited to $450 million aggregate principal amount, and will mature on March 15,
2001. The 9 1/4% Notes bear interest at the rate of 9 1/4% per annum. The 9 1/4%
Notes are not redeemable prior to maturity. The 9 1/4% Notes rank pari passu
with the 8 1/4% Notes and constitute Senior Indebtedness with respect to the 9%
Notes.

The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 9 1/4% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement.

The 9 1/4% Note Indenture contains certain restrictive covenants which
impose limitations on the Company and certain of its subsidiaries' ability to,
among other things: (i) incur additional indebtedness; (ii) pay dividends and
make other distributions; (iii) create liens and (iv) merge or consolidate or
transfer substantially all of the Company's assets.

As of September 30, 1994, $450 million of aggregate principal amount of 9
1/4% Notes was outstanding.

9% NOTES

The 9% Notes were issued under an Indenture, dated as of February 1, 1994
(the "9% Note Indenture"), between the Company and the Bank of New York, as
Trustee.

The 9% Notes are unsecured senior subordinated obligations of the Company.
The 9% Notes mature on February 1, 2006, and bear interest at a rate of 9% per
annum. The 9% Notes currently have a face amount outstanding of $650 million,
and may be redeemed at the option of the Company, in whole or in part, at any
time on or after February 1, 1999, initially at 104.5% of their principal amount
and declining to 100% of their principal amount on or after February 1, 2001, in
all cases plus accrued interest to the redemption date. In addition, at the
option of the Company at any time prior to February 1, 1997, up to $227.5
million aggregate principal amount of 9% Notes are redeemable, at 109% plus
accrued interest, from the proceeds of a public equity offering.

The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 9% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement.

The 9% Note Indenture contains certain restrictive covenants which impose
limitations on the Company and certain of its subsidiaries' ability to, among
other things: (i) incur additional indebtedness; (ii) pay dividends and make
certain other payments and distributions; (iii) create liens and (iv) merge or
consolidate or sell substantially all of the Company's assets.

At September 30, 1994, $650 million of aggregate principal amount of 9%
Notes was outstanding.

10% NOTES

The 10% Notes were issued under an Indenture, dated as of March 15, 1993
(the "10% Note Indenture"), between the Company and United States Trust Company
of New York ("U.S. Trust"), as Trustee.

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The 10% Notes constitute unsecured subordinated obligations of the Company,
limited to $300 million aggregate principal amount, and will mature on March 15,
2003. The 10% Notes bear interest at the rate of 10% per annum. The 10% Notes
will be redeemable at any time on or after March 15, 1998 at 105.0% of the
principal amount thereof, on or after March 15, 1999 at 103.75% of the principal
amount thereof, on or after March 15, 2000 at 102.50% of the principal amount
thereof, on or after March 15, 2001 at 101.25% of the principal amount thereof,
and after March 15, 2002, at 100% of the principal amount thereof, in each case
together with accrued and unpaid interest to the redemption date. In addition,
at any time prior to March 15, 1995, the Company may redeem up to $75 million
aggregate principal amount of 10% Notes with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at any time or from
time to time, at a redemption price (expressed as a percentage of principal
amount) of 110%, plus accrued interest to the redemption date. The 10% Notes are
subordinated to the 8 1/4% Notes and the 9% Notes.

The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 10% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement. The 9 1/4% Note
Indenture also contains a covenant limiting the optional redemption of the 10%
Notes.

As of September 30, 1994, $300 million of aggregate principal amount of 10%
Notes was outstanding.

SENIOR SECURED NOTES

The Senior Secured Notes were issued pursuant to the Senior Secured Note
Purchase Agreement, dated as of September 11, 1991 (the "Senior Secured Note
Agreement"). The Senior Secured Notes are limited to $300 million aggregate
principal amount and have been issued in five series, Series A, B, C1, C2 and D,
maturing in years 1997 through 2000. Series A, B, C1, C2 and D of the Senior
Secured Notes bear interest at three-month LIBOR plus 275 basis points, 300
basis points, 325 basis points, 300 basis points, and 350 basis points,
respectively.

The Senior Secured Notes contain certain restrictive and financial covenants
and events of default that are substantially similar to those contained in the
1988 Bank Credit Agreement.

As of September 30, 1994, $300 million of aggregate principal amount Senior
Secured Notes was outstanding. The Senior Secured Notes will be redeemed in
whole in connection with the Recapitalization. See "Use of Proceeds."

12 5/8% DEBENTURES

The 12 5/8% Debentures were issued under an Indenture dated as of November
1, 1988 (the "12 5/8% Debenture Indenture"), between the Company and U.S. Trust,
as Trustee.

The 12 5/8% Debentures constitute unsecured subordinated obligations of the
Company, and will mature on November 1, 2000, respectively. The 12 5/8%
Debentures bear interest at a rate of 12 5/8% per annum. The 12 5/8% Debentures
are subordinated in right of payment to the 8 1/4% Notes and 9 1/4% Notes and
rank pari passu with the 10% Notes.

The 12 5/8% Debentures are redeemable at the option of the Company at 102.5%
of the principal amount thereof on or after November 1, 1994, and decreasing to
100% of the principal amount after October 31, 1995, in each case together with
accrued and unpaid interest to the redemption date.

The 12 5/8% Debenture Indenture contains certain restrictive covenants
similar to those contained in the 8 1/4% Note Indenture and the 9% Note
Indenture.

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As of September 30, 1994, $145.8 million of aggregate principal amount of 12
5/8% Debentures was outstanding. All outstanding 12 5/8% Debentures will be
redeemed in connection with the Recapitalization. See "Use of Proceeds."

14 1/8% DEBENTURES

The 14 1/8% Debentures were issued under an Indenture dated as of November
1, 1988 (the "14 1/8% Debenture Indenture"), between the Company and Society
National Bank, as Trustee.

The 14 1/8% Debentures constitute unsecured subordinated obligations of the
Company. The 14 1/8% Debentures currently have a face amount outstanding of
approximately $567 million and will mature on November 1, 2004. No interest will
be payable on the 14 1/8% Debentures prior to May 1, 1995. From and after
November 1, 1994 interest on the 14 1/8% Debentures accrues at a rate of 14 1/8%
per annum. The 14 1/8% Debentures are subordinated to the 8 1/4% Notes, the 9%
Notes, the 9 1/4% Notes, the 10% Notes and the 12 5/8% Debentures until redeemed
as described herein.

The 14 1/8% Debentures are redeemable at any time at the option of the
Company at a redemption price equal to 100% of their principal amount, together
with accrued and unpaid interest, if any, to the redemption date.

The 14 1/8% Debenture Indenture contains certain limited covenants which
restrict the Company's ability to pay dividends on or repurchase or retire
Common Stock prior to November 1, 1994 or to merge or consolidate or transfer
substantially all of its assets.

As of September 30, 1994, $560.6 million of aggregate principal amount of 14
1/8% Debentures was outstanding. The 14 1/8% Debentures will be redeemed in
whole in connection with the Recapitalization. See "Use of Proceeds."

OTHER DEBT OF THE COMPANY

In addition to borrowings under the 1988 Bank Credit Agreement, the 1993
Term Loan Agreements, the Senior Secured Note Agreement, the 8 1/4% Notes, the
9% Notes, the 9 1/4% Notes, the 10% Notes, the 12 5/8% Debentures, the 14 1/8%
Debentures and the Pass Through Certificates at September 30, 1994, the Company
and its subsidiaries had outstanding approximately $185.0 million of other
long-term debt (including the current portion thereof).

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DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company will consist of shares
of Common Stock, par value $.01 per share and shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The following summary
does not purport to be complete and is subject to the detailed provisions of,
and qualified in its entirety by reference to, the Certificate of Incorporation
and By-laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part, and to the applicable provisions
of the General Corporation Law of the State of Delaware (the "DGCL").

COMMON STOCK

Upon completion of the Offering, the Company will have shares of
Common Stock outstanding, assuming an initial public offering price of $ per
share and no exercise of any options granted by the Company.

Voting Rights. Each share of Common Stock entitles the holder thereof to one
vote in elections of directors and all other matters submitted to a vote of
shareholders. Pursuant to the terms of the Stockholders Agreement, holders of
Common Stock that are parties thereto are required to vote for directors
designated by MSLEF II and Morgan Stanley Group. See "Certain
Transactions--Stockholders Agreement."

Dividends. Each share of Common Stock has an equal and ratable right to
receive dividends to be paid from the Company assets legally available therefor
when, as and if declared by the Board of Directors. Since the Acquisition, the
Company has not declared or paid any cash dividends on any class of its capital
stock, and currently does not intend to pay dividends on the Common Stock. The
declaration and payment of dividends on the Common Stock are currently
effectively prohibited by the terms of the Company's outstanding indebtedness.
In addition, Delaware law generally requires that dividends are payable only out
of the Company's surplus or current net profits in accordance with the DGCL. See
"Dividend Policy."

Liquidation. Subject to the rights of any holders of Preferred Stock
outstanding, upon the dissolution, liquidation or winding up of the Company, the
holders of Common Stock are entitled to share equally and ratably in the assets
available for distribution after payments are made to the Company's creditors.

Other. The holders of shares of Common Stock offered hereby have no
preemptive, subscription, redemption or conversion rights and are not liable for
further call or assessment. All of the outstanding shares of Common Stock are,
and the Common Stock offered hereby will be, fully paid and nonassessable.

Since the Acquisition, there has been no public market for the Common Stock.
Although the Company has applied to have the Common Stock approved for listing
on , there can be no assurance that an active trading market will develop
for the Common Stock. The initial public offering price for the Common Stock
will be determined by negotiations among the Company and the representatives of
the Underwriters in accordance with the recommendation of CS First Boston, the
"qualified independent underwriter," as required by the by-laws of the NASD, and
may not be indicative of the market price for the Common Stock after the
Offering. See "Certain Risk Factors-- Absence of Prior Public Market."

PREFERRED STOCK

The Board of Directors of the Company is authorized, without further
shareholder action, to divide any or all shares of authorized Preferred Stock
into one or more series and to fix and determine the designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereon, of any series so
established, including voting powers, dividend rights,

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liquidation preferences, redemption rights and conversion or exchange
privileges. As of the date of this Prospectus, the Board of Directors of the
Company has not authorized any series of Preferred Stock and there are no plans,
agreements or understandings for the issuance of any shares of Preferred Stock.

STOCKHOLDERS AGREEMENT

The Stockholders Agreement, among other things, will provide for the
election of directors of the Company. See "Certain Transactions--Stockholders
Agreement."

RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS

Shareholders' rights and related matters are governed by the DGCL, the
Certificate of Incorporation and By-laws. Certain provisions of the Certificate
of Incorporation and the By-laws, which are summarized below, may discourage or
make more difficult a takeover attempt that a shareholder might consider in its
best interest. Such provisions may also adversely affect prevailing market
prices for the Common Stock. See "Certain Risk Factors--Anti-Takeover Effects of
Provisions of the Restated Certificate of Incorporation and By-laws."

Classified Board of Directors and Related Provisions. The Certificate of
Incorporation will provide that the Board of Directors of the Company be divided
into three classes of directors serving staggered three-year terms. The classes
of directors will be as nearly equal in number as possible. Accordingly,
approximately one-third of the Company's Board of Directors will be elected each
year. See "Management--Directors." The classified board provision will prevent a
party who acquires control of a majority of the outstanding voting stock of the
Company from obtaining control of the Board of Directors until the second annual
shareholders meeting following the date such party obtains the controlling
interest. The provisions of the Certificate of Incorporation relating to the
classified nature of the Company's Board of Directors may not be amended without
the affirmative vote of the holders of at least 80% of the Company's outstanding
voting stock.

The Certificate of Incorporation will provide that the number of directors
will be no greater than fifteen or less than three. The Certificate of
Incorporation will provide that directors may not be removed without cause and
that any vacancies on the Board of Directors may only be filled by the remaining
directors and not by the shareholders. These provisions, in conjunction with the
provisions of the Certificate of Incorporation authorizing the Board of
Directors to fill vacant directorships, will preclude shareholders from removing
incumbent directors without cause and filling the resulting vacancies with their
own nominees.

No Shareholder Action by Written Consent; Special Meeting. The Certificate
of Incorporation will prohibit shareholders from taking action by written
consent in lieu of an annual or special meeting, and thus shareholders may only
take action at an annual or special meeting called in accordance with the
By-laws. The By-laws will provide that special meetings of shareholders may only
be called by the Chairman of the Board or a majority of the Board of Directors.
Special meetings may not be called by the shareholders.

Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The By-laws will establish advance notice procedures with regard to
shareholder proposals and the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors. These procedures provide that the notice of shareholder proposals and
shareholder nominations for the election of directors at an annual meeting must
be in writing and received by the Secretary of the Company not less than 60 days
nor more than 90 days prior to the anniversary date of the immediately preceding
annual meeting of shareholders; provided, however, that in the event that the
annual meeting is called for a date that is not within 30 days before or after
such anniversary date, notice by the shareholder in order to be timely must be
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
The notice of

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shareholder nominations must set forth certain information with respect to the
shareholder giving the notice and with respect to each nominee.

Indemnification. The Certificate of Incorporation will provide that the
Company shall advance expenses to and indemnify each director and officer of the
Company to the fullest extent permitted by law.

Amendments. Shareholders may adopt, alter, amend or repeal provisions of the
By-laws only by vote of the holders of 80% or more of the outstanding Common
Stock and any other voting securities. In addition, the affirmative vote of the
holders of 80% or more of the outstanding Common Stock and any other voting
securities is required to amend certain provisions of the Certificate of
Incorporation, including the provisions referred to above relating to the
classification of the Company's Board of Directors, filling vacancies on the
Board of Directors, removal of directors only for cause, prohibiting shareholder
action by written consent, prohibiting the calling of special meetings by
shareholders and approval of amendments to the By-laws.

LIMITATIONS ON DIRECTORS' LIABILITY

The Certificate of Incorporation provides that no director of the Company
shall be personally liable to the Company or its shareholders for monetary
damages for any breach of fiduciary duty as a director, except for liability:
(i) for any breach of the director's duty of loyalty to the Company or its
shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) in respect of
certain unlawful dividend payments or stock redemptions or purchases or (iv) for
any transaction from which the director derived an improper personal benefit.
The effect of these provisions will be to eliminate the rights of the Company
and its shareholders (through shareholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of fiduciary
duty as a director (including breaches resulting from grossly negligent
behavior), except in the situations described above. These provisions will not
limit the liability of directors under federal securities laws and will not
affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 of DGCL prohibits certain transactions between a Delaware
corporation and an "interested shareholder," which is defined as a person who,
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15 percent or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value of 10 percent or more of the
consolidated assets of the corporation, and certain transactions that would
increase the interested shareholder's proportionate share ownership in the
corporation) between an interested shareholder and a corporation for a period of
three years after the date the interested shareholder acquired its stock,
unless: (i) the business combination is approved by the corporation's board of
directors prior to the date the interested shareholder acquired shares; (ii) the
interested shareholder acquired at least 85 percent of the voting stock of the
corporation in the transaction in which it became an interested shareholder or
(iii) the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the outstanding voting
stock owned by disinterested shareholders at an annual or special meeting. A
Delaware corporation, pursuant to a provision in its certificate of
incorporation or by-laws, may elect not to be governed by Section 203 of the
DGCL. The Company anticipates that it will not make such an election and, as a
result, the Company will be subject to the provisions of Section 203 of the DGCL
upon consummation of the Offering.

will act as Registrar and Transfer Agent for the Common Stock.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of the Offering, the Company will have shares of
common stock outstanding, assuming no exercise of any options granted by the
Company. Of these shares, the shares of Common Stock issued in the Offering
will be tradeable without restriction or further registration under the
Securities Act, except for any of such shares held by "affiliates" (as defined
under the Securities Act) of the Company. The remaining shares of common
stock will be deemed "restricted" securities within the meaning of Rule 144.
Neither shares held by an affiliate nor restricted securities may be publicly
sold in the absence of registration under the Securities Act unless an exemption
from registration is available, including the exemptions contained in Rule 144.
Of such shares of common stock which are deemed to be restricted securities as
described above, approximately shares may be freely tradeable under Rule
144 by the holders thereof (subject, in certain cases, to certain transfer
restrictions contained in the Stockholders Agreement) and, if certain
partnerships (including MSLEF II) which currently own such restricted shares of
common stock distribute to their respective partners all of their current
holdings, approximately up to an additional shares could become freely
tradeable under Rule 144 by the partners of such partnerships.

Generally, Rule 144 provides that a person who has owned restricted
securities for at least two years, or who may be deemed an "affiliate" of the
Company, is entitled to sell, within any three-month period, up to the number of
restricted securities that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of sale
is filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are subject to certain restrictions relating to manner of sale,
volume of sales and the availability of current public information about the
Company. In addition, restricted securities that have been held by a person who
is not an "affiliate" of the Company for at least three years may be sold under
Rule 144(k) without regard to the volume limitations or current public
information or manner of sale requirements of Rule 144. As defined in Rule 144,
an "affiliate" of an issuer is a person that directly, or indirectly through the
use of one or more intermediaries, controls, or is controlled by, or is under
the common control with, such issuer.

The Company and substantially all current shareholders of the Company (who
beneficially own million shares of Common Stock) have agreed with the
Underwriters, subject to certain exceptions, not to offer, pledge, sell,
contract to sell or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of the
Underwriting Agreement, without the prior written consent of MS&Co (except with
respect to shares of Common Stock held by Morgan Stanley Group and its
affiliates, for which the prior written consent of all the U.S. representatives
of the U.S. underwriters will be required).

Pursuant to the terms of the Stockholders Agreement, holders of specified
percentages of Common Stock will be entitled to certain demand registration
rights with respect to shares of Common Stock held by them provided, however,
that the Company (or purchasers designated by the Company) shall have the right
to purchase at fair market value the shares which are the subject of Demand
Rights in lieu of registering such shares of Common Stock. In addition to the
Demand Rights, holders are, subject to certain limitations, entitled to register
shares of Common Stock in connection with a registration statement prepared by
the Company to register its equity securities.

Morgan Stanley Group, MSLEF II and their affiliates may choose to dispose of
the Common Stock owned by them. The timing of such sales or other dispositions
by such shareholders (which could include distributions to MSLEF II's partners)
will depend on market and other conditions, but could occur relatively soon
after the 180-day hold back period, including pursuant to the exercise of their
registration rights. MSLEF II is unable to predict the timing of sales by any of
its limited partners in

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the event of a distribution to them. Such dispositions could be privately
negotiated transactions or public sales.

Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock is expected to commence following the completion of
the Offering. There can be no assurance that an active trading market will
develop or continue after the completion of the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of stock options) in the public
market, or the perception that such sales could occur, could adversely affect
the prevailing market price of the Common Stock or the ability of the Company to
raise capital through a public offering of its equity securities. See "Certain
Risk Factors--Absence of Prior Public Market."

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by "Non-U.S. Holders." In general, a "Non-U.S. Holder" is an individual or
entity other than: (i) a citizen or resident of the United States; (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state or (iii) an estate or trust, the
income of which is includible in gross income for United States federal income
tax purposes regardless of its source. The term "Non-U.S. Holder" does not
include individuals who were United States citizens within the ten-year period
immediately preceding the date of this Prospectus and whose loss of United
States citizenship had as one of its principal purposes the avoidance of United
States taxes. This discussion is based on current law, which is subject to
change, and, is for general information only. This discussion does not address
aspects of United States federal taxation other than income and estate taxation
and does not address all aspects of income and estate taxation, nor does it
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES
INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON
STOCK.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States or (ii) if certain income tax treaties apply, attributable to a permanent
establishment in the United States maintained by the Non-U.S. Holder. Dividends
effectively connected with such a United States trade or business or
attributable to such a United States permanent establishment generally will not
be subject to withholding tax (if the Non-U.S. Holder files certain forms,
including IRS Form 4224, with the payor of the dividend) and generally will be
subject to United States federal tax on a net income basis, in the same manner
as if the Non-U.S. Holder were resident of the United States. In the case of a
Non-U.S. Holder that is a corporation, dividend income so connected or
attributable may also be subject to the branch profits tax (which is generally
imposed on a foreign corporation on the repatriation from the United States of
its effectively connected earnings and profits subject to certain adjustments)
at a 30% rate (or a lower rate prescribed by an applicable income tax treaty).
For purposes of determining whether tax is to be withheld at a 30% rate or at a
lower rate as prescribed by an applicable tax treaty, the Company ordinarily
will presume that dividends paid to an address in a foreign country are paid to
a resident of such country absent knowledge that such presumption is not

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warranted. However, under United States Treasury regulations proposed in 1984
that have not yet been finally adopted, to claim the benefits of an applicable
tax treaty, a Non-U.S. Holder of Common Stock would be required to file certain
information forms with the payor of the dividends.

A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the IRS.

SALE OF COMMON STOCK

In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain recognized upon the disposition of Common Stock unless:
(i) the gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or, alternatively, if certain tax
treaties apply, attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder (and in either such case, the branch profits
tax may also apply if the Non-U.S. Holder is a corporation); (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual and holds shares of
stock as a capital asset, such individual is present in the United States for
183 days or more in the taxable year of disposition, and either (a) such
individual has a "tax home" (as defined for United States federal income tax
purposes) in the United States, or (b) the gain is attributable to an office or
other fixed place of business maintained by such individual in the United
States; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of United States tax law applicable to certain United States expatriates or (iv)
the Company is or has been a United States real property holding corporation (a
"USRPHC") for United States federal income tax purposes (which the Company does
not believe that it is or is likely to become) at any time within the shorter of
the five year period preceding such disposition or such Non-U.S. Holder's
holding period. If the Company were or were to become a USRPHC, gains realized
upon a disposition of Common Stock by a Non-U.S. Holder which did not directly
or indirectly own more than 5% of the Common Stock during the shorter of the
periods described above generally would not be subject to United States federal
income tax so long as the Common Stock is "regularly traded" on an established
securities market.

ESTATE TAX

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise, and therefore may be subject to United
States federal estate tax.

BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS

The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of this information
also may be made available under the provisions of a specific treaty or
agreement with the tax authorities in the country in which the Non-U.S. Holder
resides or is established.

United States backup withholding (which generally is imposed at the rate of
31% on certain payments to persons that fail to furnish the information required
under the United States information reporting requirements) and information
reporting generally will not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the United States.

The payment of proceeds from the disposition of Common Stock to or through a
United States office of a broker will be subject to information reporting and
backup withholding unless the owner,

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under penalties of perjury, certifies, among other things, its status as a
Non-U.S. Holder, or otherwise establishes an exemption. The payment of proceeds
from the disposition of Common Stock to or through a non-U.S. office of a
non-U.S. broker generally will not be subject to backup withholding and
information reporting, except as noted below. In the case of proceeds from the
disposition of Common Stock paid to or through a non-United States office of a
broker that is: (i) a United States person; (ii) a "controlled foreign
corporation" for United States federal income tax purposes or (iii) a foreign
person 50% or more of whose gross income from certain periods is effectively
connected with a United States trade or business, (a) backup withholding will
not apply unless such broker has actual knowledge that the owner is not a
Non-U.S. Holder, and (b) information reporting will apply unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder (and the
broker has no actual knowledge to the contrary).

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.

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UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below have severally agreed to purchase, and the Company has agreed to
sell to them, and the International Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, the respective
number of shares of the Common Stock set forth opposite the names of such
Underwriters below:

NAME NUMBER OF SHARES
- ----------------------------------------------------------- ----------------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated........................
CS First Boston Corporation..............................

Salomon Brothers Inc.....................................

----------------
Subtotal.............................................
----------------

International Underwriters:
Morgan Stanley & Co. International Limited...............
CS First Boston Limited..................................
Salomon Brothers International Limited...................
S.G.Warburg Securities Limited...........................

----------------
Subtotal.............................................
----------------
Total......................................................
----------------
----------------

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock offered
hereby if any such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement Between U.S. and
International Underwriters. As used herein, "United States or Canadian

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Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the U.S. Underwriters and the
International Underwriters are referred to herein as the U.S. Shares and the
International Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of shares of Common Stock to be purchased pursuant to the Underwriting
Agreement as may be mutually agreed. The per share price of any shares sold
shall be the Price to Public set forth on the cover page hereof, in United
States dollars, less an amount not greater than the per share amount of the
concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice stating in substance that, by
purchasing such Common Stock, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of such
Common Stock in Canada or to, or for the benefit of, any resident of Canada in
contravention of the securities laws of Canada or any province or territory
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the foregoing
effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and will not offer or sell any shares of Common Stock in the
United Kingdom by means of any document (other than in circumstances which do
not constitute an offer to the public within the meaning of the Companies Act
1985); (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in relation
to the shares of Common Stock offered hereby in, from or otherwise involving the
United Kingdom and (iii) it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the issue of the shares of Common Stock, other than any document
which consists of, or is a part of, listing particulars, supplementary listing
particulars or any other document required or permitted to be published by
listing rules under Part IV of the Financial Services Act 1986, if that person
is of a kind described in Article 9(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1988.

The Underwriters initially propose to offer part of the Common Stock
directly to the public at the Price to Public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $ per share under the Price to Public. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain dealers. After the initial offering of
the Common Stock the offering price and other selling terms may from time to
time be varied by the Underwriters.

The Company intends to apply to have the Common Stock approved for listing
on the under the symbol " ."

The Company has agreed that, without the prior written consent of MS&Co, it
will not register for sale or offer, pledge, sell, contract to sell or otherwise
transfer or dispose of, directly or indirectly, any

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shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of the
Underwriting Agreement, other than: (i) the shares of Common Stock offered
hereby; (ii) any shares of Common Stock issued upon the exercise of an option or
warrant or the conversion of a security outstanding on the date of the
Underwriting Agreement and (iii) any shares of Common Stock issued pursuant to
existing employee benefit plans of the Company. In addition, substantially all
current shareholders of the Company, subject to certain limited exceptions
(including as set forth in the following sentence), have agreed not to offer,
pledge, sell, contract to sell or otherwise transfer or dispose of, directly or
indirectly, shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after the
date of the Underwriting Agreement without the prior written consent of MS&Co
(except with respect to shares of Common Stock held by Morgan Stanley Group and
its affiliates, for which the prior written consent of all the U.S.
representatives of the U.S. underwriters will be required).

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

Upon consummation of the Offering, affiliates of MS&Co will own
approximately % of the outstanding shares of Common Stock ( % if the
Underwriters' over-allotment option is exercised in full). See "Ownership of
Common Stock." For a description of certain transactions between the Company,
MSLEF II, MS&Co and affiliates of MS&Co, see "Certain Transactions."

The provisions of Schedule E ("Schedule E") to the by-laws of the NASD apply
to the U.S. Offering. Accordingly, the public offering price can be no higher
than that recommended by a "qualified independent underwriter." The NASD
requires that the "qualified independent underwriter" (i) be an NASD member
experienced in the securities or investment banking business and (ii) not be an
affiliate of the issuer of the securities and (iii) agree to undertake the
responsibilities and liabilities of an underwriter under the Securities Act. In
accordance with this requirement, CS First Boston is serving in such role, and
the initial public offering price of the Common Stock offered hereby is not
higher than CS First Boston's recommended initial public offering price. CS
First Boston also participated in the preparation of the Registration Statement
of which this Prospectus is a part and has performed due diligence with respect
thereto. The Company has agreed to indemnify CS First Boston against certain
liabilities, including liabilities under the Securities Act.

Pursuant to the provisions of Schedule E, NASD members may not execute
transactions in Common Stock offered hereby to any accounts over which they
exercise discretionary authority without prior written approval of the customer.

The Company has reserved approximately shares of Common Stock,
representing % of the shares of Common Stock to be sold in the Offering,
for sale to certain of its directors, officers and other employees. If such
shares are not so sold to directors, officers and other employees of the
Company, they will be sold to the public.

From time to time MS&Co has provided, and continues to provide, investment
banking services to the Company and its affiliates. See "Certain Transactions."

PRICING OF THE OFFERING

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock was determined by
negotiations among the Company and the Underwriters in accordance with the
recommendation of CS First Boston, the "qualified independent underwriter," as
is required by the by-laws of the NASD. Among the factors which were considered
in determining the initial public offering price were the sales, earnings and
certain other financial and operating information of the Company in recent
periods, the future prospects of the Company and its industry in general, and
certain ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of the Company.

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LEGAL MATTERS

The validity of the Common Stock and certain other legal matters relating to
the Offering have been passed upon for the Company by Shearman & Sterling, New
York, New York. Certain legal matters have been passed upon for the Underwriters
by Davis Polk & Wardwell, New York, New York. Shearman & Sterling regularly
represents Morgan Stanley Group and MSLEF II on a variety of legal matters.
Davis Polk & Wardwell is currently representing the Company in connection with
its anticipated appeal of the U.S. Tax Court decision discussed under
"Business--Legal Proceedings." Shortly after the Acquisition, certain partners
of Davis Polk & Wardwell, acting through a general partnership, acquired shares
of Common Stock of the Company from Morgan Stanley Group which, in the
aggregate, amount to less than 1% of the outstanding shares.

EXPERTS

The consolidated financial statements and schedules of the Company included
in this Prospectus and elsewhere in this Registration Statement for the years
ended December 31, 1993, 1992 and 1991 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated by their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendment thereto) on Form S-1 under the Securities
Act, with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.

Upon completion of the Offering, the Company will be subject to the
informational requirements of the Exchange Act, and in accordance therewith will
file reports and other information with the Commission. The Registration
Statement and the exhibits and schedules thereto, as well as all such reports
and other information filed with the Commission, may be inspected at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and are also available for
inspection and copying at prescribed rates at the regional offices of the
Commission located at 500 West Madison Street, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048, and at the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.

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FORT HOWARD CORPORATION
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF FORT HOWARD CORPORATION
Report of Independent Public Accountants............................................. F-2
Consolidated Statements of Income for the years ended December 31, 1993, 1992 and
1991............................................................................. F-3
Consolidated Balance Sheets at December 31, 1993 and 1992.......................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992
and 1991......................................................................... F-5
Notes to Consolidated Financial Statements......................................... F-6

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Income for the nine months ended September 30,
1994 and 1993.................................................................... F-25
Condensed Consolidated Balance Sheets at September 30, 1994 and December 31, 1993.. F-26
Condensed Consolidated Statements of Cash Flows for the nine months ended September
30, 1994 and 1993................................................................ F-27
Notes to Condensed Consolidated Financial Statements............................... F-28
</TABLE>

F-1
<PAGE>
After the stock split is effected as discussed in Note 18 to the Fort Howard
Corporation consolidated financial statements, we expect to be in a position to
render the following report of independent public accountants.

ARTHUR ANDERSEN LLP
November 22, 1994

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
FORT HOWARD CORPORATION:

We have audited the accompanying consolidated balance sheets of Fort Howard
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income and cash flows for
the years ended December 31, 1993, 1992 and 1991. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fort Howard Corporation and subsidiaries as of December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1993, 1992 and 1991, in conformity with generally accepted
accounting principles.

As discussed in Notes 1, 7 and 10 to the consolidated financial statements,
effective January 1, 1992, the Company changed its methods of accounting for
postretirement benefits other than pensions and income taxes.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
February 1, 1994
(except with respect to the matter discussed in Note 18,
as to which the date is , 1995).

F-2
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1993 1992 1991
----------- ---------- ----------
Net sales............................................. $ 1,187,387 $1,151,351 $1,138,210
Cost of sales......................................... 784,054 726,356 713,135
----------- ---------- ----------
Gross income.......................................... 403,333 424,995 425,075
Selling, general and administrative................... 96,966 97,620 97,885
Amortization of goodwill.............................. 42,576 56,700 56,658
Goodwill write-off.................................... 1,980,427 -- --
----------- ---------- ----------
Operating income (loss)............................... (1,716,636) 270,675 270,532
Interest expense...................................... 342,792 338,374 371,186
Other (income) expense, net........................... (2,996) 2,101 (2,655)
----------- ---------- ----------
Loss before taxes..................................... (2,056,432) (69,800) (97,999)
Income taxes (credit)................................. (16,314) (398) (23,963)
----------- ---------- ----------
Loss before equity earnings, extraordinary items and
adjustment for accounting change.................... (2,040,118) (69,402) (74,036)
Equity in net loss of unconsolidated subsidiaries..... -- -- (31,504)
----------- ---------- ----------
Net loss before extraordinary items and adjustment for
accounting change................................... (2,040,118) (69,402) (105,540)
Extraordinary items--losses on debt repurchases (net
of income taxes of $7,333 in 1993 and $3,090 in
1991)............................................... (11,964) -- (5,044)
Adjustment for adoption of SFAS No. 106 (net of income
taxes of $6,489).................................... -- (10,587) --
----------- ---------- ----------
Net loss.............................................. $(2,052,082) $ (79,989) $ (110,584)
----------- ---------- ----------
----------- ---------- ----------
Loss per share:
Net loss before extraordinary items and adjustment
for accounting change............................. $ (53.54) $ (1.82) $ (3.03)
Extraordinary items................................. (0.31) -- (0.14)
Adjustment for adoption of SFAS No. 106............. -- (0.28) --
----------- ---------- ----------
Net loss............................................ $ (53.85) $ (2.10) $ (3.17)
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

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

F-3
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
----------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 227 $ 188
Receivables, less allowances of $2,366 in 1993 and $1,376 in
1992.......................................................... 105,834 103,491
Inventories..................................................... 118,269 100,975
Deferred income taxes........................................... 14,000 10,000
Income taxes receivable......................................... 9,500 2,500
----------- ----------
Total current assets........................................ 247,830 217,154
Property, plant and equipment..................................... 1,845,052 1,694,946
Less: Accumulated depreciation.................................. 516,938 437,518
----------- ----------
Net property, plant and equipment........................... 1,328,114 1,257,428
Goodwill, net of accumulated amortization of $247,495 in 1992..... -- 2,023,416
Other assets...................................................... 73,843 76,569
----------- ----------
Total assets................................................ $ 1,649,787 $3,574,567
----------- ----------
----------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................ $ 101,665 $ 104,405
Interest payable................................................ 54,854 33,057
Income taxes payable............................................ 122 1,792
Other current liabilities....................................... 70,138 64,282
Current portion of long-term debt............................... 112,750 137,747
----------- ----------
Total current liabilities................................... 339,529 341,283
Long-term debt.................................................... 3,109,838 2,953,027
Deferred and other long-term income taxes......................... 243,437 259,625
Other liabilities................................................. 26,088 36,473
Voting Common Stock with put right................................ 11,820 13,219
Shareholders' equity (deficit):
Voting Common Stock............................................. 600,459 600,465
Cumulative translation adjustment............................... (5,091) (3,915)
Retained earnings (deficit)..................................... (2,676,293) (625,610)
----------- ----------
Total shareholders' equity (deficit)........................ (2,080,925) (29,060)
----------- ----------
Total liabilities and shareholders' equity (deficit)........ $ 1,649,787 $3,574,567
----------- ----------
----------- ----------
</TABLE>

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

F-4
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
----------- -------- ---------
<S> <C> <C> <C>
Cash provided from (used for) operations:
Net loss............................................... $(2,052,082) $(79,989) $(110,584)
Depreciation and amortization.......................... 130,671 137,977 172,671
Goodwill write-off..................................... 1,980,427 -- --
Non-cash interest expense.............................. 100,844 139,700 141,362
Deferred income tax (credit)........................... (17,874) (17,799) (34,881)
Employee stock compensation............................ (7,832) 1,120 1,256
Equity in net loss of unconsolidated subsidiaries...... -- -- 31,504
Pre-tax loss on debt repurchases....................... 19,297 -- 8,134
Pre-tax adjustment for adoption of SFAS No. 106........ -- 17,076 --
(Increase) decrease in receivables..................... (2,343) (5,284) 4,087
Increase in inventories................................ (17,294) (1,215) (6,001)
(Increase) decrease in income taxes receivable......... (7,000) (2,500) 26,300
Increase (decrease) in accounts payable................ (2,740) 13,572 3,429
Increase (decrease) in interest payable................ 21,797 (298) (1,468)
Decrease in income taxes payable....................... (1,670) (5,094) (394)
All other, net......................................... 6,854 12,684 5,466
----------- -------- ---------
Net cash provided from operations.................. 151,055 209,950 240,881
Cash provided from (used for) investment activities:
Additions to property, plant and equipment............. (165,539) (232,844) (144,055)
Acquisition of Stuart Edgar Limited, net of acquired
cash of $749......................................... -- (8,302) --
Net proceeds from dispositions of investments in and
advances to unconsolidated subsidiaries.............. -- -- 38,568
----------- -------- ---------
Net cash used for investment activities............ (165,539) (241,146) (105,487)
Cash provided from (used for) financing activities:
Proceeds from long-term borrowings..................... 887,088 189,518 462,995
Repayment of long-term borrowings...................... (841,399) (167,731) (759,487)
Debt issuance costs.................................... (31,160) -- (11,058)
Issuance (purchase) of Common Stock.................... (6) -- 163,357
----------- -------- ---------
Net cash provided from (used for) financing
activities....................................... 14,523 21,787 (144,193)
----------- -------- ---------
Increase (decrease) in cash.............................. 39 (9,409) (8,799)
Cash, beginning of year.................................. 188 9,597 18,396
----------- -------- ---------
Cash, end of year.................................. $ 227 $ 188 $ 9,597
----------- -------- ---------
----------- -------- ---------
Supplemental Cash Flow Disclosures:
Interest paid.......................................... $ 228,360 $208,051 $ 236,140
Income taxes paid (refunded), net...................... $ 4,432 $ 9,997 $ (11,090)
</TABLE>

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

F-5
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993

1. SIGNIFICANT ACCOUNTING POLICIES

(A) Principles of Consolidation--The consolidated financial statements
include the accounts of Fort Howard Corporation and all domestic and foreign
subsidiaries other than the Company's former cup subsidiaries. Assets and
liabilities of foreign subsidiaries are translated at the rates of exchange in
effect at the balance sheet date. Income amounts are translated at the average
of the monthly exchange rates. The cumulative effect of translation adjustments
is deferred and classified as a cumulative translation adjustment in the
consolidated balance sheet. All significant intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made to
conform prior years' data to the current format.

On September 4, 1992, Fort Sterling Limited ("Fort Sterling"), the Company's
United Kingdom tissue operations, acquired for $25 million, including debt
assumed of $17 million, Stuart Edgar Limited ("Stuart Edgar"), a converter of
consumer tissue products with annual net sales approximating $43 million. The
operating results of Stuart Edgar are included in the consolidated financial
statements since September 4, 1992.

The Company's investments in unconsolidated subsidiaries were reduced to
zero at December 31, 1991 as a result of sales of all foreign cup subsidiaries
and recognition of equity in the net losses of its remaining cup subsidiary,
Sweetheart Holdings Inc. ("Sweetheart"). During 1993, the Company sold its
remaining equity interest in Sweetheart for $5.1 million recognizing a gain of
the same amount.

(B) Cash and Cash Equivalents--The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount of cash equivalents approximates fair value due
to the short maturity of the investments.

(C) Inventories--Inventories are carried at the lower of cost or market,
with cost principally determined on a first-in, first-out basis (see Note 2).

(D) Property, Plant and Equipment--Prior to August 9, 1988, property, plant
and equipment were stated at original cost and depreciated using the
straight-line method. Effective with the Acquisition (as defined below),
properties were adjusted to their estimated fair values and are being
depreciated on a straight-line basis.

Effective January 1, 1992, the Company prospectively changed its estimates
of depreciable lives of certain machinery and equipment. These changes were made
to better reflect the estimated periods during which such assets will remain in
service. For the year ended December 31, 1992, the change had the effect of
reducing depreciation expense by $38 million and net loss by $24 million.
Subsequent to the change, depreciation is provided over useful lives of 30 to 50
years for buildings and 2 to 25 years for equipment.

Assets under capital leases principally arose in connection with sale and
leaseback transactions as described in Note 9 and are stated at the present
value of future minimum lease payments. These assets are amortized over the
respective periods of the leases which range from 15 to 25 years. Amortization
of assets under capital leases is included in depreciation expense.

The Company follows the policy of capitalizing interest incurred in
conjunction with major capital expenditure projects. The amounts capitalized in
1993, 1992 and 1991 were $8,369,000, $11,047,000 and $5,331,000, respectively.

F-6
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(E) Revenue Recognition--Sales of the Company's paper products are recorded
upon shipment of products.

(F) Environmental Expenditures--Environmental expenditures that relate to
current operations are expensed or capitalized as appropriate. Expenditures that
relate to an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when material environmental assessments and/or remedial efforts are
probable, and the cost can be reasonably estimated.

(G) Goodwill--In 1988, FH Acquisition Corp., a company organized on behalf
of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), acquired the
Company in a leveraged buyout and was subsequently merged with and into the
Company (the "Acquisition"). Goodwill (the acquisition costs in excess of the
fair value of net assets of acquired businesses) acquired in connection with the
Acquisition and the purchases of other businesses was amortized on a
straight-line basis over 40 years through the third quarter of 1993 when the
Company wrote off its remaining goodwill balance (see Note 4). The Company
evaluates the carrying value of goodwill for possible impairment using a
methodology which assesses whether forecasted cumulative net income before
goodwill amortization is adequate to recover the future amortization of the
Company's goodwill balance over the remaining amortization period of the
goodwill.

(H) Employee Benefit Plans--A substantial majority of the Company's
employees are covered under defined contribution plans. The Company's annual
contributions to defined contribution plans are based on pre-tax income, subject
to percentage limitations on participants' earnings and a minimum return on
shareholders' equity. In recent years, the Company made discretionary
contributions as permitted under the plans. Participants may also contribute a
certain percent of their wages to the plans. Costs charged to operations for
defined contributions plans were approximately $12,725,000, $11,716,000 and
$12,231,000 for the years ended December 31, 1993, 1992 and 1991, respectively.

Employees retiring prior to February 1, 1990 from the Company's U.S. tissue
operations who have met certain eligibility requirements are entitled to
postretirement health care benefit coverage. These benefits are subject to
deductibles, copayment provisions, a lifetime maximum benefit and other
limitations. In addition, employees who retire after January 31, 1990 at age 55
or older with ten years of service may purchase health care benefit coverage
from the Company up to age 65. The Company has reserved the right to change or
terminate this benefit at any time. As of January 1, 1992, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The standard
requires that the expected cost of postretirement health care benefits be
charged to expense during the years that employees render service (see Note 10).
Prior to 1992, the annual cost of these benefits had been expensed as claims and
premiums were paid. Employees of the Company's U.K. tissue operations are not
entitled to Company-provided postretirement benefit coverage.

In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Postretirement Benefits." This new standard
requires that the expected cost of benefits to be provided to former or inactive
employees after employment but before retirement be charged to expense during
the years that the employees render service. In the fourth quarter of 1992, the
Company retroactively adopted the new standard effective January 1, 1992.
Adoption of the new accounting standard had no effect on the Company's 1992
consolidated statement of income.

F-7
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(I) Interest Rate Cap and Swap Agreements--The cost of interest rate cap
agreements is amortized over the respective lives of the agreements. The
differential to be paid or received in connection with interest rate swap
agreements is accrued as interest rates change and is recognized over the lives
of the agreements.

(J) Income Taxes--Effective January 1, 1992, the Company has adopted SFAS
No. 109, "Accounting for Income Taxes." The Company had previously adopted SFAS
No. 96, "Accounting for Income Taxes" in 1988. As a result of the accounting
change, the Company reclassified certain deferred tax benefits from long-term
deferred income taxes payable to current assets in the accompanying 1992
consolidated balance sheet. The adoption of SFAS No. 109 had no effect on the
Company's provision for income taxes for the year ended December 31, 1992.

Deferred income taxes are provided to recognize temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. The principal difference relates to
depreciation expense. Deferred income tax expense represents the change in the
deferred income tax asset and liability balances, excluding the deferred tax
benefit related to extraordinary losses.

(K) Earnings (Loss) Per Share--Earnings (loss) per share has been computed
on the basis of the average number of common shares outstanding during the
years. The average number of shares used in the computation was 38,107,154,
38,107,453 and 34,868,321 for the years ended December 31, 1993, 1992 and 1991,
respectively. The assumed exercise of all outstanding stock options has been
excluded from the computation of earnings (loss) per share in 1993, 1992 and
1991 because the result was antidilutive.

(L) Segment Information--The Company operates in one industry segment as a
manufacturer, converter and marketer of a diversified line of single-use paper
products for the home and away-from-home markets.

2. INVENTORIES

Inventories are summarized as follows:
DECEMBER 31,
--------------------
1993 1992
-------- --------
(IN THOUSANDS)
Components
Raw materials and supplies.......................... $ 61,285 $ 53,872
Finished and partly-finished products............... 56,984 47,103
-------- --------
$118,269 $100,975
-------- --------
-------- --------
Value at lower of cost or market:
First-in, first-out (FIFO).......................... $ 94,436 $ 82,805
Average cost by specific lot........................ 23,833 18,170
-------- --------
$118,269 $100,975
-------- --------
-------- --------

F-8
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

3. PROPERTY, PLANT AND EQUIPMENT

The Company's major classes of property, plant and equipment are:

DECEMBER 31,
------------------------
1993 1992
---------- ----------
(IN THOUSANDS)
Land.............................................. $ 44,429 $ 44,631
Buildings......................................... 318,955 294,768
Machinery and equipment........................... 1,367,839 1,212,136
Construction in progress.......................... 113,829 143,411
---------- ----------
$1,845,052 $1,694,946
---------- ----------
---------- ----------

Included in the property, plant and equipment totals above are assets under
capital leases, as follows:
DECEMBER 31,
------------------------
1993 1992
---------- ----------
(IN THOUSANDS)
Buildings......................................... $ 3,989 $ 3,998
Machinery and equipment........................... 185,624 179,487
---------- ----------
Total assets under capital leases................. $ 189,613 $ 183,485
---------- ----------
---------- ----------

4. GOODWILL

Changes in the Company's goodwill are summarized as follows:

YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1992 1991
----------- ---------- ----------
Balance, beginning of year........... $ 2,023,416 $2,075,525 $2,132,183
Acquisition of Stuart Edgar.......... -- 6,043 --
Amortization of goodwill............. (42,576) (56,700) (56,658)
Effects of foreign currency
translation........................ (413) (1,452) --
Goodwill write-off................... (1,980,427) -- --
----------- ---------- ----------
Balance, end of year................. $ -- $2,023,416 $2,075,525
----------- ---------- ----------
----------- ---------- ----------

Low industry operating rates and aggressive competitive activity among
tissue producers resulting from the recession, additions to capacity and other
factors have been adversely affecting tissue industry operating conditions and
the Company's operating results since 1991. Accordingly, the Company revised its
projections and determined that its projected results would not support the
future amortization of the Company's remaining goodwill balance of approximately
$1.98 billion at September 30, 1993.

The methodology employed to assess the recoverability of the Company's
goodwill first involved the projection of operating results forward 35 years,
which approximated the remaining amortization period of the goodwill as of
October 1, 1993. The Company then evaluated the recoverability of goodwill

F-9
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

4. GOODWILL--(CONTINUED)
on the basis of this forecast of future operations. Based on such forecast, the
cumulative net income before goodwill amortization of approximately $100 million
over the remaining 35-year amortization period was insufficient to recover the
goodwill balance. Accordingly, the Company wrote off its remaining goodwill
balance of $1.98 billion in the third quarter of 1993.

The Company's forecast assumed that sales volume increases would be limited
to production from a new paper machine under construction at the Company's
Muskogee mill which is scheduled to start-up in 1994 and that further capacity
expansion was not justifiable given the Company's high leverage and adverse
tissue industry operating conditions. Net selling price and cost increases were
assumed to approximate 1% per year, based on the Company's annual historical
price increase trend for the years 1984 through 1993 and management's estimates
of future performance. Through the year 2001, the Company's projections
indicated that interest expense would exceed operating income, which is
determined after deducting annual depreciation expense. However, projected
operating income before depreciation was adequate to cover projected interest
expense. Inflation and interest rates were assumed to remain low at 1993 levels
during the projected period. Each of the Company's higher yielding debt
securities, the 12 3/8% Senior Subordinated Notes due 1997 (the "12 3/8%
Notes"), the 12 5/8% Subordinated Debentures due 2000 (the "12 5/8% Debentures")
and the 14 1/8% Junior Subordinated Discount Debentures due 2004 (the "14 1/8%
Debentures"), were further assumed to be refinanced at lower interest rates.
Total capital expenditures were projected to approximate $55-$80 million
annually over the next ten years, plus $32 million in 1994 to complete the
Muskogee mill expansion and another $32 million over 1994 and 1995 for a new
coal-fired boiler under construction at the Company's Savannah River mill.
Management believed that the projected future results based on these assumptions
were the most likely scenario given the Company's high leverage and adverse
tissue industry operating conditions.

5. OTHER ASSETS

The components of other assets are as follows:
DECEMBER 31,
------------------
1993 1992
------- -------
(IN THOUSANDS)
Deferred loan costs, net of accumulated amortization.... $71,459 $70,983
Prepayments and other................................... 2,384 5,586
------- -------
$73,843 $76,569
------- -------
------- -------

Amortization of deferred loan costs for the years ended December 31, 1993,
1992 and 1991, totaled $13,488,000, $14,910,000 and $14,883,000, respectively.
During 1993, $19,297,000 of deferred loan costs were written off in conjunction
with the retirement of long-term debt and $31,160,000 of deferred loan costs
were incurred for the issuance of a new bank term loan (the "1993 Term Loan"),
the 9 1/4% Senior Unsecured Notes due 2001 (the "9 1/4% Notes") and the 10%
Subordinated Notes due 2003 (the "10% Notes") and for the purchase of interest
rate caps. During 1991, $11,250,000 of deferred loan costs were written off in
conjunction with the retirement of long-term debt and $11,058,000 of deferred
loan costs were incurred for the issuance of Senior Secured Notes (see Note 8).

F-10
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

6. OTHER CURRENT LIABILITIES

The components of other current liabilities are as follows:
DECEMBER 31,
------------------
1993 1992
------- -------
(IN THOUSANDS)
Salaries and wages...................................... $38,152 $35,939
Contributions to employee benefit plans................. 12,805 11,858
Taxes other than income taxes........................... 5,492 2,536
Other accrued expenses.................................. 13,689 13,949
------- -------
$70,138 $64,282
------- -------
------- -------

7. INCOME TAXES

The income tax provision (credit) includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1992 1991
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal................................................... $ (6,012) $ 10,501 $ 2,040
State..................................................... 465 411 551
Foreign................................................... (225) -- 5,237
--------- -------- --------
Total current......................................... (5,772) 10,912 7,828
Deferred
Federal................................................... (7,731) (13,678) (27,120)
State..................................................... (2,956) (2,380) (4,231)
Foreign................................................... 145 4,748 (440)
--------- -------- --------
Total deferred........................................ (10,542) (11,310) (31,791)
--------- -------- --------
$ (16,314) $ (398) $(23,963)
--------- -------- --------
--------- -------- --------
</TABLE>

The effective tax rate varied from the U.S. federal tax rate as a result of
the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
U.S. federal tax rate............................................. (34.0)% (34.0)% (34.0)%
Amortization of intangibles....................................... 33.4 27.6 19.6
Interest on long-term income taxes................................ -- 5.7 4.1
State income taxes net of U.S. tax benefit........................ (0.1) (3.0) (3.9)
Equity in net loss of Sweetheart.................................. -- -- (10.9)
Other, net........................................................ (0.1) 3.1 0.6
----- ----- -----
Effective tax rate................................................ (0.8)% (0.6)% (24.5)%
----- ----- -----
----- ----- -----
</TABLE>

F-11
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

7. INCOME TAXES--(CONTINUED)
The domestic and foreign components of loss before income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................................. $(2,048,746) $(85,597) $(112,438)
Foreign.................................................. (7,686) 15,797 14,439
----------- -------- ---------
$(2,056,432) $(69,800) $ (97,999)
----------- -------- ---------
----------- -------- ---------
</TABLE>

The net deferred income tax liability at December 31, 1993, includes $229
million related to property, plant and equipment. All other components of the
gross deferred income tax assets and gross deferred income tax liabilities are
individually not significant. The Company has not recorded a valuation allowance
with respect to any deferred income tax asset.

The Internal Revenue Service ("IRS") issued a statutory notice of deficiency
("Notice") to the Company in March 1992 for additional income tax for the 1988
tax year. The Notice resulted from an audit of the Company's 1988 tax year
wherein the IRS adjusted income and disallowed deductions, including deductions
for fees and expenses related to the Acquisition. The IRS also disallowed
deductions for fees and expenses related to 1988 debt financing and refinancing
transactions. In March 1992, the Company filed a petition in the U.S. Tax Court
opposing substantially all of the claimed deficiency and the case was tried in
September 1993. After the trial, the Company and the IRS executed an agreed
Supplemental Stipulation of Facts by which the IRS and the Company partially
settled the case by agreeing that certain fees and expenses (previously
disallowed by the IRS and potentially representing approximately $26 million of
tax liability) were properly deductible by the Company over the term of the 1988
debt financing and refinancing. In addition, the Company agreed to capitalize
certain amounts identified by the IRS and paid additional federal income tax of
approximately $5 million representing its liability with respect to the agreed
adjustments. The U.S. Tax Court has not yet decided the points that remain in
dispute in the case following the partial settlement. The Company estimates that
if the IRS were to prevail in disallowing deductions for the fees and expenses
remaining in dispute before the trial judge, the potential amount of additional
taxes due the IRS on account of such disallowance for the period 1988 through
1993 would be approximately $31 million and for the periods after 1993 (assuming
current statutory tax rates) would be approximately $11 million, in each case
exclusive of IRS interest charges. Since the Company's 1988 tax case involves
disputed issues of law and fact, the Company is unable to predict its final
result with certainty. The Company believes, however, that its ultimate
resolution will not have a material adverse effect on the Company's financial
condition or on its results of operations.

Subject to a favorable resolution of the dispute with the IRS with respect
to the 1988 tax year, the Company has $65 million of net operating loss
carryforwards for federal income tax purposes which expire as follows: $12
million in 2007 and $53 million in 2008.

F-12
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

8. LONG-TERM DEBT

Long-term debt and capital lease obligations, including amounts payable
within one year, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
---------- ----------
<S> <C> <C>
Term Loan, at prime plus 1.50% or, subject to certain limitations,
at a reserve adjusted Eurodollar rate plus 2.25% subject to
downward adjustment if certain financial criteria are met (at a
weighted average rate of 5.72% at December 31, 1993), due in
varying annual repayments with a final maturity of December 31,
1996............................................................. $ 331,753 $ 581,753
Revolving Credit Facility, at prime plus 1.50% or, subject to
certain limitations, at a reserve adjusted Eurodollar rate plus
2.25% subject to downward adjustment if certain financial
criteria are met (at a weighted average rate of 6.13% at December
31, 1993), due December 31, 1996................................. 243,700 216,000
1993 Term Loan, at prime plus 1.75% or, subject to certain
limitations, at a reserve adjusted Eurodollar rate plus 3.0%
(6.53% at December 31, 1993) due May 1, 1997..................... 100,000 --
Senior Secured Notes, at three month LIBOR plus 2.75% to 3.50%
(6.13% to 6.88% at December 31, 1993), due in varying amounts
between 1996 and 2000............................................ 300,000 300,000
Senior Unsecured Notes, 9 1/4%, due March 15, 2001................. 450,000 --
Senior Subordinated Notes, 12 3/8%, due November 1, 1997........... 333,910 383,910
Subordinated Debentures, 12 5/8%, due November 1, 2000............. 383,910 383,910
Subordinated Notes, 10%, due March 15, 2003........................ 300,000 --
Junior Subordinated Discount Debentures, 14 1/8%, due November 1,
2004, $567 million face value.................................... 506,186 441,606
Junior Subordinated Debentures, 14 5/8%, repurchased in 1993....... -- 517,846
Capital lease obligations, at interest rates approximating 10.9%... 184,023 186,082
Pollution Control Revenue Refunding Bonds, 7.90%, due October 1,
2005............................................................. 42,000 42,000
Debt of foreign subsidiaries, at rates ranging from 6.38% to 7.42%,
due in varying annual installments through March 2001............ 47,106 37,667
---------- ----------
3,222,588 3,090,774
Less: Current portion of long-term debt............................ 112,750 137,747
---------- ----------
$3,109,838 $2,953,027
---------- ----------
---------- ----------
</TABLE>

The aggregate fair values of the Company's long-term debt and capital lease
obligations approximated $3,276 million and $3,116 million compared to aggregate
carrying values of $3,223 million and $3,091 million at December 31, 1993 and
1992, respectively. The fair values of the Term Loan, Revolving Credit Facility
and 1993 Term Loan are estimated based on secondary market transactions in such
securities. Fair values for the Senior Secured Notes, the 9 1/4% Notes, the 12
3/8% Notes, the 12 5/8% Debentures, the 10% Notes, the 14 1/8% Debentures and
the Pollution Control Revenue Refunding Bonds were estimated based on trading
activity in such securities. Of the capital lease obligations, the fair values
of 1991 Series Pass Through Certificates were estimated based on trading
activity in such securities. The fair values of other capital lease obligations
were estimated based on

F-13
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

8. LONG-TERM DEBT--(CONTINUED)
interest rates implicit in the valuation of the 1991 Series Pass Through
Certificates. The fair value of debt of foreign subsidiaries is deemed to
approximate its carrying amount.

The 14 1/8% Debentures do not accrue interest in cash until November 1,
1994, and were issued at a discount to yield a 14 1/8% effective annual rate.
The 14 1/8% Debentures will require payments of interest in cash commencing on
May 1, 1995. For the years ended December 31, 1993, 1992, and 1991, interest
related to these debentures was added to the balance due.

On March 22, 1993, the Company sold $450 million principal amount of 9 1/4%
Notes and $300 million principal amount of 10% Notes in a registered public
offering. On April 21, 1993, the Company borrowed $100 million pursuant to the
1993 Term Loan. Proceeds from the sale of the 9 1/4% Notes and the 10% Notes and
from the 1993 Term Loan were applied to the prepayment of $250 million of the
Term Loan, to the repayment of a portion of the Company's indebtedness under the
Revolving Credit Facility, to the repurchase of all the Company's outstanding
Junior Subordinated Debentures due 2004 (the "14 5/8% Debentures") and to the
payment of fees and expenses. As a result of the repayment of $250 million of
the Term Loan and the repurchases of the 14 5/8% Debentures, the Company
incurred an extraordinary loss of $10 million (net of income taxes of $6
million) representing the write-off of unamortized deferred loan costs.

The 9 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 10% Notes are subordinated in right of payment to all existing and
future senior indebtedness of the Company, including the 12 3/8% Notes, rank
equally with the 12 5/8% Debentures and constitute senior indebtedness with
respect to the 14 1/8% Debentures. The 1993 Term Loan bears interest, at the
Company's option, at Bankers Trust's prime rate, plus 1.75% or, subject to
certain limitations, at a reserve adjusted Eurodollar rate, plus 3.00%, and
matures May 1, 1997. The 1993 Term Loan constitutes senior secured indebtedness
of the Company.

In connection with the sale of the 9 1/4% Notes and the 10% Notes and the
borrowing under the 1993 Term loan, the Company amended its Bank Credit
Agreement and the Senior Secured Note Agreement. Among other changes, the
amendments reduced domestic capital spending limits. In addition, the Company's
required ratios of earnings before non-cash charges, interest and taxes to cash
interest were lowered to give effect to the greater amount of the Company's cash
interest payments as a result of the issuance of the 9 1/4% Notes and 10% Notes
and subsequent repurchases of 14 5/8% Debentures.

The Company redeemed $50 million of its 12 3/8% Notes at the redemption
price of 105% of the principal amount thereof on November 1, 1993, the first
date that such notes were redeemable. The redemption was funded principally from
excess funds from the sale of the 9 1/4% Notes and the 10% Notes. In connection
with the redemption, the Company incurred an extraordinary loss of $2 million
(net of income taxes of $1 million), representing the redemption premium and
unamortized deferred loan costs.

In 1991, Fort Sterling entered into a credit agreement to provide financing
for the addition of a third paper machine and related equipment at its tissue
mill. The facility consists of 20 million pound sterling (approximately $30
million) term loan due March 2001 and a 5 million pound sterling (approximately
$7 million) revolving credit facility due March 1996. In 1992, Fort Sterling
entered into a second credit agreement to finance the acquisition of Stuart
Edgar. This facility consists of a term

F-14
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

8. LONG-TERM DEBT--(CONTINUED)
loan due December 1997 with 3.4 million pounds sterling (approximately $5
million) outstanding at December 31, 1993, and a second term loan due
December 1997 with 6.8 million pounds sterling (approximately $10 million )
outstanding at December 31, 1993. These credit agreements bear interest at
floating rates and are secured by certain assets of Fort Sterling and Stuart
Edgar but are nonrecourse to the Company.

Obligations under the Bank Credit Agreement, the 1993 Term Loan Agreement
and the Senior Secured Notes bear interest at floating rates. The Company's
policy is to enter into interest rate cap and swap agreements as a hedge to
effectively fix or limit its exposure to floating interest rates to, at a
minimum, comply with the terms of these senior secured debt agreements. The
Company is a party to interest rate cap agreements which limit the interest cost
to the Company to 8.25% (including the Company's borrowing margin on Eurodollar
rate loans) until June 1, 1996 with respect to $500 million of obligations under
the Bank Credit Agreement. The Company is party to an interest rate swap
agreement which effectively fixes the interest cost to the Company at 6.53%
(including the Company's borrowing margin on Eurodollar rate loans) until April
21, 1994 with respect to the $100 million outstanding under the 1993 Term Loan
Agreement. The Company is also a party to an interest rate cap agreement which
limits the interest cost to the Company to rates between 11.25% and 12.00% until
September 11, 1994 with respect to the $300 million received through the
issuance of the Senior Secured Notes. At current market rates at December 31,
1993, the fair value of the Company's interest rate cap agreements is $1.6
million. The fair value of the interest rate swap agreement at December 31, 1993
is zero. The Company monitors the risk of default by the counterparties to the
interest rate cap and swap agreements and does not anticipate nonperformance.
Because current market interest rates are substantially lower than the rates in
the Company's interest rate cap and swap agreements, nonperformance by the other
parties to the interest rate cap and swap agreements would not result in a
material loss to the Company.

In addition to the scheduled mandatory annual repayments, the Bank Credit
Agreement provides for mandatory repayments from proceeds of any significant
asset sales (except for proceeds from certain foreign asset sales which are
redeployed outside the U.S.), from proceeds of sale and leaseback transactions,
and annually an amount equal to 50% of excess cash flow for the prior calendar
year, as defined.

Among other restrictions, the Bank Credit Agreement, the 1993 Term Loan
Agreement, the Senior Secured Note Agreement, the foreign credit agreements and
the Company's indentures: (1) restrict payments of dividends, repayments of
subordinated debt, purchases of the Company's stock, additional borrowings and
acquisition of property, plant and equipment; (2) require that the ratios of
current assets to current liabilities, senior debt to adjusted net worth plus
subordinated debt and earnings before non-cash charges, interest and taxes to
cash interest be maintained at prescribed levels; (3) restrict the ability of
the Company to make fundamental changes and to enter into new lines of business,
the pledging of the Company's assets and guarantees of indebtedness of others
and (4) limit dispositions of assets, the ability of the Company to enter lease
and sale and leaseback transactions, and investments which might be made by the
Company. The Company believes that such limitations should not impair its plans
for continued maintenance and modernization of facilities or other operating
activities.

Pursuant to amendments to the Bank Credit Agreement and the Senior Secured
Note Agreement and the completion of various transactions, at December 31, 1993,
the Company may borrow up to $39 million to repurchase 14 1/8% Debentures.

F-15
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

8. LONG-TERM DEBT--(CONTINUED)
The Company believes that, notwithstanding the adverse tissue industry
operating conditions and the non-cash charge to write-off the remaining balance
of the Company's goodwill (see Note 4), cash provided by operations and access
to debt financing in the public and private markets will be sufficient to enable
it to fund maintenance and modernization capital expenditures and meet its debt
service requirements for the foreseeable future. However, in the absence of
improved financial results, it is likely that in 1995 the Company would be
required to seek a waiver of the cash interest coverage covenant under the Bank
Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note
Agreement because the Company's 14 1/8% Debentures will accrue interest in cash
commencing on November 1, 1994 and will require payments of interest in cash on
May 1, 1995. Although the Company believes that it will be able to obtain
appropriate waivers from its lenders, there can be no assurance that this will
be the case.

Pursuant to 1993 amendments to the Bank Credit Agreement, the 1993 Term Loan
Agreement and the Senior Secured Note Agreement, the required ratio of earnings
before non-cash charges, interest and taxes to cash interest for the four fiscal
quarters ending March 31, 1994 was reduced from 1.50 to 1.00 to 1.40 to 1.00.

At December 31, 1993, receivables totaling $100 million, inventories
totaling $118 million and property, plant and equipment with a net book value of
$1,177 million were pledged as collateral under the terms of the Bank Credit
Agreement, the 1993 Term Loan Agreement, the Senior Secured Note Agreement, the
foreign credit agreements and under the indentures for sale and leaseback
transactions.

The Company is charged a 0.5% fee with respect to any unused balance
available under its $350 million Revolving Credit Facility, and a 2% fee with
respect to any letters of credit issued under the Revolving Credit Facility. At
December 31, 1993, $244 million of borrowings reduced available capacity under
the Revolving Credit Facility to $106 million.

The aggregate annual maturities of long-term debt and capital lease
obligations at December 31, 1993, are as follows (in thousands):

1994........................................................... $ 112,750
1995........................................................... 115,906
1996........................................................... 376,192
1997........................................................... 541,214
1998........................................................... 87,498
1999 and thereafter............................................ 1,989,028
----------
$3,222,588
----------
----------

9. SALE AND LEASEBACK TRANSACTIONS

Buildings and machinery and equipment related to various capital additions
at the Company's tissue mills were sold and leased back from various financial
institutions (the "sale and leaseback transactions") for periods from 15 to 25
years. The terms of the sale and leaseback transactions contain restrictions
which are less restrictive than the covenants of the Bank Credit Agreement
described in Note 8.

F-16
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

9. SALE AND LEASEBACK TRANSACTIONS--(CONTINUED)
These leases are treated as capital leases in the accompanying consolidated
financial statements. Future minimum lease payments at December 31, 1993, are as
follows (in thousands):

YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------
1994............................................................ $ 21,205
1995............................................................ 23,397
1996............................................................ 24,492
1997............................................................ 24,492
1998............................................................ 24,280
1999 and thereafter............................................. 386,412
--------
Total payments.................................................. 504,278
Less imputed interest at rates approximating 10.9%.............. 320,255
--------
Present value of capital lease obligations...................... $184,023
--------
--------

Capital lease obligations incurred in 1991 totaling $82 million are
considered noncash items and, accordingly, are not reflected in the consolidated
statement of cash flows for 1991.

10. EMPLOYEE POSTRETIREMENT BENEFIT PLANS

As of January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The cumulative
effect on years prior to 1992 of adopting SFAS No. 106 is stated separately in
the Company's consolidated statement of income for 1992 as a one-time after-tax
charge of $10.6 million. This change in accounting principle, excluding the
cumulative effect, decreased operating income by $2.1 million and $1.2 million
in 1993 and 1992, respectively.

Net periodic postretirement benefit cost included the following components
(in thousands):

YEAR ENDED
DECEMBER 31,
----------------
1993 1992
------ ------
Service cost.............................................. $1,140 $ 902
Interest cost............................................. 1,800 1,366
Other..................................................... 99 --
------ ------
Net periodic postretirement benefit cost................ $3,039 $2,268
------ ------
------ ------

F-17
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

10. EMPLOYEE POSTRETIREMENT BENEFIT PLANS--(CONTINUED)
The following table sets forth the components of the plan's unfunded
accumulated postretirement benefit obligation (in thousands):

DECEMBER 31,
--------------------
1993 1992
-------- --------
Accumulated postretirement benefit obligation:
Retirees............................................ $ 7,504 $ 6,632
Fully eligible active plan participants............. 4,401 2,890
Other active plan participants...................... 12,037 13,558
-------- --------
23,942.. 23,080
Unrecognized actuarial losses......................... (3,517) (4,800)
-------- --------
Accrued postretirement benefit cost................... $ 20,425 $ 18,280
-------- --------
-------- --------

The medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1993 begins at 12% in 1994,
decreases 1% per year to 6% for 2000 and remains at that level thereafter.
Increasing the assumed medical trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of December
31, 1993 by $2.9 million and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost by $0.5 million. The
medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1992 began at 14% in 1993,
decreasing 1% per year to 7% for 2000 and remained at that level thereafter.

The discount rate used in determining the accumulated postretirement benefit
obligation was 7% and 8% compounded annually with respect to the 1993 and 1992
valuations, respectively.

11. SHAREHOLDERS' EQUITY (DEFICIT)

The Company is authorized to issue up to shares of $.01 par value
Voting Common Stock. At December 31, 1993, 38,107,778 shares were issued and
38,107,128 shares were outstanding. At December 31, 1992, 38,107,778 shares were
issued and 38,107,453 shares were outstanding. In addition, 3,900,000 shares of
$.01 par value Non-Voting Common Stock have been authorized, of which none were
issued and outstanding at both December 31, 1993 and 1992.

During 1991, the Company sold 8,849,549 shares of Voting Common Stock and
40,300 shares of Voting Common Stock with put right pursuant to a private
placement of Common Stock. The net proceeds of the sales totaled $163.4 million.
Also during 1991, 174,967 shares of Non-Voting Common Stock were exchanged on a
one-for-one basis for Voting Common Stock.

F-18
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

11. SHAREHOLDERS' EQUITY (DEFICIT)--(CONTINUED)

Changes in the Company's shareholders' equity (deficit) accounts for the
years ended December 31, 1993, 1992 and 1991, are as follows:

<TABLE>
<CAPTION>
VOTING NON-VOTING CUMULATIVE RETAINED
COMMON COMMON TRANSLATION EARNINGS
STOCK STOCK ADJUSTMENT (DEFICIT)
------ ---------- ----------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance, December 31, 1990.......................... $435 $ 3 $ 8 $ (432)
Net loss............................................ -- -- -- (111)
Issuance of Voting Common Stock..................... 163 -- -- --
Exchange of Non-Voting Common Stock for Voting
Common Stock...................................... 3 (3) -- --
Amortization of the increase in fair market value of
Voting Common Stock with put right................ -- -- -- (2)
Foreign currency translation adjustment............. -- -- (1) --
------ ----- ----- --------
Balance, December 31, 1991.......................... 601 -- 7 (545)
Net loss............................................ -- -- -- (80)
Amortization of the increase in fair market value of
Voting Common Stock with put right................ -- -- -- (1)
Foreign currency translation adjustment............. -- -- (11) --
------ ----- ----- --------
Balance, December 31, 1992.......................... 601 -- (4) (626)
Net Loss............................................ -- -- -- (2,052)
Decrease in fair market value of Voting Common Stock
with put right.................................... -- -- -- 2
Foreign currency translation adjustment............. -- -- (1) --
------ ----- ----- --------
Balance, December 31, 1993.......................... $601 $ -- $ (5) $ (2,676)
------ ----- ----- --------
------ ----- ----- --------
</TABLE>

The aggregate par value of the Voting Common Stock reported in the amounts
above at December 31, 1993 was $381,071.

12. VOTING COMMON STOCK WITH PUT RIGHT

Pursuant to an Amended and Restated Management Equity Participation
Agreement, as amended (the "Management Equity Participation Agreement"), members
of the Company's senior management have acquired shares of the Company's $.01
par value Voting Common Stock. In addition, the Fort Howard Corporation
Management Equity Plan (the "Management Equity Plan") provides for the offer of
Voting Common Stock and the grant of options to purchase Voting Common Stock to
officers and certain other key employees of the Company. Officers or other key
employees of the Company who purchase shares of Voting Common Stock or are
granted options pursuant to the Management Equity Plan are required to enter
into a Management Equity Plan Agreement with the Company and to become bound by
the terms of the Company's stockholders agreement. All Voting Common Stock
acquired by management investors, including shares acquired by the Company's
former chairman and chief executive officer, are collectively referred to as the
"Putable Shares."

Beginning with the fifth anniversary of the respective dates of purchase of
certain of the Putable Shares to the date on which 15% or more of the Company's
Voting Common Stock has been sold in one or more public offerings, specified
percentages of the shares may be put to the Company at the option of

F-19
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

12. VOTING COMMON STOCK WITH PUT RIGHT--(CONTINUED)
the holders thereof, with certain limitations, at their fair market value.
Subject to certain exceptions, the Management Equity Participation Agreement and
Management Equity Plan also provide that management investors who terminate
their employment with the Company shall sell their shares of Voting Common Stock
and vested options to the Company or its designee. Subject to certain
exceptions, options which have not vested at the time a management investor's
employment is terminated are forfeited to the Company. At the time of his
resignation, all the Putable Shares then owned by the Company's former chairman
and chief executive officer became putable to the Company.

During 1993, the Company decreased the estimated fair market valuation of
its Common Stock as a result of the effects of adverse tissue industry operating
conditions on its long-term earnings forecast and, as a result, reduced the
carrying amount of its Voting Common Stock with put right to its original cost.
The effect of the adjustment was to reduce both the Voting Common Stock with put
right and the deficit in retained earnings by approximately $1.4 million.

Changes in the Company's Voting Common Stock with put right are as follows
(in thousands, except number of shares):

YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
Balance, beginning of year.................... $13,219 $12,963 $ 9,574
Issuance of 40,300 shares including 32,071
shares from treasury........................ -- -- 744
Amortization of the increase (decrease) in
fair market value and increased vested
portion of Putable Shares................... (1,399) 256 2,645
------- ------- -------
Balance, end of year.......................... $11,820 $13,219 $12,963
------- ------- -------
------- ------- -------

13. STOCK OPTIONS

Pursuant to the Management Equity Participation Agreement and the Management
Equity Plan, 5,253,463 shares of Voting Common Stock are reserved for sale to
officers and key employees as stock options. The exercisability of such options
is subject to certain conditions. Options must be exercised within ten years of
the date of grant. All options and shares to be issued under the terms of these
plans are restricted as to transferability. Under certain conditions, the
Company has the right or obligation to redeem shares issued under terms of the
options at a price equal to their fair market value.

All options outstanding at December 31, 1993, except for fully vested
options held by the Company's former chairman and chief executive officer, have
a vesting schedule of twenty percent per year, measured from the date of initial
grant. Any such options will be subject to partial acceleration of vesting in
the event of death or disability and must be exercised within 10 years of the
date of grant.

F-20
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

13. STOCK OPTIONS--(CONTINUED)
Changes in stock options outstanding are summarized as follows:

EXERCISE
NUMBER OF PRICE
OPTIONS PER OPTION
--------- ---------------
Balance, December 31, 1990..................... 3,137,303 $15.38 to 20.77
Options Granted.............................. 890,240 18.46
Options Cancelled............................ (363,740) 15.38 to 20.77
--------- ---------------
Balance, December 31, 1991..................... 3,663,803 15.38 to 18.46
Options Granted.............................. 80,600 18.46
Options Cancelled............................ (6,890) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1992..................... 3,737,513 15.38 to 18.46
Options Granted.............................. 98,800 18.46
Options Cancelled............................ (10,660) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1993..................... 3,825,653 $15.38 to 18.46
--------- ---------------
--------- ---------------
Exercisable at December 31, 1993............... 3,233,737 $15.38 to 18.46
--------- ---------------
--------- ---------------
Shares available for future grant at December
31, 1993..................................... 1,427,810
---------
---------

The Company amortizes the excess of the fair market value of its Common
Stock over the strike price of options granted to employees over the periods the
options vest. Due to the effects of adverse tissue industry operating conditions
on its long-term earnings forecast, the Company decreased the estimated fair
market valuation of its Common Stock and, as a result, reversed all previously
accrued employee stock compensation expense in 1993. The reversal of the accrued
employee stock compensation expense resulted in a credit to operations of
$7,832,000 for 1993. Employee stock compensation expense was $1,120,000 and
$1,256,000 for 1992 and 1991, respectively.

14. RELATED PARTY TRANSACTIONS

Morgan Stanley Group Inc. ("Morgan Stanley Group") and an affiliate acquired
a substantial majority equity interest in the Company to effect the Acquisition.
At December 31, 1993, Morgan Stanley Group and its affiliates controlled 57% (on
a fully diluted basis) of the Company's Voting Common Stock.

The Company has entered into an agreement with Morgan Stanley & Co.
Incorporated ("MS&Co") for financial advisory services in consideration for
which the Company will pay MS&Co an annual fee of $1 million. MS&Co will also be
entitled to reimbursement for all reasonable expenses incurred in the
performance of the foregoing services. The Company paid MS&Co $1,046,000,
$1,096,000 and $1,064,000 for these and other miscellaneous services in 1993,
1992 and 1991, respectively. In 1993, MS&Co received approximately $19.5 million
related to the underwriting of the issuance of the 1993 Notes. In 1992, MS&Co
received approximately $0.7 million related to the underwriting of the
reissuance of the Company's Development Authority of Effingham County Pollution
Control Revenue Refunding Bonds, Series 1988. In connection with a 1991 sale and
leaseback transaction, MS&Co received approximately $2.9 million of advisory and
underwriting fees. Also in

F-21
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

14. RELATED PARTY TRANSACTIONS--(CONTINUED)
1991, in connection with the offering of Senior Secured Notes, MS&Co received
approximately $6.8 million of advisory fees.

MS&Co served as lead underwriter for the initial offering of the Company's
subordinated debt securities and since the Acquisition has been a market maker
with respect to those securities. In connection with the 1991 repurchases of the
Company's subordinated debt securities, $52.8 million aggregate principal amount
at maturity of the 14 5/8% Debentures and $132.7 million aggregate principal
amount at maturity of the 14 1/8% Debentures were purchased through MS&Co. In
addition, $46.5 million and $77.5 million aggregate principal amount at maturity
of the 14 1/8% Debentures were purchased from Leeway & Co. and First Plaza Group
Trust, respectively, shareholders of the Company. The purchases were made in
negotiated transactions at market prices.

15. COMMITMENTS AND CONTINGENCIES

In 1992, the Company commenced the installation of a fifth paper machine,
environmental protection equipment and associated facilities at its Muskogee,
Oklahoma tissue mill. The expansion is planned for completion in 1994 at an
estimated cost of $140 million. Total expenditures for the expansion through
December 31, 1993 were $109 million.

The Company's domestic manufacturing operations are subject to regulation by
various federal, state and local authorities concerned with the limitation and
control of emissions and discharges to the air and waters and the handling, use
and disposal of specified chemicals and solid waste. The Company's United
Kingdom operations are subject to similar regulation.

The Company has made significant capital expenditures in the past to comply
with environmental regulations. Future environmental legislation and developing
regulations are expected to further limit emission and discharge levels and to
expand the scope of regulation, all of which will require continuing capital
expenditures. There can be no assurance that such costs would not be material to
the Company.

The Company operates a licensed solid waste landfill at each of its tissue
mills in the United States to dispose of residue from recycling wastepaper and
ash from coal-fired boilers. In March 1990, the Company began a remedial
investigation of its Green Bay, Wisconsin landfill. The investigation is being
overseen by the United States Environmental Protection Agency under authority
granted to the agency by the Comprehensive Environmental Response, Compensation
and Liability Act, commonly known as the "Superfund Act." A Preliminary Health
Assessment released by the United States Department of Health and Human Services
in January 1992 reported that the Company's Green Bay landfill does not pose any
apparent public health hazard. Based upon the results of the remedial
investigation through December 31, 1993, the Company believes that costs or
expenditures associated with any future remedial action, were it to be required,
would not have a material adverse effect on the Company's financial condition or
on its results of operations.

Except for the Green Bay landfill site, the Company is not presently named
as a potentially responsible party at any other Superfund related sites;
however, there can be no certainty that the Company will not be named as a
potentially responsible party at any other sites in the future or that the costs
associated with those sites would not be material.

F-22
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

The Company and its subsidiaries are parties to lawsuits and state and
federal administrative proceedings in connections with their businesses.
Although the final results in such suits and proceedings cannot be predicted
with certainty, the Company believes that they will not have a material adverse
effect on the Company's financial condition or on its results of operations.

16. GEOGRAPHIC INFORMATION

A summary of the Company's operations by geographic area as of December 31,
1993, 1992 and 1991, and for the years then ended is presented below (in
thousands):

<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM CONSOLIDATED
----------- -------- ------------
<S> <C> <C> <C>
1993
Net sales........................................... $ 1,044,174 $143,213 $ 1,187,387
Operating loss...................................... (1,715,777) (859) (1,716,636)
Identifiable operating assets....................... 1,486,166 163,621 1,649,787

1992
Net sales........................................... $ 1,008,129 $143,222 $ 1,151,351
Operating income.................................... 253,437 17,238 270,675
Identifiable operating assets....................... 3,411,833 162,734 3,574,567

1991
Net sales........................................... $ 1,027,969 $110,241 $ 1,138,210
Operating income.................................... 254,603 15,929 270,532
Identifiable operating assets....................... 3,373,199 96,603 3,469,802
</TABLE>

Intercompany sales and charges between geographic areas and export sales are
not material.

In 1993, the Company determined that its projected results would not support
the future amortization of the Company's remaining goodwill balance.
Accordingly, the Company wrote off its remaining goodwill balance of $1,980
million in the third quarter of 1993, resulting in charges of $1,968 million and
$12 million to the operating income of the United States and United Kingdom
operations, respectively.

In 1992, the Company changed its estimates of the depreciable lives of
certain machinery and equipment resulting in a reduction of depreciation expense
and an increase in operating income of $38 million in the United States.

F-23
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993

17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

A summary of the quarterly results of operations for 1993 and 1992 follows
(in millions, except per share data):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1993
Net sales...................................... $ 285 $ 302 $ 309 $ 291 $ 1,187
Gross income................................... 96 101 109 97 403
Operating income (loss)........................ 56 61 (1,905) 71 (1,717)
Net loss before extraordinary items............ (26) (24) (1,986) (4) (2,040)
Extraordinary items--losses on debt
repurchases.................................. (10) -- -- (2) (12)
Net loss....................................... (36) (24) (1,986) (6) (2,052)
Loss per share:
Net loss before extraordinary items.......... (0.69) (0.62) (52.12) (0.10) (53.54)
Extraordinary items--losses on debt
repurchases................................ (0.25) -- -- (0.06) (0.31)
Net loss per share........................... (0.94) (0.62) (52.12) (0.16) (53.85)
Dividends per share............................ -- -- -- -- --

1992
Net sales...................................... $ 276 $ 282 $ 308 $ 285 $ 1,151
Gross income................................... 106 110 114 95 425
Operating income............................... 66 72 75 58 271
Net loss before adjustment for accounting
change....................................... (17) (13) (11) (28) (69)
Adjustment for adoption of SFAS No. 106........ (11) -- -- -- (11)
Net loss....................................... (28) (13) (11) (28) (80)
Loss per share:
Net loss before adjustment for accounting
change..................................... (0.45) (0.33) (0.30) (0.73) (1.82)
Adjustment for adoption of SFAS No. 106...... (0.28) -- -- -- (0.28)
Net loss per share........................... (0.73) (0.33) (0.30) (0.73) (2.10)
Dividends per share............................ -- -- -- -- --
</TABLE>

18. SUBSEQUENT EVENT

On , 1994, the Company's shareholders approved an increase in
the number of authorized shares of Common Stock to shares and approved a
6.50-for-one stock split of the Common Stock, effective , 1995. All
share and per share amounts included in the consolidated financial statements
and notes thereto have been restated to give effect to the increase in
authorized shares and the stock split.

F-24
<PAGE>
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1994 1993
-------- -----------
<S> <C> <C>
Net sales........................................................... $930,697 $ 895,768
Cost of sales....................................................... 624,399 590,147
-------- -----------
Gross income........................................................ 306,298 305,621
Selling, general and administrative................................. 82,092 70,707
Amortization of goodwill............................................ -- 42,576
Goodwill write-off.................................................. -- 1,980,427
-------- -----------
Operating income (loss)............................................. 224,206 (1,788,089)
Interest expense.................................................... 251,562 259,157
Other income (expense), net......................................... (215) 5,475
-------- -----------
Loss before taxes................................................... (27,571) (2,041,771)
Income tax credit................................................... (10,640) (5,483)
-------- -----------
Loss before extraordinary item...................................... (16,931) (2,036,288)
Extraordinary item--loss on debt repurchases (net of income taxes of
$14,731 in 1994 and $5,982 in 1993)............................... (28,170) (9,760)
-------- -----------
Net loss............................................................ $(45,101) $(2,046,048)
-------- -----------
-------- -----------
Loss per common share:
Net loss before extraordinary item................................ $ (0.44) $ (53.44)
Extraordinary item................................................ (0.74) (0.25)
-------- -----------
Net loss.......................................................... $ (1.18) $ (53.69)
-------- -----------
-------- -----------
Average shares outstanding.......................................... 38,104 38,107
-------- -----------
-------- -----------
</TABLE>

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

F-25
<PAGE>
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 637 $ 227
Receivables, less allowances of $1,923 in 1994 and
$2,366 in 1993........................................ 132,731 105,834
Inventories............................................. 123,891 118,269
Deferred income taxes................................... 14,000 14,000
Income taxes receivable................................. 5,600 9,500
------------------ -----------------
Total current assets................................ 276,859 247,830
Property, plant and equipment............................. 1,917,811 1,845,052
Less: Accumulated depreciation.......................... 588,009 516,938
------------------ -----------------
Net property, plant and equipment................... 1,329,802 1,328,114
Other assets.............................................. 71,675 73,843
------------------ -----------------
Total assets........................................ $ 1,678,336 $ 1,649,787
------------------ -----------------
------------------ -----------------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 102,751 $ 101,665
Interest payable........................................ 35,084 54,854
Income taxes payable.................................... 12,137 122
Other current liabilities............................... 66,326 70,138
Current portion of long-term debt....................... 15,474 112,750
------------------ -----------------
Total current liabilities........................... 231,772 339,529
Long-term debt............................................ 3,322,482 3,109,838
Deferred and other long-term income taxes................. 211,817 243,437
Other liabilities......................................... 23,438 26,088
Common Stock with put right............................... 11,711 11,820
Shareholders' equity (deficit):
Common Stock............................................ 600,471 600,459
Cumulative translation adjustment....................... (1,961) (5,091)
Retained earnings (deficit)............................. (2,721,394) (2,676,293)
------------------ -----------------
Total shareholders' equity (deficit)................ (2,122,884) (2,080,925)
------------------ -----------------
Total liabilities and shareholders' equity
(deficit)......................................... $ 1,678,336 $ 1,649,787
------------------ -----------------
------------------ -----------------
</TABLE>

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

F-26
<PAGE>
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1994 1993
--------- -----------
<S> <C> <C>
Cash provided from (used for) operations:
Net loss......................................................... $ (45,101) $(2,046,048)
Depreciation and amortization.................................... 69,786 105,469
Goodwill write-off............................................... -- 1,980,427
Employee stock compensation...................................... -- (7,832)
Non-cash interest expense........................................ 64,759 80,109
Deferred income tax credit....................................... (19,698) (12,360)
Pre-tax loss on debt repurchases................................. 42,901 15,742
Increase in receivables.......................................... (26,897) (19,798)
Increase in inventories.......................................... (5,622) (3,113)
(Increase) decrease in income taxes receivable................... 3,900 (2,500)
Increase (decrease) in accounts payable.......................... 1,086 (14,471)
Increase (decrease) in interest payable.......................... (19,770) 29,139
Increase in income taxes payable................................. 776 1,077
All other, net................................................... (8,418) 8,577
--------- -----------
Net cash provided from operations............................ 57,702 114,418
Cash used for investment activity:
Additions to property, plant and equipment....................... (64,674) (107,384)
Cash provided from (used for) financing activities:
Proceeds from long-term borrowings............................... 750,000 858,090
Repayment of long-term borrowings................................ (721,034) (833,565)
Debt issuance costs.............................................. (21,584) (30,983)
--------- -----------
Net cash provided from (used for) financing activities....... 7,382 (6,458)
--------- -----------
Increase in cash................................................... 410 576
Cash at beginning of period........................................ 227 188
--------- -----------
Cash at end of period............................................ $ 637 $ 764
--------- -----------
--------- -----------
Supplemental Cash Flow Disclosures:
Interest paid.................................................... $ 210,091 $ 155,504
Income taxes paid (refunded), net................................ (8,696) (2,716)
</TABLE>

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

F-27
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals, except for extraordinary items
related to debt repurchases described in Note 5 and the goodwill write-off
described in Note 4) which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods presented. Certain
reclassifications have been made to conform prior years' data to the current
format.

2. LOSS PER SHARE

Loss per share is computed on the basis of the weighted average number of
common shares outstanding during the periods. The weighted average number of
common shares outstanding for the nine month periods ended September 30, 1994
and 1993 were 38,103,878 and 38,107,167, respectively. The assumed exercise of
all outstanding stock options has been excluded from the computation of loss per
share for the nine month periods ended September 30, 1994 and 1993 because the
results were antidilutive.

3. INVENTORIES

Inventories consist of:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies........................ $ 57,681 $ 61,285
Finished and partly-finished products............. 66,210 56,984
------------- ------------
$ 123,891 $118,269
------------- ------------
------------- ------------
</TABLE>

4. GOODWILL WRITE-OFF

Low industry operating rates and aggressive competitive activity among
tissue producers resulting from the 1991-1992 recession, additions to industry
capacity and other factors adversely affected tissue industry operating
conditions and the Company's operating results beginning in 1991 and through the
third quarter of 1993.

As a result of these conditions, during the second quarter of 1993 the
Company commenced an evaluation of the carrying value of its goodwill for
possible impairment. The Company revised its projections and concluded its
evaluation in the third quarter of 1993 determining that its forecasted
cumulative net income before goodwill amortization was inadequate to recover the
future amortization of the Company's goodwill balance over the remaining
amortization period of the goodwill. Accordingly, the Company wrote off its
remaining goodwill balance of $1.98 billion in the third quarter of 1993.

5. LONG-TERM DEBT

On February 9, 1994, the Company sold $100 million principal amount of 8
1/4% Senior Unsecured Notes due 2002 (the "8 1/4% Notes") and $650 million
principal amount of 9% Senior Subordinated Notes due 2006 (the "9% Notes") in a
registered public offering (collectively, the "1994 Notes").

F-28
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

5. LONG-TERM DEBT--(CONTINUED)
Proceeds from the sale of the 1994 Notes have been applied to the repurchase of
all the remaining 12 3/8% Notes at the redemption price of 105% of the principal
amount thereof, to the repurchase of $238 million of 12 5/8% Debentures at the
redemption price of 105% of the principal amount thereof, to the prepayment of
$100 million of the Term Loan, to the repayment of a portion of the Company's
indebtedness under the Revolving Credit Facility and to the payment of fees and
expenses.

The 8 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 9% Notes are subordinated in right of payment to all existing and
future senior indebtedness of the Company and constitute senior indebtedness
with respect to the 10% Notes, the 12 5/8% Debentures and the 14 1/8%
Debentures.

In connection with the sale of the 1994 Notes, the Company amended the Bank
Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note
Agreement. Among other changes, the amendments reduced the required ratio of
earnings before non-cash charges, interest and taxes to cash interest for the
four fiscal quarters ending March 31, 1994, to 1.40 to 1.00 from 1.50 to 1.00.

The Company incurred an extraordinary loss of $28 million (net of income
taxes of $15 million) in the first quarter of 1994 representing the redemption
premiums on the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures, and
the write-off of deferred loan costs associated with the repayment of $100
million of the Term Loan and the repurchases of the 12 3/8% Notes and the 12
5/8% Debentures.

On October 14, 1994, the Company entered into an amendment of its Bank
Credit Agreement, 1993 Term Loan Agreement and Senior Secured Note Agreement.
Among other things, this amendment adjusted certain financial covenants,
including the reduction of the required ratio of earnings before non-cash
charges, interest and taxes to cash interest to 1.25 to 1.00 from 1.50 to 1.00
and the increase of the maximum ratio of senior debt to adjusted net worth plus
subordinated debt to 0.85 to 1.00 from 0.80 to 1.00 effective for the rolling
four quarters ended December 31, 1994 through December 31, 1995. The ratios were
adjusted to give effect to the Company's higher aggregate cash interest expense
which results from the Company's 14 1/8% Debentures accruing interest in cash
commencing on November 1, 1994, with payments of interest in cash commencing on
May 1, 1995.

At September 30, 1994, the available capacity under the Revolving Credit
Facility was $120 million.

6. INCOME TAXES

In 1992, the Internal Revenue Service (the "IRS") issued a statutory notice
of deficiency (the "Notice") to the Company for additional income tax due for
the 1988 tax year. In the Notice, the IRS disallowed deductions for its 1988 tax
year for fees and expenses, other than interest, related to the 1988 debt
financing and refinancing transactions. In disallowing these deductions, the IRS
relied on Internal Revenue Code (the "Code") Section 162(k) (which denies
deductions for otherwise deductible amounts paid or incurred in connection with
stock redemptions). The Company had deducted a portion of the disallowed fees
and expenses in 1988 and has been deducting the balance of the fees and expenses
over the terms of the 1988 long-term debt financing and refinancing. Following
receipt of the Notice, the Company filed a petition in the U.S. Tax Court
contesting the deficiency. In August 1994, the U.S. Tax Court issued its opinion
in which it essentially adopted the interpretation of Code Section 162(k)
advanced by the IRS and disallowed the deductions claimed by the Company. At
present, the U.S. Tax

F-29
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

6. INCOME TAXES--(CONTINUED)
Court is preparing an order in which it will determine the amount of tax
deficiency owed by the Company as a result of the court's decision. The Company
intends to appeal the U.S. Tax Court decision to the U.S. Court of Appeals for
the Seventh Circuit. If the decision of the U.S. Tax Court is ultimately
sustained, the Company estimates that the potential amount of additional taxes
due on account of such disallowance for the period 1988 through 1994 would be
approximately $39 million and for the period after 1994 (assuming current
statutory tax rates) would be approximately $4 million, in each case exclusive
of interest. In anticipation of its appeal, the Company has paid to the IRS
additional tax of approximately $5 million potentially due for its 1988 tax year
pursuant to the U.S. Tax Court opinion along with $4 million for the interest
accrued on such additional taxes. While the Company is unable to predict the
final result of its appeal of the U.S. Tax Court decision with certainty, it has
accrued for the potential tax liability as well as for the interest charges
thereon for the period 1988 through 1994 and thus the Company believes that the
ultimate resolution of this case will not have a material adverse effect on the
Company's financial condition or on its results of operations.

During the third quarter of 1994, the Company reclassified $11 million from
the liability for other long-term income taxes to the liability for current
income taxes principally to reflect the payments totaling $9 million made to the
IRS in October 1994.

7. STOCK OPTIONS

The Company amortizes the excess of the fair market value of its Common
Stock over the strike price of options granted to employees over the period the
options vest. Due to the effects of adverse tissue industry operating conditions
on its long-term earnings forecast as of September 30, 1993, the Company
decreased the estimated fair market valuation of its Common Stock and, as a
result, reversed all previously accrued employee stock compensation expense in
the third quarter of 1993. The reversal of the accrued employee stock
compensation expense resulted in a credit to operations of $7,832,000 for the
first nine months of 1993.

8. COMMITMENTS AND CONTINGENCIES

F-30
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

The Company's participation in the studies undertaken by the coalition is
voluntary and its contributions to funding those activities, to date, have not
been significant. Based upon presently available information the Company
believes that there are additional parties, some of which may have substantial
resources, who may in the future contribute to the remediation effort. Because
the methods to be employed and the remediation standards to be achieved to
remediate the Lower Fox River sediment contamination have not been determined
and because the number of additional parties and their resources at the time
remediation is undertaken has not been determined, the Company cannot estimate
its ultimate share of the liability arising out of this matter, and it cannot
conclude that its share would not be material.

On June 20, 1994, the United States Department of Interior, Fish and
Wildlife Service ("FWS"), a federal natural resources trustee, informed the
Company that it had identified the Company and four other companies with
facilities located along the Lower Fox River as potentially responsible parties
for purposes of natural resource liability under CERCLA, commonly known as the
"Superfund Act," and the Federal Water Pollution Control Act arising from
alleged releases of PCBs to the Fox River and Green Bay system. The FWS alleges
that natural resources including endangered species, fish, birds and tribal
lands or lands held by the United States in trust for various tribes have been
exposed to PCBs that were released from facilities located along the Fox River.
The FWS has stated that it intends to undertake an assessment to determine and
quantify the nature and extent of injury to natural resources. The FWS has
invited the Company and the other four companies to participate in the
development of the type and scope of the assessment and in the performance of
the assessment, pursuant to federal regulations. It is anticipated that any
assessment would require considerable time to complete. Given the preliminary
nature of this action and the absence of any factual analysis, it is not
possible at this time to estimate the Company's potential liability on this
matter, but it cannot conclude that such liability would not be material.

In March 1990, the Company began a remedial investigation of its Green Bay,
Wisconsin landfill. The investigation was conducted under the oversight of the
U.S. Environmental Protection Agency (the "U.S. EPA") under authority granted to
the agency by the Comprehensive Environmental Response, Compensation and
Liability Act. A Preliminary Health Assessment released by the United States
Department of Health and Human Services in January 1992 reported that the
Company's Green Bay landfill does not pose any apparent public health hazard. In
April 1994, the Company forwarded its final Remedial Investigation Report (the
"RI Report") for the landfill to the U.S. EPA for its review. The RI Report
concluded, among other things, that no further remedial action is required at
the landfill other than the continued operation of the currently in-place
control systems and operating practices. In September 1994, after consultation
with the Wisconsin Department of Natural Resources and the Oneida Tribe of
Indians of Wisconsin (a neighboring business entity), the U.S. EPA formally
notified the Company that the RI Report had been accepted, that no further
action was required by the Company and that the investigation was concluded.

9. SUBSEQUENT EVENT

On , 1994, the Company's shareholders approved an increase in
the number of authorized shares of Common Stock to shares and approved a
6.50-for-one stock split of the Common Stock, effective , 1995. All
share and per share amounts included in the condensed consolidated financial
statements and notes thereto have been restated to give effect to the increase
in authorized shares and the stock split.

F-31

<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued November 23, 1994

Shares
Fort Howard Corporation
COMMON STOCK
-------------------

ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE
SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING OFFERED
INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY IN THE UNITED
STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." PRIOR
TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
TO BE CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.

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

THE COMPANY INTENDS TO APPLY TO HAVE THE COMMON STOCK APPROVED FOR LISTING ON
THE
UNDER THE TRADING SYMBOL " ".

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

SEE "CERTAIN RISK FACTORS" FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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

PRICE $ A SHARE

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

- ---------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(2) Before deducting expenses payable by the Company estimated at $ .

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

MORGAN STANLEY & CO.
International

CS FIRST BOSTON

SALOMON BROTHERS INTERNATIONAL LIMITED

S.G.WARBURG SECURITIES

<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below is an estimate (except for the Commission registration fee
and the listing fee) of the fees and expenses payable by the
Company in connection with the distribution of the Common Stock:

Securities and Exchange Commission registration fee............. $118,966
Listing fee..................................................... *
NASD filing fee................................................. 30,500
Printing and engraving costs.................................... *
Legal fees...................................................... *
Accountants' fees............................................... *
Blue Sky qualification fees and expenses........................ *
Transfer Agent and Registrar fees............................... *
Miscellaneous................................................... *
--------
Total..................................................... $ *
--------
--------

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

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides, in summary,
that directors and officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and liabilities (including
attorney's fees) incurred by them as a result of suits brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Any such indemnification may be made by the Company only as authorized
in each specific case upon a determination by the shareholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct. The By-laws of the Company provide for
indemnification of its directors and officers to the fullest extent permitted by
Delaware law, as the same may be amended from time to time.

Reference is made to Article VII of the Underwriting Agreement contained in
Exhibit 1.1 hereto, which provides certain indemnification rights to the
directors and officers of the Company.

In addition, the Company maintains directors' and officers' liability
insurance.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

None

II-1
<PAGE>
ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<C> <S>
*1.1 --Form of Underwriting Agreement.
*3.1 --Restated Certificate of Incorporation of the Registrant.
*3.2 --Amended and Restated By-laws of the Registrant.
*4.0 --Specimen Certificate of Common Stock.
4.1 --Indenture dated as of February 1, 1994 between the Registrant and the Bank of
New York, as Trustee, relating to 8 1/4% Senior Notes due 2002 (filed as
Exhibit 4.1 to the Registrant's Registration Statement on Form S-2, No.
33-51557, and incorporated herein by reference).
4.2 --Indenture dated as of February 1, 1994 between the Registrant and the Bank of
New York, as Trustee, relating to 9% Senior Subordinated Notes due 2006 (filed
as Exhibit 4.2 to the Registrant's Registration Statement on Form S-2, No.
33-51557, and incorporated herein by reference).
4.3 --Indenture dated as of March 22, 1993 between the Registrant and Norwest Bank,
N.A., as Trustee, relating to 9 1/4% Senior Unsecured Notes due 2001 (filed as
Exhibit 4.1 to the Registrant's Registration Statement on Form S-2, No.
33-51876, and incorporated herein by reference).
4.4 --Indenture dated as of March 22, 1993 between the Registrant and United States
Trust Company of New York, as Trustee, relating to 10% Subordinated Notes due
2003 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form
S-2, No. 33-51876, and incorporated herein by reference).
4.5 --Amended and Restated Credit Agreement dated as of October 24, 1988, among the
Registrant, FH Acquisition and Bankers Trust, as agent for the bank parties
thereto, with respect to the Bank Bridge Loan, the Term Loan and the Revolving
Credit Facility (filed as Exhibit No. 4.5 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1, No. 33-23826, and incorporated
herein by reference).
4.5(A) --Amendment No. 1 dated February 21, 1989 to the Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.E-1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, File No. 1-6901, and incorporated herein by reference).
4.5(B) --Amendment No. 2 dated October 20, 1989 to Amended and Restated Credit Agreement
dated as of October 24, 1988 (filed with the Registrant's September 30, 1989
Quarterly Report on Form 10-Q, File No. 1-6901, and incorporated herein by
reference).
4.5(C) --Amendment No. 3 dated as of November 14, 1989 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed with the Registrant's September
30, 1989 Quarterly Report on Form 10-Q, File No. 1-6901, and incorporated
herein by reference).
4.5(D) --Amendment No. 4 dated as of November 9, 1990 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.J to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1990, File No. 1-6901, and incorporated herein by reference).
4.5(E) --Amendment No. 5 dated as of December 19, 1990 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.K to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-6901, and incorporated herein by reference).
4.5(F) --Amendment No. 6 dated as of September 11, 1991 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.A to the
Registrant's Current Report on Form 8-K on September 13, 1991, File No. 1-6901,
and incorporated herein by reference).
4.5(G) --Amendment No. 7 dated as of December 2, 1991 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit No. 4.N to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991,
File No. 1-6901, and incorporated herein by reference).
4.5(H) --Amendment No. 8 dated as of October 7, 1992 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.0 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1992, File
No. 1-6901, and incorporated herein by reference).
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<C> <S>
4.5(I) --Amended and Restated Amendment No. 8 dated as of November 12, 1992, to Amended
and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit
4.P to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992, File No. 1-6901, and incorporated herein by reference).
4.5(J) --Form of Second Amended and Restated Amendment No. 8 dated as of March 4, 1993,
to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as
Exhibit 4.3(J) to the Registrant's Registration Statement on Form S-2, No.
33-51876, and incorporated herein by reference).
4.5(K) --Amendment No. 9 dated as of December 31, 1993 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.4(L) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 1-6901, and incorporated herein by reference).
4.5(L) --Amendment No. 10 dated as of October 14, 1994 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File
No. 1-6901, and incorporated herein by reference).
*5.1 --Opinion of Shearman & Sterling.
10.1 --Stockholders Agreement dated as of December 7, 1990, among the Registrant,
Morgan Stanley Group, MSLEF II, certain institutional investors and the
Management Investors which amends and restates the Stockholders and
Registration Rights Agreement dated as of August 1, 1988, as amended (filed as
Exhibit 10.C to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by reference).
10.2 --Management Incentive Plan as amended and restated as of December 10, 1992
(filed as Exhibit 10.C to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, File No. 1-6901, and incorporated herein by
reference).
10.3 --Supplemental Retirement Plan (filed as Exhibit No. 10.7 to Amendment No. 2 to
the Registrant's Registration Statement on Form S-1, No. 33-23826, and
incorporated herein by reference).
10.3(A) --Amendment No. 1 to the Supplemental Retirement Plan dated December 21, 1988
(filed as Exhibit 10.P to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988, File No. 1-6901, and incorporated herein by
reference).
10.4 --Form of Supplemental Retirement Agreement for Mr. DeMeuse, as amended (filed as
Exhibit 10.M to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 1-6901, and incorporated herein by reference).
10.5 --Supplemental Retirement Agreements for certain directors and officers (filed as
Exhibit 10.T to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989, File No. 1-6901, and incorporated herein by reference).
10.5(A) --Form of Amendment No. 1 to Supplemental Retirement Agreements for certain
directors and officers (filed as Exhibit 10.U to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.6 --Employment Agreements dated October 15, 1993, with the Company's Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer (filed
as Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, File No. 1-6901, and incorporated herein by
reference).
10.7 --Amended and Restated Management Equity Participation Agreement dated as of
August 8, 1988, among Holdings, Morgan Stanley, MSLEF II and the Management
Investors (filed as Exhibit 10.9 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1, No. 33-23826, and incorporated herein by
reference).
10.7(A) --Form of Letter Agreement dated June 27, 1990, among the Registrant and
Management Investors, which modifies Amended and Restated Management Equity
Participation Agreement (filed as Exhibit 10.V to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.7(B) --Letter Agreement dated as of July 31, 1990, among the Company and the Principal
Management Investors which amends Amended and Restated Management Equity
Participation Agreement (filed as Exhibit 10.W to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<C> <S>
10.7(C) --Letter Agreement dated as of July 31, 1990, between the Company and the
Management Investor Committee which amends Amended and Restated Management
Equity Participation Agreement (filed as Exhibit 10.X to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, File No.
1-6901, and incorporated herein by reference).
10.7(D) --Letter Agreement dated February 7, 1991, between the Company and the Management
Investors Committee which amends the Amended and Restated Management Equity
Participation Agreement (filed as Exhibit 10.GG to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.7(E) --Form of Letter Agreement dated February 7, 1991 among the Company, the
Management Investors Committee and Management Investors which cancels certain
stock options, grants new stock options and amends the Amended and Restated
Management Equity Participation Agreement (filed as Exhibit 10.HH to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-6901, and incorporated herein by reference).
10.8 --Agreement dated as of July 31, 1990, among the Company and its former Chief
Executive Officer (filed as Exhibit 10.Y to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.8(A) --Modification dated December 11, 1990 to Agreement dated as of July 31, 1990,
among the Company and its former Chief Executive Officer (filed as Exhibit 10.Z
to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1990, File No. 1-6901, and incorporated herein by reference).
10.8(B) --Letter Agreement dated February 7, 1991, among the Company, its former Chief
Executive Officer and his spouse which cancels stock options, grants new stock
options and amends the Agreement dated as of July 31, 1990, among the Company,
its former Chief Executive Officer and his spouse (filed as Exhibit 10.II to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1990, File No. 1-6901, and incorporated herein by reference).
10.9 --Subscription Agreement dated as of December 7, 1990, among the Company, Mellon
Bank, N.A., Trustee for First Plaza Group Trust and Leeway & Co. (filed as
Exhibit 10.DD to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by reference).
10.10 --Subscription Agreement dated as of March 12, 1991, between the Company and Fort
Howard Equity Investors II, L.P. (filed as Exhibit 10.EE to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-
6901, and incorporated herein by reference).
10.11 --Management Equity Plan (filed as Exhibit 10.23 to the Registrant's Registration
Statement on Form S-2, No. 33-51557, and incorporated herein by reference).
10.12 --Form of Management Equity Agreement dated as of April 30, 1991, between the
Registrant and Management Investors (filed as Exhibit 10.24 to the Registrant's
Registration Statement on Form S-2, No. 33-51557, and incorporated herein by
reference).
10.13 --Employment Agreements with certain executive officers of the Company (filed as
Exhibit No. 10.13 to the Registrant's Registration Statement on Form S-2, No.
33-51557, and incorporated herein by reference).
+12.1 --Computation of Deficiency of Earnings to Fixed Charges.
+12.2 --Computation of Pro Forma Ratio of Earnings to Fixed Charges.
21 --Subsidiaries of Fort Howard Corporation (filed as Exhibit 22 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 1-6901, and incorporated herein by reference).
+23.1 --Consent of Arthur Andersen LLP.
*23.2 --Consent of Shearman & Sterling (included in its opinion delivered under Exhibit
No. 5.1).
+24 --Powers of Attorney (included on the signature page hereof).
99 --Stock Transfer Agreement dated November 2, 1989 between the Company and
Sweetheart Holdings Inc., a Delaware corporation (filed as Exhibit 28 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, File No. 1-6901, and incorporated herein by reference).
</TABLE>

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

+ Filed herewith.

* To be filed by amendment.

II-4
<PAGE>
ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes that:

1. For the purposes of determining any liability under the Securities
Act of 1933, as amended (the "Securities Act"), the information omitted from
the form of Prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in the form of Prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or(4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the time
it was declared effective.

2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

(c) The Registrant hereby further undertakes to provide the Underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Green Bay, State of
Wisconsin on the 23rd day of November, 1994.

FORT HOWARD CORPORATION

By /s/ JAMES W. NELLEN II
...................................
James W. Nellen II
Vice President and Secretary

II-6
<PAGE>
POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints James W.
Nellen II and Kathleen J. Hempel, either of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him, and in his name, place and stead,
in any and all capacities to sign any and all amendments (including
post-effective amendments) and supplements to this Registration Statement, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ DONALD H. DEMEUSE Chairman of the Board of Directors November 23, 1994
................................. and Chief Executive Officer
Donald H. DeMeuse (principal executive officer)

/s/ KATHLEEN J. HEMPEL Director, Vice Chairman and Chief November 23, 1994
................................. Financial Officer (principal
Kathleen J. Hempel financial officer)

/s/ MICHAEL T. RIORDAN Director, President and Chief November 23, 1994
................................. Operating Officer
Michael T. Riordan

/s/ DONALD P. BRENNAN Director November 23, 1994
.................................
Donald P. Brennan

/s/ FRANK V. SICA Director November 23, 1994
.................................
Frank V. Sica

/s/ ROBERT H. NIEHAUS Director November 23, 1994
.................................
Robert H. Niehaus

/s/ JAMES S. HOCH Director November 23, 1994
.................................
James S. Hoch

/s/ CHARLES L. SZEWS Vice President and Controller November 23, 1994
................................. (principal accounting officer)
Charles L. Szews
</TABLE>

II-7
<PAGE>

After the stock split is effected as discussed in Note 18 to the Fort Howard
Corporation consolidated financial statements, we expect to be in a position to
render the following report of independent public accountants.

ARTHUR ANDERSEN LLP
November 22, 1994

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Fort Howard Corporation included in
this Registration Statement and have issued our report thereon dated February 1,
1994 (except with respect to the matter discussed in Note 18, as to which the
date is , 1995). Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
February 1, 1994

S-1
<PAGE>
SCHEDULE V

FORT HOWARD CORPORATION
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR AT COST RETIREMENTS OTHER* END OF YEAR
---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Land............................ $ 42,708 $ 300 $ (276) $ 42,732
Buildings....................... 255,193 4,162 4,126 263,481
Machinery and Equipment......... 980,056 118,893 $ (2,269) (5,367) 1,091,313
Construction in Progress........ 75,624 20,700 -- (5,957) 90,367
---------- --------- ----------- --------- -----------
$1,353,581 $ 144,055 $ (2,269) $ (7,474) $ 1,487,893
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
Year Ended December 31, 1992
Land............................ $ 42,732 $ 274 $ (366) $ 1,991 $ 44,631
Buildings....................... 263,481 20,206 (416) 11,497 294,768
Machinery and Equipment......... 1,091,313 147,502 (16,228) (10,451) 1,212,136
Construction in Progress........ 90,367 64,862 (1,107) (10,711) 143,411
---------- --------- ----------- --------- -----------
$1,487,893 $ 232,844 $ (18,117) $ (7,674) $ 1,694,946
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
Year Ended December 31, 1993
Land............................ $ 44,631 $ (122) $ (80) $ 44,429
Buildings....................... 294,768 $ 27,057 (1,977) (893) 318,955
Machinery and Equipment......... 1,212,136 168,709 (11,811) (1,195) 1,367,839
Construction in Progress........ 143,411 (30,228) -- 646 113,829
---------- --------- ----------- --------- -----------
$1,694,946 $ 165,538 $ (13,910) $ (1,522) $ 1,845,052
---------- --------- ----------- --------- -----------
---------- --------- ----------- --------- -----------
</TABLE>

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

NOTE: * Other includes the effects of foreign currency translation, transfers
from construction in progress, the effects of the acquisition of Stuart
Edgar in 1992 and the effects of the sale and leaseback transactions in
1991.

S-2
<PAGE>
SCHEDULE VI

FORT HOWARD CORPORATION
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT PROVISIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR EARNINGS* RETIREMENTS OTHER** END OF YEAR
---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Buildings........................... $ 28,976 $ 16,437 $ 12,581 $ 57,994
Machinery and Equipment............. 236,464 99,576 $ (733) (14,495) 320,812
---------- ---------- ----------- -------- -----------
$ 265,440 $116,013 $ (733) $ (1,914) $ 378,806
---------- ---------- ----------- -------- -----------
---------- ---------- ----------- -------- -----------
Year Ended December 31, 1992
Buildings........................... $ 57,994 $ 8,723 $ (148) $ 279 $ 66,848
Machinery and Equipment............. 320,812 72,554 (14,278) (8,418) 370,670
---------- ---------- ----------- -------- -----------
$ 378,806 $ 81,277 $ (14,426) $ (8,139) $ 437,518
---------- ---------- ----------- -------- -----------
---------- ---------- ----------- -------- -----------
Year Ended December 31, 1993
Buildings........................... $ 66,848 $ 9,784 $ (799) $ (55) $ 75,778
Machinery and Equipment............. 370,670 78,311 (7,776) (45) 441,160
---------- ---------- ----------- -------- -----------
$ 437,518 $ 88,095 $ (8,575) $ (100) $ 516,938
---------- ---------- ----------- -------- -----------
---------- ---------- ----------- -------- -----------
</TABLE>

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

NOTES: * The provision is based on the straight-line depreciation method with
rates varying from 2% to 50% per year.

** Other includes the effects of foreign currency translation and
reclassifications.

S-3
<PAGE>
SCHEDULE VIII

FORT HOWARD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
<S> <C> <C> <C>
1993 1992 1991
------ ------ ------
Allowance for Doubtful Accounts:
Balance at beginning of year.................................... $1,376 $1,379 $1,502
Additions charged to earnings................................... 1,633 792 698
Charges for purpose for which reserve was created............... (643) (795) (821)
------ ------ ------
Balance at end of year.......................................... $2,366 $1,376 $1,379
------ ------ ------
------ ------ ------
</TABLE>

S-4
<PAGE>
SCHEDULE X

FORT HOWARD CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
-----------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------

<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Maintenance and repairs........................................ $49,626 $46,671 $45,324
------- ------- -------
------- ------- -------
</TABLE>

S-5

EXHIBIT 12.1

FORT HOWARD CORPORATION
COMPUTATION OF DEFICIENCY OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
Earnings:
Loss before taxes....................................... $(27,571) $(2,056,432)
Amortization of goodwill and goodwill write-off......... -- 2,023,003
Interest expense........................................ 251,561 342,792
One-fourth of operating lease rental expense............ 1,550 1,731
---------- -----------------
$225,540 $ 311,094
---------- -----------------
---------- -----------------
Fixed Charges:
Interest expense........................................ $251,561 $ 342,792
Capitalized interest.................................... 3,602 8,369
One-fourth of operating lease rental expense............ 1,550 1,731
---------- -----------------
$256,713 $ 352,892
---------- -----------------
---------- -----------------
Deficiency of earnings available to cover fixed
charges(1)................................................ $(31,173) $ (41,798)
---------- -----------------
---------- -----------------
</TABLE>

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

(1) For purposes of these computations, earnings consist of consolidated income
(loss) before taxes plus fixed charges (excluding capitalized interest).
Fixed charges consist of interest on indebtedness (including capitalized
interest and amortization of deferred loan costs) plus that portion (deemed
to be one-fourth) of operating lease rental expense representative of the
interest factor.

EXHIBIT 12.2

FORT HOWARD CORPORATION
COMPUTATION OF PRO FORM RATIO OF EARNINGS
TO FIXED CHARGES
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
THE COMPANY THE COMPANY
PRO FORMA PRO FORMA
------------------ -----------------
<S> <C> <C>
Earnings:
Income (loss) before taxes.............................. $ 14,483 $(2,002,870)
Interest expense........................................ 209,508 289,230
One-fourth of operating lease rental expense............ 1,550 1,731
Goodwill write-off and amortization of goodwill......... -- 2,023,003
---------- -----------------
$225,541 $ 311,094
---------- -----------------
---------- -----------------
Fixed Charges:
Interest expense........................................ $209,508 $ 289,230
Capitalized interest.................................... 3,602 8,369
One-fourth of operating lease rental expense............ 1,550 1,731
---------- -----------------
$214,660 $ 299,330
---------- -----------------
---------- -----------------
Pro forma ratio of earnings to fixed charges(1)........... 1.05 1.04
---------- -----------------
---------- -----------------
</TABLE>

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

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
November 22, 1994