FORT HOWARD CORP, S-1/A, 1995-03-09

FORT HOWARD CORP
S-1/A, 1995-03-09
PAPER MILLS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1995

REGISTRATION NO. 33-56573
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

AMENDMENT NO. 3 TO
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>

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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

<TABLE>
<CAPTION>
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(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
Share.......................... 28,750,000 Shares $12.00 $345,000,000 $118,966
</TABLE>

(1) Includes 3,750,000 shares subject to the Underwriters' over-allotment
option.

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

(3) The Company previously paid 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
------------------------------------------- -------------------------------------------
<S> <C> <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 March 9, 1995

25,000,000 Shares
Fort Howard Corporation
COMMON STOCK

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

ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 25,000,000 SHARES OF COMMON STOCK BEING OFFERED, 20,000,000
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA
BY THE U.S. UNDERWRITERS AND 5,000,000 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 $12.00 PER SHARE. SEE "UNDERWRITERS" FOR
A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE.

-------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE
NASDAQ NATIONAL MARKET UNDER THE TRADING SYMBOL "FORT".
-------------------
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 $1,600,000.

(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 3,750,000
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>
PHOTOS FOR INSIDE FRONT COVER TO S-1/A

UPPER RIGHT-HAND CORNER
TISSUE PAPER MACHINE
Fort Howard has installed
eight of the eleven largest
(270-inch) tissue paper
machines in the world, which
provide long-term
productivity advantages.

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 NASDAQ NATIONAL MARKET, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE>

PHOTOS FOR INSIDE FRONT COVER TO S-1/A

UPPER RIGHT-HAND CORNER
GREEN FOREST TISSUE PRODUCTS
Environmentally oriented
consumers have made Fort
Howard's Green Forest
line the leading brand
in the environmentally
positioned segment.

MIDDLE RIGHT-HAND SIDE
WASTEPAPER
Fort Howard led the
industry in developing
sanitary tissue products
from recycled wastepaper.
The Company recycles over
1.4 million tons of
wastepaper annually, and
uses 100% wastepaper for
all but a limited number
of its products.

BOTTOM RIGHT-HAND CORNER
COMMERCIAL TISSUE PRODUCTS
Its products hold a leading
share--approximately 26%--of
the U.S. market for
commercial tissue products.
That position is founded on
a commitment to quality and
service, as well as competitive
pricing made possible by the
Company's status as a low cost
producer.

<PAGE>

PHOTOS FOR INSIDE FRONT COVER TO S-1/A

TOP LEFT-HAND CORNER
SAVANNAH GREENFIELD MILL
The Company's greenfield
mill located near Savannah,
Georgia, is a world-class,
fully integrated tissue mill
that can de-ink and process
fiber for tissue products
from low cost wastepaper.

MIDDLE LEFT-HAND SIDE
BRANDED & PRIVATE LABEL TISSUE PRODUCTS
The Company's consumer product
growth strategy has targeted
the branded value and private
label segments of the U.S.
market where the Company enjoys
a competitive advantage as a low
cost producer.

BOTTOM LEFT-HAND CORNER
NOUVELLE TISSUE PRODUCTS
The principal brand of the
Company's Fort Sterling subsidiary
in the U.K. is the Nouvelle line
of tissue paper products. Fort
Sterling is one of four fully
integrated tissue companies in
that nation.

<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.

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

TABLE OF CONTENTS

PAGE
----
Prospectus Summary.................... 4
Certain Risk Factors.................. 10
Use of Proceeds....................... 16
Dividend Policy....................... 17
Dilution.............................. 17
Capitalization........................ 18
Selected Historical Consolidated
Financial Data...................... 19
Pro Forma Financial Data.............. 22
Management's Discussion and Analysis
of Consolidated Financial Condition
and Results of Operations........... 27
Business.............................. 36
Management............................ 55
Ownership of Common Stock............. 67
Certain Transactions.................. 68
Description of Certain Indebtedness... 71
Description of Capital Stock.......... 82
Shares Eligible for Future Sale....... 85
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 86
Underwriters.......................... 89
Legal Matters......................... 92
Experts............................... 92
Additional Information................ 93
Index to Financial Statements......... F-1

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

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 are trademarks of the Company that
are registered or otherwise protected under laws of various jurisdictions.

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.

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.

3
<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 25,000,000 shares of Common Stock in the underwritten public
offering to which this Prospectus relates and (iv) numbers and percentages 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 effective January 31, 1995. 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 annual 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 1984 to 1994, 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

4
<PAGE>
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 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
37.9% of the outstanding Common Stock (35.8% 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.............................. 20,000,000 shares
International Offering..................... 5,000,000 shares
Total.................................. 25,000,000 shares
Common Stock to be outstanding following the
Offering.....................................63,101,239 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."
Nasdaq National Market
Symbol..................................... "FORT"
</TABLE>

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

(a) Excludes 3,741,465 shares of Common Stock issuable upon exercise of
outstanding options. 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 25,000,000 shares of Common Stock in
the United States and internationally;

(2) Entering into a bank credit agreement (the "New Bank Credit
Agreement") consisting of a $300 million revolving credit facility (the
"1995 Revolving Credit Facility"), an $810 million term loan (the "1995 Term
Loan A") and a $330 million term loan (the "1995 Term Loan B" and, together
with the 1995 Term Loan A, the "New Term Loans"); and entering into a
receivables credit agreement consisting of a $60 million term loan (the
"1995 Receivables Facility");

(3) The application of the net proceeds of the Offering, together with
borrowings under the New Term Loans and the 1995 Receivables Facility, 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

5
<PAGE>
Company's term loan agreement dated as of March 22, 1993 (the "1993 Term
Loan Agreement;" the borrowings under the New Term Loans and the 1995
Receivables Facility and the prepayment of the 1988 Bank Credit Agreement
and the 1993 Term Loan Agreement with such borrowings 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, the 1995 Receivables
Facility 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 all components of the Recapitalization occur on
March 15, 1995, are as follows (in millions):

Sources of Funds: AMOUNT
Proceeds of the Offering.......................................... $ 300.0
1995 Term Loan A.................................................. 810.0
1995 Term Loan B.................................................. 330.0
1995 Revolving Credit Facility.................................... 209.3
1995 Receivables Facility......................................... 60.0
--------
Total Sources of Funds............................................ $1,709.3
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Revolving Credit Facility Prepayment......................... 300.0
1988 Term Loan Prepayment......................................... 224.5
12 5/8% Debenture Redemption (including 2.5% redemption premium).. 149.5
1993 Term Loan Prepayment......................................... 100.0
Company Transaction Fees and Expenses(a).......................... 68.4
--------
Total Uses of Funds............................................... $1,709.3
--------
--------

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

<TABLE>
<S> <C>
(a) Includes underwriters' commissions and other transaction fees and expenses of the
Recapitalization payable or reimbursable by the Company.
</TABLE>

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

6
<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, 1994, 1993 and 1992, 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 a change in the method of accounting for
postretirement benefits other than pensions.

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 December
31, 1994 for consolidated balance sheet purposes, and as if the Recapitalization
had occurred on January 1, 1994 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"), are also treated
for consolidated statement of income purposes as if they occurred on January 1,
1994. 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 DECEMBER 31, 1994, OR IF THE
RECAPITALIZATION AND THE 1994 REFINANCING HAD OCCURRED ON JANUARY 1, 1994 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" and the audited consolidated financial
statements and the related notes thereto included elsewhere in this Prospectus.

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

<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA(A) -----------------------------
------------
YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1994 1994 1993 1992
------------ ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE
AMOUNTS)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C>
Net sales............................................ $ 1,274 $ 1,274 $ 1,187 $ 1,151
Cost of sales........................................ 867 867 784 726
------------ ------- ------- -------
Gross income......................................... 407 407 403 425
Selling, general and administrative(b)............... 110 110 97 97
Amortization of goodwill(c).......................... -- -- 43 57
Goodwill write-off(c)................................ -- -- 1,980 --
Environmental charge(d).............................. 20 20 -- --
------------ ------- ------- -------
Operating income (loss)(d)........................... 277 277 (1,717) 271
Interest expense..................................... 290 338 342 338
Other (income) expense, net.......................... -- -- (3) 2
------------ ------- ------- -------
Loss before taxes.................................... (13) (61) (2,056) (69)
Income taxes (credit)................................ -- (19) (16) --
------------ ------- ------- -------
Loss before extraordinary items and adjustment for
accounting change..................................... (13) (42) (2,040) (69)
Extraordinary items--losses on debt repurchases (net
of income taxes)................................... -- (28) (12) --
Adjustment for adoption of SFAS No. 106 (net of
income taxes)(e)................................... -- -- -- (11)
------------ ------- ------- -------
Net loss(d)(f)....................................... $ (13) $ (70) $(2,052) $ (80)
------------ ------- ------- -------
------------ ------- ------- -------
Loss per share(d)(f)................................. $ (0.20) $ (1.85) $(53.85) $ (2.10)
OTHER DATA:
EBITDA(g)............................................ $ 393 $ 393 $ 387 $ 410
EBITDA as a percent of net sales(g).................. 30.8% 30.8% 32.6% 35.6%
Depreciation of property, plant and equipment........ $ 96 $ 96 $ 88 $ 81
Non-cash interest expense(h)......................... 13 74 101 140
Capital expenditures................................. 84 84 166 233
Weighted average number of shares of Common Stock
outstanding (in thousands)(f)......................... 63,103 38,103 38,107 38,107
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets......................................... $ 1,706 $ 1,681 $ 1,650 $ 3,575
Working capital (deficit)............................ 10 (98) (92) (124)
Long-term debt (including current portion) and Common
Stock with put right.................................. 3,078 3,318 3,234 3,104
Shareholders' deficit................................ (1,872) (2,148) (2,081) (29)
</TABLE>

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<TABLE>
<S> <C>
(a) For a discussion of the pro forma adjustments, see "Pro Forma Financial Data."
(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 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.
</TABLE>

(Footnotes continued on following page)

8
<PAGE>
(Footnotes continued from preceding page)

<TABLE>
<S> <C>
(d) During the fourth quarter of 1994, the Company recorded an environmental charge
totaling $20 million. Excluding the effects of the environmental charge, the Company's
operating income, income before taxes, net income and earnings per share in 1994, on a
pro forma basis after giving effect to the Recapitalization and the 1994 Refinancing,
would have been $296.8 million, $7.3 million, $1.5 million and $0.02 per share, respec-
tively.
(e) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
(f) The computation of 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 loss per share also assumes the issuance of
25,000,000 shares of Common Stock at an assumed initial public offering price of $12.00
per share.
(g) EBITDA represents operating income plus depreciation of property, plant and equipment,
amortization of goodwill, the goodwill write-off, the 1994 environmental charge and the
effects of 1993 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.
(h) Effective November 1, 1994, all of the Company's indebtedness requires cash interest
payments. Accordingly, for periods subsequent to November 1, 1994, non-cash interest
expense consists solely of amortization of debt issuance costs.
</TABLE>

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 shareholders'
deficit; 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; the Company's
principal shareholders; 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
Restated By-laws of the Company and the absence of a prior public market for the
Common Stock, see "Certain Risk Factors."

9
<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 the
improvement in industry operating conditions, including industry operating rates
and pricing, which is not within the Company's control, will continue. In
addition, beginning in the third quarter of 1994, the Company's wastepaper costs
increased significantly and there can be no assurance that the improvement in
industry operating conditions will enable the Company to recover increases in
wastepaper costs through price increases for its products. See "--Increasing
Wastepaper Prices," "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. Prices for de-inking grades of wastepaper used by tissue
producers increased sharply beginning in the third quarter of 1994. Wastepaper
prices for the grades of wastepaper used in Fort Howard's products more than
doubled from July 1994 to January 1995. Such wastepaper prices may 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 recover 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

10
<PAGE>
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 fiscal years ended December
31, 1994, 1993 and 1992 of $70 million, $2,052 million (including the write-off
in 1993 of the Company's then remaining goodwill) and $80 million, respectively.
If the current trend in the Company's wastepaper costs continues, there can be
no assurance that the Company will be able to recover increases in the cost of
wastepaper through price increases for its products; accordingly, there can be
no assurance as to the Company's ability to generate net income in future
periods. See "--Pricing," "--Increasing Wastepaper Prices" and "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations." The Company has a substantial common shareholders' deficit. At
December 31, 1994, the Company's common shareholders' deficit was approximately
$2,148 million. On a pro forma basis after giving effect to the
Recapitalization, the Company's common shareholders' deficit would have been
approximately $1,872 million at December 31, 1994. See "Capitalization."

HIGHLY LEVERAGED POSITION AND ABILITY TO SERVICE DEBT

The Company has substantial consolidated indebtedness. At December 31, 1994,
the Company's consolidated debt was approximately $3,318 million. On a pro forma
basis after giving effect to the Recapitalization, the Company's consolidated
debt would have been approximately $3,078 million at December 31, 1994. See
"Capitalization."

For the year ended December 31, 1994, the Company's earnings before fixed
charges were inadequate to cover its fixed charges by $65 million. On a pro
forma basis after giving effect to the Recapitalization and the 1994
Refinancing, the deficiency of earnings to fixed charges would have been $17
million for the year ended December 31, 1994. For purposes of the computation of
the deficiency of earnings to fixed charges, earnings consist of consolidated
income (loss) before taxes plus fixed charges (excluding 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. 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 estimated repayment
obligations, assuming consummation of the Recapitalization, of $9 million in
1995, $60 million in 1996, $115 million in 1997, $138 million in 1998 and $153
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."

11
<PAGE>
SENSITIVITY TO INTEREST RATES

At December 31, 1994, the Company's indebtedness had a weighted average
interest rate of 10.16% and approximately $868 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 $1.5
billion (or 46%) of its outstanding indebtedness will bear interest at a
floating rate (assuming the Recapitalization is completed in March 1995). Of
this amount, $500 million will be subject to LIBOR-based interest rate cap
agreements which effectively limit the interest cost to the Company to 6% plus
the Company's borrowing margin until June 1, 1996 and to 8% plus the Company's
borrowing margin from June 1, 1996 until June 1, 1999. 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 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 damages 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 alleged natural resource damages related to the Lower Fox River and Green
Bay system. In addition, the Company makes capital expenditures and incurs
operating expenses for clean-up obligations and other environmental matters
arising in its on-going operations.

Based upon currently available information and analysis, the Company
recorded a $20 million charge in the fourth quarter of 1994 for estimated or
anticipated liabilities and legal and consulting costs relating to environmental
matters arising from past operations. While the charge reflects the Company's
current estimates of the costs of these environmental matters, there can be no
assurance that the amount accrued will be adequate. 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.
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

12
<PAGE>
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 compliance with environmental legislation and
regulations, 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."

PRINCIPAL SHAREHOLDERS

Upon consummation of the Offering, Morgan Stanley Group, directly and
through certain affiliated entities which it controls, including MSLEF II,
collectively will beneficially own 37.9% of the outstanding shares of Common
Stock (35.8% if the U.S. Underwriters' over-allotment option is exercised in
full). Currently, three of the six 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), MSLEF II and Fort Howard Equity Investors
II, L.P., a Delaware limited partnership ("Fort Howard Equity Investors II"),
each have the right to have a designee nominated for election to the Company's
Board of Directors at any annual meeting of the Company's shareholders, so
long as MSLEF II or Fort Howard Equity Investors II, as the case may be, does
not already have a designee as a member of the Board of Directors at the time
of such annual meeting. In addition, in the event of a vacancy on the Board of
Directors created by the resignation, removal or death of a director nominated
by MSLEF II or Fort Howard Equity Investors II, such shareholders have the
right to have a designee nominated for election to fill such vacancy.

As a result of their large share holdings, Morgan Stanley Group and its
affiliates will continue to have significant influence over the management
policies of the Company and over 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 1992, MS&Co has received an aggregate of
$43.7 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, the 1995
Receivables Facility 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 63,101,239 shares of Common
Stock outstanding, of which the 25,000,000 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

13
<PAGE>
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 Underwriting Agreement the Company has agreed, and pursuant
to the Stockholders Agreement all current shareholders of the Company are
subject to an agreement, with certain limited 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 beginning 7 days
before and ending 180 days after the effective date of the Registration
Statement in the case of current and former officers and other key employees of
the Company (who beneficially own an aggregate of 791,358 shares of Common
Stock), and ending one year after the effective date of the Registration
Statement in the case of the remaining shareholders (who beneficially own an
aggregate of 37,309,881 shares of Common Stock), without the prior written
consent of certain of the representatives of the U.S. Underwriters in the case
of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors, L.P., a
Delaware limited partnership ("Fort Howard Equity Investors"), and Fort Howard
Equity Investors II, or of MS&Co, in the case of the remaining shareholders. See
"Shares Eligible for Future Sale" and "Underwriters."

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. Subject to the one year
lock-up period described above, Morgan Stanley Group, MSLEF II, Fort Howard
Equity Investors and Fort Howard Equity Investors II 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, Fort
Howard Equity Investors' and Fort Howard Equity II's partners) will depend on
market and other conditions, but could occur relatively soon after the one year
lock-up period described above, including pursuant to the exercise of their
registration rights. MSLEF II, Fort Howard Equity Investors and Fort Howard
Equity Investors II are unable to predict the timing of sales by any of their
limited partners in the event of a distribution to them. Such dispositions could
be privately negotiated transactions or public sales.

DILUTION

The deficit in net tangible book value of the Company at December 31, 1994
was $2,225 million or $58.40 per share. Assuming an initial public offering
price of $12.00 per share, purchasers of the Common Stock offered hereby will
incur immediate dilution in net tangible book value of $43.29 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 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 Chief Executive Officer 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 of
Incorporation, 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."

14
<PAGE>
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK

Since the Acquisition, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the Nasdaq National
Market, there can be no assurance that an active trading market will develop for
the Common Stock. Following consummation of the Offering, MS&Co will be
prohibited by the rules of the New York Stock Exchange from making a market in
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 $282 million, assuming an offering of 25,000,000
shares of Common Stock and an initial public offering price of $12.00 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 and the 1995 Receivables Facility, 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 9.46% at December
31, 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 8.19% at December 31, 1994); (v) repay $300.0 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 8.66% at December
31, 1994); (vi) prepay in full the 1993 Term Loan which bears interest at
floating rates (at 8.57% at December 31, 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 all components of the Recapitalization occur on
March 15, 1995, are as follows (in millions):

Sources of Funds: AMOUNT
Proceeds of the Offering.......................................... $ 300.0
1995 Term Loan A.................................................. 810.0
1995 Term Loan B.................................................. 330.0
1995 Revolving Credit Facility.................................... 209.3
1995 Receivables Facility......................................... 60.0
--------
Total Sources of Funds............................................ $1,709.3
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Revolving Credit Facility Prepayment(a)...................... 300.0
1988 Term Loan Prepayment......................................... 224.5
12 5/8% Debenture Redemption (including 2.5% redemption premium).. 149.5
1993 Term Loan Prepayment......................................... 100.0
Company Transaction Fees and Expenses(b).......................... 68.4
--------
Total Uses of Funds............................................... $1,709.3
--------
--------

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<TABLE>
<S> <C>
(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.
</TABLE>

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, the 1995
Receivables Facility 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.
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" and "Description
of Capital Stock."

DILUTION

At December 31, 1994, the deficit in net tangible book value of the Company
was $2,225 million or $58.40 per share of Common Stock. After giving effect to
the sale by the Company of 25,000,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $12.00 per share and the Bank
Refinancing, the pro forma deficit in net tangible book value of the Company at
December 31, 1994, would have been $1,974 million or $31.29 per share. This
represents an immediate increase in pro forma net tangible book value per share
of $27.11 to existing shareholders and an immediate dilution of $43.29 per share
to new investors. The following table illustrates this per share dilution:

Assumed initial public offering price per share......... $ 12.00
Deficit in net tangible book value per share prior to
the Offering(a)..................................... $(58.40)
Increase in net tangible book value per share
attributable to new investors(a).................... 27.11
-------
Pro forma deficit in net tangible book value per share
after the Offering(a)(b).............................. (31.29)
-------
Dilution in net tangible book value per share to a new
investor(a)(c).......................................... $ 43.29
-------
-------

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

(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 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 debt issuance costs) 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 December 31, 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 25,000,000 shares of Common Stock
to be issued by the Company at an assumed initial public offering price of
$12.00 per share.

<TABLE><CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 38,101,239 60% $613,742,893 67% $ 16.11
New investors................ 25,000,000 40% 300,000,000 33% 12.00
---------- ----- ------------ ----- ---------
Total.................... 63,101,239 100% $913,742,893 100% $ 14.48
</TABLE>

17
<PAGE>
CAPITALIZATION

Set forth below is the actual consolidated capitalization of the Company at
December 31, 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 and the Pro Forma Financial Data included
elsewhere in this Prospectus.

<TABLE><CAPTION>
DECEMBER 31, 1994
--------------------------
ACTUAL PRO FORMA (A)
--------- -------------
(IN MILLIONS)
<S> <C> <C>
Current portion of long-term debt................................... $ 116.2 $ 9.0
--------- -------------
Long-Term Debt, less current portion(b):
1995 Term Loan A.................................................. -- 810.0
1995 Term Loan B.................................................. -- 330.0
1995 Receivables Facility......................................... -- 60.0
1995 Revolving Credit Facility(c)................................. -- 105.7
1988 Term Loan.................................................... 117.3 --
1988 Revolving Credit Facility.................................... 196.5 --
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................................................ 566.9 --
Capital lease obligations......................................... 179.8 179.8
Other long-term debt.............................................. 83.3 83.3
--------- -------------
Total Long-Term Debt, less current portion.......................... 3,189.6 3,068.8
Common Stock with put right(d)...................................... 11.7 --
--------- -------------
Total Indebtedness................................................ 3,317.5 3,077.8
Shareholders' Deficit:
Common Stock, par value $.01 per share,
100,000,000 shares authorized, 38,101,239 shares
issued and outstanding and 63,101,239 shares issued and
outstanding on a pro forma basis................................ 0.4 0.6
Paid-in capital................................................... 600.1 893.5
Cumulative translation adjustment................................. (2.3) (2.3)
Retained deficit.................................................. (2,746.6) (2,764.0)
--------- -------------
Total Shareholders' Deficit..................................... (2,148.4) (1,872.2)
--------- -------------
Total Capitalization............................................ $ 1,169.1 $ 1,205.6
--------- -------------
--------- -------------
</TABLE>

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

<TABLE>
<S> <C>
(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 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 $209.3 million.

(d) Reclassification of 791,358 shares of Common Stock with put right to Common Stock
assumes termination of the put with respect to all of such shares at the time of the
Offering. The Company is considering extending the benefit of the put right with respect
to 314,925 shares held by the Company's former chairman and chief executive officer as
described in "Management--Management Equity Participation Agreement." 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, 1994, 1993, 1992, 1991 and
1990 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, 1994, 1993 and 1992 appears elsewhere in this Prospectus. Reference
is made to such report which calls attention to a change in the method of
accounting for postretirement benefits other than pensions.

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

19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................................... $ 1,274 $ 1,187 $ 1,151 $ 1,138 $ 1,151
Cost of sales(a).................................. 867 784 726 713 719
------- ------- ------- ------- -------
Gross income...................................... 407 403 425 425 432
Selling, general and administrative(a)(b)......... 110 97 97 98 105
Amortization of goodwill(c)....................... -- 43 57 57 57
Goodwill write-off(c)............................. -- 1,980 -- -- --
Environmental charge(d)........................... 20 -- -- -- --
------- ------- ------- ------- -------
Operating income (loss)(d)........................ 277 (1,717) 271 270 270
Interest expense.................................. 338 342 338 371 423
Other (income) expense, net....................... -- (3) 2 (3) (33)
------- ------- ------- ------- -------
Loss before taxes(d).............................. (61) (2,056) (69) (98) (120)
Income taxes (credit)............................. (19) (16) -- (24) (37)
------- ------- ------- ------- -------
Loss before equity earnings, extraordinary items
and adjustment for accounting change............ (42) (2,040) (69) (74) (83)
Equity in net loss of unconsolidated
subsidiaries(e)..................................... -- -- -- (32) (23)
------- ------- ------- ------- -------
Net loss before extraordinary items and adjustment
for accounting change............................... (42) (2,040) (69) (106) (106)
Extraordinary items--losses on debt repurchases
(net of income taxes)........................... (28) (12) -- (5) --
Adjustment for adoption of SFAS No. 106 (net of
income taxes)(f).................................... -- -- (11) -- --
------- ------- ------- ------- -------
Net loss(a)(d).................................... $ (70) $(2,052) $ (80) $ (111) $ (106)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Loss per share(d)(g).............................. $ (1.85) $(53.85) $ (2.10) $ (3.17) $ (3.64)

OTHER DATA:
EBITDA(h)......................................... $ 393 $ 387 $ 410 $ 444 $ 441
EBITDA as a percent of net sales(h)............... 30.8% 32.6% 35.6% 39.0% 38.3%
Depreciation of property, plant and
equipment(a)........................................ $ 96 $ 88 $ 81 $ 116 $ 112
Non-cash interest expense......................... 74 101 140 141 145
Capital expenditures.............................. 84 166 233 144 97
Weighted average number of shares of Common Stock
outstanding
(in thousands)(g)............................... 38,103 38,107 38,107 34,868 29,197

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets...................................... $ 1,681 $ 1,650 $ 3,575 $ 3,470 $ 3,627
Working capital (deficit)......................... (98) (92) (124) 2 (80)
Long-term debt (including current portion) and
Common Stock with put right......................... 3,318 3,234 3,104 2,947 3,125
Shareholders' equity (deficit).................... (2,148) (2,081) (29) 62 13
</TABLE>

(Footnotes on following page)

20
<PAGE>
(Footnotes for preceding page)

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

<TABLE>
<S> <C>
(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 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) During the fourth quarter of 1994, the Company recorded an environmental charge totaling $20
million. Excluding the effects of the environmental charge, the Company's operating income, loss
before taxes, net loss and loss per share in 1994 would have been $296.8 million, $41 million,
$56.1 million and $1.47 per share, respectively.

(e) 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.

(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 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.

(h) EBITDA represents operating income plus depreciation of property, plant and equipment,
amortization of goodwill, the goodwill write-off, the 1994 environmental charge and the effects
of 1993 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>

21
<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
purposes on January 1, 1994, and for consolidated balance sheet purposes on
December 31, 1994. The 1994 Refinancing is treated for consolidated statement of
income purposes as if such transaction had occurred on January 1, 1994.

The Pro Forma Statements assume an offering of 25,000,000 shares at an
initial public offering price of $12.00 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 DECEMBER 31, 1994, OR IF THE
RECAPITALIZATION AND THE 1994 REFINANCING HAD OCCURRED ON JANUARY 1, 1994 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" and the audited consolidated financial statements and the
related notes thereto included elsewhere in this Prospectus.

22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<TABLE><CAPTION>
1994
RECAPITALIZATION REFINANCING
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ---------------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Net sales.............................. $1,274,445 $1,274,445

Cost of sales.......................... 867,357 867,357
---------- ----------
Gross income........................... 407,088 407,088

Selling, general and administrative.... 110,285 110,285

Environmental charge................... 20,000 20,000(a)
---------- ----------
Operating income....................... 276,803 276,803(a)

Interest expense....................... 337,701 $(39,601)(b) $(8,680)(b) 289,420

Other expense, net..................... 118 -- -- 118
---------- -------- ------------- ----------
Income (loss) before taxes............. (61,016) 39,601 8,680 (12,735)

Income taxes (credit).................. (18,891) 15,445(c) 3,385(c) (61)
---------- -------- ------------- ----------
Net income (loss) before extraordinary
item..................................... (42,125) 24,156 5,295 (12,674)

Extraordinary item..................... (28,170) -- 28,170(d) --
---------- -------- ------------- ----------
Net income (loss)...................... $ (70,295) $ 24,156 $33,465 $ (12,674)(a)
---------- -------- ------------- ----------
---------- -------- ------------- ----------
Earnings (loss) per share(e)........... $ (1.85) $ (0.20)(a)
---------- ----------
---------- ----------
Weighted average number of shares
outstanding (in thousands)(e)............ 38,103 63,103
</TABLE>

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

(a) During the fourth quarter of 1994, the Company recorded an environmental
charge totaling $20 million. Excluding the effects of the environmental
charge, the Company's operating income, income before taxes, net income and
earnings per share in 1994, on a pro forma basis after giving effect to the
Recapitalization and the 1994 Refinancing, would have been $296.8 million,
$7.3 million, $1.5 million and $0.02 per share, respectively.

(Footnotes continued on following page)

23
<PAGE>
(Footnotes continued from preceding page)

(b) Decreased interest expense is based upon the pro forma consolidated debt of
the Company as if the Recapitalization and the 1994 Refinancing had been
consummated on January 1, 1994, as follows:

<TABLE><CAPTION>
1994
RECAPITALIZATION REFINANCING
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
1995 Term Loan A(1)(2)..................... $ 70,875
1995 Term Loan B(1)(2)..................... 30,525
1995 Receivables Facility(1)(2)............ 5,250
1995 Revolving Credit Facility(1)(2)(3).... 6,349
8 1/4% Notes............................... -- $ 1,009
9% Notes................................... -- 7,073
Amortization of debt issuance costs(4)..... 7,096 284
Elimination of historical interest expense
including amortization of debt issuance
costs(5)................................... (159,696) (17,046)
----------------- ------------
$ (39,601) $ (8,680)
----------------- ------------
----------------- ------------
</TABLE>

- ------------
(1) The interest rates utilized in the calculation of the pro forma
adjustments assume a reserve adjusted Eurodollar rate of 6.25% and a
margin of 2.5% for the Term Loan A, the 1995 Revolving Credit
Facility and the 1995 Receivables Facility 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:

YEAR ENDED
DECEMBER 31, 1994
-----------------
(IN THOUSANDS)
1995 Term Loan A................... $ 2,025
1995 Term Loan B................... 825
1995 Receivables Facility.......... 150
1995 Revolving Credit Facility..... 181
-----
$ 3,181
-----
-----

(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 $506.2 million principal
amount of 14 1/8% Debentures outstanding at January 1, 1994 by $60.7
million (the "Excess Principal Amount"). For purposes of the Pro
Forma Condensed Consolidated Statements of Income, the 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 and
the 1995 Receivables Facility 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 $28.6 million representing the write-off of debt
issuance costs of $24.9 million and redemption premiums of $3.7
million to be charged to expense in connection with the
Recapitalization.

(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 Refinancing. Floating rate
debt assumed to be retired as of January 1, 1994 of $1.0 billion bore
interest at a weighted average rate of 6.1% in 1994. The 1995 Term
Loan A, the 1995 Term Loan B and the 1995 Receivables Facility, which
are being issued to retire such floating rate debt, are assumed to
bear interest at substantially higher interest rates of 8.75%, 9.25%
and 8.75%, respectively, because the reserve adjusted Eurodollar rate
is assumed to be 6.25%, a substantial increase over interest rates in
effect in 1994.

(c) 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.

(d) Reflects the elimination of an extraordinary loss resulting from the 1994
Refinancing.

(e) 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 25,000,000
shares of Common Stock in the Offering.

24
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE><CAPTION>
DECEMBER 31, 1994
-------------------------------------------------
RECAPITALIZATION
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 422 $ 422
Receivables--net................................ 123,150 123,150
Inventories..................................... 130,843 130,843
Deferred income taxes........................... 20,000 20,000
Income taxes receivable......................... 5,200 5,200
----------- -----------
Total current assets........................ 279,615 279,615
Property, plant and equipment..................... 1,932,713 1,932,713
Less: Accumulated depreciation.................. 611,762 611,762
----------- -----------
Net property, plant and equipment............... 1,320,951 1,320,951
Other assets...................................... 80,332 $ 25,331(a) 105,663
----------- ---------------- -----------
Total assets................................ $ 1,680,898 $ 25,331 $ 1,706,229
----------- ---------------- -----------
----------- ---------------- -----------

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................ $ 100,981 $ 100,981
Interest payable................................ 84,273 84,273
Income taxes payable............................ 224 224
Other current liabilities....................... 75,450 75,450
Current portion of long-term debt............... 116,203 $ (107,219)(b) 8,984
----------- ---------------- -----------
Total current liabilities................... 377,131 (107,219) 269,912
Long-term debt:...................................
1995 Term Loan A................................ -- 810,000(b) 810,000
1995 Term Loan B................................ -- 330,000(b) 330,000
1995 Receivables Facility....................... -- 60,000(b) 60,000
1995 Revolving Credit Facility.................. -- 105,713(b) 105,713
1988 Term Loan.................................. 117,315 (117,315)(b) --
1988 Revolving Credit Facility.................. 196,500 (196,500)(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.............................. 566,869 (566,869)(b) --
Capital lease obligations....................... 179,821 -- 179,821
Other........................................... 83,324 -- 83,324
----------- ---------------- -----------
Total long-term debt........................ 3,189,644 (120,786) 3,068,858
Deferred income taxes............................. 209,697 (11,140)(c) 198,557
Other liabilities................................. 41,162 -- 41,162
Common Stock with put right....................... 11,711 (11,711)(d) --
Shareholders' deficit:
Common Stock and additional paid-in capital..... 600,471 293,611(b)(e) 894,082
Cumulative translation adjustment............... (2,330) -- (2,330)
Retained deficit................................ (2,746,588) (17,424)(f) (2,764,012)
----------- ---------------- -----------
Total shareholders' deficit................. (2,148,447) 276,187 (1,872,260)
----------- ---------------- -----------
Total liabilities and shareholders'
deficit........................................... $ 1,680,898 $ 25,331 $ 1,706,229
----------- ---------------- -----------
----------- ---------------- -----------
</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................................................. $ 50,250
Write-off of debt issuance costs related to existing long-term
debt to be repaid or retired................................... (24,919)
--------
$ 25,331
--------
--------

(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 the 1995 Receivables Facility and
(iv) payment of fees and expenses related to the Recapitalization of $68.4
million (including estimated underwriting fees).

(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 791,358 shares of Common Stock with put right to Common
Stock assumes termination of the put with respect to all of such shares at
the time of the Offering. The Company is considering extending the benefit
of the put right with respect to 314,925 shares held by the Company's former
chairman and chief executive officer as described in "Management--Management
Equity Participation Agreement."

(e) Includes issuance of $300 million of Common Stock in the Offering less
estimated underwriting fees and expenses related to the Offering of $18.10
million 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................................... $ 24,919
Redemption premium associated with 12 5/8%
Debenture Redemption........................................... 3,645
--------
28,564
Assumed tax benefit at 39%....................................... (11,140)
--------
$ 17,424
--------
--------

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, domestic 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 in 1994. In addition, the Company's operating
results in the fourth quarter of 1994 were adversely affected by rising
wastepaper costs as discussed below.

The Company currently believes that pricing and demand in the tissue sector
of the domestic 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's commercial volume
improved slightly during the fourth quarter of 1994 compared to the same period
in 1993. The Company introduced another commercial price increase 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 three
months to one year, there is a time lag before the Company realizes the full
benefit of commercial market price increases. The Company believes that retail
shelf prices in the consumer market improved slightly in 1993 and 1994 but
remained competitive. Overall domestically, the Company realized average price
increases of 5% in 1994 as compared to 1993. Further price increases were
announced for the commercial and consumer markets effective in January 1995.
Taking into account announced tissue papermaking capacity additions and normal
population growth, the Company believes that the rate of capacity growth in
1995, 1996 and 1997 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. Accordingly,
while there can be no assurance that pricing will continue to increase, the
Company believes that in addition to the Company's price increases announced for
the commercial and consumer markets for January 1995, further price increases
are likely in 1995.

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. From July 1994 to January 1995, wastepaper
prices for the grades of wastepaper used in the Company's products more than
doubled. Wastepaper prices may 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 also nearly doubled as a result of increased demand and the Company
expects such prices to continue to increase due to worldwide tightening
supply/demand conditions for market pulp. However, the Company believes that as
market pulp and wastepaper prices increase, tissue producers will seek to
increase prices to maintain profitability.

27
<PAGE>
RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS
ENDED FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,
-------------- ---------------------------
1994 1993 1994 1993 1992
----- ----- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net sales:
Domestic tissue.................................. $ 284 $ 247 $1,060 $ 1,004 $ 978
International operations......................... 35 33 131 143 143
Other............................................ 25 12 83 40 30
----- ----- ------ ------- ------
Consolidated..................................... $ 344 $ 292 $1,274 $ 1,187 $1,151
----- ----- ------ ------- ------
----- ----- ------ ------- ------
Operating income (loss):
Domestic tissue (a)(b)(c)........................ $ 49 $ 70 $ 264 $(1,715) $ 252
International operations (a)..................... 2 -- 8 (1) 17
Other (a)........................................ 2 1 5 (1) 2
----- ----- ------ ------- ------
Consolidated (a)(b)(c)........................... 53 71 277 (1,717) 271
Amortization of goodwill and goodwill write-off
(a)................................................ -- -- -- 2,023 57
Depreciation....................................... 26 26 96 89 82
Environmental charge (b)........................... 20 -- 20 -- --
Employee stock compensation (c).................... -- -- -- (8) --
----- ----- ------ ------- ------
EBITDA(d)........................................ $ 99 $ 97 $ 393 $ 387 $ 410
----- ----- ------ ------- ------
----- ----- ------ ------- ------
Consolidated net loss.............................. $ (25) $ (6) $ (70) $(2,052) $ (80)
----- ----- ------ ------- ------
----- ----- ------ ------- ------
EBITDA as a percent of net sales(d)................ 28.8% 33.1% 30.8% 32.6% 35.6%
</TABLE>

- ------------
(a) During the third quarter of 1993, the Company wrote off the remaining
unamortized balance of its goodwill of $1.98 billion. See Note 4 to the
Company's audited consolidated financial statements included elsewhere in
this Prospectus.

(b) During the fourth quarter of 1994, operating income for domestic tissue
operations was reduced by a $20 million environmental charge. See Note 15 to
the Company's audited consolidated financial statements included elsewhere
in this Prospectus.

(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 to the Company's audited consolidated
financial statements included elsewhere in this Prospectus.

(d) EBITDA represents operating income plus depreciation of property, plant and
equipment, amortization of goodwill, the goodwill write-off, the 1994
environmental charge and the effects of 1993 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."

FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993

Net Sales. Consolidated net sales for 1994 increased 7.3% compared to 1993,
while consolidated net sales for the fourth quarter of 1994 increased 17.9% 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 5.5% for fiscal year 1994 and 15.0% during the fourth quarter of 1994,
in each case as compared to 1993. For 1994, the higher domestic tissue net sales
were due to higher net selling prices principally in the commercial market and
higher sales volume in the consumer and parent roll export markets that were
partially offset by volume decreases in the commercial market during the first
nine months of 1994. Overall, domestic tissue sales volume for 1994 increased
slightly over 1993. 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. For the
fourth quarter of 1994, the higher domestic tissue net sales were due to higher
net selling prices and slightly higher volume in the commercial market,
significantly higher volume offset by lower net selling prices in the consumer
market and higher sales volume in parent roll export markets. The Company
announced further price increases in the

28
<PAGE>
commercial market effective mid-October 1994 and January 1995 and a price
increase in the consumer market effective in January 1995. Because a substantial
portion of the Company's commercial sales are pursuant to contracts which
generally specify pricing over periods of three months to one year, there is a
time lag before the Company realizes the full benefit of commercial market price
increases. Net sales of the Company's international operations decreased 8.4%
for fiscal year 1994 and increased 4.7% for the fourth quarter of 1994 as
compared to 1993. The decrease in international net sales in 1994 was due to
significantly lower net selling prices on flat volume. The increase in
international net sales for the fourth quarter was due to higher volume
partially offset by lower net selling prices. 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 1994 and for the fourth quarter of 1994
compared to 1993 principally reflects higher net selling prices.

Gross income. For fiscal year 1994 and the fourth quarter of 1994,
consolidated gross margins decreased to 31.9% and 29.3% from 34.0% and 33.5% for
the same periods in 1993, respectively, principally due to lower margins in
domestic tissue operations where unit manufacturing cost increases exceeded net
selling price increases. Such cost increases primarily resulted from higher
wastepaper and other raw material costs, lower converting volume, higher
depreciation expense resulting from the start-up of a new paper machine at the
Muskogee mill late in the first quarter of 1994 and higher maintenance costs.
From July 1994 to January 1995, wastepaper prices for the grades of wastepaper
used in Fort Howard's products more than doubled and wastepaper prices may
increase further due to increased demand for those wastepaper grades used by the
Company. Gross margins of international operations declined in 1994 compared to
1993 principally due to the lower net selling prices. For the fourth quarter of
1994 compared to the same period in 1993, gross margins of international
operations improved due to lower promotional costs and the results of cost
containment activities. However, from July 1994 to January 1995, wastepaper
prices for the grades of wastepaper used by international operations increased
approximately 65% and wastepaper prices are expected to increase further for
such operations due to increased demand for those wastepaper grades used by the
Company. In addition, consolidated gross margins were negatively affected for
fiscal year 1994 and the fourth quarter of 1994 by the increased proportion of
net sales represented by the Company's wastepaper brokerage subsidiary which
typically has lower margins than domestic tissue operations.

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 1993. Excluding the effects of the reversal, selling, general and
administrative expenses, as a percent of net sales, were 8.6% and 8.2% for
fiscal year 1994 and fourth quarter of 1994, compared to 8.8% and 9.0% for
fiscal year 1993 and fourth quarter of 1993, respectively. The decreases
resulted 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 1994 compared to $43
million for fiscal year 1993. There was no goodwill amortization in the fourth
quarter of 1994 or 1993.

Environmental Charge. Based upon currently available information and
analysis, the Company recorded a $20 million charge in the fourth quarter of
1994 for estimated or anticipated liabilities and legal and consulting costs
relating to environmental matters arising from past operations. The Company
expects these costs to be incurred over an extended number of years. See
"Business-- Environmental Matters" and "--Legal Proceedings" and Note 15 of the
Company's audited consolidated financial statements included elsewhere in this
Prospectus.

Operating Income (Loss). Operating income increased to $277 million in 1994
compared to an operating loss of $1,717 million in 1993. The operating loss in
1993 resulted entirely from the goodwill write-off in the third quarter of 1993.
Excluding the environmental charge from 1994 results and

29
<PAGE>
amortization of goodwill, the goodwill write-off and the reversal of employee
stock compensation expense from 1993 results, operating income would have
declined to $297 million in 1994 from $299 million in 1993. For the fourth
quarters of 1994 and 1993, operating income was $53 million and $71 million,
respectively. Excluding the environmental charge from 1994 results, operating
income would have increased to $73 million in the fourth quarter of 1994.

Income Taxes. The income tax credits for 1994 and 1993 principally reflect
the reversal of previously provided deferred income taxes.

Extraordinary Losses. The Company's net loss in 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 1993 was increased by an
extraordinary loss of $12 million (net of income taxes of $7 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, the repurchase of all
outstanding 14 5/8% Debentures on April 21, 1993 and the repurchase of $50
million of 12 3/8% Notes on November 1, 1993.

Net Loss. The Company reported net losses of $70 million and $25 million for
fiscal year 1994 and the fourth quarter of 1994, respectively, as compared to
net losses of $2,052 million and $6 million for the same periods in 1993. The
increase in the net loss in the fourth quarter of 1994 is principally due to the
environmental charge. The significant net loss for fiscal year 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 as of
September 30, 1993, the Company decreased the estimated fair market valuation of
its Common Stock. Accordingly, in 1993 the Company

30
<PAGE>
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.

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 the 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 as of
September 30, 1993 and concluded its evaluation in the third

31
<PAGE>
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.

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 amortization of goodwill, the
goodwill write-off and the reversal of employee stock compensation expense from
1993 and 1992 results, operating income declined to $299 million for 1993 from
$328 million for 1992.

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.

FINANCIAL CONDITION

Year Ended December 31, 1994

During 1994, cash increased $195,000. Capital additions of $84 million and
debt repayments of $759 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, a reduction in the 1988 Revolving Credit
Facility and the purchase of interest rate cap agreements for $10 million were
funded by cash provided from operations of $125 million and net proceeds of the
sale of 8 1/4% Notes and 9% Notes of $728 million in February 1994. Receivables
increased $17 million during 1994 due principally to higher net selling prices
in the domestic tissue and wastepaper brokerage operations and sales volume
increases in domestic tissue operations in the fourth quarter of 1994. The $13
million increase in inventories in 1994 resulted from increases in inventory
quantities to improve service levels and the revaluation of inventories to
reflect higher manufacturing costs. The liability for interest payable increased
$29 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% Notes in 1994 and for the liability with respect to the 14 1/8% Debentures
for interest accruing in cash commencing on November 1, 1994. As a result of all
these changes, the net working capital deficit increased to $98 million at
December 31, 1994, from a deficit of $92 million at December 31, 1993. The $15
million increase in long-term other liabilities in 1994 principally reflects the
classification of $18 million of the environmental charge taken in the fourth
quarter as a long-term liability. Deferred and other long-term income taxes
declined $34 million from 1993 to 1994 principally due to the reversal of
deferred income taxes related to continuing operations and the extraordinary
item.

32
<PAGE>
Cash provided from operations declined in 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) and higher floating interest rates. Cash provided from
operations was further impacted by the increase in receivables.

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 in 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.

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 December 31, 1994, the Company
would have had approximately $3,078 million of long-term debt outstanding.
Following the Recapitalization, the Company will have estimated repayment
obligations of $9 million in 1995, $60 million in 1996, $115 million in 1997,
$138 million in 1998 and $153 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 $84 million, $166 million and $233 million in
1994, 1993 and 1992, respectively, including an aggregate of over $350 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 per year. The Company will also be permitted to spend up to $250
million for domestic expansion projects including, without restriction, an
additional tissue paper

33
<PAGE>
machine at one of its existing domestic mills. Other domestic expansion projects
are restricted unless the Company's ratio of Consolidated EBITDA to Consolidated
Interest Expense (as such terms are defined in the New Bank Credit Agreement)
exceeds certain amounts. In addition, the Company will be permitted to make
capital expenditures for international expansion of up to $40 million through
June 30, 1996, and up to $100 million in the aggregate after June 30, 1996 if
the Company's ratio of Consolidated EBITDA to Consolidated 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 amount by which the
scheduled permitted limit for each year (beginning with fiscal year 1995)
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 $225 million of domestic
expansion capital spending that is subject to market conditions and the
successful completion of the Recapitalization. The portion of the above capital
expenditures which are attributable to environmental matters is described in
"Business--Environmental Matters."

The 1995 Revolving Credit Facility will mature on the seventh anniversary of
the completion of the Offering. Assuming the Recapitalization is consummated on
March 15, 1995, the Company expects to have $90.7 million in available capacity
under the 1995 Revolving Credit Facility.

Assuming the Recapitalization is completed in March 1995, approximately $1.5
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 LIBOR-based interest rate cap
agreements which limit the interest cost to the Company with respect to $500
million of floating rate obligations to 6% plus the Company's borrowing margin
until June 1, 1996, and to 8% plus the Company's borrowing margin from June 1,
1996 to June 1, 1999. The Company monitors the risk of default by the
counterparties to the interest rate cap agreements 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 these agreements.

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," the Company will have approximately $131 million
of net operating loss ("NOL") carryforwards as of December 31, 1994 for federal
income tax purposes which expire as follows: $11 million in 2007, $47 million in
2008 and $73 million in 2009. The aggregate amount of net operating loss
carryforwards available to the Company as of December 31, 1994 could be reduced
to approximately $71 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. The Company believes that it will not experience an ownership change in
connection with the Offering or that, if it does, the resulting limitation on
NOL carryforward utilization is not expected to

34
<PAGE>
have a significant effect on the Company's financial condition or on its results
of operations. It is possible, however, that following the Offering, future
events (such as transfers of Common Stock by shareholders, or certain Common
Stock issuances) could cause an ownership change which under the circumstances
at that time could result in a limitation on 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 included
elsewhere in this Prospectus for a description of certain matters related to
income taxes. See "Business--Legal Proceedings."

Seasonality

During the years ended December 31, 1994, 1993, and 1992, 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.

35
<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 5.4 million
tons in 1994. Shipments to the commercial and consumer markets represent
approximately 37% and 63% 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 1984 to 5.4
million tons in 1994 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.

36
<PAGE>
The following table shows sanitary tissue paper converted product shipments
in the United States for the years indicated according to the AFPA.
<TABLE>
<CAPTION>
1984-1994
COMPOUND
ANNUAL
GROWTH
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 RATE
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial(1)............. 1,522 1,554 1,576 1,671 1,783 1,918 1,971 1,987 2,012 2,003 1,961 2.6%
Consumer.................. 2,716 2,718 2,820 2,846 2,903 2,992 3,025 3,080 3,176 3,268 3,395 2.3%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total.................. 4,238 4,272 4,396 4,517 4,686 4,910 4,996 5,067 5,188 5,271 5,356 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.

The Company believes that the decreases in commercial market shipments in
1993 and 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 was 1.6% in each of 1994 and 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 and that
the long-term compound annual growth rates may not reflect actual trends for the
respective markets.

Commercial Market. In the commercial market, domestic tissue shipments grew
from 1.5 million tons in 1984 to 2.0 million tons in 1994 for a compound annual
growth rate of 2.6%. 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 1984 to 3.4 million tons in 1994, for a compound annual
growth rate of 2.3%. The Company believes 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
(45% of market), branded value products (39%) and private

37
<PAGE>
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 92.0%. The Company believes that tissue industry
operating rates of approximately 92-93% 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 from the low levels experienced in 1992 and were
at 91.7% for 1994.

Tissue industry operating rates in 1995 and future years will depend upon
the level of demand and capacity growth. Taking into account announced tissue
papermaking capacity additions and normal population growth, the Company
believes that the rate of capacity growth in 1995, 1996 and 1997 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 realized average price increases
of 5% for the year ended December 31, 1994 as compared to 1993. Because a
substantial portion of commercial sales are pursuant to contracts which
generally specify pricing over periods of three months to one year, there is a
time lag before the full benefit of commerical market price increases are
realized.

The Company believes that growing market shipments resulting from normal
population growth, together with a reduced rate of announced capacity growth,
will result in higher industry operating rates in 1995, 1996 and 1997. In
addition, as further discussed below, because market pulp and wastepaper prices
may continue to increase, the Company believes tissue producers will seek to
increase prices to maintain profitability. As a result of these factors, during
the fourth quarter of 1994, the Company announced further price increases for
the commercial and consumer markets effective in January 1995, and while there
can be no assurance that pricing will continue to increase, the Company believes
that additional price increases are likely in 1995.

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 44% of domestic total
tissue production in 1993 was manufactured using wastepaper. In 1993, the latest
year for which independent industry data is available, 91 million tons of
wastepaper were generated in the United States of which 36 million tons were
collected for recycling (including 6 million tons that were exported), 36
million tons were put into landfills and 19 million tons were incinerated or
otherwise disposed of. Different grades of wastepaper are available from
different sources. For example, newsprint is primarily generated by curb-side
collection, corrugated containers by

38
<PAGE>
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 1993, 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,
wastepaper processing costs are generally higher than those associated with
market pulp and market pulp prices are widely reported per metric ton while
wastepaper prices are widely reported per the smaller short ton.

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Market pulp per metric ton(a)......................... $830 $765 $500 $570 $415 $700
Wastepaper per short ton(b)........................... $106 $ 80 $ 67 $ 81 $ 86 $176
</TABLE>

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

<TABLE>
<S> <C>
(a) Year-end market prices per metric ton for Northern Bleached Softwood Kraft.
(b) Year-end market prices per short ton for Coated Book. The market price trends for this
wastepaper grade are representative of the percentage price changes experienced by the
Company over the period 1990 through 1994 for the grades of wastepaper used by the
Company. The market price trends for Coated Book may not be representative of future
price trends for the grades of wastepaper Fort Howard uses. In addition, the market
prices shown in this table are not necessarily indicative of Fort Howard's or any other
tissue manufacturer's actual wastepaper costs, which will depend on the particular
grades of wastepaper used.
</TABLE>

Beginning in the third quarter of 1994, wastepaper prices for de-inking
grades utilized by tissue producers increased significantly. Wastepaper prices
may 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 also have increased sharply
as a result of increased demand. The Company expects market pulp prices to
continue to increase due to worldwide tightening supply/demand conditions for
market pulp. For the month of February 1995, the average market prices for
Northern Bleached Softwood Kraft pulp and Coated Book wastepaper increased to
$750 per metric ton and $213 per short ton, respectively. Historically, as
market pulp and wastepaper prices increase, 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.

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

39
<PAGE>
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. 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 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 tighten in 1995, 1996 and 1997.

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.

Consumer and commercial market price increases were announced by Fort
Sterling effective late in the fourth quarter of 1994 and another consumer
market price increase was announced effective late in the first quarter of 1995.
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.

40
<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 two further increases in April 1994 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 realized average price increases of 5% for the year
ended December 31, 1994 as compared to 1993. Further price increases were
announced for the commercial and consumer markets effective in January 1995.
Because a substantial portion of the Company's commercial market sales are
pursuant to contracts which generally specify pricing over periods of three
months to one year, there is a time lag before the Company realizes the full
benefit of commercial market price increases. Taking into account announced
tissue papermaking capacity additions and normal population growth, the Company
believes that the rate of capacity growth in 1995, 1996 and 1997 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, tissue producers have sought to increase prices to maintain
profitability. Accordingly, while there can be no assurance that pricing will
continue to increase, the Company believes that in addition to the Company's
price increases announced for the commercial and consumer markets for January
1995, further 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.

41
<PAGE>
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 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 2.6% compound annual growth rate for
the decade ending December 31, 1994, compared to the consumer market which
has grown at a 2.3% 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 during the last three
years.

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 3.4
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

42
<PAGE>
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 California. The Company seeks to offer its retailers
margins which are among the highest in the trade and emphasizes promotional
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. 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

43
<PAGE>
production comes from tissue paper machines capable of making 50,000 tons or
more annually, whereas the Company believes that less than 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,
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 1.4 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 Assoc. 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

44
<PAGE>
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.

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 $724 million for the five year period ended December 31, 1994,
$538 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
facilities 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.

45
<PAGE>
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%.

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.

46
<PAGE>
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 40% 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 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

47
<PAGE>
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
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 sales volume has increased at a
compound annual growth rate of 10.0% 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.

48
<PAGE>
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. 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 is positioned 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.

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. From July 1994 to January 1995,
wastepaper prices for the grades of wastepaper used in Fort Howard's products
more than doubled. See "Certain Risk Factors--Increasing Wastepaper Prices."
Virtually all of the Company's tissue products are made with 100% recycled fiber
derived from wastepaper. The de-

49
<PAGE>
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 three months to one
year.

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.

50
<PAGE>
Converting capacity could be expanded by working additional hours and/or adding
converting equipment.

EMPLOYEES

At December 31, 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 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 1994, the Company made capital expenditures of $9 million with respect to
pollution abatement and environmental compliance. Included in the 1994 capital
expenditures was $4 million for pollution abatement equipment in connection with
completing expansion projects initiated in 1993 and prior years. The Company
expects to commit to approximately $12 million of capital expenditures to
maintain compliance with environmental control standards at its facilities
during 1995 and 1996. Included in the 1995-96 expected expenditures is $1
million for pollution abatement equipment to be installed in connection with
constructing a coal-fired boiler at the Company's Savannah mill. 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 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.

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<PAGE>
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 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
damages 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 alleged natural
resource damages to 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

On December 16, 1994, the Company received a Civil Investigative Demand
("CID") issued by the U.S. Department of Justice, Antitrust Division pursuant to
the Antitrust Civil Process Act, Title 15

52
<PAGE>
of the United States Code. The CID seeks documents and information as part of an
Antitrust Division civil investigation to determine whether there are agreements
in restraint of trade in connection with sales of sanitary paper products. The
Company is cooperating with the investigation.

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. 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. One of the current 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 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. The Company's participation in the coalition
is not an admission of liability for any portion of any remediation and the
Company does not believe its participation will prejudice any defenses available
to the Company.

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 to federal
regulations. It is anticipated that any assessment would require considerable
time to complete. Based upon presently available information, the Company
believes that there are additional parties, some of which may have substantial
resources, who may be identified as PRPs for alleged natural resource damages.

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 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.

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<PAGE>
The Company believes, based upon currently available information and
analysis, that the environmental charge it has accrued in the fourth quarter of
1994 for environmental matters adequately reflects the Company's estimated or
anticipated liabilities and legal and consulting costs relating to environmental
matters arising from past operations. The Company expects these costs to be
incurred over an extended number of years. While the charge reflects the
Company's current estimates of the costs of these environmental matters, there
can be no assurance that the amount accrued will be adequate.

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. In anticipation of its
appeal, the Company has paid to the IRS 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 tax. 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 1989 through 1994 would be approximately $34 million and for the period
after 1994 (assuming current statutory tax rates) would be approximately $4
million, in each case exclusive of interest. 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 1989 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.

The Company and its subsidiaries are parties to other lawsuits and state and
federal administrative proceedings in connection with their businesses. Although
the final results in all suits and proceedings cannot be predicted with
certainty, the Company presently believes that the ultimate resolution of all
such lawsuits and proceedings, after taking into account the liabilities accrued
with respect to such matters, will not have a material adverse effect on the
Company's financial condition or 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 December 31, 1994.

Within 90 days following completion of the Offering, the Company will
appoint 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 the directors expire as follows: Ms. Hempel in 1996; Messrs. Riordan
and Sica in 1997; and Messrs. DeMeuse, Brennan and Niehaus in 1998. 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 July 1990, 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 Patrick Brennan.................... 54 Managing Director of MS&Co since prior to
Director 1989 and head of MS&Co's Merchant
Banking Division. Chairman and President
of Morgan Stanley Leveraged Equity Fund
II, Inc. ("MSLEF II, Inc."), Chairman of
Morgan Stanley Capital Partners III,
Inc. ("MSCP III") and Chairman of Morgan
Stanley Venture Partners. Director of
MS&Co, Jefferson Smurfit Corporation,
PSF Finance Holdings, Inc., Stanklav
Holdings, Inc. and Waterford Wedgwood
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 prior to
Director 1989. Vice President and Director of
MSLEF II, Inc. since 1989 and Vice
Chairman of MSCP III. Director of ARM
Financial Group, Inc., Emmis
Broadcasting Corporation, Interstate
Natural Gas Company, Kohl's Corporation,
PageMart, Inc., Southern Pacific Rail
Corporation 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 December 31, 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.................... 52 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.
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....................... 58 Vice President for more than five years.
Vice President
Charles L. Szews.......................... 38 Vice President since September 1994;
Vice President and Controller Controller since November 1989.
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>

56
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Board of Directors currently has three committees: an
Executive Committee, an Audit Committee and 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 acts as a
compensation committee for determining certain aspects of the compensation of
the executive officers of the Company. The responsibilities of the Compensation
Committee include administering the Company's 1995 Stock Incentive Plan and
selecting the officers and key employees to whom awards will be granted. The
Compensation Committee is comprised of non-management directors. 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.

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

The following table presents information concerning compensation paid for
services to the Company during fiscal years 1992 through 1994 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............. 1994 $750,000 $307,500 $ 7,802 0 $69,366
Chairman and Chief 1993 653,846 55,250 4,840 0 62,742
Executive Officer 1992 675,000 55,250 3,831 0 57,480
Kathleen J. Hempel............ 1994 480,000 196,800 1,036 0 27,311
Vice Chairman and Chief 1993 453,077 38,381 0 0 27,388
Financial Officer 1992 456,923 37,400 0 0 27,222
Michael T. Riordan............ 1994 375,000 153,750 4,671 0 21,400
President and Chief 1993 302,885 25,500 0 48,750 18,437
Operating Officer 1992 248,846 20,171 317 0 15,028
Andrew W. Donnelly............ 1994 330,000 135,300 162 0 18,603
Executive Vice President 1993 350,000 29,750 0 0 20,859
1992 342,692 28,050 0 0 20,133
John F. Rowley................ 1994 237,885 96,350 338 0 13,676
Executive Vice President 1993 255,000 21,675 0 0 15,111
1992 244,039 19,975 0 0 14,561
</TABLE>

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

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

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

The following table presents information concerning unexercised stock
options for the Named Executive Officers. No stock options were exercised by or
granted to the Named Executive Officers during 1994.

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
1994 AT DECEMBER 31, 1994(A)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald H. DeMeuse............................ 505,537 37,700 -- --
Kathleen J. Hempel........................... 562,347 13,000 -- --
Michael T. Riordan........................... 119,008 54,600 -- --
Andrew W. Donnelly........................... 141,927 16,900 -- --
John F. Rowley............................... 102,323 15,600 -- --
</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. Without the benefit of the Bank Refinancing and the 1995 Debt
Redemptions, the Company believes that none of the exercisable or
unexercisable stock options held at December 31, 1994 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.

58
<PAGE>
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 the Company's 1995 Stock Plan for Non-Employee Directors. The
payment of the cash portion of the Annual Fee may be deferred by any director at
such director's election pursuant to the Company's Deferred Compensation Plan
for Non-Employee Directors until the earliest of (i) the date of termination of
such director's service as a non-employee director, (ii) the date specified by
such director in his deferred election form and (iii) the date of such
director's death.

EMPLOYMENT AGREEMENTS

The Named Executive Officers have entered into employment agreements with
the Company (the "Employment Agreements") which took effect in 1993. The
Employment Agreements contain customary employment terms, have an initial term
that expires on December 31, 1997, 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 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.

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 earnings,
operating income, earnings per share, cash flow, absolute and/or relative return
on equity or assets, pre-tax profits, earnings growth, revenue growth,
comparison to peer companies, any combination of the foregoing and/or other
appropriate measures in such manner as the Executive Committee deems
appropriate) 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 alternatively

59
<PAGE>
grant a discretionary bonus. A participant must be employed by the Company on
the last day of the year in order to receive a bonus for such year, except in
the case of death, disability or retirement after age 55, in which case such
participant would receive a pro rata bonus. In the event of termination of a
participant's employment without "cause" (as defined in the Management Incentive
Plan) within two years 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
may 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.

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 has adopted a 1995 Stock Incentive Plan (the "1995 Plan"). The
1995 Plan will be administered by the Compensation Committee, which is comprised
exclusively of non-employee Directors, each of whom is "disinterested" within
the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). The 1995 Plan provides 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 has discretion to select the employees to whom Awards
will be granted (from among those

60
<PAGE>
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 are binding on the
Company and employees eligible to participate in the 1995 Plan and all other
persons having any interest in the 1995 Plan. It is presently anticipated that
approximately 130 individuals will initially participate in the 1995 Plan.

A total of 3,359,662 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. To the fullest
extent permitted under Rule 16b-3 under the Exchange Act and Section 422 of the
Code, any shares of Common Stock subject to an Award which lapses, expires or is
otherwise terminated without the issuance of such shares may 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.

Awards under the 1995 Plan are determined by the Compensation Committee in
its discretion. For this reason, 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.

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 (110% of fair market value in the case of an incentive stock option
granted to a ten percent shareholder).

Options will expire not later than ten years after the date on which they
are granted (five years in the case of an incentive stock option granted to a
ten percent shareholder). Options become exercisable at such times and in such
installments as determined by the Compensation Committee, 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 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 (or such portion thereof), by a "cashless
exercise" procedure to be approved by the Compensation Committee or by
withholding shares of Common Stock that would otherwise have been received by
the optionee.

Stock Appreciation Rights. A stock appreciation right ("SAR") is an Award
entitling an employee to receive an amount equal to (or subject to certain
limitations, less than, if the Compensation Committee so determines at the time
of grant) the excess of the fair market value of a share of Common Stock on the
date of exercise over the exercise price per share specified for the SAR,
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

61
<PAGE>
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 such restrictions as the Compensation
Committee deems appropriate, including forfeiture conditions and restrictions
against transfer for a period specified by the Compensation Committee.
Restricted Stock Awards may be granted under the 1995 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, 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 net earnings,
operating earnings or income, absolute and/or relative return on equity or
assets, earnings per share, cash flow, pre-tax profits, earnings growth, revenue
growth, comparisons to peer companies, any combination of the foregoing and/or
such other measures, including individual measures of performance, 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 other
property by the Company, a subsidiary or a division. The extent to which a
grantee is entitled to payment in settlement 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 Award 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

62
<PAGE>
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 may determine, in cash, in shares of Common Stock, or some combination
thereof, as determined by the Compensation Committee.

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, Performance Share Awards and Stock Equivalent
Awards may, in the discretion of the Compensation Committee, earn Dividend
Equivalents. The Compensation Committee will establish such rules and procedures
governing the crediting of Dividend Equivalents, including any 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 as may be necessary (in the form
determined by the Compensation Committee) to reflect such change will be made to
prevent dilution or enlargement of the rights 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. Generally,
an individual's rights under the 1995 Plan may not be assigned or transferred
(except in the event of death).

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 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 or lapsing as to conditions or
restrictions. For purposes of the 1995 Plan, a "change in control" shall have
occurred when (A) any person (other than (x) 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, (y) Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors,
Fort Howard Equity Investors II, or any of their respective affiliates or (z)
any general or limited partner of MSLEF II, Fort Howard Equity Investors or Fort
Howard Equity Investors II), alone or together with its affiliates and
associates (collectively, an "Acquiring Person")), shall become the beneficial
owner of 20% 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 Common Stock at a
price and upon such terms and conditions as a majority of the Continuing
Directors (as defined below) determine to be in the best interests of the
Company and its shareholders (other than an Acquiring Person on whose behalf the
offer is being made)), or (B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors and any new director (other than a director who is a representative or
nominee of an Acquiring Person) whose election by the Board of Directors or
nomination for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then still in office who either were
directors at

63
<PAGE>
the beginning of the period or whose election or nomination for election was
previously so approved (collectively, the "Continuing Directors"), no longer
constitute a majority of the Board of Directors.

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 may adversely
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 will 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 Nasdaq National Market 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 the required 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
the regulations thereunder and the Company will generally be entitled to a
federal income tax deduction in the amount of such ordinary compensation income.

An employee to whom a nonqualified stock option ("NSO") is granted will not
recognize income at the time of grant of such Option. When such employee
exercises such NSO, the employee 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 employee
receives. The tax basis of such shares to such employee will be equal to the
Option Price paid plus the amount includible in the employee's gross income, and
the employee's holding period for such shares will commence on the date on which
the employee 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 employee.

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.

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<PAGE>
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. Executive officers or other key employees of the Company who have
acquired shares of Common Stock pursuant to the Management Equity Plan have
agreed to become bound by the terms of the Company's Stockholders Agreement. See
"Certain Transactions--Stockholders Agreement."

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. All options
outstanding under the Management Equity Plan will become fully vested prior to
the 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--Certain Federal Income Tax
Consequences of Options." 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 the Management Equity Participation
Agreement at exercise prices of $15.38 and $18.46 per share, respectively. All
such options will become fully vested prior to the 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.

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<PAGE>
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--Certain Federal Income Tax Consequences of Options."

In 1988 and 1990, the Company's former chairman of the board and chief
executive officer (the "former executive") 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, as
amended, 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 are, with certain limited exceptions, currently scheduled to expire
upon consummation of the Offering. The Company is considering extending the
benefit of the put right with respect to the shares of Common Stock to the ten-
day period following expiration of the 180-day lock-up agreement contained in
the Stockholders Agreement, if the former executive agrees not to exercise his
current put right with respect to such shares prior to consummation of the
Offering. If such an agreement is not reached, the Company does not believe that
exercise of the put would have a material impact on the Company.

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 Patrick 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 also administers the Company's Management Incentive
Plan under which annual cash awards are paid to employees serving in key
executive, administrative, professional and technical capacities. Awards
generally 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 has appointed a Compensation Committee, the members
of which are Donald Patrick 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 under the 1995 Plan 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 December 31, 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) 33.1%
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) 10.6
First Plaza Group Trust
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Leeway & Co.................................... 3,357,750 8.8 3,357,750 5.3
1 Enterprise Drive
North Quincy, Massachusetts 02171
Morgan Stanley Group Inc....................... 3,036,884(c) 8.0 3,036,884(c) 4.8
1251 Avenue of the Americas
New York, New York 10020
Donald H. DeMeuse.............................. 672,749(d) 1.7 710,449(d) 1.1
Kathleen J. Hempel............................. 594,691(e) 1.5 607,691(e) 1.0
Michael T. Riordan............................. 135,420(f) * 190,020(f) *
Donald Patrick Brennan......................... 0 -- 0 --
Frank V. Sica.................................. 0 -- 0 --
Robert H. Niehaus.............................. 0 -- 0 --
Andrew W. Donnelly............................. 158,177(g) * 175,077(g) *
John F. Rowley................................. 113,373(h) * 128,973(h) *
All Directors and Executive Officers as a
Group.......................................... 2,301,693(i) 5.8 2,508,650(i) 3.9
</TABLE>

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

<TABLE>
<S> <C>
* 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 and 663,000 shares held by Fort Howard Equity Investors. 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>
<S> <C>
(c) Includes 260,000 shares for which Morgan Stanley Group exercises exclusive voting
rights but as to which it disclaims beneficial ownership.
(d) Beneficial ownership prior to the Offering includes 505,537 shares and beneficial
ownership after the Offering includes an additional 37,700 shares, in each case which
are subject to acquisition within 60 days by exercise of employee stock options.
(e) Beneficial ownership prior to the Offering includes 562,347 shares and beneficial
ownership after the Offering includes an additional 13,000 shares, in each case which
are subject to acquisition within 60 days by exercise of employee stock options.
(f) Beneficial ownership prior to the Offering includes 119,008 shares and beneficial
ownership after the Offering includes an additional 54,600 shares, in each case which
are subject to acquisition within 60 days by exercise of employee stock options.
(g) Beneficial ownership prior to the Offering includes 141,927 shares and beneficial
ownership after the Offering includes an additional 16,900 shares, in each case which
are subject to acquisition within 60 days by exercise of employee stock options.
(h) Beneficial ownership prior to the Offering includes 102,323 shares and beneficial
ownership after the Offering includes an additional 15,600 shares, in each case which
are subject to acquisition within 60 days by exercise of employee stock options.
(i) Beneficial ownership prior to the Offering includes 1,897,681 shares and beneficial
ownership after the Offering includes an additional 206,957 shares, in each case which
are 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 (each, a "Holder") have entered into a stockholders
agreement (the "Stockholders Agreement"), which contains certain restrictions
with respect to the transferability of Common Stock by certain parties
thereunder, certain registration rights granted by the Company with respect to
such shares and certain arrangements with respect to the nomination of designees
to the Board of Directors.

Pursuant to the terms of the Stockholders Agreement, in the event that one
or more Holders (other than certain individual investors including the
Management Investors) (each, a "Controlling Shareholder") sell a majority of the
shares of Common Stock subject to the Stockholders Agreement to a third party,
certain other Holders have 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 certain
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 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.

Pursuant to the terms of the Stockholders Agreement, MSLEF II and Fort
Howard Equity Investors II each have the right to have a designee nominated for
election to the Company's Board of Directors at any annual meeting of the
Company's shareholders, so long as MSLEF II or Fort Howard

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<PAGE>
Equity Investors II, as the case may be, does not already have a designee as a
member of the Board of Directors at the time of such annual meeting. In
addition, in the event of a vacancy on the Board of Directors created by the
resignation, removal or death of a director nominated by MSLEF II or Fort Howard
Equity Investors II, such shareholders have the right to have a designee
nominated for election to fill such vacancy.

Pursuant to the Stockholders Agreement, all Holders are subject to an
agreement, with certain limited 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 beginning 7 days before and ending
180 days after the effective date of the Registration Statement in the case of
current and former officers and other key employees of the Company (who
beneficially own an aggregate of 791,358 shares of Common Stock), and ending one
year after the effective date of the Registration Statement in the case of the
remaining Holders (who beneficially own an aggregate of 37,309,881 shares of
Common Stock), without the prior written consent of certain of the
representatives of the U.S. Underwriters in the case of Morgan Stanley Group,
MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II, or
of MS&Co, in the case of the remaining Holders.

The Stockholders Agreement also provides that, in connection with any future
underwritten offering of Common Stock by the Company, the Holders will not,
subject to certain limited exceptions, 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 beginning 7 days before and ending 180 days after the
effective date of the related registration statement without the prior written
consent of certain of the representatives of the underwriters thereof, in the
case of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort
Howard Equity Investors II, or of MS&Co, in the case of the remaining Holders.
See "Shares Eligible for Future Sale."

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 Group 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, $1.0 million and $1.1 million for these and other
miscellaneous services in 1994, 1993 and 1992, respectively. This agreement was
terminated on 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 in 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.

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 the 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.

The Company is a party to an interest rate cap agreement with MS&Co that was
purchased in 1994 for $2.1 million.

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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 January 31, 1995 (the
"Commitment Letter") with Bankers Trust Company ("Bankers Trust"), Chemical Bank
and Bank of America National Trust and Savings Association with respect to the
New Bank Credit Agreement and the 1995 Receivables Facility. Set forth below is
a description of the New Bank Credit Agreement that the Company contemplates
entering into pursuant to the Commitment Letter.

General. The New Bank Credit Agreement will provide for the 1995 Term Loan A
(in an amount of $810 million), the 1995 Term Loan B (in an amount of $330
million) and the 1995 Revolving Credit Facility (in an amount of $300 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 $209.3 million will be borrowed under the 1995 Revolving Credit
Facility in connection with the Recapitalization (assuming all components of the
Recapitalization are consummated on March 15, 1995) and that the Company will
have $90.7 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
working capital and other 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 ("S&P") or Moody's Investors
Services, Inc. ("Moody's") 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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<PAGE>
Repayment. The New Term Loans 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 New Term
Loans. The New Term Loans will be payable in installments on the last day of
each six-month period following the date of the closing of the Offering, except
that payment of the sixteenth installment shall be made on December 31, 2002.
The amount of each installment for the 1995 Term Loan A and the 1995 Term Loan B
are as follows:

1995 TERM 1995 TERM
INSTALLMENT LOAN A LOAN B
- ------------------------------------------------------ --------- ---------
(IN MILLIONS)
1st.................................................. $ 0.0 $ 0.0
2nd.................................................. $ 0.0 $ 0.0
3rd.................................................. $ 42.0 $ 2.0
4th.................................................. $ 42.0 $ 2.0
5th.................................................. $ 55.0 $ 2.0
6th.................................................. $ 55.0 $ 2.0
7th.................................................. $ 67.5 $ 2.0
8th.................................................. $ 67.5 $ 2.0
9th.................................................. $ 67.5 $ 2.0
10th.................................................. $ 67.5 $ 2.0
11th.................................................. $ 80.0 $ 2.0
12th.................................................. $ 80.0 $ 2.0
13th.................................................. $ 93.0 $ 45.0
14th.................................................. $ 93.0 $ 45.0
15th.................................................. $ 0.0 $ 110.0
16th.................................................. $ 0.0 $ 110.0

The Company will also be required to make mandatory prepayments of the New
Term Loans on or before the last day of March of each year commencing March 31,
1996 and ending on but including March 31, 2002 in an amount equal to 50% of
Excess Cash Flow for the year ending on the immediately preceding December 31.
"Excess Cash Flow" for any period is defined as the Net Cash Provided From
Operations during such period, reduced by the sum, without duplication, of: (i)
the scheduled principal payments of the New Term Loans paid during such period;
(ii) payments with respect to the principal portion of indebtedness constituting
capital leases; (iii) with certain exceptions, each of the following amounts
paid during such period: (a) certain mandatory prepayments of the New Term
Loans, (b) certain voluntary prepayments of the New Term Loans, (c) scheduled,
voluntary or mandatory payments or prepayments of the principal of permitted
indebtedness other than intercompany indebtedness, the New Term Loans and
certain obligations owed for all or any part of the deferred purchase price of
property or services, (d) payments in respect of Consolidated Domestic Capital
Expenditures, (e) payments in respect of Consolidated Capital Expenditures
(other than Consolidated Domestic Capital Expenditures) but only to the extent
not financed with the proceeds of indebtedness (excluding intercompany
indebtedness) incurred by a foreign subsidiary, (f) certain permitted payments
in respect of equity and (g) certain investments made by the Company and its
subsidiaries in joint ventures and foreign subsidiaries.

"Net Cash Provided From Operations" for any period is defined as the
Adjusted Consolidated Net Income for such period, minus (plus) the increase
(decrease), if any, in Adjusted Working Capital from the first day to the last
day of such period.

"Adjusted Consolidated Net Income" for any period is defined as consolidated
net income during such period plus (minus) the sum, without duplication, of the
amount of depreciation, depletion, amortization of intangibles, deferred taxes,
accreted and zero coupon bond interest and other non-cash

72
<PAGE>
expenses (income), losses (gains) or other charges (credits) that, pursuant to
GAAP, were deducted (added) in determining such consolidated net income.

"Adjusted Working Capital" means, at any time, Consolidated Current Assets
minus Consolidated Current Liabilities at such time.

"Consolidated Current Assets" means, at any time, the consolidated current
assets of the Company and its subsidiaries (whether or not consolidated with the
Company for financial reporting purposes and including, without limitation, all
receivables subsidiaries) at such time.

"Consolidated Current Liabilities" means, at any time, the consolidated
current liabilities of the Company and its subsidiaries (whether or not
consolidated with the Company for financial reporting purposes and including,
without limitation, all receivables subsidiaries) at such time, but excluding
the current portion of any long-term indebtedness which would otherwise be
included therein and any indebtedness with a maturity which may, by the terms of
the instrument evidencing or governing such indebtedness, be extended, renewed
or reborrowed by the Company to a date that is later than one year after such
time.

"Consolidated Capital Expenditures" means, for any period, the sum of: (i)
the aggregate of all capital expenditures by the Company and its subsidiaries
during such period, plus (ii) to the extent not covered by clause (i) hereof,
the aggregate of all expenditures by the Company and its subsidiaries to acquire
by purchase or otherwise the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of or interest in, any person, including,
without limitation, the amount of any indebtedness of any such acquired person
existing at the date of or by reason of such purchase or acquisition, whether or
not such indebtedness is assumed or guaranteed by the Company or any subsidiary
of the Company, it being understood that each item covered by this clause (ii)
shall be deemed incurred as of the date of the applicable acquisition, provided
that any indebtedness referred to in this clause (ii) of any acquired person
that is not a wholly owned subsidiary of the Company shall only be included in
an amount equal to the product of (1) the Company's direct or indirect
percentage of equity ownership in such acquired person at the time such
indebtedness is incurred or deemed incurred and (2) the amount of such
indebtedness.

"Consolidated Domestic Capital Expenditures" means, for any period, the sum
of: (i) the aggregate of all capital expenditures by the Company and its
domestic subsidiaries during such period, plus (ii) to the extent not covered by
clause (i) hereof, the aggregate of all expenditures by the Company and its
domestic subsidiaries to acquire by purchase or otherwise the business, property
or fixed assets of, or stock or other evidence of beneficial ownership of or
interest in, any person, including, without limitation, the amount of any
indebtedness of any such acquired person existing at the date of or by reason of
such purchase or acquisition, whether or not such indebtedness is assumed or
guaranteed by the Company or any subsidiary of the Company, it being understood
that each item covered by this clause (ii) shall be deemed incurred as of the
date of the applicable acquisition, provided that any indebtedness referred to
in this clause (ii) of any acquired person that is not a wholly owned subsidiary
of the Company shall only be included in an amount equal to the product of (1)
the Company's direct or indirect percentage of equity ownership in such acquired
person at the time such indebtedness is incurred or deemed incurred and (2) the
amount of such indebtedness.

Excess Cash Flow prepayments under the New Bank Credit Agreement will be
allocated pro rata between the New Term Loans. 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 installments. The portion of any such prepayment allocable to the
1995 Term Loan B will be applied pro rata to the remaining scheduled
amortization installments. In the event that any such prepayment is due at a
time when the New Term Loans have been fully repaid, the 1995 Revolving Credit
Facility commitments

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<PAGE>
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 New Term Loans will also provide for mandatory prepayments from proceeds
of Asset Sales, permitted sale/leaseback transactions and permitted receivables
transactions; provided, however, that no prepayments will be required with
respect to any permitted receivables transaction the net proceeds of which are
used to pay amounts owing pursuant to the 1995 Receivables Facility, except to
the extent that the net proceeds of such receivables transaction exceed the then
outstanding principal amount of the 1995 Receivables Facility. "Asset Sale" is
defined as the sale, transfer or other disposition after the date of the closing
of the Offering (in a single transaction or a series of related transactions) by
the Company or any of its subsidiaries of: (i) any of the stock of any of the
Company's subsidiaries; (ii) substantially all of the assets of any geographic
or other division or line of business of the Company or any of its subsidiaries
or (iii) any real property or any other assets (including, without limitation,
any assets which do not constitute substantially all of the assets of any
geographic or other division or line of business but excluding any assets
manufactured, constructed or otherwise produced or purchased for sale to others
in the ordinary course of business) of the Company or any of its subsidiaries
having a fair value in excess of $2 million; provided that any asset sale
described in clause (iii) above shall not be deemed to be an "Asset Sale" unless
and until the aggregate amount of the fair value of the proceeds of all such
sales after the date of the Offering by the Company and its subsidiaries
occurring in any fiscal year of the Company equals or exceeds $10 million.
Excluded from Asset Sales are: (A) sales of cash and cash equivalents in the
ordinary course of business; (B) sales or other transfers of receivables
pursuant to certain permitted receivables transactions; (C) sales of assets
effected pursuant to certain permitted sale/leaseback transactions and (D) up to
$30 million of dispositions of plants or facilities of the Company, or of a
subsidiary of the Company, located outside the United States if the proceeds of
such dispositions are redeployed outside the United States within six months
following each such disposition. 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, permitted sale/leaseback
transactions and permitted receivables transactions will be applied in the same
manner as the Excess Cash Flow prepayments.

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 New Term Loans 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.

Security. The indebtedness under the New Bank Credit Agreement will be
secured by a first lien (subject to permitted liens) on the Collateral other
than certain trade receivables of the Company and its subsidiaries, and will be
secured by a second lien on such trade receivables. "Collateral" is defined as
the inventory, certain receivables, intellectual property and real property of
the Company and certain of its subsidiaries, and the capital stock of or other
evidence of the ownership interest in certain of the Company's subsidiaries.

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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 of not less than 1.25 to 1.00
for the first and second full fiscal quarters (taken as one accounting
period) following the Recapitalization, 1.25 to 1.00 for the first, second
and third full fiscal quarters (taken as one accounting period) following
the Recapitalization and for any period of four consecutive full fiscal
quarters (in each case taken as one accounting period) following the
Recapitalization not less than the ratio shown below during the indicated
period ending December 30:

1996-- 1.40 to 1.00
1997-- 1.50 to 1.00
1998-- 1.60 to 1.00
1999-- 1.75 to 1.00
2000-- 1.85 to 1.00
Thereafter-- 2.00 to 1.00

"Consolidated EBITDA" for any period is defined as the total of the amounts
for such period of (a) consolidated net income (subject to certain adjustments),
plus (b) provision for taxes based on income, plus (c) total interest expense
(including that attributable to capital leases and including, without
limitation, to the extent not otherwise included by this clause (c), all
interest expense or expenses in the nature of interest expense incurred by any
receivables subsidiary), plus (d) depreciation expense, plus (e) amortization
expense, plus (f) other non-cash items reducing or deducted in calculating
consolidated net income, minus (g) other non-cash items increasing consolidated
net income, minus (h) charges against the Company's $20,000,000 special reserve
established in respect of certain environmental matters, all as determined on a
consolidated basis for the Company and its subsidiaries for such period taken as
a single accounting period determined (other than in the case of clause (h)) in
conformity with GAAP.

"Consolidated Interest Expense" for any period is defined as the sum of: (i)
total interest expense for such period (including that attributable to capital
leases) of the Company and its subsidiaries on a consolidated basis with respect
to all outstanding indebtedness of the Company and its subsidiaries; (ii) net
costs under interest rate swap, cap, collar or similar agreements for such
period and (iii) to the extent not otherwise included above, all interest
expense or expenses in the nature of interest expense incurred by any
receivables subsidiary, but excluding interest expense not payable in cash
(including amortization of discount), certain fees payable to the administrative
agent and the Banks under the New Bank Credit Agreement on or prior to the date
of the Offering and the transaction costs relating to the Recapitalization, all
as determined on a consolidated basis for the Company and its subsidiaries in
conformity with GAAP.

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(ii) A requirement that the Company maintain at all times a ratio of (a)
Senior Secured Indebtedness as of the end of any fiscal quarter to (b)
Consolidated EBITDA for the prior four fiscal quarters, of not more than the
ratio shown below during the indicated period:

September 30, 1995 to December 30, 1995 --4.25 to 1
December 31, 1995 to March 30, 1996 --4.00 to 1
March 31, 1996 to June 29, 1996 --3.90 to 1
June 30, 1996 to September 29, 1996 --3.80 to 1
September 30, 1996 to December 30, 1996 --3.70 to 1
December 31, 1996 to March 30, 1997 --3.45 to 1
March 31, 1997 to June 29, 1997 --3.30 to 1
June 30, 1997 to September 29, 1997 --3.20 to 1
September 30, 1997 to December 30, 1997 --3.10 to 1
December 31, 1997 to December 30, 1998 --3.00 to 1
December 31, 1998 to December 30, 1999 --2.75 to 1
December 31, 1999 to December 30, 2000 --2.50 to 1
Thereafter --2.00 to 1

"Senior Secured Indebtedness" is defined as the following obligations of the
Company and/or any of its subsidiaries: (i) the amount of any indebtedness
incurred by the Company or any subsidiary of the Company in connection with the
1995 Receivables Facility or any permitted receivables transaction; (ii) that
portion of obligations with respect to capital leases which is properly
classified as a liability on a balance sheet in conformity with GAAP; (iii)
indebtedness incurred with respect to certain permitted sale/leaseback
transactions and certain permitted expansion construction financings; (iv)
indebtedness of the Company or any subsidiary of the Company that is not
Subordinated Indebtedness and is secured by any lien on any property of the
Company or any subsidiary of the Company and (v) the full amount of the
obligations of the Company or any subsidiary of the Company under any letter of
credit issued for the account of the Company or any subsidiary of the Company
that are secured by a lien on any property of the Company or any subsidiary of
the Company.

"Subordinated Indebtedness" is defined as indebtedness of the Company
subordinated in right of payment to the obligations of the Company and its
subsidiaries under the New Bank Credit Agreement and certain other related
documents.

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 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 certain Material Subsidiaries.

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

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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 New Term Loans and the 1995 Revolving Credit Facility to be due and
payable. These events will include, among other things: (i) failure to pay any
installment of principal under the New Bank Credit Agreement when due; (ii)
failure to pay for five days after the due date any interest or any other amount
due under the New Bank Credit Agreement; (iii) default in or relating to other
indebtedness of the Company or any of its subsidiaries in a principal amount of
$15 million or more individually or $30 million or more in the aggregate; (iv)
breach of certain covenants contained in the New Bank Credit Agreement; (v) any
representation or warranty contained in the New Bank Credit Agreement or certain
other related documents proving to have been false in any material respect when
made; (vi) 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 from the administrative agent
or any Bank of such default; (vii) bankruptcy or dissolution of the Company or
any of its Material Subsidiaries; (viii) a judgment or attachment involving an
amount in excess of $10 million individually or $20 million in the aggregate
shall be entered or filed against the Company or any of its Material
Subsidiaries which is not discharged within a specified period; (ix) certain
ERISA defaults; (x) the invalidity of any guarantee given by a subsidiary of the
Company in connection with the New Bank Credit Agreement; (xi) 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
fair market value or book value (whichever is greater) of more than $20 million
in the aggregate and (xii) a Change in Control. A "Change in Control" under the
New Bank Credit Agreement is deemed to have occurred if (i) any person or group
other than (x) MSLEF II, Morgan Stanley Group, Fort Howard Equity Investors,
Fort Howard Equity Investors II and their respective general or limited partners
and affiliates or (y) any employee benefit plan of the Company or any of its
affiliates, shall become the beneficial owner of shares representing 25% or more
of any outstanding class of capital stock having ordinary voting power in the
election of directors of the Company, or (ii) there shall occur during any
period after the date of the closing of the Offering a change in the Board of
Directors of the Company pursuant to which the individuals who constituted the
Board of Directors of the Company at the beginning of such period (together with
any other director whose election by the Board of Directors of the Company (or
whose nomination by the Board of Directors for election by the shareholders of
the Company) was approved by a vote of at least a majority of the directors then
in office who either were directors at the beginning of such period or whose
election was previously so approved or by a duly authorized committee of the
Board of Directors (which committee was designated by at least a majority of
directors then in office who either were directors at the beginning of such
period or whose election was previously so approved)) cease to constitute 75% of
the Board of Directors of the Company at the end of such period.

Fees and Expenses. A commitment fee of 0.5% per annum, subject to adjustment
based on the ratings by S&P or Moody's of the Company's long-term senior
unsecured debt and/or certain operating performance measures, 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 quarterly in arrears. 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 $45,750,000. 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.

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1995 RECEIVABLES FACILITY

Pursuant to the terms of the Commitment Letter, the Company anticipates that
on or prior to the date of the Offering, the Company will enter into the 1995
Receivables Facility with Bankers Trust, Chemical Bank and Bank of America
National Trust and Savings Association (collectively, the "Receivables
Lenders"). Indebtedness under the 1995 Receivables Facility will be secured
solely by a first priority security interest in favor of the Receivables Lenders
in all trade receivables of the Company and its U.S. subsidiaries, subject to
customary eligibility standards (the "Eligible Receivables"). A second priority
security interest in the Receivables will be granted in favor of the Banks to
secure the indebtedness of the Company under the New Bank Credit Agreement. The
1995 Receivables Facility will, unless sooner refinanced with the proceeds of
the A/R Securitization (defined below), mature on the seventh anniversary of the
date of the Offering, and will bear interest at the same rate as the 1995 Term
Loan A. The 1995 Receivables Facility will contain covenants and events of
default substantially identical to those set forth in the New Bank Credit
Agreement. No amortization payments in respect of the 1995 Receivables Facility
will be due prior to maturity. To the extent the Eligible Receivables of the
Company and its subsidiaries are inadequate to secure the 1995 Receivables
Facility, the 1995 Receivables Facility will be cash collateralized. The Company
will be required to prepay indebtedness under the New Bank Credit Agreement with
any proceeds from the sale of Eligible Receivables in excess of $60 million.
Although there is no contractual obligation to do so, subject to favorable
market conditions, the Company intends to refinance the 1995 Receivables
Facility as soon as practicable after completion of the Offering with the
proceeds of a securitized accounts receivables financing (the "A/R
Securitization") which will be on terms that are acceptable to the Company and
the Banks.

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.

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 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

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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.

At December 31, 1994, $84.4 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.

At December 31, 1994, $100 million of aggregate principal amount of 8 1/4%
Notes was outstanding.

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.

At December 31, 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.

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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 December 31, 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.

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
are 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.

At December 31, 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.

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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.

At December 31, 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.

At December 31, 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 is
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.

At December 31, 1994, $566.9 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 December 31, 1994, the Company
and its subsidiaries had outstanding approximately $187.7 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 100,000,000
shares of Common Stock, par value $.01 per share and 50,000,000 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 63,101,239 shares
of Common Stock outstanding, assuming 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.

Dividends. Each share of Common Stock has an equal and ratable right to
receive dividends to be paid from the Company's 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 New Bank Credit Agreement, 1995 Receivables Facility 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 in accordance with the DGCL. The Company would be permitted under
Delaware law to pay dividends out of its current net profits, despite its
shareholders' deficit. 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 Common Stock has been approved for listing on the Nasdaq National
Market, there can be no assurance that an active trading market will develop for
the Common Stock. Following consummation of the Offering, MS&Co will be
prohibited by the rules of the New York Stock Exchange from making a market in
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.

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 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 Certificate of Incorporation and By-laws will provide that special
meetings of shareholders may only be called by the Chief Executive Officer 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 Certificate of Incorporation and 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 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 and By-laws 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

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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 will provide 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 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.

Chemical Bank 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 63,101,239 shares
of common stock outstanding, assuming no exercise of any options granted by the
Company. Of these shares, the 25,000,000 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 38,101,239
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
13,771,051 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 20,889,290 shares could become freely tradeable under Rule 144(k)
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 for at least
three years by a person who has not been an "affiliate" of the Company during
the preceding three months 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.

Pursuant to the Underwriting Agreement the Company has agreed, and pursuant
to the Stockholders Agreement all current shareholders of the Company are
subject to an agreement, with certain limited 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 beginning 7 days
before and ending 180 days after the effective date of the Registration
Statement in the case of current and former officers and other key employees of
the Company (who beneficially own an aggregate of 791,358 shares of Common
Stock), and ending one year after the effective date of the Registration
Statement in the case of the remaining shareholders (who beneficially own an
aggregate of 37,309,881 shares of Common Stock), without the prior written
consent of certain of the representatives of the U.S. Underwriters in the case
of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard
Equity Investors II, or of MS&Co, in the case of the remaining shareholders. See
"Underwriters."

Pursuant to the terms of the Stockholders Agreement, holders of specified
percentages of Common Stock are 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) has 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 entitled, subject to certain limitations, to register shares of
Common Stock in connection with a registration statement prepared by the Company
to register its equity securities.

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Subject to the one year lock-up period described above, Morgan Stanley
Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors
II 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, Fort Howard Equity Investors' and Fort Howard
Equity Investors II's partners) will depend on market and other conditions, but
could occur relatively soon after the one year lock-up period, including
pursuant to the exercise of their registration rights. MSLEF II, Fort Howard
Equity Investors and Fort Howard Equity Investors II are unable to predict the
timing of sales by any of their limited partners in 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. Following consummation of the Offering, MS&Co will be prohibited by the
rules of the New York Stock Exchange from making a market in the Common Stock.
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. There are a number of proposed
changes to existing law under President Clinton's 1996 Tax Proposal that affect
the taxation of income earned by foreign trusts and their beneficiaries, and the
taxation of citizens or residents of the U.S. who abandon their U.S. citizenship
or residence. It is not clear whether these proposals will ultimately be
enacted, but holders should consult with their tax advisors concerning the
possible effect of such proposed legislation. 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

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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
warranted. However, under United States Treasury regulations proposed in 1984
that have not 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.

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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, 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, for whom MS&Co, CS First Boston and Salomon Brothers Inc are
serving as U.S. Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, and the International Underwriters named
below, for whom MS&Co International, CS First Boston Limited, Salomon Brothers
International Limited and S.G.Warburg Securities Limited are serving as
International Representatives, 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............................................. 20,000,000
----------------

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

----------------
Subtotal............................................. 5,000,000
----------------
Total...................................................... 25,000,000
----------------
----------------

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." 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

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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 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 any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer or sale 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 or sale 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 any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale 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 or sale 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

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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
Representatives.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 3,750,000 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the Offering. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares of Common Stock offered by the U.S. Underwriters hereby.

The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "FORT."

Pursuant to the Underwriting Agreement, the Company has agreed that, without
the prior written consent of the U.S. Representatives, it will not register for
sale or 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
beginning 7 days before and ending 180 days after the effective date of the
Registration Statement, 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. Pursuant to the Stockholders
Agreement, all current shareholders of the Company are subject to an agreement,
with certain limited 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 beginning 7 days before and ending 180 days after
the effective date of the Registration Statement in the case of current and
former officers and other key employees of the Company (who beneficially own an
aggregate of 791,358 shares of Common Stock), and ending one year after the
effective date of the Registration Statement in the case of the remaining
shareholders (who beneficially own an aggregate of 37,309,881 shares of Common
Stock), without the prior written consent of certain of the representatives of
the U.S. Underwriters in the case of Morgan Stanley Group, MSLEF II, Fort Howard
Equity Investors and Fort Howard Equity Investors II, or of MS&Co, in the case
of the remaining shareholders.

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 37.9% of the outstanding shares of Common Stock (35.8% 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 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.

91
<PAGE>
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 up to 1,100,000 shares of Common Stock
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 will be determined by
negotiations among the Company and the Representatives 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.

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
the CID issued by the U.S. Department of Justice, Antitrust Division and the
Company's 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, 1994, 1993 and 1992 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.

92
<PAGE>
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.

93
<PAGE>
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, 1994, 1993 and
1992................................................................................. F-3
Consolidated Balance Sheets at December 31, 1994 and 1993.......................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992............................................................................. F-5
Notes to Consolidated Financial Statements......................................... F-6
</TABLE>

F-1
<PAGE>
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, 1994
and 1993, and the related consolidated statements of income and cash flows for
the years ended December 31, 1994, 1993 and 1992. 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, 1994 and 1993, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1994, 1993 and 1992, in conformity with generally accepted
accounting principles.

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

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin,
January 31, 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,
---------------------------------------
1994 1993 1992
---------- ----------- ----------
<S> <C> <C> <C>
Net sales............................................. $1,274,445 $ 1,187,387 $1,151,351
Cost of sales......................................... 867,357 784,054 726,356
---------- ----------- ----------
Gross income.......................................... 407,088 403,333 424,995
Selling, general and administrative................... 110,285 96,966 97,620
Amortization of goodwill.............................. -- 42,576 56,700
Goodwill write-off.................................... -- 1,980,427 --
Environmental charge.................................. 20,000 -- --
---------- ----------- ----------
Operating income (loss)............................... 276,803 (1,716,636) 270,675
Interest expense...................................... 337,701 342,792 338,374
Other (income) expense, net........................... 118 (2,996) 2,101
---------- ----------- ----------
Loss before taxes..................................... (61,016) (2,056,432) (69,800)
Income taxes (credit)................................. (18,891) (16,314) (398)
---------- ----------- ----------
Loss before extraordinary items and adjustment for
accounting change..................................... (42,125) (2,040,118) (69,402)
Extraordinary items--losses on debt repurchases (net
of income taxes of $14,731 in 1994 and $7,333 in
1993)................................................. (28,170) (11,964) --
Adjustment for adoption of SFAS No. 106 (net of income
taxes of $6,489)...................................... -- -- (10,587)
---------- ----------- ----------
Net loss.............................................. $ (70,295) $(2,052,082) $ (79,989)
---------- ----------- ----------
---------- ----------- ----------
Loss per share:
Net loss before extraordinary items and adjustment
for accounting change............................. $ (1.11) $ (53.54) $ (1.82)
Extraordinary items................................. (0.74) (0.31) --
Adjustment for adoption of SFAS No. 106............. -- -- (0.28)
---------- ----------- ----------
Net loss............................................ $ (1.85) $ (53.85) $ (2.10)
---------- ----------- ----------
---------- ----------- ----------
</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,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 422 $ 227
Receivables, less allowances of $1,589 in 1994 and $2,366 in
1993.............................................................. 123,150 105,834
Inventories..................................................... 130,843 118,269
Deferred income taxes........................................... 20,000 14,000
Income taxes receivable......................................... 5,200 9,500
----------- -----------
Total current assets........................................ 279,615 247,830
Property, plant and equipment..................................... 1,932,713 1,845,052
Less: Accumulated depreciation.................................. 611,762 516,938
----------- -----------
Net property, plant and equipment........................... 1,320,951 1,328,114
Other assets...................................................... 80,332 73,843
----------- -----------
Total assets................................................ $ 1,680,898 $ 1,649,787
----------- -----------
----------- -----------

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................ $ 100,981 $ 101,665
Interest payable................................................ 84,273 54,854
Income taxes payable............................................ 224 122
Other current liabilities....................................... 75,450 70,138
Current portion of long-term debt............................... 116,203 112,750
----------- -----------
Total current liabilities................................... 377,131 339,529
Long-term debt.................................................... 3,189,644 3,109,838
Deferred and other long-term income taxes......................... 209,697 243,437
Other liabilities................................................. 41,162 26,088
Common Stock with put right....................................... 11,711 11,820
Shareholders' deficit:
Common Stock.................................................... 600,471 600,459
Cumulative translation adjustment............................... (2,330) (5,091)
Retained deficit................................................ (2,746,588) (2,676,293)
----------- -----------
Total shareholders' deficit................................. (2,148,447) (2,080,925)
----------- -----------
Total liabilities and shareholders' deficit................. $ 1,680,898 $ 1,649,787
----------- -----------
----------- -----------
</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,
-----------------------------------
1994 1993 1992
-------- ----------- --------
<S> <C> <C> <C>
Cash provided from (used for) operations:
Net loss............................................... $(70,295) $(2,052,082) $(79,989)
Depreciation and amortization.......................... 95,727 130,671 137,977
Goodwill write-off..................................... -- 1,980,427 --
Non-cash interest expense.............................. 74,238 100,844 139,700
Deferred income taxes (credit)......................... (33,832) (17,874) (17,799)
Environmental charge................................... 20,000 -- --
Employee stock compensation............................ -- (7,832) 1,120
Pre-tax loss on debt repurchases....................... 42,901 19,297 --
Pre-tax adjustment for adoption of SFAS No. 106........ -- -- 17,076
Increase in receivables................................ (17,316) (2,343) (5,284)
Increase in inventories................................ (12,574) (17,294) (1,215)
(Increase) decrease in income taxes receivable......... 4,300 (7,000) (2,500)
Increase (decrease) in accounts payable................ (684) (2,740) 13,572
Increase (decrease) in interest payable................ 29,419 21,797 (298)
Increase (decrease) in income taxes payable............ 102 (1,670) (5,094)
All other, net......................................... (6,896) 6,848 12,684
-------- ----------- --------
Net cash provided from operations.................. 125,090 151,049 209,950
Cash used for investment activities:
Additions to property, plant and equipment............. (83,559) (165,539) (232,844)
Acquisition of Stuart Edgar Limited, net of acquired
cash of $749......................................... -- -- (8,302)
-------- ----------- --------
Net cash used for investment activities............ (83,559) (165,539) (241,146)
Cash provided from (used for) financing activities:
Proceeds from long-term borrowings..................... 750,000 887,088 189,518
Repayment of long-term borrowings...................... (759,202) (841,399) (167,731)
Debt issuance costs.................................... (32,134) (31,160) --
-------- ----------- --------
Net cash provided from (used for) financing
activities............................................... (41,336) 14,529 21,787
-------- ----------- --------
Increase (decrease) in cash.............................. 195 39 (9,409)
Cash, beginning of year.................................. 227 188 9,597
-------- ----------- --------
Cash, end of year.................................. $ 422 $ 227 $ 188
-------- ----------- --------
-------- ----------- --------

Supplemental Cash Flow Disclosures:
Interest paid.......................................... $237,650 $ 228,360 $208,051
Income taxes paid, net................................. $ 2,483 $ 4,432 $ 9,997
</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, 1994

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. 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. The Company does not
hedge its translation exposure. The Company does not engage in material hedging
activity with respect to foreign currency transaction risks. 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.

(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 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
1994, 1993 and 1992 were $4,230,000, $8,369,000 and $11,047,000, respectively.

(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. Recoveries of environmental
remediation costs from other potentially responsible parties and recoveries from
insurance carriers are not recorded as assets until such time as their receipt
is deemed probable and the amounts are reasonably estimable.

F-6
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(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 percentage of their wages to the plans. Costs charged to operations for
defined contributions plans were approximately $12,716,000, $12,725,000 and
$11,716,000 for the years ended December 31, 1994, 1993 and 1992, respectively.

Employees retiring prior to February 1, 1990 from the Company's U.S. tissue
operations who had 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 for active employees 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 Postemployment 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.

(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--The Company follows SFAS No. 109, "Accounting for Income
Taxes." As a result, 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

F-7
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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) On January 31, 1995, the Company's shareholders approved an increase in
the number of authorized shares of voting Common Stock to 99,400,000 shares and
approved a 6.5-for-one stock split of the Common Stock, effective January 31,
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.

(L) Loss Per Share--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 38,103,215, 38,107,154 and 38,107,453 for
the years ended December 31, 1994, 1993 and 1992, respectively. The assumed
exercise of all outstanding stock options has been excluded from the computation
of loss per share in 1994, 1993 and 1992 because the result was antidilutive.

(M) 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,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
Components
Raw materials and supplies.......................... $ 63,721 $ 61,285
Finished and partly-finished products............... 67,122 56,984
-------- --------
$130,843 $118,269
-------- --------
-------- --------
Value at lower of cost or market:
First-in, first-out (FIFO).......................... $107,493 $ 94,436
Average cost by specific lot........................ 23,350 23,833
-------- --------
$130,843 $118,269
-------- --------
-------- --------

F-8
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

3. PROPERTY, PLANT AND EQUIPMENT

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

DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
Land.............................................. $ 44,422 $ 44,429
Buildings......................................... 325,395 318,955
Machinery and equipment........................... 1,527,865 1,367,839
Construction in progress.......................... 35,031 113,829
---------- ----------
$1,932,713 $1,845,052
---------- ----------
---------- ----------

Included in the property, plant and equipment totals above are assets under
capital leases, as follows:

DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
Buildings......................................... $ 4,012 $ 3,989
Machinery and equipment........................... 186,281 185,624
---------- ----------
Total assets under capital leases............. $ 190,293 $ 189,613
---------- ----------
---------- ----------

4. GOODWILL

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

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

Low industry operating rates and aggressive competitive activity among
tissue producers resulting from the recession, additions to capacity and other
factors adversely affected tissue industry operating conditions and the
Company's operating results from 1991 through September 30, 1993. 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 in September 1993 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 on the basis of this forecast of future operations as of September 30,
1993. Based on such forecast, the cumulative net income before goodwill
amortization of approximately $100 million

F-9
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

4. GOODWILL--(CONTINUED)
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 as of September 30, 1993 assumed that sales volume
increases would be limited to production from a new paper machine then under
construction at the Company's Muskogee mill which was subsequently started-up in
1994 and that further capacity expansion was not justifiable given the Company's
high leverage and adverse tissue industry operating conditions. Such projections
assumed that net selling price and cost increases would 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 as of September 30, 1993 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 then outstanding 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 ten
years ending December 31, 2003 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 mill. Management believed
that the projected future results based on these assumptions were the most
likely scenario at the time given the Company's high leverage and adverse tissue
industry operating conditions experienced for the period 1991 through September
30, 1993.

5. OTHER ASSETS

The components of other assets are as follows:

DECEMBER 31,
------------------
1994 1993
------- -------
(IN THOUSANDS)
Deferred loan costs, net of accumulated amortization.... $76,640 $71,459
Prepayments and other................................... 3,692 2,384
------- -------
$80,332 $73,843
------- -------
------- -------

Amortization of deferred loan costs for the years ended December 31, 1994,
1993 and 1992 totaling $13,466,000, $13,488,000 and $14,910,000, respectively,
is reported as non-cash interest expense. During 1994, $14,195,000 of deferred
loan costs were written off in conjunction with the retirement of long-term
debt, $21,584,000 of deferred loan costs were incurred for the issuance of the 8
1/4% Senior Notes due 2002 (the "8 1/4% Notes") and the 9% Senior Subordinated
Notes due 2006 (the "9% Notes"), and $10,550,000 of deferred loan costs were
incurred for the purchase of interest rate cap agreements. 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%

F-10
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

5. OTHER ASSETS--(CONTINUED)
Notes") and the 10% Subordinated Notes due 2003 (the "10% Notes") and for the
purchase of an interest rate cap agreement (see Note 8).

6. OTHER CURRENT LIABILITIES

The components of other current liabilities are as follows:

DECEMBER 31,
------------------
1994 1993
------- -------
(IN THOUSANDS)
Salaries and wages...................................... $41,959 $38,152
Contributions to employee benefit plans................. 12,816 12,805
Taxes other than income taxes........................... 5,615 5,492
Other accrued expenses.................................. 15,060 13,689
------- -------
$75,450 $70,138
------- -------
------- -------

7. INCOME TAXES

The income tax provision (credit) includes the following components:

YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- -------- --------
(IN THOUSANDS)
Current
Federal.................................. $ 1,800 $ (6,012) $ 10,501
State.................................... 509 465 411
Foreign.................................. (2,099) (225) --
--------- -------- --------
Total current........................ 210 (5,772) 10,912
Deferred
Federal.................................. (18,826) (7,731) (13,678)
State.................................... (2,793) (2,956) (2,380)
Foreign.................................. 2,518 145 4,748
--------- -------- --------
Total deferred....................... (19,101) (10,542) (11,310)
--------- -------- --------
$ (18,891) $(16,314) $ (398)
--------- -------- --------
--------- -------- --------

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

YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
----- ----- -----
U.S. federal tax rate............................ (34.0)% (34.0)% (34.0)%
Amortization of intangibles...................... -- 33.4 27.6
State income taxes net of U.S. tax benefit....... (4.1) (0.1) (3.0)
Interest on long-term income taxes............... 3.3 -- 5.7
Permanent differences related to accruals........ 3.3 -- --
Other, net....................................... 0.5 (0.1) 3.1
----- ----- -----
Effective tax rate............................... (31.0)% (0.8)% (0.6)%
----- ----- -----
----- ----- -----

F-11
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

7. INCOME TAXES--(CONTINUED)
The domestic and foreign components of loss before income taxes are as
follows:

YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
-------- ----------- --------
(IN THOUSANDS)
Domestic................................. $(62,711) $(2,048,746) $(85,597)
Foreign.................................. 1,695 (7,686) 15,797
-------- ----------- --------
$(61,016) $(2,056,432) $(69,800)
-------- ----------- --------
-------- ----------- --------

The net deferred income tax liability at December 31, 1994 includes $232
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.

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 Section 162(k) of the Internal Revenue Code (the "Code") (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. In anticipation of its appeal, the
Company has paid to the IRS 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 tax. 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 1989 through
1994 would be approximately $34 million and for the period after 1994 (assuming
current statutory tax rates) would be approximately $4 million, in each case
exclusive of interest. 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 1989 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.

Assuming a favorable resolution of the U.S. Tax Court appeal, the Company
will have approximately $131 million of net operating loss carryforwards as of
December 31, 1994 for federal income tax purposes which expire as follows: $11
million in 2007, $47 million in 2008 and $73 million in 2009. The aggregate
amount of net operating loss carryforwards available to the Company as of
December 31, 1994 could be reduced to approximately $71 million if the U.S. Tax
Court decision is affirmed. During 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 with respect to the 1988 tax year.

F-12
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

8. LONG-TERM DEBT

Long-term debt and capital lease obligations, including amounts payable
within one year, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
1988 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 8.19% at December 31, 1994),
due in varying annual repayments with a final maturity of
December 31, 1996.................................................. $ 224,534 $ 331,753
1988 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 8.66% at December
31, 1994), due December 31, 1996................................. 196,500 243,700
1993 Term Loan, at prime plus 1.75% or, subject to certain
limitations, at a reserve adjusted Eurodollar rate plus 3.0%
(8.57% at December 31, 1994), due May 1, 1997.................... 100,000 100,000
Senior Secured Notes, at three month LIBOR plus 2.75% to 3.50%
(9.13% to 9.88% at December 31, 1994), due in varying amounts
between 1996 and 2000.............................................. 300,000 300,000
Senior Unsecured Notes, 9 1/4%, due March 15, 2001................. 450,000 450,000
Senior Unsecured Notes, 8 1/4%, due February 1, 2002............... 100,000 --
Senior Subordinated Notes, 12 3/8%, repurchased in 1994............ -- 333,910
Senior Subordinated Notes, 9%, due February 1, 2006................ 650,000 --
Subordinated Debentures, 12 5/8%, due November 1, 2000............. 145,815 383,910
Subordinated Notes, 10%, due March 15, 2003........................ 300,000 300,000
Junior Subordinated Discount Debentures, 14 1/8%, due November 1,
2004............................................................... 566,869 506,186
Capital lease obligations, at interest rates approximating 10.9%... 182,936 184,023
Pollution Control Revenue Refunding Bonds, 7.90%, due October 1,
2005............................................................... 42,000 42,000
Debt of foreign subsidiaries, at rates ranging from 7.00% to 8.36%,
due in varying annual installments through March 2001............ 47,193 47,106
---------- ----------
3,305,847 3,222,588
Less: Current portion of long-term debt............................ 116,203 112,750
---------- ----------
$3,189,644 $3,109,838
---------- ----------
---------- ----------
</TABLE>

The aggregate fair values of the Company's long-term debt and capital lease
obligations approximated $3,152 million and $3,276 million compared to aggregate
carrying values of $3,306 million and $3,223 million at December 31, 1994 and
1993, 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 8
1/4% Notes, the 9% 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

F-13
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

8. LONG-TERM DEBT--(CONTINUED)
trading activity in such securities. The fair values of other capital lease
obligations were estimated based on 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 did 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 require payments of interest in cash commencing on May 1,
1995. Interest incurred in 1994 through October and for the years ended December
31, 1993 and 1992 related to these debentures was added to the balance due.

On February 9, 1994, the Company sold $100 million principal amount of 8
1/4% Notes and $650 million principal amount of 9% Notes in a registered public
offering (collectively, the "1994 Notes"). Net proceeds from the sale of the
1994 Notes were 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 1988 Term
Loan, to the repayment of a portion of the Company's indebtedness under the 1988
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 prepayment of $100
million of the 1988 Term Loan and the repurchases of the 12 3/8% Notes and the
12 5/8% Debentures.

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
1988 Term Loan, to the repayment of a portion of the Company's indebtedness
under the 1988 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 1988 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

F-14
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

8. LONG-TERM DEBT--(CONTINUED)
existing and future senior indebtedness of the Company, including the 9% 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 constitutes senior secured
indebtedness of the Company.

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.

Debt of foreign subsidiaries bears interest at floating rates and is secured
by certain assets of Fort Sterling and Stuart Edgar but is nonrecourse to the
Company.

Obligations under the Bank Credit Agreement, the 1993 Term Loan Agreement,
the Senior Secured Notes and debt of foreign subsidiaries 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 LIBOR-based interest rate cap
agreements which limit the interest cost to the Company with respect to $500
million of floating rate obligations to 6% plus the Company's borrowing margin
until June 1, 1996 and to 8% plus the Company's borrowing margin from June 1,
1996 until June 1, 1999. At current market rates at December 31, 1994, the fair
value of the Company's interest rate cap agreements is $23 million. The
counterparties to the Company's interest rate cap agreements consist of major
financial institutions. While the Company is exposed to credit risk to the
extent of nonperformance by these counterparties, management monitors the risk
of default by the counterparties and believes that the risk of incurring losses
due to nonperformance is remote.

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 debt of foreign subsidiaries
and the Company's indentures: (1) restrict payments of dividends, repayments of
subordinated debt, purchases of the Company's Common 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.

F-15
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

8. LONG-TERM DEBT--(CONTINUED)
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 December 31, 1994, receivables totaling $114 million, inventories
totaling $131 million and property, plant and equipment with a net book value of
$1,313 million were pledged as collateral under the terms of the Bank Credit
Agreement, the 1993 Term Loan Agreement, the Senior Secured Note Agreement, the
debt of foreign subsidiaries 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 1988 Revolving Credit Facility, and a 2% fee
with respect to any letters of credit issued under the 1988 Revolving Credit
Facility. At December 31, 1994, $197 million of borrowings reduced available
capacity under the 1988 Revolving Credit Facility to $153 million.

The aggregate annual maturities of long-term debt and capital lease
obligations at December 31, 1994, are as follows:

YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------- --------------
(IN THOUSANDS)
1995.......................................................... $ 116,203
1996.......................................................... 331,307
1997.......................................................... 207,793
1998.......................................................... 87,804
1999.......................................................... 81,551
2000 and thereafter........................................... 2,481,189
--------------
$3,305,847
--------------
--------------

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, 1994

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, 1994, are as
follows:

YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------- --------------
(IN THOUSANDS)
1995.......................................................... $ 23,449
1996.......................................................... 24,541
1997.......................................................... 24,541
1998.......................................................... 24,330
1999.......................................................... 24,005
2000 and thereafter........................................... 362,839
--------------
Total payments................................................ 483,705
Less imputed interest at rates approximating 10.9%............ 300,769
--------------
Present value of capital lease obligations.................... $182,936
--------------
--------------

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 $1.2 million in 1992.

Net periodic postretirement benefit cost included the following components:

YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
Service cost...................................... $1,138 $1,140 $ 902
Interest cost..................................... 1,719 1,800 1,366
Other............................................. 85 99 --
------ ------ ------
Net periodic postretirement benefit cost........ $2,942 $3,039 $2,268
------ ------ ------
------ ------ ------

F-17
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

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

DECEMBER 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees............................................ $ 7,068 $ 7,504
Fully eligible active plan participants............. 3,411 4,401
Other active plan participants...................... 11,505 12,037
-------- --------
21,984 23,942
Unrecognized actuarial gains (losses)................. 457 (3,517)
-------- --------
Accrued postretirement benefit cost................... $ 22,441 $ 20,425
-------- --------
-------- --------

The medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1994 begins at 11.5% in 1995,
decreases 1% per year to 6.5% 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, 1994 by $3.2 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 as of December 31, 1993 began at 12% in 1994,
decreasing 1% per year to 6% for 2000 and remained at that level thereafter.

The discount rate used in determining the accumulated postretirement benefit
obligation was 8% and 7% compounded annually with respect to the 1994 and 1993
valuations, respectively.

11. SHAREHOLDERS' DEFICIT

The Company is authorized to issue up to 99,400,000 shares of $.01 par value
voting Common Stock. At December 31, 1994, 38,107,778 shares were issued and
38,101,239 shares were outstanding. At December 31, 1993, 38,107,778 shares were
issued and 38,107,128 shares were outstanding. In addition, 600,000 shares of
$.01 par value nonvoting Common Stock have been authorized, of which none were
issued or outstanding at both December 31, 1994 and 1993.

F-18
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

11. SHAREHOLDERS' DEFICIT--(CONTINUED)
Changes in the Company's shareholders' deficit accounts for the years ended
December 31, 1994, 1993 and 1992, are as follows:

<TABLE>
<CAPTION>
CUMULATIVE
COMMON TRANSLATION RETAINED
STOCK ADJUSTMENT DEFICIT
------ ----------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, December 31, 1991.................................... $601 $ 7 $ (545)
Net loss...................................................... -- -- (80)
Amortization of the increase in fair market value of 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 Common Stock with put
right......................................................... -- -- 2
Foreign currency translation adjustment....................... -- (1) --
------ ----- --------
Balance, December 31, 1993.................................... 601 (5) (2,676)
Net loss...................................................... -- -- (71)
Foreign currency translation adjustment....................... -- 3 --
------ ----- --------
Balance, December 31, 1994.................................... $601 $ (2) $ (2,747)
------ ----- --------
------ ----- --------
</TABLE>

The aggregate par value of the Common Stock reported in the amounts above at
December 31, 1994 was $381,012.

12. COMMON STOCK WITH PUT RIGHT

All 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 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 the holders thereof, with certain limitations, at their fair
market value. Subject to certain exceptions and prior to the date on which 15%
or more of the Company's Common Stock has been sold in one or more public
offerings, management investors who terminate their employment with the Company
shall sell their shares of Common Stock and vested options to the Company or its
designee. All the Putable Shares owned by the Company's former chairman and
chief executive officer became putable to the Company at the time of his
resignation.

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 Common Stock with put right to its original cost. The
effect of the adjustment was to reduce both the Common Stock with put right and
the retained deficit by approximately $1.4 million.

F-19
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

12. COMMON STOCK WITH PUT RIGHT--(CONTINUED)

Changes in the Company's Common Stock with put right are as follows:

YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
Balance, beginning of year.................... $11,820 $13,219 $12,963
Amortization of the increase (decrease) in
fair market value and increased vested
portion of Putable Shares................... -- (1,399) 256
Repurchased into Treasury..................... (109) -- --
------- ------- -------
Balance, end of year.......................... $11,711 $11,820 $13,219
------- ------- -------
------- ------- -------

13. STOCK OPTIONS

Pursuant to the Management Equity Participation Agreement and the Management
Equity Plan, 5,253,463 shares of Common Stock are reserved for sale to officers
and key employees as stock options as of December 31, 1994. The exercisability
of such options is subject to certain conditions. Such options must be exercised
within ten years of the date of grant. All such 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.

Changes in stock options outstanding are summarized as follows:

EXERCISE
NUMBER OF PRICE
OPTIONS PER OPTION
--------- ---------------
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
Options Cancelled............................ (82,888) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1994..................... 3,742,765 $15.38 to 18.46
--------- ---------------
--------- ---------------
Exercisable at December 31, 1994............... 3,358,537 $15.38 to 18.46
--------- ---------------
--------- ---------------
Shares available for future grant at December
31, 1994..................................... 1,510,698
---------
---------

On January 31, 1995, the Company's shareholders approved the 1995 Stock
Incentive Plan under which a total of 3,359,662 shares of Common Stock are
reserved for awards to officers and key employees as stock options, stock
appreciation rights, restricted stock, performance shares, stock equivalents and
dividend equivalents and approved the Non-Employee Director Plan under which a
total of 80,000 shares of Common Stock are reserved for grant to non-employee
directors. Following adoption of such plans, no additional shares will be
available for future grant under the Management

F-20
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

13. STOCK OPTIONS--(CONTINUED)
Equity Participation Agreement or Management Equity Plan. As a result, the total
number of shares available for future grant will be 3,439,662 shares as of
January 31, 1995. Any options to be issued subject to the 1995 Stock Incentive
Plan will expire not later than ten years after the date on which they are
granted. The vesting schedule and exercisability of stock options will generally
be based on length of service or attainment of performance goals. On December
19, 1994, the Company's Board of Directors approved the full vesting and
exercisability of all unvested options outstanding effective just prior to an
initial public offering of Common Stock. If such an offering proceeds, the
number of exercisable options would increase to 3,741,465 as of January 31,
1995.

Until such date on which 15% or more of the Company's Common Stock has been
sold in one or more public offerings, 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. After such date, no amortization
will be required because the options will not be putable to the Company. There
was no employee stock compensation expense in 1994. 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 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 for
1992.

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, 1994, Morgan Stanley Group and its affiliates controlled 57% (on
a fully diluted basis) of the Company's Common Stock.

Pursuant to an agreement terminated effective December 31, 1994, Morgan
Stanley & Co. Incorporated ("MS&Co") provided financial advisory services to the
Company in consideration for which the Company paid MS&Co an annual fee of $1
million. MS&Co was also entitled to reimbursement for all reasonable expenses
incurred in the performance of the foregoing services. The Company paid MS&Co
$1,023,000, $1,046,000 and $1,096,000 for these and other miscellaneous services
in 1994, 1993 and 1992, respectively. The Company is a party to several interest
rate cap agreements (see Note 8) including one such agreement with MS&Co which
was purchased in 1994 for $2.1 million. In connection with the sale of the 1994
Notes, MS&Co received approximately $20.4 million in underwriting fees in 1994.
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 Pollution
Control Revenue Refunding Bonds. 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.

15. COMMITMENTS AND CONTINGENCIES

In 1994, the Company commenced construction of a new coal-fired boiler at
its Savannah mill. Total expenditures for the new boiler are projected to be $35
million. As of December 31, 1994, expenditures on the project had totaled $19
million.

F-21
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 wastes. Financial responsibility for the clean-up or other
remediation of contaminated property or for natural resource damages can extend
to previously owned or used properties, waterways and properties owned by third
parties as well as 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 for alleged natural resource
damages related to the Lower Fox River and Green Bay system. In addition, the
Company makes capital expenditures and incurs operating expenses for clean-up
obligations and other environmental matters arising in its on-going operations.

The Company and its subsidiaries are parties to other lawsuits and state and
federal administrative proceedings in connection with their businesses. Although
the final results in all such suits and proceedings cannot be predicted with
certainty, the Company currently believes that the ultimate resolution of all of
such lawsuits and proceedings, after taking into account the liabilities accrued
with respect to such matters, will not have a material adverse effect on the
Company's financial condition or on its result of operations.

16. GEOGRAPHIC INFORMATION

A summary of the Company's operations by geographic area as of December 31,
1994, 1993 and 1992, and for the years then ended is presented below:

<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM CONSOLIDATED
----------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
Net sales........................................... $ 1,143,205 $131,240 $ 1,274,445
Operating income.................................... 268,620 8,183 276,803
Identifiable operating assets....................... 1,517,992 162,906 1,680,898

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
</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

F-22
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994

16. GEOGRAPHIC INFORMATION--(CONTINUED)
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.

17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

A summary of the quarterly results of operations for 1994 and 1993 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>
1994
Net sales...................................... $ 275 $ 315 $ 340 $ 344 $ 1,274
Gross income................................... 87 107 113 100 407
Operating income............................... 60 79 85 53 277
Net income (loss) before extraordinary item.... (15) (2) -- (25) (42)
Extraordinary item-loss on debt repurchases.... (28) -- -- -- (28)
Net income (loss).............................. (43) (2) -- (25) (70)
Earnings (loss) per share:
Net income (loss) before extraordinary
item............................................. (0.40) (0.05) 0.01 (0.65) (1.11)
Extraordinary item-loss on debt
repurchases...................................... (0.74) -- -- -- (0.74)
Net income (loss) per share.................. (1.14) (0.05) 0.01 (0.65) (1.85)
Dividends per share............................ -- -- -- -- --

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............................ -- -- -- -- --
</TABLE>

F-23
<PAGE>

PHOTOS FOR INSIDE BACK COVER TO S-1/A

TOP LEFT-HAND CORNER
ENVIRONMENTAL PROTECTION AGENCY AWARD
Fort Howard was the first large
corporation to receive the U.S.
Environmental Protection Agency's
"Administrator's Award" for national
recycling leadership.

MIDDLE LEFT-HAND SIDE
ENVISION TISSUE PRODUCTS
Fort Howard believes its Envision
line of products is the market
leader in the rapidly growing
environmental segment of the
commercial market.

BOTTOM LEFT-HAND CORNER
LARGE ROLL OF TISSUE
Fort Howard employs approximately
5,800 persons in the United States,
and 1,000 in the United Kingdom.
Employees have participated in a
successful "Total Quality" effort
since 1989.

<PAGE>

[BACK COVER LOGO]

<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

PROSPECTUS (Subject to Completion)
Issued March 9, 1995

25,000,000 Shares
Fort Howard Corporation
COMMON STOCK
-------------------

ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE
25,000,000 SHARES OF COMMON STOCK BEING OFFERRED, 5,000,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 20,00,000 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 $12.00 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.

-------------------
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 $1,600,000.

MORGAN STANLEY & CO.
International

CS FIRST BOSTON

SALOMON BROTHERS INTERNATIONAL LIMITED

S.G.WARBURG SECURITIES

2
<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 Nasdaq National Market 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............ $ 139,587
Nasdaq National Market listing fee............................. 50,000
NASD filing fee................................................ 30,500
Printing and engraving costs................................... 250,000
Legal fees..................................................... 650,000
Accountants' fees.............................................. 100,000
Blue Sky qualification fees and expenses....................... 20,000
Transfer Agent and Registrar fees.............................. 10,000
Miscellaneous.................................................. 349,913
----------
Total.................................................... $1,600,000
----------
----------

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 Certificate of Incorporation and 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.

The Company has entered into indemnification agreements ("Agreement") with
certain of its directors and officers (the "Indemnitee"). Each Agreement
provides that the Company will hold harmless and indemnify the Indemnitee
against all liabilities and will advance all expenses (as defined) incurred by
reason of the fact that the Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of the
Company or for its benefit as a director, officer, employee or agent of another
enterprise, but only if the Indemnitee acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Company and, in the case of a criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.

The right of indemnification and to receive advancement of expenses pursuant
to each Agreement is not exclusive of any other rights to which the Indemnitee
may at any time be entitled to under applicable law, the Company's Certificate
of Incorporation or By-Laws, any agreement, a vote of

II-1
<PAGE>
shareholders, a resolution of the Company's Board of Directors or otherwise.
Each Agreement further provides that, to the extent that the Company maintains a
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available. The Company is not
liable to pay any amounts otherwise indemnifiable under an Agreement to the
extent that the Indemnitee has actually received payment under any insurance
policy, contract, agreement or otherwise; and, except as provided in the
Agreement, an Indemnitee is not entitled to indemnification or advancement of
expenses with respect to any proceeding or claim brought or made by such
Indemnitee against the Company.

Each Agreement terminates upon the later to occur of: (i) ten years after
the date that the Indemnitee ceases to serve as a director, officer, employee,
agent or fiduciary of the Company or of any other enterprise which the
Indemnitee served at the request or for the benefit of the Company and (ii) the
final termination of all pending proceedings in which the Indemnitee is granted
rights of indemnification under such Agreement.

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

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

None

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
1.1 --Form of Underwriting Agreement.
3.1 --Form of Restated Certificate of Incorporation of the Registrant.
3.2 --Form of 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).
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
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).
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).
4.6 --Form of Credit Agreement dated as of March [8], 1995 among the Registrant, the
lenders named therein, and Bankers' Trust Company, Bank of America National
Trust and Savings Association and Chemical Bank, as arrangers, and Bankers'
Trust Company, as administrative agent.
4.7 --Form of Receivables Credit Agreement dated as of March 8, 1995 among the
Registrant, the lenders named therein, and Bankers Trust Company, as
administrative agent.
5.1 --Opinion of Shearman & Sterling.
10.1 --Form of Amended and Restated Stockholders Agreement dated as of March 1, 1995,
among the Registrant, Morgan Stanley Group, MSLEF II, certain institutional
investors and the Management Investors which amends and restates the
Stockholders Agreement dated as of December 7, 1990, as amended.
10.2 --Management Incentive Plan as amended and restated as of December 19, 1994.
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
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).
10.6(A) --Amendments dated January 1, 1995 to Employment Agreements dated October 15,
1993, with the Company's Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer.
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).
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).
10.7(F) --Form of Letter Agreement dated March 1, 1995, between the Company and the
Management Investors Committee which amends the Amended and Restated
Management Equity Participation Agreement.
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
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).
10.11(A) --Form of Amendment dated March 1, 1995 to the Management Equity Plan.
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).
10.13(A) --Amendments to Employment Agreements with certain executive officers of the
Company.
10.14 --Deferred Compensation Plan for Non-Employee Directors.
10.15 --1995 Stock Incentive Plan.
10.16 --1995 Stock Plan for Non-Employee Directors.
10.17 --Form of Indemnification Agreement dated April 22, 1987 between the Company and
certain of its directors and executive officers (filed as Exhibit 10 to the
Registrant's Current Report on Form 8-K dated April 22, 1987, and incorporated
herein by reference).
12.1 --Computation of Deficiency of Earnings Available to Cover Fixed Charges.
*12.2 --Computation of Pro Forma Deficiency of Earnings Available to Cover 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.
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.

II-5
<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-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to its 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 9th day of March, 1995.

FORT HOWARD CORPORATION

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

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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>

* Chairman of the Board of Directors March 9, 1995
.................................. and Chief Executive Officer
Donald H. DeMeuse (principal executive officer)

* Director, Vice Chairman and Chief March 9, 1995
.................................. Financial Officer (principal
Kathleen J. Hempel financial officer)

* Director, President and Chief March 9, 1995
.................................. Operating Officer
Michael T. Riordan

* Director March 9, 1995
..................................
Donald Patrick Brennan

* Director March 9, 1995
..................................
Frank V. Sica

* Director March 9, 1995
..................................
Robert H. Niehaus

* Vice President and Controller March 9, 1995
.................................. (principal accounting officer)
Charles L. Szews

* /s/ JAMES W. NELLEN II Attorney-in-Fact March 9, 1995
..................................
James W. Nellen II
</TABLE>

II-7
<PAGE>
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 January 31,
1995. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states 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,
January 31, 1995

S-1
<PAGE>
SCHEDULE II

FORT HOWARD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Allowance for Doubtful Accounts:
Balance at beginning of year.................................... $2,366 $1,376 $1,379
Charges (credits) to earnings................................... (92) 1,633 792
Charges for purpose for which reserve was created............... (685) (643) (795)
------ ------ ------
Balance at end of year.......................................... $1,589 $2,366 $1,376
------ ------ ------
------ ------ ------
</TABLE>

S-2
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C>

1.1 --Form of Underwriting Agreement.

3.1 --Form of Restated Certificate of Incorporation of the Registrant.

3.2 --Form of 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C>
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).

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).

4.6 --Form of Credit Agreement dated as of March [8], 1995 among the
Registrant, the lenders named therein, and Bankers' Trust Company,
Bank of America National Trust and Savings Association and Chemical
Bank, as arrangers, and Bankers' Trust Company, as administrative
agent.

4.7 --Form of Receivables Credit Agreement dated as of March 8, 1995
among the Registrant, the lenders named therein, and Bankers Trust
Company, as administrative agent.

5.1 --Opinion of Shearman & Sterling.

10.1 --Form of Amended and Restated Stockholders Agreement dated as of
March 1, 1995, among the Registrant, Morgan Stanley Group, MSLEF
II, certain institutional investors and the Management Investors
which amends and restates the Stockholders Agreement dated as of
December 7, 1990, as amended.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C>
10.2 --Management Incentive Plan as amended and restated as of December
19, 1994.

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).

10.6(A) --Amendments dated January 1, 1995 to Employment Agreements dated
October 15, 1993, with the Company's Chief Executive Officer, Chief
Operating Officer and Chief Financial Officer.

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).

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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C>
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).

10.7(F) --Form of Letter Agreement dated March 1, 1995, between the Company
and the Management Investors Committee which amends the Amended and
Restated Management Equity Participation Agreement.

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).

10.11(A) --Form of Amendment dated March 1, 1995 to the Management Equity
Plan.

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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C>
10.13(A) --Amendments to Employment Agreements with certain executive officers
of the Company.

10.14 --Deferred Compensation Plan for Non-Employee Directors.

10.15 --1995 Stock Incentive Plan.

10.16 --1995 Stock Plan for Non-Employee Directors.

10.17 --Form of Indemnification Agreement dated April 22, 1987 between the
Company and certain of its directors and executive officers (filed
as Exhibit 10 to the Registrant's Current Report on Form 8-K dated
April 22, 1987, and incorporated herein by reference).

12.1 --Computation of Deficiency of Earnings Available to Cover Fixed
Charges.

*12.2 --Computation of Pro Forma Deficiency of Earnings Available to Cover
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.

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.

EXHIBIT 12.2

FORT HOWARD CORPORATION
COMPUTATION OF PRO FORMA DEFICIENCY OF EARNINGS
AVAILABLE TO COVER FIXED CHARGES
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
THE COMPANY
PRO FORMA
-----------------
<S> <C>
Earnings:
Loss before taxes........................................................ $ (12,735)
Interest expense......................................................... 289,420
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 278,566
-----------------
-----------------
Fixed Charges:
Interest expense......................................................... $ 289,420
Capitalized interest..................................................... 4,230
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 295,531
-----------------
-----------------
Pro forma deficiency of earnings available to cover fixed charges(1)....... $ (16,965)
-----------------
-----------------
</TABLE>

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

(1) For purposes of these computations, earnings consist of consolidated 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 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,
March 7, 1995