WALTER INDUSTRIES INC /NEW/, S-1/A, 1995-08-09

WALTER INDUSTRIES INC /NEW/
S-1/A, 1995-08-09
GENERAL BLDG CONTRACTORS - RESIDENTIAL BLDGS

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As filed with the Securities and Exchange Commission on August 9, 1995

Registration No. 33-59021

================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________

AMENDMENT NO. 1 TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
WALTER INDUSTRIES, INC.

(Exact name of registrant as specified in charter)

<TABLE><CAPTION>
<S> <C> <C>
Delaware 6711 13-342995300
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

1500 North Dale Mabry Highway
Tampa, FL 33607
(813) 871-4811
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
______________________________
Kenneth J. Matlock
Executive Vice President and Chief Financial Officer
Walter Industries, Inc.
1500 North Dale Mabry Highway
Tampa, FL 33607
(813) 871-4531
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
______________________________
Copy of all communications, including service of process, to:
Peter J. Gordon, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3909
______________________________
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.

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. /X/

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

______________________________

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 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>

This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering of Notes by the various Selling Security
Holders named therein (the "Primary Prospectus") and one to be used for the sale
of Notes by Lehman Brothers Inc. in market-making transactions (the "Market-
Making Prospectus"). The form of Primary Prospectus is included herein and is
followed by the alternate page for the Market-Making Prospectus, as described
below.

The Primary Prospectus and the Market-Making Prospectus are identical
except for the outside front cover page. The alternate page for the Market-
Making Prospectus included herein is labelled "Alternate Page for Market-Making
Prospectus."

<PAGE>
WALTER INDUSTRIES, INC.

Registration Statement on Form S-1

Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing
the Location in the Prospectus of the Information Required by Part 1 of Form S-1

PROSPECTUS

Form S-1 Item and Heading Caption or Location in
------------------------------ ----------------------
Prospectus
----------

1. Forepart of the Front Cover Page
Registration Statement
and Outside Front Cover
Page of Prospectus

2. Inside Front and Outside Inside Front Cover Page;
Back Cover Page of Outside Back Cover Page
Prospectus

3. Summary Information, Risk Prospectus Summary; Certain
Factors and Ratio of Risk Factors; The Company;
Earnings to Fixed Charges Recent History; Selected
Historical Consolidated
Financial Data

4. Use of Proceeds Not Applicable

5. Determination of Offering Inside Front Cover Page; Plan
Price of Distribution

6. Dilution Not Applicable

7. Selling Security Holders Selling Security Holders

8. Plan of Distribution Inside Front Cover Page; Plan
of Distribution

9. Description of Securities Description of Notes; Certain
to be Registered Federal Income Tax
Consequences

10. Interests of Named Legal Matters; Experts
Experts and Counsel

11. Information with Respect Outside Front Cover Page;
to the Registrant Prospectus Summary; Certain
Risk Factors; The Company;
Recent History;
Capitalization; Selected
Historical Consolidated
Financial Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Business and Properties;
Management; Security Ownership
of Management and Principal
Stockholders; Description of
Notes; Description of Certain
Other Indebtedness;
Description of Capital Stock

12. Disclosure of Commission Not Applicable
Position on
Indemnification for
Securities Act
Liabilities

<PAGE>

SUBJECT TO COMPLETION, DATED AUGUST 9, 1995

PROSPECTUS
----------

$218,609,000 12.19% Series B Senior Notes Due 2000

WALTER INDUSTRIES, INC.

This Prospectus relates to the offering from time to time of up to
$218,609,000 principal amount of 12.19% Series B Senior Notes Due 2000 (the
"Notes") that were issued by Walter Industries, Inc. (the "Company" or "Walter
Industries"), a Delaware corporation formerly named Hillsborough Holdings
Corporation, to certain former creditors of the Company and its subsidiaries
pursuant to the Company's Amended Joint Plan of Reorganization dated as of
December 9, 1994, as modified on March 1, 1995 (as so modified, the "Plan of
Reorganization"), under Section 1123(a) of the United States Bankruptcy Code
(the "Bankruptcy Code"). The Plan of Reorganization became effective on March
17, 1995 (the "Effective Date of the Plan of Reorganization"). Pursuant to the
Plan of Reorganization, $490,000,000 aggregate principal amount of Notes,
including the Notes to which this Prospectus pertains, were issued.

The Notes may be sold to the public from time to time by certain holders
thereof (the "Selling Security Holders") in the amount and in the manner
described herein or as may be set forth in a Prospectus Supplement accompanying
this Prospectus. The Company will receive no proceeds from the sale of any of
the Notes by any of the Selling Security Holders. See "Plan of Distribution."

Interest on the Notes is payable semiannually on September 15 and March 15
of each year at the rate of 12.19% per annum. The Notes may be redeemed at any
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days notice, at a redemption price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption, provided that no partial redemption may occur which results in
less than $150 million aggregate principal amount of Notes being outstanding;
and provided further that a redemption made from Excess Proceeds of any Asset
Sale (as such terms are defined under "Description of Notes -- Certain Covenants
-- Limitation on Asset Sales") shall be subject to the provisions described in
the succeeding sentence. The Company is obligated, in certain circumstances, to
apply the Excess Proceeds from an Asset Sale to either redeem or offer to
purchase Notes at a price equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of redemption or purchase,
provided that no such redemption or purchase may occur which results in less
than $150 million aggregate principal amount of Notes being outstanding. In the
event of a Change of Control (as defined under "Description of Notes -- Certain
Definitions"), each Holder will have the right to require the Company to
repurchase all or any part of such Holder's Notes at a price equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase. The Notes are secured by pledges of the capital stock of each
of the direct and indirect subsidiaries of the Company other than Mid-State
Homes, Inc. ("Mid-State Homes") and its subsidiaries and Cardem Insurance Co.,
Ltd. (Bermuda) ("Cardem Insurance"). The Notes rank senior in right of payment
to all subordinated indebtedness of the Company and pari passu in right of
payment to all other senior indebtedness of the Company (including indebtedness
under the Bank Revolving Credit Facility described herein). As of May 31, 1995,
the aggregate amount of senior indebtedness of the Company outstanding was
$2,220,370,000 (including the Notes). As of May 31, 1995, the Company had no
subordinated indebtedness outstanding. The Company conducts substantially all of
its operations through its subsidiaries. As indebtedness of a holding company,
the Notes are effectively subordinated to all obligations of the Company's
subsidiaries, which obligations at May 31, 1995 were not material (excluding the
obligations of Mid-State Trusts II, III, IV and V, the principal amounts of
which at such date were $584,000,000, $173,527,000, $953,843,000 and
$15,000,000, respectively). See "Certain Risk Factors -- Holding Company
Structure," "Business and Properties -- Mid-State Homes" and "Description of
Notes."

______________________________

SEE "CERTAIN RISK FACTORS" FOR INFORMATION CONCERNING CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN ANY OF THE NOTES.

The Notes are owned by a limited number of institutional and individual
investors and, to the Company's knowledge, no established public market for the
Notes currently exists. Lehman Brothers Inc. ("Lehman") has advised the Company
that it presently intends to make a market in the Notes, but it is

<PAGE>

not obligated to do so and it may discontinue any such market making activity at
any time in its sole discretion. There can be no assurance that the market for
the Notes will not be subject to disruptions that will render it difficult or
impossible for holders of the Notes to sell the Notes in a timely manner, if at
all, or to recoup their investment in the Notes. The Company does not intend in
the near future to apply for listing of the Notes on any securities exchange;
however, certain Holders of Notes have the right to require the Company to use
its best efforts to list their Notes on a national securities exchange or to
otherwise provide for the quotation of the Notes through the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") in
connection with the exercise on or after March 17, 1996, by such Holders of
certain registration rights with respect to the Notes. See "Certain Risk Factors
-- Liquidity; Absence Of Public Market" and "Description of Notes -- Senior Note
Registration Rights Agreement."

______________________________

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.
______________________________

The date of this Prospectus is August , 1995

[End of Cover Page]

<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 SUCH STATE.

<PAGE>

The Selling Security Holders directly, through agents designated from time
to time, or through dealers or underwriters also to be designated, may sell the
Notes from time to time on terms to be determined at the time of sale. To the
extent required, the specific Notes to be sold, the names of the Selling
Security Holders, the respective purchase prices and public offering prices, the
names of any such agent, dealer or underwriter, and any applicable commissions
or discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." If the Company
is advised that an underwriter has been engaged with respect to the sale of any
Notes offered hereby, or in the event of any other material change in the plan
of distribution, the Company will cause an appropriate amendment to the
Registration Statement of which this Prospectus forms a part to be filed with
the Securities and Exchange Commission (the "Commission") reflecting such
engagement or other change. See "Additional Information." Each of the Selling
Security Holders reserves the sole right to accept and, together with its agents
from time to time, to reject in whole or in part any proposed purchase of Notes
to be made directly or through agents.

The Company will not receive any proceeds from this offering, but agreed to
pay substantially all of the expenses of this offering other than applicable
transfer taxes and commissions and discounts payable to dealers, agents or
underwriters. The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of the Notes may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions received by them and any profit on the resale of the Notes purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Description of Notes -- Senior Note Registration Rights
Agreement" and "Plan of Distribution" for a description of certain
indemnification arrangements.

<PAGE>

AVAILABLE INFORMATION

When the Registration Statement of which this Prospectus forms a part was
declared effective by the Commission, the Company became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith became obligated to file
reports and other information with the Commission. Reports and other information
concerning the Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and at Suite 1300,
7 World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 upon payment of the fees prescribed by the
Commission. If and when the common stock, par value $.01 per share ("Common
Stock"), of the Company is listed on the NASDAQ National Market System, such
reports and other information also could be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments and exhibits thereto) under the Securities
Act with respect to the Notes offered hereby. This Prospectus, which forms a
part of such Registration Statement, does not contain all the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. 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 such 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. Any interested parties may inspect such Registration Statement,
without charge, at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington D.C. 20549, and may obtain copies of all
or any part of it from the Commission upon payment of the fees prescribed by the
Commission. Neither the delivery of this Prospectus or any Prospectus Supplement
nor any sales made hereunder or thereunder shall under any circumstances create
any implication that the information contained herein or therein is correct as
of any time subsequent to the date hereof or thereof or that there has been no
change in the affairs of the Company since the date hereof or thereof.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the detailed
information and consolidated financial statements (the "Consolidated Financial
Statements") and notes thereto appearing elsewhere in this Prospectus. The
Company operates, and during all periods for which financial information appears
herein operated, on a fiscal year ending May 31.

Reference is made to the "Index to Defined Terms" for information regarding
the location of certain definitions used in this Prospectus.

The Company

The Homebuilding and Related Financing Group sells, constructs on the
customer's site, and finances standardized partially-finished homes. Sales are
made in approximately 23 states, primarily in the southern part of the United
States. Substantially all of the sales are made on credit provided by the Group.
A credit purchaser must provide his own land and give a first mortgage or deed
of trust to secure payment of the purchase price of the home.

The Water and Waste Water Transmission Products Group is one of the largest
domestic manufacturers of ductile iron pressure pipe and fittings. The Group
also manufactures valves and hydrants, fittings and castings.

The Natural Resources Group engages in coal mining and a related
degasification program. The Group owns four coal mines in Alabama and has the
capacity to produce a total of 9.5 million tons of coal annually. The Group
produced 7.6 million tons of coal in fiscal 1995. A substantial portion of this
output is under long-term contracts and the balance will be used internally to
produce furnace and foundry coke or sold to other customers on a short-term
contract or spot market basis. The Company does not consider itself to be a
significant factor in the domestic or international coal markets.

The Industrial and Other Products Group produces furnace and foundry grades
of coke, industrial chemicals, slag wool products, aluminum sheet, aluminum
foil, window and door screens, window balances, fireplace inserts, fireplaces
and accessories, municipal and original equipment manufacturer castings,
patterns and tooling and resin coated sand. See "The Company" and "Business and
Properties."

Recent History

The Company was organized in August 1987 by a group of investors led by
Kohlberg Kravis Roberts & Co. ("KKR") for the purpose of acquiring Jim Walter
Corporation, a Florida corporation ("Original Jim Walter"), pursuant to a
leveraged buyout (the "LBO"). Following its organization, the Company organized
and acquired all of the outstanding shares of capital stock of a group of direct
and indirect wholly owned subsidiaries, including Hillsborough Acquisition
Corporation ("HAC"). On September 18, 1987, HAC acquired approximately 95% of
the outstanding shares of common stock of Original Jim Walter pursuant to a cash
tender offer (the "Tender Offer"). On January 7, 1988, (i) Original Jim Walter
merged (the "Merger") into HAC (which changed its name to Jim Walter
Corporation), (ii) HAC distributed substantially all of its assets (principally
excluding the stock of The Celotex Corporation ("Celotex") and several other
subsidiaries of Original Jim Walter) to a parent corporation of HAC (which was
merged into the Company on April 1, 1991) in redemption of all of the shares of
capital stock of HAC owned by such parent corporation, (iii) HAC merged into its
other stockholder, another

<PAGE>

indirect wholly owned subsidiary of the Company, and (iv) the surviving
corporation of such merger changed its name to Jim Walter Corporation (and is
hereinafter referred to as "J-II" or "Jim Walter Corporation").

Following the Merger and prior to the commencement of the Chapter 11 Cases
(as defined below), the Company undertook a program of corporate reorganizations
and asset dispositions, which were contemplated by all of the debt agreements
entered into in connection with the Tender Offer and the Merger. Pursuant to
this program the Company restructured and/or disposed of certain of the
businesses of Original Jim Walter, including the disposition in April, 1988 of
all of the stock of the parent corporation of J-II.

Also during this time, the Company and certain of its subsidiaries and
certain of their former and current directors and officers, stockholders and
other persons and entities which were parties to or beneficiaries of
indemnification agreements and other indemnification obligations of the Company
and its subsidiaries (the "Indemnitees") were named as co-defendants in lawsuits
(the "Veil Piercing Litigation") brought by or on behalf of thousands of persons
("Asbestos Claimants") claiming asbestos-related damages against Celotex
alleging, among other things, that (i) Original Jim Walter, its successors and
other entities, including the Company and certain of its subsidiaries, were
liable for all damages, including asbestos-related damages, caused by products
manufactured, sold and distributed by a predecessor of Celotex, by reason of
claims sounding in piercing the corporate veil, alter ego and related theories
("Veil Piercing Claims"), and (ii) the aforementioned distribution by HAC of
substantially all of its assets pursuant to the LBO constituted a fraudulent
conveyance. See "Business and Properties -- Legal Proceedings --
Asbestos-Related Litigation Settlements."

On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 ("Chapter 11") of the
Bankruptcy Code with the Bankruptcy Court for the Middle District of Florida,
Tampa Division (the "Bankruptcy Court"); one additional subsidiary also filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy Court
on December 3, 1990 (all such voluntary petitions for reorganization,
collectively, the "Chapter 11 Cases"). Two other subsidiaries, Cardem Insurance
and Jefferson Warrior Railroad Company, Inc. ("J.W. Railroad"), did not file
petitions for reorganization under Chapter 11. The filing of the voluntary
petitions resulted from a sequence of events stemming primarily from an
inability of the Company's interest reset advisors to reset interest rates on
approximately $624 million of outstanding indebtedness, which indebtedness by
its terms required that the interest rates thereon be reset to the rate per
annum such indebtedness should bear in order to have a bid value of 101% of the
principal amount thereof as of December 2, 1989. The reset advisors' inability
to reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the pending Veil Piercing Litigation, including the
possibility either that such litigation would lead to the prohibition of further
asset sales and debt repayment or that substantial new asbestos-related claims
might become assertible against the Company, which uncertainties materially
hindered the ability of the Company and its subsidiaries to pursue a refinancing
or sell assets to reduce debt, and (ii) general turmoil in the high yield bond
markets at such time, both of which depressed the bid value of such
indebtedness.

On January 2, 1990, the Company and each of its subsidiaries party to the
Chapter 11 Cases filed a declaratory judgment action (the "Adversary
Proceeding") against all known Asbestos Claimants who had filed Veil Piercing
Claims, Celotex and Jim Walter Corporation seeking a declaration, among other
things, that (i) the corporate veil between Celotex and Original Jim Walter
could not be pierced, (ii) the Company could not be held liable for the
asbestos-related liabilities of either Celotex or Jim Walter Corporation on any
grounds and (iii) the LBO could not be deemed a fraudulent conveyance.

In January 1994, the indenture trustees for certain pre-LBO debentures of
Original Jim Walter assumed by the Company brought an action (the "Fraudulent
Conveyance Lawsuit") for the benefit of the Company's estate and its creditors,
which alleged that the issuance of debt in connection with the LBO constituted a
fraudulent conveyance under New York and Florida law. The plaintiffs sought to
avoid the obligations incurred by the Company and its subsidiaries in the LBO.

<PAGE>

On the Effective Date of the Plan of Reorganization, the Company and its
subsidiaries emerged from bankruptcy pursuant to the Plan of Reorganization.
Pursuant to the Plan of Reorganization, 50,494,313 shares of Common Stock were
issued to certain former creditors and stockholders of the Company and its
subsidiaries and $490,000,000 aggregate principal amount of Notes were issued to
certain former creditors of the Company and its subsidiaries.

Also pursuant to the Plan of Reorganization, (i) the Veil Piercing Claims,
the Veil Piercing Litigation and the Adversary Proceeding, among other things,
were settled after a ruling by the Bankruptcy Court (which was confirmed on
appeal by the United States District Court for the Middle District of Florida)
finding in favor of the Company on every claim asserted in the Adversary
Proceeding and (ii) the Fraudulent Conveyance Lawsuit was settled. See "Recent
History" and "Business and Properties -- Legal Proceedings -- Asbestos Related
Litigation Settlements."

See "Certain Risk Factors" for information concerning certain risks
associated with an investment in the Notes.

<PAGE>
Summary Consolidated Historical Financial Data

The following data, insofar as it relates to each of the fiscal years 1991
through 1995, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1995 and 1994 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1995 and the notes thereto
appearing elsewhere herein. All of the information presented below should be
read in conjunction with the Company's Consolidated Financial Statements and the
notes thereto, the pro forma consolidated statement of operations of the Company
(the "Pro Forma Consolidated Statement of Operations") and the notes thereto and
the other information contained elsewhere in this Prospectus.

------------------------------------------------------------------------
Years ended May 31,
1991(1) 1992 1993(4) 1994 1995
------------- ------------- ------------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . $ 1,326,397 $ 1,366,581 $ 1,318,986 $ 1,328,524 $ 1,442,322
Cost of sales (exclusive of
depreciation) . . . . . . . . . . 826,455 891,882 804,411 845,061 951,381
Depreciation, depletion and
amortization . . . . . . . . . . 75,099 82,801 70,483 71,035 72,037
Interest and amortization of debt
discount and expense(2) . . . . . 209,511 177,060 171,581 155,470 304,548
Income tax expense (benefit) . . . 19,454 12,463 24,328 28,917 (170,450)
Income (loss) before discontinued
operations and cumulative effect of
accounting change(1)(4) . . . . . 20,632 22,342 46,594 7,175 (358,645)
Net income (loss) . . . . . . . . . 14,462 22,342 (58,014) 7,175 (358,645)
Ratio of earnings from continuing
operations to fixed charges(3) . 1.19 1.18 1.39 1.22 --

Additional Financial Data:
Total assets . . . . . . . . . . . $ 3,276,211 $ 3,171,266 $ 3,223,234 $ 3,140,892 $ 3,245,153
Long-term senior debt . . . . . . . 1,073,919 948,782 1,046,971 871,970 2,220,370
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . 1,883,704 1,845,328 1,725,631 1,727,684 --
Stockholders equity (deficit) . . . (253,282) (230,119) (287,737) (282,353) 360,774

</TABLE>

(1) The selected financial data reflects operations sold as discontinued
operations.

(2) Interest on unsecured obligations not accrued since December 27, 1989
amounted to $163.7 million in each of the years ended May 31, 1991 through
1994. The Company recorded additional interest and amortization of debt
discount and expense of $141.4 million related to the consummation of the
Plan of Reorganization in fiscal 1995.

(3) The ratio of earnings from continuing operations to fixed charges is
computed by dividing the sum of income (loss) from continuing operations
and fixed charges by fixed charges. Fixed charges consist of interest
expense, amortization of debt discount and expense and the portion (one-
third) of rent expense deemed to represent interest. For the year ended May
31, 1995, the loss from continuing operations plus fixed charges was
inadequate to cover fixed charges. The coverage deficiency was $530.3
million. On a pro forma basis for the fiscal year ended May 31, 1995, after
giving effect to the Plan of Reorganization and the related transactions as
if they had occurred as of June 1, 1994, the loss from continuing
operations plus fixed charges would have been inadequate to cover fixed
charges. The coverage deficiency would have been $14.2 million. See
"Prospectus Summary -- Summary Pro Forma Consolidated Statement of
Operations."

(4) The Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
("FAS 106") and Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("FAS 109") during fiscal year 1993.

9
<PAGE>

Summary Pro Forma Consolidated Statement of Operations

The following unaudited summary pro forma consolidated statement of
operations was prepared to illustrate the estimated effects of the Plan of
Reorganization and related financings and the application of the proceeds
thereof as if they had occurred for statement of operations purposes as of June
1, 1994.

The pro forma consolidated statement of operations does not purport to be
indicative of the results of operations that would actually have been reported
had such transactions in fact been consummated on such date or of the results of
operations that may be reported by the Company in the future. The unaudited pro
forma adjustments are based upon available information and certain assumptions
that the Company believes are reasonable. All of the information presented below
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto, the Pro Forma Consolidated Statement of Operations and the notes
thereto and the other information contained elsewhere in this Prospectus.

Year ended
May 31, 1995
--------------------------
(Dollars in thousands
except per share amount)
<S> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,434,694
Cost of sales (exclusive of depreciation) . . . . . . . . . . . . . . . . 951,381
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . 72,037
Interest and amortization of debt expense . . . . . . . . . . . . . . . . 223,184
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,280
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,277)
Net loss per share(1) . . . . . . . . . . . . . . . . . . . . . . . . . . (.75)

</TABLE>

(1) Net loss per share has been computed based on the weighted average number
of shares of Common Stock issuable (50,988,626, which includes 494,313
additional shares of Common Stock required to be issued on September 13,
1995 (180 days after the Effective Date of the Plan of Reorganization)
pursuant to the Plan of Reorganization, but does not include up to
3,880,140 additional shares that will be issued to an escrow account on
such date pursuant to the Plan of Reorganization because such issuance is
contingent on future events and would be anti-dilutive; see "Description of
Capital Stock -- Future Stock Issuances").

10
<PAGE>
<TABLE><CAPTION>
The Offering

<S> <C>
Notes Offered . . . . . . . . . Up to $218,609,000 principal amount of 12.19% Series B Senior Notes
Due 2000 to be offered for sale from time to time by the Selling
Security Holders. The Company will receive no proceeds from the
sale of Notes by the Selling Security Holders. See "Selling
Security Holders" and "Plan of Distribution."

Issuer . . . . . . . . . . . . Walter Industries, Inc.

Maturity Date . . . . . . . . . March 15, 2000

Interest Rate . . . . . . . . . 12.19%

Interest Payment Dates . . . . September 15 and March 15 of each year, commencing September 15,
1995. Interest began accruing on the Notes on March 17, 1995.

Ranking . . . . . . . . . . . . The Notes rank senior in right of payment to all subordinated
indebtedness of the Company and pari passu with all other senior
indebtedness of the Company (including indebtedness under the Bank
Revolving Credit Facility described herein). As of May 31, 1995,
the aggregate amount of senior indebtedness of the Company was
$2,220,370,000 (including the Notes). As of May 31, 1995, the
Company had no subordinated indebtedness outstanding.

Mandatory Sinking Fund . . . . None.

Optional Redemption . . . . . . The Notes may be redeemed at any time at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days
notice at a redemption price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of
redemption, provided that no partial redemption may occur which
results in less than $150 million aggregate principal amount of the
Notes being outstanding.

Change of Control Offer to
Purchase . . . . . . . . . . . In the event of a Change of Control, each Holder will have the
right to require the Company to repurchase any and all part of such
Holder's Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of
purchase. There can be no assurance that the Company will have the
financial ability to repurchase Notes upon the occurrence of a
Change of Control.

Asset Sales . . . . . . . . . . The Company is obligated in certain circumstances to apply the Net
Cash Proceeds from an Asset Sale to either redeem or offer to
purchase Notes at a price equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of
redemption or purchase, provided that no such redemption or
purchase may occur which results in less than $150 million
aggregate principal amount of Notes being outstanding.

Certain Covenants . . . . . . . The Indenture contains covenants which, among other things, (i)
restrict the ability of: (a) the Company and its Subsidiaries
(defined with respect to the Company not to include Mid-State Homes
and its subsidiaries or
</TABLE>

11
<PAGE>
<TABLE>
<S> <C>
Cardem Insurance) to incur additional indebtedness, create liens,
or engage in sale and leaseback transactions; (b) the Company, Mid-
State Homes and their respective Subsidiaries to pay dividends,
repurchase capital stock, prepay subordinated debt, make certain
other Restricted Payments, engage in transactions with affiliates,
or sell the capital stock of their respective Subsidiaries; (c) the
Subsidiaries of the Company to encumber their ability to pay
dividends or make distributions to the Company or other
Subsidiaries; and (d) the Company to engage in mergers and
consolidations, (ii) require the Company to make regular reports to
Holders of Notes and to file all such reports with the Commission
for public availability and (iii) with certain exceptions, require
the Company to maintain its corporate existence and the corporate,
partnership or other existence of its Subsidiaries and to maintain
the licenses and franchises of the Company and its Subsidiaries.

Security . . . . . . . . . . . The Notes are secured by pledges of the capital stock of each of
the direct and indirect subsidiaries of the Company other than Mid-
State Homes and its subsidiaries and Cardem Insurance.
</TABLE>

Contemporaneous Common Stock Offering

The Company also has filed with the Commission a shelf registration
statement with respect to the sale from time to time by certain selling security
holders of up to 31,446,414 shares of Common Stock held by such security
holders. Such registration statement and the Registration Statement of which
this Prospectus forms a part were filed by the Company pursuant to registration
rights agreements entered into as part of the Plan of Reorganization. See
"Description of Capital Stock -- Common Stock Registration Rights Agreement" and
"Description of Notes -- Senior Note Registration Rights Agreement." The Company
will not receive any proceeds from the contemporaneous offering of such Common
Stock, all of which will be received by the selling holders thereof.

<PAGE>
CERTAIN RISK FACTORS

Set forth below are certain significant risks involved in investing in the
Notes offered by this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties" for
a description of other factors affecting the Company's businesses generally.

Leverage

Upon completion of the Plan of Reorganization, the Company continued to
have significant indebtedness. At May 31, 1995, the Company had total
consolidated debt of approximately $2,220,370,000 and a ratio of total
consolidated debt to stockholders' equity of approximately 6.2 to 1.0. As a
result of the Plan of Reorganization, the Company will have substantially higher
interest expense. On a pro forma basis after giving effect to the Plan of
Reorganization and related transactions, the Company would have reported a loss
of $38.3 million for the year ended May 31, 1995. See "Pro Forma Consolidated
Statement of Operations" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The ability of the Company to meet its debt service obligations will be
dependent upon the future performance of the Company, which, in turn, will be
subject to general economic conditions and to financial, competitive, business
and other factors, including factors beyond the Company's control. The level of
the Company's indebtedness could restrict its flexibility in responding to
changing business and economic conditions. The Company believes that the Mid-
State Trust V Variable Funding Loan Agreement, a three-year $500 million credit
facility described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition," will provide Mid-
State Homes with the funds needed to purchase the instalment notes and mortgages
generated by Jim Walter Homes, Inc. ("Jim Walter Homes"). See "Business and
Properties -- Mid-State Homes." The Company also believes that under present
operating conditions sufficient operating cash flow will be generated through
fiscal year 1999 to make all required interest and principal payments and
planned capital expenditures and meet substantially all operating needs and that
amounts available under the Bank Revolving Credit Facility described herein will
be sufficient to meet peak operating needs. However, it is currently anticipated
that sufficient operating cash flow will not be generated to repay at maturity
the principal amount of the Notes without refinancing a portion of such debt or
selling assets. No assurance can be given that any refinancing will take place
or that such sales of assets can be consummated. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".

The degree to which the Company is leveraged and the terms governing the
Company's debt instruments, including restrictive covenants and events of
default, could have important consequences to holders of the Notes, including
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial portion
of the Company's cash flow from operations must be dedicated to service its
indebtedness; (iii) terms of the Company's debt instruments will restrict the
Company's ability to pay dividends and will impose other operating and financial
restrictions; (iv) the Company may be more leveraged than other providers of
similar products and services, which may place the Company at a competitive
disadvantage; and (v) the Company's significant degree of leverage could make it
more vulnerable to changes in general economic conditions. Following the Plan of
Reorganization, the Company believes that it will be able through fiscal year
1999 to make its principal and interest payments as and when required with funds
derived from its operations. However, unexpected declines in the Company's
future business, increases in interest rates or the inability to borrow
additional funds for its operations if and when required could impair the
Company's ability to meet its debt service obligations and, therefore, have a
material adverse effect on the Company's business and future prospects. No
assurance can be given that additional debt or equity funds will be available
when needed or, if available, on terms which are favorable to the Company.
Moreover, the terms of the Company's indebtedness contain change in control
provisions which may have the effect of discouraging a potential takeover of the
Company. See "Capitalization," "Pro Forma Consolidated Statement of Operations,"
"Selected Historical Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition" and "-- Liquidity and Capital Resources," "Description of Notes"
and "Description of Certain Other Indebtedness."

<PAGE>

Borrowings under the Company's $150 million Bank Revolving Credit Facility
bear interest at rates that fluctuate. As of May 31, 1995, there were no
borrowings under this facility; however there were $22,727,000 face amount of
letters of credit outstanding thereunder. See "Description of Certain Other
Indebtedness -- Bank Revolving Credit Facility."

Accounting Presentation

The Company emerged from bankruptcy on March 17, 1995. Accordingly, the
Company's Consolidated Balance Sheets at and after May 31, 1995 and its
Consolidated Statements of Operations and Retained Earnings (Deficit) for May
31, 1995 and periods thereafter will not be comparable to the Consolidated
Financial Statements for prior periods included elsewhere herein. Furthermore,
the Company's Consolidated Statement of Operations and Retained Earnings
(Deficit) for May 31, 1995 will not be comparable to the Company's consolidated
statements of operations and retained earnings (deficit) for periods thereafter.
Among other things, the Consolidated Statement of Operations and Retained
Earnings (Deficit) for the year ended May 31, 1995 includes numerous adjustments
required by the Plan of Reorganization, including adjustments to interest
expense, payment of substantial professional expenses related to the bankruptcy
and payment of $390 million pursuant to the Veil Piercing Settlement described
herein. See "Business and Properties -- Legal Proceedings -- Asbestos-Related
Litigation Settlements." Similarly, the Company's Consolidated Balance Sheet as
of May 31, 1995 reflects consummation of the Plan of Reorganization, and
therefore is not comparable to the Company's Consolidated Balance Sheets at May
31, 1994 or dates prior thereto.

Holding Company Structure

The Company has no business operations other than (i) holding the capital
stock of its operating subsidiaries and intermediate holding companies, (ii)
holding cash, cash equivalents and marketable securities and (iii) advancing
funds to, and receiving funds from, its subsidiaries. In repaying its
indebtedness, including the Notes, the Company relies primarily on cash flows
from its subsidiaries, including debt service and dividends. The ability of the
Company's subsidiaries to make payments with respect to advances from the
Company will be affected by the obligations of such subsidiaries to their
creditors. Claims of holders of indebtedness of the Company, including the
Notes, against the cash flows and assets of the Company's subsidiaries will be
effectively subordinated to claims of such creditors. The ability of such
subsidiaries to pay dividends will also be subject to applicable law and, under
certain circumstances, to restrictions contained in agreements entered into, or
debt instruments issued, by the Company and its subsidiaries. Under the terms of
the Bank Revolving Credit Facility, the subsidiaries of the Company may declare
and pay dividends in cash to the Company to enable it to pay, among other
things, amounts owing under the Notes when such amounts become due and payable
under the terms of the Indenture. See "Description of Certain Other Indebtedness
-- Bank Revolving Credit Facility." The Notes are secured by pledges of the
capital stock of each of the direct and indirect subsidiaries of the Company
other than Mid-State Homes and its subsidiaries and Cardem Insurance.

Restrictive Covenants

The Indenture and the Bank Revolving Credit Facility contain a number of
significant covenants that, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur additional
indebtedness, make capital expenditures, pay dividends, create liens on assets,
enter into leases, investments or acquisitions, engage in mergers or
consolidations, or engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities (including change of
control and asset sale transactions). In addition, under the Bank Revolving
Credit Facility, the Company is required to maintain specified financial ratios
and comply with certain financial tests, including interest coverage and fixed
charge coverage ratios, maximum leverage ratios and minimum earnings before
interest, taxes, depreciation and amortization expense, some of which become
more restrictive over time. A substantial portion of the Company's indebtedness
is secured by the capital stock or assets of certain subsidiaries of the
Company.

The Company currently is in compliance with the covenants and restrictions
contained in its existing debt instruments. However, its ability to continue to
so comply may be affected by events beyond its control. The breach of any of
these covenants or restrictions could result in a default under those debt
instruments, which would permit the lenders or other creditors thereunder to
declare all amounts borrowed thereunder to be due and

14
<PAGE>
payable together with accrued and unpaid interest, would result in the
termination of the commitments of the lenders under the Bank Revolving Credit
Facility to make further loans and issue letters of credit and could permit such
lenders and other creditors to proceed against the collateral securing the
obligations owing to them. Any such default could have a significant adverse
effect on the market value and the marketability of the Notes. See "Description
of Notes" and "Description of Certain Other Indebtedness."

Risks of Business Downturn

Certain of the Company's businesses are affected by general economic or
other factors outside their control. The sales of United States Pipe and Foundry
Company ("U.S. Pipe") are dependent to some extent upon the rate of residential
and non-residential building construction and other forms of construction
activity, and are thus subject to certain economic factors such as general
economic conditions, the underlying need for construction projects, interest
rates and governmental incentives provided to building projects. The cyclical
nature of U.S. Pipe's business is offset to some extent by U.S. Pipe's sales to
the replacement market. The replacement market generally fluctuates less than
the rate of new construction and therefore tends to have a stabilizing influence
during a period of depressed construction activity. Jim Walter Homes is also
sensitive to certain general economic and other factors. Its business has tended
to be countercyclical to national home construction activity. In times of high
interest rates or lack of availability of mortgage funds, and thus limited new
home construction, Jim Walter Homes' volume of home sales tends to increase due
to the terms of the financing it offers. However, in times of low interest rates
and increased availability of mortgage funds, Jim Walter Homes' volume of home
sales tends to decrease. Also, in times of low interest rates and high
availability of mortgage funds, additional competition is able to enter the
market. A significant portion of the sales of Jim Walter Resources, Inc. ("Jim
Walter Resources") are made pursuant to long-term contracts, which tend to
stabilize the results of its operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business and
Properties."

Asbestos-Related Litigation Settlements

As discussed more fully under "Recent History" and "Business and Properties
-- Legal Proceedings -- Asbestos-Related Litigation Settlements," the Company
and the Indemnitees were defendants in the Veil Piercing Litigation and are
beneficiaries of the Veil Piercing Settlement.

In order for a holder of a Veil Piercing Claim or any claim related to the
LBO which is held by any person who has asserted or may in the future assert
Veil Piercing Claims (such claims and Veil Piercing Claims, whether asserted in
the past or in the future, collectively, the "Settlement Claims") to assert that
Settlement Claim against the Company or any of the Indemnitees, such holder
would have to attack the Plan of Reorganization, the approval of the Class (as
defined under "Business and Properties -- Legal Proceedings -- Asbestos-Related
Litigation Settlements"), the approval of the Veil Piercing Settlement and all
of the actions taken under the Veil Piercing Settlement. Because there were no
objections to the Plan of Reorganization or the Veil Piercing Settlement (apart
from an objection of the United States Environmental Protection Agency (the
"EPA") concerning the scope of certain releases affecting government
environmental claims; see "Business and Properties -- Legal Proceedings -- Plan
of Reorganization"), such an attack would have to be based upon an alleged
failure to provide due process under the United States Constitution. The
Company believes, and the Bankruptcy Court has found, that due process
requirements have been met. Should such an attack be sustained, however, the
Company, the Indemnitees and the other Released Parties (as defined under
"Business and Properties -- Legal Proceedings -- Asbestos-Related Litigation
Settlements") could be exposed to additional liabilities in the future of an
indeterminate, but possibly substantial, amount.

Future holders of Settlement Claims may also attack the injunctions
discussed under "Business and Properties -- Legal Proceedings --
Asbestos-Related Litigation Settlements" on the grounds that the Bankruptcy
Court did not have jurisdiction over their future claims. The Company believes
that the Bankruptcy Court and the Celotex bankruptcy court have jurisdiction
to issue "channelling" injunctions barring such future claims. In addition,
the provisions of Section 524(g) of the Bankruptcy Code explicitly authorize
an injunction barring claims by future claimants asserting asbestos-related
diseases. Accordingly, if the Celotex bankruptcy court confirms a plan of
reorganization containing such an injunction, as contemplated by the Veil
Piercing Settlement, and such plan of reorganization is consummated, Section
524(g) of the Bankruptcy Code would be an additional

15
<PAGE>

basis for preventing future Settlement Claims from being asserted against the
Company, the Indemnitees and the other Released Parties. However, there can be
no assurance that such a plan of reorganization will be confirmed and
consummated. In addition, a future holder of a Settlement Claim may try to
attack Section 524(g) as unconstitutional or try to preclude its application to
the Company's case. Should that happen, the Company, the Indemnitees and the
other Released Parties could be exposed to additional liabilities in the future
of an indeterminate, but possibly substantial, amount.

It is also possible that some constituencies might seek to have the terms
of the Veil Piercing Settlement altered. In the National Gypsum reorganization,
the trust established to settle asbestos claims has sought an order requiring
the reorganized debtor in that case to make additional payments to the trust.
The Company believes that should not happen in its case because the settlement
amount is being paid into another reorganization pursuant to final court orders
in both cases. Any such request would have to be made to the Bankruptcy Court,
which has previously approved the settlement payment as fair. However, should
such a request be made and granted, the Company, the Indemnitees and the other
Released Parties could be exposed to additional liabilities in the future of an
indeterminate, but possible substantial, amount.

Liquidity; Absence of Public Market

The Notes may be characterized as "high yield" or "junk" bonds.
Historically, the market for high yield bonds, such as the Notes, has had fewer
participants and involved a smaller amount of securities than certain other
capital markets. It has historically, and particularly in recent periods, been
subject to disruptions that have caused substantial volatility in the prices of
securities similar to the Notes. The Notes are owned by a limited number of
institutional and individual investors. To the Company's knowledge, no
established public market for the Notes currently exists. Lehman has advised the
Company that it presently intends to make a market in the Notes, but it is not
obligated to do so and it may discontinue any such market making activity at any
time in its sole discretion. There can be no assurance that the market for the
Notes will not be subject to disruptions that will render it difficult or
impossible for holders of the Notes to sell the Notes in a timely manner, if at
all, or to recoup their investment in the Notes. The Company does not intend to
apply for listing of the Notes on any securities exchange. Consequently, a
purchaser may not be able to liquidate his investment in the event of an
emergency or for any other reason and the Notes may not be readily acceptable as
collateral for loans.

The prices at which the Notes may be sold will be determined by the Selling
Security Holders or by agreement between Selling Security Holders and
underwriters or dealers, if any. See "Plan of Distribution."

Effect of Future Sales of Notes

No prediction can be made as to the effect, if any, that future sales of
Notes, or the availability of Notes for future sale, will have on the market
price of the Notes prevailing from time to time. Sales of substantial amounts of
Notes, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Notes. Pursuant to the Plan of Reorganization,
an aggregate of $490 million principal amount of Notes was issued on the
Effective Date of the Plan of Reorganization. Pursuant to Section 1145 of the
Bankruptcy Code, all of the Notes are freely tradeable without registration
under the Securities Act, except for Notes issued to an "underwriter" (as
defined in Section 1145(b) of the Bankruptcy Code) or subsequently acquired by
an "affiliate" of the Company. Except in limited circumstances, none of the
holders of such Notes has agreed to restrict or otherwise limit in any way such
holder's ability to dispose of such Notes. See "Description of Notes -- Senior
Note Registration Rights Agreement." No assurance can be given that sales of
substantial amounts of Notes will not occur in the foreseeable future or as to
the effect that any such sales, or the perception that such sales may occur,
will have on the market or the market price of the Notes.

Tax Considerations

A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the Internal
Revenue Service (the "IRS") in the aggregate amount of $110,560,883 with respect
to fiscal years ended August 31, 1980 and August 31, 1983 through August 31,
1987, $31,468,189 with respect to fiscal years ended May 31, 1988 (nine months)
and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990
and May 31, 1991. Objections to the proofs of claim have been

16
<PAGE>

filed by the Company and the various issues are being litigated in the
Bankruptcy Court. The Company believes that such proofs of claim are
substantially without merit and intends to defend such claims against the
Company vigorously, but there can be no assurance as to the ultimate outcome.

Set forth under "Certain Federal Income Tax Consequences" is a description
of certain United States federal income tax consequences to prospective
purchasers expected to result from the purchase, ownership and sale or other
disposition of the Notes under currently applicable law.

Disputed Claims Reserves

The total face amount of prepetition claims against the Company and certain
of its subsidiaries which are still being disputed by the Company, including the
Federal Income Tax Claims (see "Description of Capital Stock -- Future Stock
Issuances"), is substantial. If the Company or any of its subsidiaries is unable
to pay any claims which ultimately are allowed against it by the Bankruptcy
Court, under the Plan of Reorganization the holders of such allowed claims would
have recourse to the Company or any such subsidiary as applicable. Management
does not expect that any allowed claims will have a material adverse effect on
the Company's financial position.

Certain Corporate Governance Matters; Antitakeover Legislation

The Restated Certificate of Incorporation of the Company (the "Charter")
and the Plan of Reorganization provide that until March 17, 1998 the Board of
Directors of the Company shall have nine members, two of whom must be
Independent Directors (as defined under "Management -- Board of Directors"),
three of whom must be senior officers of the Company, one of whom must be
designated by KKR, an affiliate of certain principal stockholders of the
Company, and three of whom must be designated by Lehman, whose affiliate Lehman
Brothers Holdings, Inc. ("Lehman Holdings") is another principal stockholder of
the Company (except that (i) in certain circumstances KKR will have the right to
compel the resignation of one or two of Lehman's designees and designate the
successor(s), (ii) if more than one director is a designee of KKR, in certain
circumstances Lehman will have the right to compel the resignation of one of
KKR's designees and designate the successor and (iii) Lehman's or KKR's
designees must resign if Lehman or KKR, as the case may be, cease to
beneficially own a specified equity interest in the Company). See "Management --
Board of Directors" and "Security Ownership of Management and Principal
Stockholders." As a result of this provision, stockholders of the Company other
than Lehman and KKR will not have the ability to elect any of the Company's
directors prior to March 17, 1998.

In addition, the Charter and the Company's By-laws provide that until
March 17, 1998 each committee of the Board of Directors (other than the Tax
Oversight Committee) must include a number of directors designated by KKR and
Lehman, respectively, so that each of KKR and Lehman has representation on the
committee proportionate to its representation on the Board. The Charter provides
that the foregoing provision and certain other provisions of the By-laws cannot
be amended by the Board of Directors prior to March 17, 1998 unless 67% of the
whole Board of Directors votes in favor of the amendment. See "Management --
Committees of the Board of Directors."

The foregoing provisions would, among other things, impede the ability of a
third party to acquire control of the Company by seeking election of its
nominees to the Board of Directors.

In addition, Section 203 ("Section 203") of the Delaware General
Corporation Law (the "DGCL") provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date on which such stockholder becomes an
"interested stockholder" unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an "interested stockholder," (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an "interested stockholder," the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and

<PAGE>

authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66-2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." Except as otherwise specified in Section 203, an
"interested stockholder" is defined to include (x) any person that is the owner
of 15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates of
any such person. For purposes of Section 203, the Board has approved the
transaction (the consummation of the Plan of Reorganization) which resulted in
Lehman and the Celotex Settlement Fund Recipient becoming "interested
stockholders" and, accordingly, the Company believes that neither of them will
be subject to the restrictions of Section 203 unless it ceases to be the owner
of 15% or more of the outstanding voting stock of the Company and seeks to
reattain such level of ownership. The Board also approved the purchase of Common
Stock by Channel One Associates, L.P., a limited partnership the general partner
of which is KKR Associates, L.P. ("Channel One"), and its affiliates and
associates of 15% or more of the outstanding voting stock of the Company through
open market purchases or otherwise. Accordingly, the Company believes that none
of Channel One and its affiliates and associates (including the KKR Investors
referred to in "Security Ownership of Management and Principal Stockholders")
will be subject to the restrictions of Section 203. In connection with the
above-described Board approval, Channel One and the KKR Investors agreed with
the Company that they will not, and will not permit any of their affiliates to,
vote any shares of Common Stock of the Company or otherwise take any other
action to modify the composition of the Board of Directors of the Company prior
to April 6, 1998 other than as expressly provided for in the Company's Charter
and the Plan of Reorganization and that during such period they will not
participate in the solicitation of proxies to vote, or seek to advise or
influence any person with respect to, voting securities of the Company to modify
the composition of the Board of Directors, or propose, assist in or encourage
any person in connection with any of the foregoing. See "Description of Capital
Stock -- Antitakeover Legislation."

Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Charter does not exclude the Company from the restrictions
imposed under Section 203. The provisions of Section 203 may encourage companies
interested in acquiring the Company to negotiate in advance with the Board of
Directors because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
the management of the Company. It is possible that such provisions could make it
more difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.
THE COMPANY

The Company, through its direct and indirect subsidiaries currently offers
a diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and industrial
markets. A brief description of the Company's four major operating groups
follows.

<PAGE>

customers on a short-term contract or spot market basis. The Company does not
consider itself to be a significant factor in the domestic or international coal
markets.

The Company's executive offices are located at 1500 North Dale Mabry
Highway, Tampa, Florida 33607. The Company's telephone number is (813) 871-4811.

RECENT HISTORY

The Company was organized in August 1987 by a group of investors led by KKR
for the purpose of acquiring Original Jim Walter, pursuant to the LBO. Following
its organization, the Company organized and acquired all of the outstanding
shares of capital stock of a group of direct and indirect wholly owned
subsidiaries, including HAC. On September 18, 1987, HAC acquired approximately
95% of the outstanding shares of common stock of Original Jim Walter pursuant to
the Tender Offer. On January 7, 1988, (i) Original Jim Walter merged into HAC
(which changed its name to Jim Walter Corporation), (ii) HAC distributed
substantially all of its assets (principally excluding the stock of Celotex and
several other subsidiaries of Original Jim Walter) to a parent corporation of
HAC (which was merged into the Company on April 1, 1991) in redemption of all of
the shares of capital stock of HAC owned by such parent corporation, (iii) HAC
merged into its other stockholder, another indirect wholly owned subsidiary of
the Company, and (iv) the surviving corporation of such merger changed its name
to Jim Walter Corporation.

Following the Merger and prior to the commencement of the Chapter 11 Cases,
the Company undertook a program of corporate reorganizations and asset
dispositions, which were contemplated by all of the debt agreements entered into
in connection with the Tender Offer and the Merger. Pursuant to this program the
Company restructured and/or disposed of certain of the businesses of Original
Jim Walter, including the disposition in April, 1988 of all of the stock of the
parent corporation of J-II.

Also during this time, the Company, certain of its subsidiaries and the
Indemnitees were named as co-defendants in the Veil Piercing Litigation brought
by or on behalf of the Asbestos Claimants against Celotex alleging, among other
things, that (i) Original Jim Walter, its successors and other entities,
including the Company and certain of its subsidiaries, were liable for all
damages, including asbestos-related damages, caused by products manufactured,
sold and distributed by a predecessor of Celotex by reason of the Veil Piercing
Claims, and (ii) the aforementioned distribution by HAC of substantially all of
its assets pursuant to the LBO constituted a fraudulent conveyance. See
"Business and Properties -- Legal Proceedings -- Asbestos-Related Litigation
Settlements."

On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court; one additional subsidiary also filed a voluntary petition for
reorganization under Chapter 11 with the Bankruptcy Court on December 3, 1990.
Two other subsidiaries, Cardem Insurance and J.W. Railroad, did not file
petitions for reorganization under Chapter 11. The filing of the voluntary
petitions resulted from a sequence of events stemming primarily from an
inability of the Company's interest reset advisors to reset interest rates on
approximately $624 million of outstanding indebtedness, which indebtedness by
its terms required that the interest rates thereon be reset to the rate per
annum such indebtedness should bear in order to have a bid value of 101% of the
principal amount thereof as of December 2, 1989. The reset advisors' inability
to reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the pending Veil Piercing Litigation, including the
possibility either that such litigation would lead to the prohibition of further
asset sales and debt repayment or that substantial new asbestos-related claims
might become assertible against the Company, which uncertainties materially
hindered the ability of the Company and its subsidiaries to pursue a refinancing
or sell assets to reduce debt, and (ii) general turmoil in the high yield bond
markets at such time, both of which depressed the bid value of such
indebtedness.

<PAGE>

On January 2, 1990, the Company and each of its subsidiaries party to the
Chapter 11 Cases filed the Adversary Proceeding against all known Asbestos
Claimants who had filed Veil Piercing Claims, Celotex and Jim Walter Corporation
seeking a declaration, among other things, that (i) the corporate veil between
Celotex and Original Jim Walter could not be pierced, (ii) the Company could not
be held liable for the asbestos-related liabilities of either Celotex or Jim
Walter Corporation on any grounds and (iii) the LBO could not be deemed a
fraudulent conveyance.

In January 1994, the indenture trustees for certain pre-LBO debentures of
Original Jim Walter assumed by the Company brought the Fraudulent Conveyance
Lawsuit for the benefit of the Company's estate and its creditors, which alleged
that the issuance of debt in connection with the LBO constituted a fraudulent
conveyance under New York and Florida law. The plaintiffs sought to avoid the
obligations incurred by the Company and its subsidiaries in the LBO.

Also pursuant to the Plan of Reorganization, (i) the Veil Piercing Claims,
the Veil Piercing Litigation and the Adversary Proceeding, among other things,
were settled after a ruling by the Bankruptcy Court (which was confirmed on
appeal by the United States District Court for the Middle District of Florida)
finding in favor of the Company on every claim in the Adversary Proceeding and
(ii) the Fraudulent Conveyance Lawsuit was settled. See "Business and Properties
-- Legal Proceedings -- Asbestos-Related Litigation Settlements."

<PAGE>
CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of May 31, 1995. This table should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
thereto.

May 31, 1995
--------------------------------
(Dollars in thousands)

<S> <C>
Long-Term Senior Debt:
Mid-State Trust II Mortgage-Backed Notes . . . . . . . . . . . . . . . . $ 584,000
Mid-State Trust III Asset Backed Notes . . . . . . . . . . . . . . . . . 173,527
Mid-State Trust IV Asset Backed Notes . . . . . . . . . . . . . . . . . . 953,843
Mid-State Trust V Variable Funding Loan(1) . . . . . . . . . . . . . . . 15,000
12.19% Series B Senior Notes Due 2000 . . . . . . . . . . . . . . . . . . 490,000
Bank Revolving Credit Facility(2) . . . . . . . . . . . . . . . . . . . . --
Other Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
----------
$2,220,370
==========

Stockholders Equity:
Common Stock (par value $.01 per share, 200,000,000 shares authorized,
50,494,313 shares issued and outstanding) . . . . . . . . . . . . . . . $ 505
Capital in Excess of Par Value . . . . . . . . . . . . . . . . . . . . . 1,159,384
Retained Earnings (Deficit) . . . . . . . . . . . . . . . . . . . . . . . (793,165)
Excess of Additional Pension Liability
over Unrecognized Prior Years Service Cost . . . . . . . . . . . . . . . (5,950)
----------
$ 360,774
==========

</TABLE>

(1) The Mid-State Trust V Variable Funding Loan is available to provide
temporary financing to Mid-State Homes for its current purchases of
instalment notes and mortgages from Jim Walter Homes. The agreement
provides for a three-year $500 million credit facility secured by the
instalment notes and mortgages Mid-State Trust V purchases from Mid-State
Homes. See "Business and Properties -- Mid-State Homes."

(2) The Bank Revolving Credit Facility is available to provide up to $150
million at any time outstanding for working capital needs with a sublimit
for trade and standby letters of credit in an amount not in excess of $40
million and a sub-facility for swingline advances in an amount not in
excess of $15 million. See "Description of Certain Other Indebtedness --
Bank Revolving Credit Facility."

<PAGE>

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The following unaudited pro forma consolidated statement of operations was
prepared to illustrate the estimated effects of the Plan of Reorganization and
related financings and the application of the proceeds thereof as if they had
occurred as of June 1, 1994.

The following unaudited pro forma consolidated statement of operations does
not purport to be indicative of the results of operations that would actually
have been reported had such transactions in fact been consummated on such date
or of the results of operations that may be reported by the Company in the
future. The unaudited pro forma adjustments are based upon available information
and certain assumptions that the Company believes are reasonable. All of the
information presented below should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto and the other
information contained elsewhere in this Prospectus.

Pro Forma Consolidated Statement of Operations
(Unaudited)

For the year ended May 31, 1995
----------------------------------------------------------
As Reported Adjustments Pro Forma
------------------- --------------------------------------
(Dollars in thousands except per share amounts)

<S> <C> <C> <C>
Sales and revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . $1,181,635 $1,181,635
Time charges . . . . . . . . . . . . . . . . . . . . . 222,221 222,221
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 30,838 30,838
Interest income from Chapter 11 proceedings . . . . . . 7,628 $ (7,628)(1) --
---------- ---------- ----------
1,442,322 (7,628) 1,434,694
---------- ---------- ----------

Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . 951,381 951,381
Depreciation, depletion and amortization . . . . . . . 72,037 72,037
Selling, general and administrative . . . . . . . . . . 130,616 130,616
Postretirement health benefits . . . . . . . . . . . . 25,961 25,961
Provision for possible losses . . . . . . . . . . . . . 4,485 4,485
Chapter 11 costs . . . . . . . . . . . . . . . . . . . 442,362 (442,362)(2) --
Interest and amortization of debt discount and expense 304,548 (81,364)(3) 223,184
Amortization of excess of purchase price over net assets
acquired . . . . . . . . . . . . . . . . . . . . . . 40,027 40,027
---------- ---------- ----------
1,971,417 (523,726) 1,447,691
---------- ---------- ----------
(529,095) 516,098 (12,997)

Income tax benefit (expense) . . . . . . . . . . . . . . 170,450 (195,730)(4) (25,280)
---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (358,645) $ 320,368 $ (38,277)
========== ========== ==========
Net loss per share . . . . . . . . . . . . . . . . . . . $ (0.75)(5)
==========
Weighted average shares outstanding(5) . . . . . . . . . 50,988,626(5)

</TABLE>

Changes from historical financial statements in the pro forma consolidated
statement of operations consist of the following adjustments (all amounts in
thousands):

(1) Interest income from Chapter 11 proceedings of $7,628, which would not have
been realized assuming the Plan of Reorganization became effective June 1,
1994, has been eliminated.

(2) Chapter 11 costs of $442,362, which would not have been incurred assuming
the Plan of Reorganization became effective June 1, 1994, have been
eliminated.

(3) Interest and amortization of debt discount and expense has been reduced by
$81,364 to give retroactive effect as if all indebtedness to be repaid
pursuant to the Plan of Reorganization was so done as of June 1, 1994 and
the $490 million of Notes had been outstanding for the full year ended May
31, 1995. Borrowings under the Mid-State Trust IV Asset Backed Notes were
assumed to increase during the period June 1, 1994 through November 30,
1994 proportionately with the

22
<PAGE>

comparable period increase in the outstanding economic balance of the
instalment notes sold by Mid-State Homes to Mid-State Trust IV on March 16,
1995. Borrowings under the Mid-State Trust V Variable Funding Loan
Agreement were based on 78% of Jim Walter Homes' credit sales during the
six-month period commencing on December 1, 1994 and ending on May 31, 1995.
This time period is subsequent to the Mid-State Trust IV cut-off date for
purchases of instalment notes from Mid-State Homes. See "Business and
Properties -- Mid-State Homes." No working capital borrowings were assumed
under the Bank Revolving Credit Facility. Pro forma interest expense,
however, includes letter of credit fees and unused working capital
commitment fees.

(4) The income tax benefit has been adjusted at the applicable statutory rates
to give effect to the pro forma adjustments described above.

(5) Net loss per share has been computed based on the weighted average number
of shares of Common Stock issuable (50,988,626, which includes 494,313
additional shares of Common Stock required to be issued on September 13,
1995 (180 days after the Effective Date of the Plan of Reorganization)
pursuant to the Plan of Reorganization, but does not include up to
3,880,140 additional shares that will be issued to an escrow account on
such date pursuant to the Plan of Reorganization because such issuance is
contingent on future events and would be anti-dilutive; see "Description of
Capital Stock -- Future Stock Issuances").

<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following data, insofar as it relates to each of the fiscal years 1991
through 1995, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1995 and 1994 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1995 and the notes thereto
appearing elsewhere herein. All of the information presented below should be
read in conjunction with the Company's Consolidated Financial Statements and the
notes thereto, the Pro Forma Consolidated Statement of Operations and the notes
thereto and the other information contained elsewhere in this Prospectus.

Years ended May 31,
----------------------------------------------------------------------------
1991(1) 1992 1993(4) 1994 1995
-------------- -------------- -------------- -------------- ------------
(Dollars in thousands)

<S> <C> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . $ 1,326,397 $ 1,366,581 $ 1,318,986 $ 1,328,524 $ 1,442,322
Cost of sales (exclusive of
depreciation) . . . . . . . . . 826,455 891,882 804,411 845,061 951,381
Depreciation, depletion and
amortization . . . . . . . . . 75,099 82,801 70,483 71,035 72,037
Interest and amortization of debt
discount and expense(2) . . . . 209,511 177,060 171,581 155,470 304,548
Income tax expense (benefit) . . 19,454 12,463 24,328 28,917 (170,450)
Income (loss) before discontinued
operations and cumulative
effect of accounting
change(1)(4) . . . . . . . . . 20,632 22,342 46,594 7,175 (358,645)
Net income (loss) . . . . . . . . 14,462 22,342 (58,014) 7,175 (358,645)
Ratio of earnings from continuing
operations to fixed charges(3) 1.19 1.18 1.39 1.22 --

Additional Financial Data:
Gross capital expenditures . . . $ 69,046 $ 68,349 $ 71,708 $ 69,831 $ 91,317
Net property, plant and equipment
683,777 664,622 663,040 657,863 662,792
Total assets . . . . . . . . . . 3,276,211 3,171,266 3,223,234 3,140,892 3,245,153
Long term senior debt . . . . . . 1,073,919 948,782 1,046,971 871,970 2,220,370
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . 1,883,704 1,845,328 1,725,631 1,727,684 --
Stockholders equity (deficit) . . (253,282) (230,119) (287,737) (282,353) 360,774

Employees at end of year . . . . 8,104 7,645 7,545 7,676 7,888

</TABLE>

(1) The selected financial data reflects operations sold as discontinued
operations.

(4) The Company adopted FAS 106 and FAS 109 during fiscal year 1993.

24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto, particularly the
"Segment Information" on pages F-25 and F-26 which presents sales and operating
income by operating group.

Pursuant to the Plan of Reorganization, the Company emerged from bankruptcy
on March 17, 1995. Accordingly, the Company's Consolidated Balance Sheets at and
after May 31, 1995 and its Consolidated Statements of Operations and Retained
Earnings (Deficit) for May 31, 1995 and periods thereafter will not be
comparable to the Consolidated Financial Statements for prior periods included
elsewhere herein. Furthermore, the Company's Consolidated Statement of
Operations and Retained Earnings (Deficit) for May 31, 1995 will not be
comparable to the Company's consolidated statements of operations and retained
earnings (deficit) for periods thereafter.

Results of Operations

Years ended May 31, 1995 and 1994. Net sales and revenues for the year
ended May 31, 1995 were $113.8 million, or 8.6%, greater than the prior year,
with a 7.0% increase in volume and a 1.6% increase in pricing and/or product
mix. The increase in net sales and revenues was the result of improved sales and
revenues in all operating groups except Homebuilding and Related Financing.

Industrial and Other Products Group sales and revenues were $59.6 million,
or 26.5%, greater than the prior year. Increased sales volumes of aluminum foil
and sheet products, foundry coke, chemicals, patterns and tooling, resin coated
sand, window components and metal building and foundry products, combined with
higher selling prices for aluminum foil and sheet products, furnace coke, window
components and metal building and foundry products and a $3.6 million gain from
the sale of JW Window Components, Inc.'s ("JW Window Components") Hialeah,
Florida facility were partially offset by reduced sales volumes of furnace coke
and slag wool. The Group's operating income of $11.9 million was $1.9 million
lower than the prior year. The decrease was the result of higher manufacturing
costs in the window components business due to increased raw material costs,
especially aluminum, a major raw material component, startup costs associated
with the consolidation and relocation during 1995 of JW Window Components'
Hialeah, Florida and Columbus, Ohio operations to Elizabethton, Tennessee and
reduced operating efficiencies, including startup problems associated with
relocation of Vestal Manufacturing Company's ("Vestal Manufacturing") steel
fabrication operation in May 1994. These decreases were partially offset by
increased income for aluminum foil and sheet, foundry coke, chemicals, patterns
and tooling and resin coated sand due to the sales increases, improved gross
profit margins for furnace coke and the gain from the Hialeah facility sale.

Water and Waste Water Transmission Products Group sales and revenues were
$55.0 million, or 15.4%, ahead of the prior year. The increase was the result of
higher sales volumes and prices for ductile iron pressure pipe, valves and
hydrants and castings. The order backlog for pressure pipe at May 31, 1995 was
121,548 tons, which represents approximately three months' shipments, compared
to 111,907 tons at May 31, 1994. Operating income of $28.5 million exceeded the
prior year by $2.8 million. The improved performance resulted from the increased
sales prices and volumes, partially offset by higher raw material costs,
especially scrap, a major raw material component.

Natural Resources Group sales and revenues were $12.8 million, or 4.0%,
greater than the prior year. The increase resulted from greater sales volumes
for coal and a $6.1 million gain from the sale of excess real estate, partially
offset by lower sale prices for coal and methane gas and lower outside coal and
gas royalty income. A total of 7.20 million tons of coal was sold in 1995 versus
6.56 million tons in 1994, a 9.8% increase. The increase in tonnage sold was the
result of increased shipments to Alabama Power Company ("Alabama Power") and
certain export customers, partially offset by lower shipments to Japanese steel
mills. Increased shipments to Alabama Power were the result of a new agreement
signed May 10, 1994 (the "New Alabama Power Contract") for the sale and purchase
of coal, replacing the 1979 contract and the 1988 amendment thereto. See
"Business and Properties -- Jim Walter Resources." Under the New Alabama Power
Contract, Alabama Power will purchase 4.0 million tons of coal per year from Jim
Walter Resources during the period July 1, 1994 through August 31, 1999. In
addition, Jim Walter Resources will have the option to extend the New Alabama

25
<PAGE>

Power Contract through August 31, 2004, subject to mutual agreement on the
market pricing mechanism and certain other terms and conditions of such
extension. The New Alabama Power Contract has a fixed price subject to an
escalation based on the Consumer Price Index or another appropriate published
index and adjustments for government impositions and quality. The New Alabama
Power Contract includes favorable modifications of specification, shipping
deviations and changes in transportation arrangements. The average price per ton
of coal sold decreased $2.79 from $44.13 in 1994 to $41.34 in 1995 due to lower
prices realized on shipments to Alabama Power, the Japanese steel mills and
certain export customers. Blue Creek Mine No. 5 ("Mine No. 5") was shut down
from November 17, 1993 through December 16, 1993 and from early April 1994 until
May 16, 1994 as a result of a fire due to spontaneous combustion heatings.
Representatives of Jim Walter Resources, the Mine Safety and Health
Administration ("MSHA"), Alabama State Mine Inspectors and the United Mine
Workers of America ("UMWA") agreed that the longwall coal panel being mined in
Mine No. 5 at the time the fire recurred in April 1994 would be abandoned and
sealed off. Development mining for the two remaining longwall coal panels in
this section of the mine resumed on May 16, 1994 and mining on the first
longwall panel resumed on January 17, 1995. Production was adversely impacted
until such date; however, a portion of the increased costs is expected to be
recovered from business interruption insurance and the Company has commenced
litigation seeking to enforce such insurance. See "Business and Properties --
Legal Proceedings -- Jim Walter Resources" and Note 11 of Notes to Financial
Statements. Operating income of $20.1 million exceeded the prior year by $21.2
million. The improved performance principally resulted from the increased sales
volumes of coal, lower costs per ton of coal produced ($37.13 in 1995 versus
$38.29 in 1994) and the gain on the sale of certain excess real estate,
partially offset by decreases in selling prices for coal and methane gas and
lower outside coal and gas royalty income.

Homebuilding and Related Financing Group sales and revenues were $17.4
million, or 4.1%, below the prior year. This performance reflects a 4.7%
decrease in the number of homes sold, from 4,331 units in 1994 to 4,126 units in
1995, partially offset by an increase in the average selling price per home
sold, from $38,300 in 1994 to $40,200 in 1995. The decrease in unit sales
reflects continuing strong competition in virtually every Jim Walter Homes sales
region. The higher average selling price in 1995 principally reflects a smaller
percentage of the lower priced Affordable line homes sold. Jim Walter Homes'
backlog at May 31, 1995 was 1,529 units (all of which are expected to be
completed prior to the end of fiscal 1996) compared to 2,065 units at May 31,
1994. Time charge income (revenues received from Mid-State Homes' instalment
note portfolio) decreased from $238.1 million in 1994 to $222.2 million in 1995.
The decrease in time charge income is attributable to a reduction in the total
number of accounts and lower payoffs received in advance of maturity, partially
offset by an increase in the average balance per account in the portfolio. The
Group's operating income of $76.5 million (net of interest expense) was $25.4
million below the prior year. This decrease resulted from the lower number of
homes sold, reduced homebuilding gross profit margins resulting from discounts
related to sales promotions on certain models, the decrease in time charge
income and higher interest expense in 1995 ($131.6 million) as compared to that
incurred in 1994 ($128.8 million), partially offset by the increase in the
average selling price per home sold.

Cost of sales, exclusive of depreciation, of $951.4 million was 80.5% of
net sales versus $845.1 million and 79.1% in 1994. The cost of sales percentage
increase was primarily the result of lower gross profit margins on home sales,
pipe products, window components and metal building and foundry products.

Selling, general and administrative expenses (exclusive of postretirement
health benefits) of $130.6 million were 9.1% of net sales and revenues in 1995
versus $127.9 million and 9.6% in 1994.

Chapter 11 costs of $442.4 million in 1995 include $390 million in
settlement of all asbestos-related veil piercing claims and related legal fees
and $52.4 million for professional fees, settlement of various disputed claims
and other bankruptcy expenses. See "Business Properties -- Legal Proceedings --
Asbestos-Related Litigation Settlements."

Interest and amortization of debt discount and expense increased $149.1
million principally due to $141.4 million of additional interest and
amortization of debt expense related to consummation of the Plan of
Reorganization. The average rate of interest in 1995 was 10.19% (such rate
calculated excluding $141.4 million additional interest and amortization of debt
discount and expense related to the consummation of the Plan of Reorganization)
versus 9.58% in 1994. The prime interest rate ranged from 7.25% to 9.0% in 1995
compared to a range of 6.0% to 7.25% in 1994. During the pendency of the Chapter
11 Cases, the Company did not accrue interest on its pre-filing date unsecured
debt obligations.

26
<PAGE>

Amortization of excess of purchase price over net assets acquired
(goodwill) decreased $8.5 million primarily due to lower payoffs received in
advance of maturity on the instalment note portfolio.

The income tax benefit for 1995 was $170.5 million, which included
recognition of tax benefits resulting from $583.8 million of additional expenses
related to consummation of the Plan of Reorganization previously mentioned,
compared to income tax expense of $28.9 million in 1994. On August 10, 1993, the
Omnibus Budget Reconciliation Act of 1993 was signed into law raising the
federal corporate income tax rate to 35% from 34% retroactive to January 1,
1993. The effect of the rate change resulted in a $2.8 million charge to
deferred tax expense in 1994. See Note 8 of Notes to Financial Statements for
further discussion of income taxes.

The net loss for 1995 and the net income for 1994 reflect all of the
previously mentioned factors as well as the impact of slightly higher
postretirement health benefits, partially offset by greater interest income from
Chapter 11 proceedings.

Years ended May 31, 1994 and 1993. Net sales and revenues for the year
ended May 31, 1994 were $9.5 million, or .7%, greater than the prior year. The
improved performance was the result of increased pricing and/or product mix as
sales volumes were level with the prior year. The increase in net sales and
revenues was the result of improved sales and revenues in all operating groups
except the Natural Resources Group.

Homebuilding and Related Financing Group sales and revenues were $5.2
million, or 1.2%, greater than the prior year. This performance reflects a 3.5%
increase in the average selling price per home sold, from $37,000 in 1993 to
$38,300 in 1994, which was more than offset by a 9.5% decrease in the number of
homes sold, from 4,784 units in 1993 to 4,331 units in 1994. The higher average
selling price in 1994 reflects a price increase instituted on April 1, 1993 to
compensate for higher lumber costs and a greater percentage of "90% complete"
homes sold in 1994 versus the prior year. The decrease in unit sales resulted
from strong competition in virtually every Jim Walter Homes sales region. Jim
Walter Homes' backlog at May 31, 1994 was 2,065 units compared to 1,831 units at
May 31, 1993. Time charge income (revenues received from Mid-State Homes's
instalment note portfolio) increased from $218.7 million in 1993 to $238.1
million in 1994. The increase in time charge income is attributable to increased
payoffs received in advance of maturity and to an increase in the average
balance per account in the portfolio. The Group's operating income of $102.0
million (net of interest expense) exceeded the prior year by $13.1 million. This
improvement resulted from the increase in the average selling price per home
sold, the higher time charge income and lower interest expense in 1994 ($128.8
million) compared to that incurred in 1993 ($137.9 million), partially offset by
the lower number of homes sold, reduced homebuilding gross profit margins and
higher selling, general and administrative expenses. The lower gross profit
margins were the result of higher average lumber prices, the effect of discounts
relating to sales promotions on certain models instituted during the period
February 1994 through May 1994 and the decision in October 1992 to reduce gross
profit margins on five smaller basic shelter homes to generate additional sales.

Industrial and Other Products Group sales and revenues were $12.1 million,
or 5.7%, ahead of the prior year. Increased sales volumes of aluminum foil,
foundry coke, window components, metal building and foundry products, resin
coated sand and chemicals, combined with higher selling prices for furnace coke
and window components, were partially offset by lower sales volumes of slag wool
and patterns and tooling and lower selling prices for aluminum foil and sheet
products. The Group's operating income of $13.9 million was $2.6 million greater
than the prior year. The improved performance resulted from the sales increases
and higher gross profit margins for furnace coke and slag wool, partially offset
by reduced margins for chemicals, foundry coke, window components, metal
building and foundry products, resin coated sand and patterns and tooling.

Water and Waste Water Transmission Products Group sales and revenues were
$26.0 million, or 7.8%, ahead of the prior year. The increase was the result of
higher selling prices and volumes for ductile iron pressure pipe and valves and
hydrants, greater castings sales volume and increased selling prices for
fittings, partially offset by lower fittings volume. The order backlog of
pressure pipe at May 31, 1994 was 111,907 tons compared to 121,173 tons at May
31, 1993. Operating income of $25.6 million exceeded the prior year period by
$9.6 million. The improved performance resulted from the increased sales prices
and volumes, partially offset by higher raw material costs, especially scrap (a
major raw material component) and lower gross profit margins for castings.

Natural Resources Group sales and revenues were $31.6 million, or 9.0%,
below the prior year. The decrease resulted from lower sales volumes and prices
for coal and reduced methane gas selling prices, partially

27
<PAGE>

offset by increased methane gas sales volume and an increase in outside gas and
timber royalty income. A total of 6.56 million tons of coal was sold in 1994
versus 7.18 million tons in 1993, an 8.6% decrease. The decrease in tonnage sold
was the result of lower shipments to Alabama Power and Japanese steel mills.
Reduced shipments to Alabama Power were the result of an agreement reached with
Alabama Power to ship reduced tonnage for the contract year ending June 30, 1994
(see "Business and Properties -- Jim Walter Resources"). The average price per
ton of coal decreased 1.6%, from $44.84 in 1993 to $44.13 in 1994, due to lower
prices realized on shipments to Japanese steel mills and other export customers.
As previously mentioned, Mine No. 5 was shut down from November 17, 1993 through
December 16, 1993 and from early April 1994 until May 16, 1994 as a result of a
fire due to spontaneous combustion heatings. Representatives of Jim Walter
Resources, MSHA, Alabama State Mine Inspectors and the UMWA investigated the
problem. Because the area of the suspected fire was inaccessible, a decision was
made to drill vertical holes from the surface and flood the area with
combinations of water, carbon dioxide, foam and cementitious mixtures to
neutralize the fire. MSHA approved the resumption of operations at the mine on
December 17, 1993. In early April 1994, the fire recurred and the mine was shut
down. Representatives of Jim Walter Resources, MSHA, Alabama State Mine
Inspectors and the UMWA agreed that the longwall coal panel being mined at the
time the fire recurred would be abandoned and sealed off. Development mining for
the two remaining longwall coal panels in this section of the mine resumed on
May 16, 1994 and mining on the first longwall panel resumed on January 17, 1995.
Production was adversely impacted until January 17, 1995; however, a portion of
the increased costs is expected to be recovered from business interruption
insurance and the Company has commenced litigation seeking to enforce such
insurance. See "Business and Properties -- Legal Proceedings -- Jim Walter
Resources" and Note 11 of Notes to Financial Statements. The Group incurred an
operating loss of $1.2 million in 1994 compared to operating income of $50.8
million in 1993. The lower performance reflects the decrease in sales volumes
and prices for coal, lower methane gas selling prices, reduced coal mining
productivity as a result of various geological problems in all mines during
portions of the year which resulted in higher costs per ton of coal produced
($38.29 in 1994 versus $33.45 in 1993) and idle plant costs of $5.7 million
associated with the Mine No. 5 shut downs, all of which more than offset the
effect of increased methane gas sales volume and greater outside gas and timber
royalty income.

Cost of sales in fiscal 1994, exclusive of depreciation, of $845.1 million
was 79.1% of net sales versus $804.4 million and 75.0% in fiscal 1993. The cost
of sales percentage increase was primarily the result of lower gross profit
margins on home sales, coal, chemicals, foundry coke, castings, resin coated
sand, patterns and tooling, window components and metal building and foundry
products, partially offset by improved margins on furnace coke, slag wool and
pipe products.

Selling, general and administrative expenses (exclusive of postretirement
health benefits) of $127.9 million were 9.6% of net sales and revenues in 1994
versus $124.6 million and 9.4% in 1993.

The Company adopted Statement of FAS 106 in 1993 (see Note 12 of Notes to
Financial Statements). Upon adoption the Company elected to record the
transition obligation of $166.4 million pre-tax ($104.6 million after tax) as a
one time charge against earnings rather than amortize it over a longer period.
The annual accrual for postretirement health benefit costs in 1994 was $25.6
million versus $23.5 million in 1993.

Interest and amortization of debt discount and expense decreased $16.1
million. The decrease was principally the result of reductions in the
outstanding debt balances on the Mid-State Trust II Mortgaged-Backed Notes and
Mid-State Trust III Asset Backed Notes (see "Business and Properties --
Mid-State Homes" and Note 7 of Notes to Financial Statements) and lower
amortization of debt discount and expense, partially offset by higher interest
rates. The average interest rate in 1994 was 9.58% versus 9.44% in 1993. The
prime interest rate ranged from 6.0% to 7.25% in 1994 compared to a range of
6.0% to 6.5% in 1993. Interest in the amount of $724.3 million ($163.7
million in each of the years 1994 and 1993) on unsecured obligations was
not accrued in the Consolidated Financial Statements since the date of the
filing of petitions for reorganization. This amount was based on the balances
of the unsecured debt obligations and their interest rates as of December 27,
1989 and did not consider fluctuations in the level of short-term debt and
interest rates and the issuance of commercial paper that would have occurred
to meet the working capital requirements of the Homebuilding and Related
Financing Group.

Amortization of excess of purchase price over net assets acquired
(goodwill) increased $9.1 million. The increase primarily resulted from
adjustments to amortization of the goodwill due to greater payoffs received in
advance of maturity on the instalment note portfolio.

28
<PAGE>
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was
signed into law raising the federal corporate income tax rate to 35% from 34%,
retroactive to January 1, 1993. The effect of the rate change resulted in a $2.8
million charge to deferred tax expense. The rate change effect combined with
reduced percentage depletion and increased amortization of goodwill (both
permanent book/tax differences) resulted in an effective tax rate of 80.1% in
1994 versus an effective tax rate of 34.3% in 1993.

The net income for fiscal 1994 and the net loss for fiscal 1993 reflects
all of the previously mentioned factors as well as the $4.5 million increase in
Chapter 11 costs, partially offset by slightly higher interest income from
Chapter 11 proceedings. The increase in Chapter 11 costs was due to the Veil
Piercing Litigation (see Note 11 of Notes to Financial Statements) and the
filing of two amended plans of reorganization.

Years ended May 31, 1993 and 1992. As previously mentioned, the Company
adopted FAS 106 in 1993. Accordingly, operating income presented in the "Segment
Information" includes postretirement health benefits of $23.5 million in 1993.
However, for purposes of the following discussion of results of operations for
the years ended May 31, 1993 and 1992, the fiscal 1993 operating income referred
to in each business segment excludes such postretirement health benefits
expenses (hereinafter referred to as "1993 adjusted operating income").

Net sales and revenues for the year ended May 31, 1993 decreased $47.6
million, or 3.5%. A 5.9% decrease in volume was partially offset by a 2.4%
increase in price and/or product mix. The decrease in net sales and revenues
resulted from lower sales and revenues in the Water and Waste Water Transmission
Products and Natural Resources Groups, partially offset by improved sales in the
Homebuilding and Related Financing and Industrial and Other Products Groups.

Water and Waste Water Transmission Products Group sales and revenues were
$953,000, or .3%, below the prior year. The decrease was basically the result of
lower ductile iron pressure pipe sales volume due to weak construction activity
and rehabilitation work, partially offset by improved selling prices and greater
castings sales volume. The order backlog of pressure pipe at May 31, 1993 was
121,173 tons compared to 121,956 tons at May 31, 1992. The 1993 adjusted
operating income of $20.2 million was $3.2 million below the prior year. The
effect of lower ductile iron pressure pipe sales volume on this highly capital
intensive product group was the primary reason for the decline in operating
profit, which was partially offset by lower scrap costs (a major raw material
component), improved selling prices, higher castings profit margins and reduced
selling, general and administrative expenses (due principally to legal and
settlement costs in 1992 associated with a lawsuit filed by the City of
Atlanta).

Natural Resources Group sales and revenues were $68.3 million, or 16.3%,
below the prior year. The decrease was the result of lower coal shipments and a
decrease in outside coal royalties, partially offset by higher average selling
prices for coal and methane gas and greater methane gas sales volume. A total of
7.18 million tons of coal was sold in 1993 versus 9.18 million tons in 1992, a
21.8% decrease. On June 17, 1992 a major production hoist accident occurred at
Blue Creek Mine No. 3 ("Mine No. 3") causing extensive damage. The mine did not
resume production until August 31, 1992. The hoist accident resulted in a
mutually agreed postponement of shipments of 400,000 tons to Alabama Power from
the period July through September 1992 to the period January through June 1993.
Fiscal 1992 tonnage shipments to Alabama Power were favorably impacted by a
separate lower selling price short-term contract for 964,000 tons. Shipments to
Japanese steel mills and other export customers were also below the prior year
due to the hoist accident and an April 1992 workforce reduction which reduced
production tonnage available for sale. The average price per ton of coal sold
increased 4.9%, from $42.76 in 1992 to $44.84 in 1993. The higher price
realization in 1993 was the result of coal shipped to Alabama Power in 1992
under the previously mentioned separate lower selling price short-term contract,
partially offset by lower selling prices to the Japanese steel mills and other
export customers in 1993. The Group's 1993 adjusted operating income of $64.2
million exceeded the prior year by $48.2 million. The improved performance
resulted from the increased coal and methane gas selling prices, higher methane
gas sales volume, lower selling, general and administrative expenses and
improved mining productivity, including the effect of the April 1992 workforce
reduction, which resulted in lower costs per ton of coal produced ($33.45 in
1993 versus $36.03 in 1992), partially offset by the reduced coal sales volume
and the decrease in outside coal royalties. Prior year results were also
adversely impacted by severance, vacation pay and ongoing medical benefits
associated with the April 1992 workforce reduction ($6.2 million), accelerated
depreciation on the remaining assets at a previously closed small coal mine
($5.6 million) and idle plant costs associated with a three-week shutdown of
Blue Creek Mine No. 4 ("Mine No. 4") due to an accident which damaged the
production hoist ($4.4 million) and wildcat strikes by the UMWA ($2.4 million)
in August 1991.

29
<PAGE>

Homebuilding and Related Financing Group sales and revenues were $10.3
million, or 2.5%, greater than 1992. This performance reflects a 6.9% increase
in the average selling price per home sold, from $34,600 in 1992 to $37,000 in
1993, which was more than offset by a 9.8% decrease in the number of homes sold,
from 5,305 units in 1992 to 4,784 units in 1993. The increase in average selling
price in 1993 was attributable to higher average prices realized on both the
Standard line and the larger sized Regency homes combined with a greater
percentage of Regency homes sold. The decrease in unit sales reflected strong
competition in virtually every Jim Walter Homes sales region and 1993 having
one-week shorter sales period than 1992. Jim Walter Homes' backlog at May 31,
1993 was 1,831 units compared to 1,637 units at May 31, 1992. Time charge income
(revenues received from Mid-State Homes' instalment note portfolio) increased
from $195.0 million in 1992 to $218.7 million in 1993. The increase in time
charge income was attributable to the growth of the mortgage portfolio,
increased payoffs received in advance of maturity and new mortgages having a
higher yield than the older mortgages paying out. The Group's 1993 adjusted
operating income of $90.9 million (net of interest expense) exceeded the prior
year by $8.2 million. This improvement resulted from the increase in average
selling price per home sold, the higher time charge income and lower selling,
general and administrative expenses, partially offset by the lower number of
homes sold, reduced homebuilding gross profit margins (due principally to the
sales of the larger sized, lower margin Regency homes and increased lumber
prices) and slightly higher interest expense in 1993 ($137.9 million) as
compared to that incurred in 1992 ($137.0 million). Lumber prices rose from $259
per thousand board feet in June 1992 to a high of $506 in March 1993 and ended
the year at $325. A price increase was instituted effective April 1, 1993 to
compensate for these increased costs.

Industrial and Other Products Group sales and revenues were $8.5 million,
or 4.2%, greater than the prior year. Increased sales volumes of foundry coke,
chemicals and aluminum foil were partially offset by lower sales volumes of
aluminum sheet, resin coated sand, patterns and tooling, furnace coke and slag
wool and lower selling prices for aluminum foil and sheet, furnace coke, resin
coated sand and patterns and tooling. The Group's 1993 adjusted operating income
of $14.6 million was $120,000 below the prior year. The decrease was the result
of lower margins for chemicals, resin coated sand and patterns and tooling.

Cost of sales, exclusive of depreciation, of $804.4 million was 75.0% of
net sales versus $891.9 million and 78.3% in 1992. The cost of sales percentage
decrease was primarily the result of improved gross profit margins on coal,
metal building and foundry products and castings, partially offset by lower
margins on home sales, ductile iron pressure pipe, chemicals, resin coated sand
and patterns and tooling. Results in 1992 were adversely affected by the impact
of charges resulting from the previously mentioned Jim Walter Resources mining
operations workforce reduction and idle plant costs associated with the wildcat
strikes by the UMWA.

Selling, general and administrative expenses of $124.6 million were 9.4% of
net sales and revenues in 1993 as compared to $129.4 million and 9.5% in 1992.
Expenses in 1992 were adversely impacted by legal and settlement costs
associated with a lawsuit filed by the City of Atlanta.

As previously mentioned, the Company adopted FAS 106 in 1993. Upon
adoption, the Company elected to record the transition obligation of $166.4
million pre-tax ($104.6 million after tax) as a one time charge against earnings
rather than amortize it over a longer period. The annual accrual under the new
accounting method amounted to $23.5 million in the year ended May 31, 1993. See
Note 12 of the Notes to Financial Statements.

Interest and amortization of debt discount and expense decreased $5.5
million. The decrease was the result of lower outstanding debt balances on
secured obligations and lower interest rates, partially offset by greater
amortization of debt discount and expense. The average interest rate in 1993 was
9.44% versus 9.62% in 1992. The prime interest rate ranged from 6.0% to 6.5% in
1993 compared to a range of 6.25% to 8.5% in 1992. Interest in the amount of
$560.6 million ($163.7 million in each of the years 1993 and 1992) on unsecured
obligations was not accrued in the Company's Consolidated Financial Statements
since the date of the filing of petitions for reorganization. This amount is
based on the balances of the unsecured debt obligations and their interest rates
as of December 27, 1989 and did not consider fluctuations in the level of short-
term debt and interest rates and the issuance of commercial paper that would
have occurred to meet the working capital requirements of the Homebuilding and
Related Financing Group.

The net loss for 1993 and the net income for 1992 reflects all of the
previously mentioned factors as well as the impact of a slightly lower effective
income tax rate and slightly higher interest income from Chapter 11 proceedings,
partially offset by a $4.6 million increase in Chapter 11 costs.

30
<PAGE>
Financial Condition

On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court. On December 3, 1990, one additional subsidiary also filed a voluntary
petition for reorganization under Chapter 11 with the Bankruptcy Court. Two
other small subsidiaries, Cardem Insurance and J.W. Railroad, did not file
petitions for reorganization under Chapter 11. The filing of the voluntary
petitions resulted from a sequence of events stemming primarily from an
inability of the Company's interest reset advisors to reset interest rates on
approximately $624 million of outstanding indebtedness, which indebtedness by
its terms required that the interest rates thereon be reset to the rate per
annum such indebtedness should bear in order to have a bid value of 101% of the
principal amount thereof as of December 2, 1989. The reset advisors' inability
to reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the then pending asbestos-related Veil Piercing
Litigation, including the possibility either that such litigation would lead to
the prohibition of further asset sales and debt repayment or that substantial
new asbestos-related claims might become assertible against the Company, which
uncertainties materially hindered the ability of the Company and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time, both of which
depressed the bid value of such notes.

On March 17, 1995, the Company and 32 of its subsidiaries emerged from
bankruptcy. In summary, pursuant to the Plan of Reorganization (the actual terms
of which govern and should be consulted), the Company has repaid or will repay
substantially all of its unsecured claims and senior and subordinated
indebtedness subject to the Chapter 11 Cases as follows:

- Trade creditors received 75% of their allowed claims plus interest in
cash following the Effective Date of the Plan of Reorganization and
are entitled to receive the remaining 25% six months following the
Effective Date of the Plan of Reorganization with additional interest
for such period at the prime rate. At May 31, 1995, the remaining
amount to be distributed to trade creditors approximated $23.5
million;

- Revolving Credit and Working Capital bank claims and Series B and C
Senior Note claims received a combination of cash and Common Stock
following the Effective Date of the Plan of Reorganization;

- Unsecured bondholders received or are entitled to receive following the
Effective Date of the Plan of Reorganization, depending on elections made,
either shares of Common Stock or a combination of cash, Notes and shares of
Common Stock, in either case having an aggregate reorganization value equal
to their prepetition claims. In addition, pre-LBO bondholders received
shares of Common Stock having an aggregate reorganization value equal to
$11.3 million in settlement of the Fraudulent Conveyance Lawsuit commenced
by the indenture trustees for the pre-LBO bondholders;

- The Veil-Piercing Claimants (as defined in the Veil Piercing Settlement)
received cash, Notes and shares of Common Stock with an aggregate
reorganization value of $375 million in settlement of all claims. In
addition, the attorneys for the Veil-Piercing Claimants (as defined in the
Veil Piercing Settlement) received a cash payment of $15 million.

A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the IRS in the
aggregate amount of $110,560,883 with respect to fiscal years ended August 31,
1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect to
fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693
with respect to fiscal years ended May 31, 1990 and May 31, 1991. Objections to
the proofs of claim have been filed by the Company and the various issues are
being litigated in the Bankruptcy Court. The Company believes that such proofs
of claim are substantially without merit and intends to defend such claims
against the Company vigorously, but there can be no assurance as to the ultimate
outcome.

See "Capitalization" for the consolidated capitalization of the Company and
its subsidiaries as of May 31, 1995, as adjusted in March 1995 and all of the
distributions and adjustments required by the Plan of Reorganization.

For a description of Mid-State Trusts II, III and IV, see "Business and
Properties -- Mid-State Homes."

31
<PAGE>

The assets of Mid-State Trusts II, III and IV are not available to satisfy
claims of general creditors of Mid-State Homes or the Company and its other
subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their
publicly issued debt are to be satisfied solely from proceeds of the underlying
instalment notes and are nonrecourse to Mid-State Homes and the Company and its
other subsidiaries.

In connection with the Plan of Reorganization, on March 16, 1995, pursuant
to approval by the Bankruptcy Court, Mid-State Homes sold mortgage instalment
notes having a gross amount of $2,020,258,000 and an economic balance of
$826,671,000 to Mid-State Trust IV. In addition, on such date Mid-State Homes
sold its beneficial interest in Mid-State Trust II to Mid-State Trust IV. At
such date, Mid-State Trust II had a total collateral value of $910,468,000 with
$605,750,000 of Mid-State Trust II Mortgage-Backed Notes outstanding. These
sales were in exchange for the net proceeds from the public issuance by Mid-
State Trust IV of $959,450,000 of Mid-State Trust IV Asset Backed Notes. See
"Business and Properties -- Mid-State Homes" and Notes 1 and 7 of Notes to
Financial Statements.

On February 27, 1995, Mid-State Homes established Mid-State Trust V to
provide funds to Mid-State Homes for its current purchases of instalment notes
receivable from Jim Walter Homes. On March 3, 1995, Mid-State Trust V entered
into a Variable Funding Loan Agreement (the "Mid-State Trust V Variable Funding
Loan Agreement") with Enterprise Funding Corporation, an affiliate of
NationsBank N.A., as lender, and NationsBank N.A. (Carolinas), as Administrative
Agent. This agreement provides for a three-year $500 million credit facility
secured by the instalment notes and mortgages Mid-State Trust V purchases from
Mid-State Homes. See "Business and Properties -- Mid-State Homes" and Notes 1
and 7 of Notes to Financial Statements.

The Notes were issued by the Company pursuant to the Plan of Reorganization
as part of the distribution made in payment of claims of holders of certain
unsecured indebtedness of the Company and certain of its subsidiaries. See
"Description of Notes" and Notes 1 and 7 of Notes to Financial Statements.

The Company and certain of its subsidiaries have entered into the Bank
Revolving Credit Facility, providing up to $150 million at any time outstanding
for working capital needs with a sub-limit for trade and standby letters of
credit in an amount not in excess of $40 million at any time outstanding and a
sub-facility for swingline advances in an amount not in excess of $15 million at
any time outstanding. See "Description of Certain Other Indebtedness -- Bank
Revolving Credit Facility" and Notes 1 and 7 of Notes to Financial Statements.

The Notes, the Bank Revolving Credit Facility and the Mid-State Trust V
Variable Funding Loan Agreement contain a number of significant covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, make capital expenditures, pay
dividends, create liens on assets, enter into leases, investments or
acquisitions, engage in mergers or consolidations, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities (including change of control and asset sale transactions). In
addition, under the Bank Revolving Credit Facility, the Company is required to
maintain specified financial ratios and comply with certain financial tests,
including interest coverage and fixed charge coverage ratios, maximum leverage
ratios and minimum earnings before interest, taxes, depreciation and
amortization expense, some of which become more restrictive over time. See
"Description of Certain Other Indebtedness -- Bank Revolving Credit Facility".
The Company believes it will meet these financial tests over the terms of these
debt agreements.

Liquidity and Capital Resources

At May 31, 1995, cash and short-term investments were approximately $128
million. Principal sources of cash in 1995 were $959.5 million of proceeds from
the issuance of the Mid-State Trust IV Asset Backed Notes and cash flows from
operations, which were used, together with the issuance of Notes and shares of
Common Stock, to repay Chapter 11 claimants pursuant to the terms of the Plan of
Reorganization. Operating cash flows were also used for working capital
requirements; for capital expenditures for business expansion, productivity
improvement, cost reduction and replacements necessary to maintain the business;
to retire long-term senior debt; and to provide a return to lenders. Borrowings
under the Mid-State Trust V Variable Funding Loan Agreement totaled $15 million
at May 31, 1995.

Working capital is required to fund adequate levels of inventories and
accounts receivable. Commitments for capital expenditures at May 31, 1995 are
not material; however, it is estimated that gross

32
<PAGE>

capital expenditures of the Company and its subsidiaries for the year ending May
31, 1996 will approximate $80 million.

Because the Company's operating cash flow is significantly influenced by
the general economy and, in particular, the level of construction, prior years'
results should not necessarily be used to predict the Company's liquidity,
capital expenditures, investment in instalment notes receivable or results of
operations. The Company believes that the Mid-State Trust V Variable Funding
Loan Agreement will provide Mid-State Homes with the funds needed to purchase
the instalment notes and mortgages generated by Jim Walter Homes. It is
contemplated that one or more permanent financings similar to the Mid-State
Trust II, III and IV financings will be required over the next four years in
order to repay borrowings under the Mid-State Trust V Variable Funding Loan
Agreement. The Company also believes that under present operating conditions
sufficient operating cash flow will be generated through fiscal year 1999 to
make all required interest and principal payments and planned capital
expenditures and meet substantially all operating needs and that amounts
available under the Bank Revolving Credit Facility will be sufficient to meet
peak operating needs. However, it is currently anticipated that sufficient
operating cash flow will not be generated to repay at maturity the principal
amount of the Notes without refinancing a portion of such debt or selling
assets. No assurance can be given that any refinancing will take place or that
such sales of assets can be consummated.

Selected Quarterly Data

The following tables set forth quarterly unaudited financial data for
fiscal years 1993, 1994 and 1995:

33
<PAGE>

<TABLE><CAPTION>
Fiscal Year 1993
For the quarters ended
---------------------------------------------------------------
Aug. 31, 1992 Nov. 30, 1992 Feb. 28, 1993 May 31, 1993
--------------- --------------- --------------- ---------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . $ 326,839 $ 338,268 $ 306,002 $ 347,877
Cost of sales (exclusive of depreciation) . . 198,959 211,307 186,451 207,694
Depreciation, depletion and amortization . . 16,479 17,709 17,587 18,708
Interest and amortization of debt discount
and expense . . . . . . . . . . . . . . . . 42,802 42,507 41,930 44,342
Income tax expense . . . . . . . . . . . . . 9,739 8,305 4,223 2,061
Income before cumulative effect of
accounting change(1) . . . . . . . . . . . 8,455 6,133 6,030 25,976
Net income (loss) . . . . . . . . . . . . . . (96,153) 6,133 6,030 25,976

Additional Financial Data:
Total assets . . . . . . . . . . . . . . . . $3,254,952 $3,229,182 $3,219,923 $3,223,234
Long-term senior debt . . . . . . . . . . . . 1,157,964 1,118,696 1,077,694 1,046,971
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . . . . . . 1,724,616 1,724,868 1,725,014 1,725,631
Stockholders equity (deficit) . . . . . . . . (326,272) (320,139) (314,109) (287,737)

</TABLE>

<TABLE><CAPTION>
Fiscal Year 1994
For the quarters ended
---------------------------------------------------------------
Aug. 31, 1993 Nov. 30, 1993 Feb. 28, 1994 May 31, 1994
--------------- --------------- --------------- ---------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . $ 333,770 $ 341,768 $ 309,492 $ 343,494
Cost of sales (exclusive of depreciation) . . 212,716 213,010 197,631 221,704
Depreciation, depletion and amortization . . 16,386 17,334 17,751 19,564
Interest and amortization of debt discount
and expense . . . . . . . . . . . . . . . . 40,112 40,375 37,642 37,341
Income tax expense . . . . . . . . . . . . . 10,390 9,659 5,323 3,545
Net income (loss) . . . . . . . . . . . . . . 1,392 6,817 857 (1,891)(2)

Additional Financial Data:
Total assets . . . . . . . . . . . . . . . . $3,198,288 $3,193,505 $3,162,660 $3,140,892
Long-term senior debt . . . . . . . . . . . . 1,003,240 958,670 907,504 871,970
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . . . . . . 1,725,952 1,726,421 1,727,345 1,727,684
Stockholders equity (deficit) . . . . . . . . (286,345) (279,528) (278,671) (282,353)

</TABLE>

<TABLE><CAPTION>
Fiscal Year 1995
For the quarters ended
---------------------------------------------------------------
Aug. 31, 1994 Nov. 30, 1994 Feb. 28, 1995 May 31, 1995
--------------- --------------- --------------- ---------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . $ 340,640 $ 363,330 $ 338,691 $ 399,661
Cost of sales (exclusive of depreciation) . . 224,119 237,737 221,074 268,451
Depreciation, depletion and amortization . . 16,757 17,930 18,407 18,943
Interest and amortization of debt discount
and expense . . . . . . . . . . . . . . . . 36,463 36,290 34,994 196,801(3)
Income tax expense (benefit) . . . . . . . . 6,857 9,109 6,022 (192,438)
Net income (loss) . . . . . . . . . . . . . . 1,433 4,920 (233) (364,765)(4)

Additional Financial Data:
Total assets . . . . . . . . . . . . . . . . $3,107,659 $3,009,803 $3,098,947 $3,245,153
Long-term senior debt . . . . . . . . . . . . 841,254 812,547 784,815 2,220,370(5)
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . . . . . . 1,727,889 1,727,279 1,728,215 --(5)
Stockholders equity (deficit) . . . . . . . . (280,920) (276,000) (276,233) 360,774(5)
</TABLE>

34
<PAGE>
(1) The Company adopted FAS 106 and FAS 109 during the first quarter of fiscal
year 1993.

(2) The net loss is primarily attributable to adjustments to amortization of
goodwill and the temporary shutdown of the Natural Resources Group's Mine
No. 5 in early April 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations --
Years ended May 31, 1995 and 1994."
(3) Includes additional interest and amortization of debt expense of $141.4
million related to the consummation of the Plan of Reorganization.
(4) The net loss includes $583.8 million of additional expenses related to the
consummation of the Plan of Reorganization.
(5) Reflects the consummation of the Plan of Reorganization.

BUSINESS AND PROPERTIES

General

The Company, through its direct and indirect subsidiaries, currently offers
a diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and industrial
markets. The operations of the Company are carried out by its operating
subsidiaries, the business and properties of which are described below. For
financial information relating to the industry segments of the Company and its
subsidiaries, see "Segment Information" on pages F-25 and F-26.

Jim Walter Homes

Jim Walter Homes, headquartered in the Walter Industries building in Tampa,
Florida, is in the business of marketing and supervising the construction of
standardized, partially-finished and shell, detached, single family residential
homes, primarily in the southern region of the United States where the weather
permits year-round construction. Jim Walter Homes has concentrated on the low to
moderately priced segment of the housing market. Over 300,000 homes have been
completed by Jim Walter Homes and its predecessor since 1955.

Jim Walter Homes' products consist of 35 models of conventionally built
homes, built of wood on concrete foundations or wood pilings, and ranging in
size from approximately 640 to 2,214 square feet. Each home is completely
finished on the outside and is unfinished on the inside except for rough floors,
ceiling joists, partition studding and closet framing. The buyer may elect to
purchase optional interior components, including installation thereof, such as
plumbing and electrical materials, heating and air conditioning, wallboard,
interior doors, interior trim and floor finishing. A buyer selecting all options
receives a home considered to be "90 percent complete," excluding only floor
covering, inside paint, and water and sewer hookups. Shell homes are those which
are completely finished on the outside with the inside containing only rough
floors, partition studding and closet framing, but not interior walls, floor
finishing, plumbing, electrical wiring and fixtures, doors and cabinetry. The
remaining units are sold at varying "in-between" stages of interior finishing.
Jim Walter Homes builds all of its homes "on site," and only against firm
orders. The following chart shows the sales volume of Jim Walter Homes and the
percent of homes sold in the three stages of completion for fiscal years ended
May 31, 1995, 1994 and 1993:

<TABLE><CAPTION>
Percent of Unit Sales
--------------------------------------------
Fiscal Year Ended May 31, Units Sold Shell Various Stages 90% Complete
-------------------------------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
1995 . . . . . . . . . . . . . . . . 4,126 25% 9% 66%
1994 . . . . . . . . . . . . . . . . 4,331 23 10 67
1993 . . . . . . . . . . . . . . . . 4,784 26 12 62
</TABLE>

During the fiscal years 1995, 1994 and 1993 the average net sales price of
a home was $40,200, $38,300 and $37,000, respectively.

Jim Walter Homes' backlog as of May 31, 1995 was 1,529 units, compared to
2,065 units at May 31, 1994. The average time to construct a home ranges from
four to twelve weeks.

Jim Walter Homes currently operates 105 branch offices located in 17
states, serving 23 states, primarily in the southern region of the United
States. Of such branch offices, approximately 82% are owned, with the balance on
leased land. These branch offices serve as "display parks," which are designed
to allow customers to view actual models completed to the various stages of
interior finishing available. Jim Walter Homes does not

35
<PAGE>
own or acquire land for purposes of its operations and is not a real estate
developer. Accordingly, these operations are not subject to significant
concentrations of credit risks. The actual construction of all homes sold by Jim
Walter Homes is done by local building contractors with their own crews,
pursuant to subcontracts executed in connection with each home, and inspected by
Jim Walter Homes' supervisory personnel. Jim Walter Homes maintains warehouses
near each of its district offices from which a portion of the necessary building
materials may be obtained; the balance of the building materials is purchased
locally.

Approximately 96% of the homes Jim Walter Homes sells are purchased with
financing it arranges. In order to qualify for a credit sale the purchaser of a
home must own his property free and clear of all encumbrances. In addition to
owning the land, the purchaser must perform certain steps to complete the home
and obtain a certificate of occupancy. Depending on the degree of completion of
the home purchased, these steps can cost a significant amount of money. The
credit terms offered by Jim Walter Homes have a maximum 30-year term, are
usually for 100% of the purchase price of the home, and carry a 10% "annual
percentage rate", without points or closing costs. To qualify for financing a
potential customer must also provide information concerning his or her monthly
income and employment history as well as a legal description of and evidence
that the customer owns the land on which the home is to be built. A customer's
income and employment usually are verified through telephone conversations with
such customer's employer and by examining his or her pay stubs, W2 forms or, if
the customer is self-employed, income tax returns. An applicant must have a
minimum of one year's continuous employment or, if he or she has changed jobs,
the new job must be in the same field of work. Only a small percentage of
secondary income (second job or part-time work) is utilized in qualifying
applicants. Ownership of the land is verified by examining the title record. In
addition, Jim Walter Homes' credit department obtains a credit report. If a
favorable report is obtained and the required monthly payment does not exceed
25% of the customer's monthly gross income, the application usually is approved
and a building or instalment sales contract is executed, a title report is
ordered and frequently a survey of the property is made. Surveys are performed
by independent registered surveyors when, in the opinion of Jim Walter Homes,
additional information beyond examination of the title record in needed. Such
additional information is primarily concerned with verification of legal
description, ownership of land and existence of any encroachments. Jim Walter
Homes does not use a point or grade credit scoring system. Particular attention
is paid to the credit information for the most recent three to five years.
Attention is also given to the customer's total indebtedness and total other
monthly payments on a judgmental basis by the credit department. The customer's
credit standing is considered favorable if the employment history, income and
credit report meet the aforementioned criteria. The contract is subject to (i)
executing a promissory note which is secured by a first lien on the land and the
home to be built, (ii) executing a mortgage, deed of trust or other security
instrument, (iii) receiving a satisfactory title report, (iv) inspecting the
land to determine that it is suitable for building and (v) obtaining required
permits. Although the mortgages, deeds of trust and similar security instruments
constitute a first lien on the land and the home to be built, such security
instruments are not insured by the Federal Housing Administration or guaranteed
by the Veterans Administration or otherwise insured or guaranteed.

Jim Walter Homes does not obtain appraisals or title insurance. Although
consideration is given to the ratio of the amount financed to the estimated
value of the home and the land securing such amount, there is no explicit
appraisal-based loan-to-value test. However, there is a requirement that the
value of the lot on which the home is to be built, as estimated solely on the
basis of Jim Walter Homes' mortgage servicing division employees' experience and
knowledge, be at least equal to 10% of the principal amount of the loan. Before
occupying a new home, the customer must complete the utility and sewer hook-ups
and any of the other components not purchased from Jim Walter Homes, arrange for
the building inspection and, if required, obtain a certificate of occupancy. The
costs to complete a new home depend on the stage of completion of the home
purchased and whether public water and sewer systems are available or wells and
septic tanks must be installed. Such costs could range from $2,000-$3,000 to
$30,000-$40,000. Upon construction of a new home to the agreed-upon percentage
of completion, Jim Walter Homes sells the building and instalment sales
contract, the note, and the related mortgage, deed of trust or other security
instrument to Mid-State Homes in the ordinary course of business pursuant to an
Agreement of Purchase and Sale of Instalment Obligations and Servicing of
Delinquent Accounts. Pursuant to this agreement, Jim Walter Homes provides field
servicing on all delinquent accounts, including collection of delinquent
accounts, recommendations of foreclosure, foreclosure and resale of foreclosed
properties.

The favorable financing offered by Jim Walter Homes normally has tended to
increase unit volume in times of high interest rates and limited availability of
mortgage financing funds. As a result, Jim Walter Homes' business has tended to
be counter-cyclical to national home construction activity. However, in times of
low interest rates and high availability of mortgage funds, Jim Walter Homes'
volume of home sales has tended to

36
<PAGE>

decrease. Also, in times of low interest rates and high availability of mortgage
funds, additional competition is able to enter the market.

For the calendar year 1994, Jim Walter Homes was the fifth largest builder
of detached single-family homes in the United States after having been the sixth
largest builder in 1993, the fourth largest builder in 1992 and 1991, the third
largest builder in 1990, the fourth largest builder in 1988 and 1989, the second
largest builder in 1986 and 1987 and the largest builder in 1984 and 1985.

In the three years ended May 31, 1995, 1994 and 1993, Jim Walter Homes' net
sales and revenues amounted to $165.8 million, $166.0 million and $177.2
million, respectively.

Mid-State Homes

Mid-State Homes, headquartered in the Walter Industries building in Tampa,
Florida, was established in 1958 to purchase mortgage instalment notes from Jim
Walter Homes on homes constructed and sold by Jim Walter Homes and to service
such mortgage instalment notes. Mid-State Trust II, Mid-State Trust III and Mid-
State Trust IV are business trusts organized by Mid-State Homes, which owns all
of the beneficial interests in Mid-State Trust III and Mid-State Trust IV. Mid-
State Trust IV owns all of the beneficial interest in Mid-State Trust II.

In April 1988, Mid-State Homes sold to Mid-State Trust II instalment notes
and mortgages which it had acquired from Jim Walter Homes through February 29,
1988 with a gross amount of approximately $3,376,000,000 and an aggregate
outstanding economic balance of approximately $1,750,000,000, pursuant to a
purchase and sale agreement, in exchange for a purchase price of $1,326,665,600,
representing the net cash proceeds from the public offering of $1,450,000,000
aggregate face amount of mortgage-backed notes ("Mid-State Trust II Mortgage-
Backed Notes") of Mid-State Trust II after paying the expenses associated with
the sale of such Mid-State Trust II Mortgage-Backed Notes. The outstanding
balance at May 31, 1995 of such Mid-State Trust II Mortgage-Backed Notes was
$584,000,000. At May 31, 1995 such Mid-State Trust II instalment notes and
mortgages had a gross book value of $1,396,138,000 and an economic balance of
approximately $846,481,000.

Under the Mid-State Trust II indenture for the Mid-State Trust II Mortgage-
Backed Notes, if certain criteria as to performance of the pledged instalment
notes are met, Mid-State Trust II is allowed to make distributions of cash to
Mid-State Trust IV, its sole beneficial owner, to the extent that cash
collections on such instalment notes exceed Mid-State Trust II's cash
expenditures for its operating expenses, interest expense and mandatory debt
payments on the Mid-State Trust II Mortgage-Backed Notes. In addition to the
performance-based distributions, the indenture permits distribution of
additional excess funds, if any, provided such distributions are consented to by
Financial Security Assurance Inc., a monoline property and casualty insurance
company and the guarantor of the Mid-State Trust II Mortgage-Backed Notes. The
guarantor has not approved any additional distributions since the January 1,
1995 distribution and such excess funds remain on deposit with Mid-State Trust
II.

On July 1, 1992, pursuant to approval by the Bankruptcy Court, mortgage
instalment notes having a gross amount of $638,078,000 and an economic balance
of $296,160,000 were sold by Mid-State Homes to Mid-State Trust III in exchange
for the net proceeds from the public issuance by Mid-State Trust III of
$249,864,000 of asset backed notes ("Mid-State Trust III Asset Backed Notes").
Net proceeds were used to repay in full all outstanding indebtedness due under a
revolving credit facility, with the excess cash used to fund the ongoing
operations of the Company and its subsidiaries. The outstanding balance at
May 31, 1995 of such Mid-State Trust III Asset Backed Notes was $173,527,000. At
May 31, 1995, such Mid-State Trust III instalment notes and mortgages had a
gross book value of $472,980,000 and an economic balance of $239,200,000.

On March 16, 1995, pursuant to approval by the Bankruptcy Court, mortgage
instalment notes having a gross amount of $2,020,258,000 and an economic balance
of $826,671,000 were sold by Mid-State Homes to Mid-State Trust IV. In addition,
on such date, Mid-State Homes sold its beneficial interest in Mid-State Trust II
to Mid-State Trust IV. Mid-State Trust II had a total collateral value of
$910,468,000 with $605,750,000 of Mid-State Trust II Mortgage-Backed Notes
outstanding. These sales were in exchange for the net proceeds from the public
issuance by Mid-State Trust IV of $959,450,000 of asset backed notes ("Mid-State
Trust IV Asset Backed Notes"). The outstanding balance at May 31, 1995 of such
Mid-State Trust IV Asset Backed Notes was

37
<PAGE>

$953,843,000. At May 31, 1995, such Mid-State Trust IV instalment notes and
mortgages had a gross book value of $1,970,887,000 and an economic balance of
$814,182,000.

The instalment notes sold by Mid-State Homes to Mid-State Trusts II, III
and IV are serviced by Mid-State Homes pursuant to servicing agreements entered
into with each trust. Mid-State Homes in connection with such servicing
agreements has entered into sub-servicing agreements with Jim Walter Homes to
provide field servicing activities such as collections, repossessions and
resale.

On February 27, 1995 Mid-State Homes established Mid-State Trust V, a
business trust in which Mid-State Homes owns all the beneficial interests, to
provide temporary financing to Mid-State Homes for its current purchases of
instalment notes and mortgages from Jim Walter Homes. On March 3, 1995 Mid-State
Trust V entered into the Mid-State Trust V Variable Funding Loan Agreement with
Enterprise Funding Corporation, an affiliate of NationsBank N.A., as lender, and
NationsBank N.A. (Carolinas), as Administrative Agent. The agreement provides
for a three-year $500,000,000 credit facility (the "Mid-State Trust V Variable
Funding Loan") secured by the instalment notes and mortgages Mid-State Trust V
purchases from Mid-State Homes. It is contemplated that the facility will be an
evergreen three-year facility with periodic paydowns from the proceeds of
permanent financings similar to those done by Mid-State Trusts II, III and IV.
The outstanding Mid-State Trust V Variable Funding Loan balance at May 31, 1995
was $15 million. At May 31, 1995, such Mid-State Trust V instalment notes and
mortgages had a gross book value of $254,871,000 and an economic balance of
$92,466,000.

The revenues of Mid-State Trusts II, III, IV and V are required by
generally accepted accounting principles to be consolidated as part of Mid-State
Homes' revenues for financial statement purposes. In the three years ended May
31, 1995, 1994 and 1993, Mid-State Homes' revenues amounted to $237.1 million,
$255.3 million and $235.7 million, respectively, including revenues of Mid-State
Trust II of $141.5 million, $164.5 million and $161.8 million, respectively, and
revenues of Mid-State Trust III of $24.1 million, $27.5 million and $23.2
million, respectively. Revenues of Mid-State Trusts IV and V in the year ended
May 31, 1995 amounted to $22.5 million and $.5 million, respectively.

Jim Walter Resources

The operations of Jim Walter Resources are conducted through its Mining
Division, which mines and sells coal from four deep shaft mines in Alabama, and
its De-Gas Division, which extracts and sells methane gas from the coal seams
owned or leased by Jim Walter Resources.

Mining Division

The Mining Division, headquartered in Brookwood, Alabama, has approximately
9.5 million tons of rated annual coal production capacity from four deep shaft
mines. These mines extract coal from Alabama's Blue Creek seam, from which a
high quality metallurgical coal is obtained. This coal can be used as coking
coal as well as steam coal because it meets current environmental compliance
specifications. The Blue Creek coal has a low/medium volatility and high BTU and
low sulfur content. The mines are located in west central Alabama between the
cities of Birmingham and Tuscaloosa.

The majority of the coal is mined using longwall technology, complemented
by the more standard continuous mining method. Since the late 1970's, by
replacing the traditional methods of underground mining with the longwall
technique, the Mining Division has achieved greater production efficiency,
improved safety, generated superior coal recovery results and lowered production
costs. There are approximately 80 longwall mining systems in use in the United
States, of which the Mining Division operates six. The Mining Division's normal
operating plan is a longwall/continuous ratio of about 75%/25%, which is the
long-term sustainable ratio.

Recoverable reserves as of May 31, 1995 were estimated to be approximately
249 million tons, of which 224 million tons relate to the four Blue Creek mines.

38
<PAGE>
A summary of the reserves is as follows:

ESTIMATED RECOVERABLE(1) COAL RESERVES AS OF MAY 31, 1995
(In Thousands of Tons)

JWR's
Reserves(2) Classifications(3) Type(4) Interest Quality(6) Production(7)
--------------------------- ------------------ ------- ----------------- ------------------- ------------------
Steam(S)
or
Mining Metallur-
Property Total Assigned Unassigned Measured Indicated gical(M) Owned Leased(5) Ash Sulf. BTU/lb 1993 1994 1995
---------- ------- -------- ---------- -------- --------- --------- ------ --------- ----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
No. 3 Mine 62,159 62,159 -- 45,763 16,396 S/M 1,446 60,713 8.2 0.56 14,469 1,564 1,347 1,730
No. 4 Mine 73,405 73,405 -- 43,435 29,970 S/M 4,328 69,077 9.4 0.69 14,240 2,417 2,257 2,448
No. 5 Mine 29,552 29,552 -- 24,566 4,986 S/M 27,217 2,335 8.8 0.66 14,334 1,326 1,074 948
No. 7 Mine 58,979 58,979 -- 33,471 25,508 S/M 16,261 42,718 8.0 0.65 14,499 2,012 1,849 2,501
------- ------- ------- ------- ------- ------ ------- ----- ----- -----
224,095 224,095 -- 147,235 76,860 49,252 174,843 7,319 6,527 7,627
Bessie(8) 24,919 -- 24,919 14,880 10,039 S/M 658 24,261 11.0 1.30 13,655 -- -- --
------- ------- ------- ------- ------- ------ ------- ----- ----- -----
TOTAL 249,014 224,095 24,919 162,115 86,899 49,910 199,104 7,319 6,527 7,627
======= ======= ======= ======= ======= ====== ======= ===== ===== =====
</TABLE>

(1) "Recoverable" reserves are defined as tons of mineable coal in the
Blue Creek and Mary Lee seams which can be extracted and marketed
after deduction for coal to be left in pillars, etc. and adjusted
for reasonable preparation and handling losses.
(2) "Assigned" reserves represent coal which has been committed by Jim
Walter Resources to its operating mines and plant facilities.
"Unassigned" reserves represent coal which is not committed to an
operating mine and would require additional expenditure to
recover. The division of reserves into these two categories is
based upon current mining plans, projections, and techniques.
(3) The recoverable reserves (demonstrated resources) are the sum of
"Measured" and "Indicated" resources. Measured coal extends 1/4
mile from any point of observation or measurement. Indicated coal
is projected to extend from 1/4 mile to 3/4 mile from any point of
observation or measurement. Inferred coal extends from 3/4 mile to
3 miles from any point of observation or measurement. Inferred
reserves are not included in recoverable reserves.
(4) All of the coal in the Blue Creek and Mary Lee seams is suitable
for metallurgical purposes although, for marketing reasons, some
is sold as compliance steam coal.
(5) The leases are either renewable until the reserves are mined to
exhaustion or are of sufficient duration to permit mining of all
of the reserves before the expiration of the term.
(6) Values shown are weighted averages of all reserves and are
calculated on a dry basis. Bessie Mine reserves are equivalent to
preparation at a 1.60 specific gravity whereas the others are at a
1.40 specific gravity.

(7) Production for 1995, 1994 and 1993 is for the fiscal years ended
May 31.

(8) The Bessie Mine was closed in August 1988.

Environmental expenditures imposed by laws relating to deep shaft mining
have been insignificant to date and no substantial expenditures are expected in
the future. The Mining Division does not engage in any surface (strip) mining.

The facilities of the Mining Division are summarized as follows:
<TABLE><CAPTION>
Facility Location Sq. Footage
------------------------------------------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Administration headquarters . . . . . . . . . . . . . . . . Brookwood, AL 41,500

Central shop, supply center and training center . . . . . . Brookwood, AL 128,400

Current
Operating Mines Location Rated Capacity
------------------------------------------------------------ ----------------------------- -----------------------------
Blue Creek No. 3 . . . . . . . . . . . . . . . . . . . . . Adger, AL 2,500,000 tons

Blue Creek No. 4 . . . . . . . . . . . . . . . . . . . . . Brookwood, AL 2,800,000 tons

Blue Creek No. 5 . . . . . . . . . . . . . . . . . . . . . Brookwood, AL 1,600,000 tons

Blue Creek No. 7 . . . . . . . . . . . . . . . . . . . . . Brookwood, AL 2,600,000 tons
</TABLE>

Of the Mining Division's approximately 9.5 million tons of current rated
annual production capacity, 4.88 to 5.10 million tons are sold under long-term
contracts, leaving 4.40 to 4.62 million tons to be sold under short-term
contracts or on the spot market.

Jim Walter Resources' supply contract with Alabama Power that had been in
effect since January 1, 1979, as amended, was superseded by the New Alabama
Power Contract executed on May 10, 1994. Under the

39
<PAGE>
New Alabama Power Contract, Alabama Power will purchase 4.0 million tons of coal
per year from Jim Walter Resources during the period from July 1, 1994 through
August 31, 1999. In addition, Jim Walter Resources will have the option to
extend the New Alabama Power Contract through August 31, 2004, subject to mutual
agreement on the market pricing mechanism and other terms and conditions of such
extension. The New Alabama Power Contract has a fixed price subject to an
escalation based on the Consumer Price Index and adjustments for governmental
impositions and quality. The New Alabama Power Contract includes favorable
modifications of specifications and shipping deviations and changes in
transportation arrangements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."

Jim Walter Resources' long-term contracts with six Japanese steel mills for
2.75 to 3.0 million tons annually, depending on the level of steel production in
Japan, expired on March 31, 1994. The pricing mechanisms in such contracts were
market driven and reflected changes in the prices of four specific coal indices.
The composite change in market prices of these coal indices from the base point
was then reflected in the billing price to the steel mills. Jim Walter Resources
has negotiated one-year market-based contracts to sell approximately 1.5 million
tons of coal to a group of Japanese steel mills previously served under the
long-term contract. In addition, approximately 300,000 tons of coal not
previously shipped under terms of the long-term contracts will be shipped during
fiscal 1996 at the long-term contract price, which is substantially higher than
the current market price.

Jim Walter Resources and Carcoke, S.A. are parties to a long-term contract
which expires on December 31, 1996. The contract provides for the sale of
approximately 880,000 tons annually, with an option on approximately 220,000
additional tons annually. The pricing mechanism is market driven and reflects
changes in prices of three specific coals or coal indices.

Mine No. 5 was shut down for a substantial portion of the period from July
9, 1990 through September 16, 1990 as a result of safety concerns arising from
spontaneous combustion heatings which were a result of pyritic sulfur
concentrations occurring in the coal seam in the southern part of the mine being
exposed to the air by the mining process. The exposure of the sulfur deposits
and its reaction with oxygen contained in the ventilation air currents caused
the heatings to occur. Throughout this period, Jim Walter Resources was engaged
in discussions with MSHA regarding a new ventilating arrangement, designed to
reduce the contact between oxygen and sulfur, for the longwall faces at Mine No.
5. Idle plant expenses associated with the shutdown were $6.5 million. Although
MSHA approved the resumption of operations at the mine on September 14, 1990,
providing for a modified conventional ventilation system, productivity was poor
and costs were therefore high. In February 1991, the mine's one longwall unit
was moved from the southern part of the mine to a longwall coal panel in the
northern area and productivity improved. The southwestern area of the mine was
subsequently abandoned and sealed off as efforts to design a ventilation
arrangement acceptable to MSHA which properly controlled the spontaneous
combustion heatings and provided acceptable productivity and costs of operation
were not successful.

Mine No. 5 also was shut down from November 17, 1993 through December 16,
1993 and from early April 1994 until May 16, 1994 as a result of a fire due to
spontaneous combustion heatings. Representatives of Jim Walter Resources, MSHA,
Alabama State Mine Inspectors and the UMWA investigated the problem. Because the
area of the suspected fire was inaccessible, a decision was made to drill
vertical holes from the surface and flood the area with combinations of water,
carbon dioxide, foam and cementitious mixtures to neutralize the fire. MSHA
approved the resumption of operations at the mine on December 17, 1993. In early
April 1994, the fire recurred at Mine No. 5 and the mine was shut down. Jim
Walter Resources, MSHA, Alabama State Mine Inspectors and the UMWA agreed that
the longwall coal panel being mined at the time the fire recurred would be
abandoned and sealed off. Development mining for the two remaining longwall coal
panels in this section of the mine resumed on May 16, 1994 and the mining on the
first longwall panel resumed on January 17, 1995.

Production was adversely impacted until January 17, 1995; however, a
portion of the increased costs is expected to be recovered from business
interruption insurance. On May 31, 1995, the Company commenced a lawsuit in the
Circuit Court for Tuscaloosa County, Alabama against a group of insurance
companies with which the Company has such business interruption insurance
seeking damages in excess of $25 million for loss from interruption to Jim
Walter Resources' business resulting from the shut down of Mine No. 5. The
lawsuit is in its initial stages, but the Company and Jim Walter Resources
believe their claim is meritorious and intend to pursue

40
<PAGE>

it vigorously. See "Legal Proceedings -- Jim Walter Resources" below and Note 11
of Notes to Financial Statements.

In the three years ended May 31, 1995, 1994 and 1993, the Mining Division's
net sales and revenues were $299.4 million, $290.3 million and $324.4 million,
respectively, including $5.4 million, $5.7 million and $7.1 million,
respectively, to Sloss Industries, Inc., a wholly owned subsidiary of the
Company ("Sloss Industries").

De-Gas Division

The De-Gas Division, through a joint venture headquartered in Brookwood,
Alabama, extracts and sells methane gas from the coal seams owned or leased by
Jim Walter Resources.

The original motivation for the joint venture was to increase safety in Jim
Walter Resources' Blue Creek mines by reducing the level of methane gas through
wells drilled in conjunction with the mining operations. As of May 1995, there
were 268 wells producing approximately 33 million cubic feet of gas per day. As
many as 250 additional wells are planned for development over the next several
years. The degasification operation, as had originally been expected, has had
the effect of improving mining operations and safety by reducing methane gas
levels in the mines, as well as becoming a profitable operation.

The gas is transported through a 20-mile pipeline (owned and operated by
Black Warrior Transmission Corp. ("Black Warrior Transmission"), a corporation
the stock of which is owned on a 50-50 basis by the De-Gas Division and Sonat
Exploration Company, an affiliate of Southern Natural Gas Company ("SNG")),
directly to SNG's pipeline.

The De-Gas Division began operations in 1981 with the formation of an equal
joint venture with Kaneb Services, Inc. ("Kaneb") to capture and market methane
gas from the Blue Creek seam. SNG is the joint venture's exclusive customer for
all output of methane gas, all of which was originally at a price tied to the
price of fuel oil in New York. Kaneb subsequently sold its 50% interest in the
degasification operation to an indirect wholly-owned subsidiary of Sonat, Inc.
In connection with such sale, additional areas were added to the gas sales
contract. This gas was priced at a market price nominated by SNG which was not
to be lower than the published price for spot purchases for SNG - South
Louisiana for the applicable month. Effective January 1, 1994, the gas sales
contract was amended. The price to be paid for gas delivered to SNG is now equal
to the average of two published spot prices; provided, however, that the price
will not be less than $2.00 per MMBTU (approximately $1.96 per MCF) on a
weighted annual average basis, calculated cumulatively each month. Beginning in
January 1994 and ending in December 2001, SNG will pay Jim Walter Resources a
reservation fee of $675,000 per month if certain minimum quantities of gas are
delivered. Black Warrior Methane Corp. ("Black Warrior Methane"), a corporation
the stock of which is owned on a 50-50 basis by the De-Gas Division and Sonat
Exploration Company, manages the operational activities of the joint venture.

In the three years ended May 31, 1995, 1994 and 1993, the De-Gas Division's
net sales and revenues amounted to $20.8 million, $23.0 million and $22.5
million, respectively.

U.S. Pipe

U.S. Pipe, headquartered in Birmingham, Alabama, conducts its business
through its Pressure Pipe Division and Castings Division. The Pressure Pipe
Division manufactures and sells a broad line of ductile iron pressure pipe, pipe
fittings and valves and hydrants. It is one of the nation's largest producers of
ductile iron pressure pipe. The Castings Division produces and sells a wide
variety of gray and ductile iron castings.

In the three years ended May 31, 1995, 1994 and 1993, U.S. Pipe's net sales
and revenues amounted to $412.2 million, $357.2 million and $331.2 million,
respectively.

Pressure Pipe Division

The Pressure Pipe Division manufactures and sells a complete line of
ductile iron pipe ranging from 4" to 64" in diameter as well as most equivalent
metric sizes. In addition, this division produces and sells a full line of
fittings, valves and hydrants of various configurations to meet various
municipal specifications. Approximately 70%-75% of the ductile iron pressure
pipe produced by this division is used in the transmission and distribution

41
<PAGE>
of potable water and the remaining 25%-30% is used in the transmission of waste
water and industrial applications. The majority of ductile iron pressure pipe
and related fittings, valves and hydrants are for new distribution systems.
However, the market for rehabilitation, upgrading and replacement of pipe
systems has grown significantly in recent years as major municipalities have
initiated programs to rehabilitate aging water and waste water transmission
systems, and is currently estimated to represent approximately 30% of ductile
iron pressure pipe sales. Fittings, valves and hydrants produced by this
division account for approximately 20% of sales.

Ductile iron pressure pipe is manufactured by the deLavaud centrifugal
casting process and is typically classified into three size categories. Small
pipe, ranging from 4" to 12" in diameter (approximately 54% of the Pressure Pipe
Division's pipe production), is used primarily for potable water distribution
systems and small water system grids. Medium pipe ranging from 14" to 24" in
diameter (approximately 29% of the Pressure Division's pipe production) is used
primarily in reinforcing distribution systems, including looping grids and
supply lines. Large pipe, 30" to 64" in diameter, which accounts for the
remaining 17% of pipe production, is used for major water and waste water
transmission and collection systems.

The ductile iron pressure pipe industry is highly competitive, with a small
number of manufacturers of ductile iron pressure pipe, fittings, valves and
hydrants as well as a larger number of manufacturers which produce substitute
materials, such as PVC, concrete, fiberglass, reinforced plastic and steel. U.S.
Pipe is one of the nation's largest producers of ductile iron pressure pipe.
Other major competitors include McWane, Inc., Griffin Ductile Iron Pipe Company
and American Cast Iron Pipe Company. The division competes with other
manufacturers of ductile iron pressure pipe on the basis of price, customer
service and product quality.

U.S. Pipe is also a manufacturer of ductile iron fittings. The Company
believes that Tyler Corporation and McWane, Inc. have larger market shares than
U.S. Pipe in this market segment. U.S. Pipe is not a major manufacturer of
valves and hydrants.

Additional competition for ductile iron pressure pipe comes from pipe
composed of other materials. Although ductile iron pressure pipe is typically
more expensive than competing forms of pipe, customers choose ductile iron for
its quality, longevity, strength, ease of installation and lack of maintenance
problems.

Products of the Pressure Pipe Division are sold primarily to contractors,
water works supply houses, municipalities and private utilities. Most ductile
iron pressure pipe orders result from contracts which are bid by contractors or
directly issued by municipalities or private utilities. A smaller portion of
ductile iron pressure pipe sales are made through independent water works supply
houses. The division maintains numerous supply depots in leased space throughout
the country which are used as a source of pipe for start-up projects, to supply
ongoing projects and to aid in completing projects. The Pressure Pipe Division's
sales are primarily domestic, with foreign sales accounting for approximately 4%
of dollar sales in 1995. U.S. Pipe has 34 sales offices in leased space in the
United States. It employs a salaried sales force of approximately 70 persons.

The order backlog of pressure pipe at May 31, 1995 was 121,548 tons, which
represents approximately three months' shipments, compared to 111,907 tons at
May 31, 1994.

The Pressure Pipe Division manufactures ductile iron pressure pipe at four
owned plants located in (i) Bessemer, Alabama (566,000 square feet on 169 acres
of land); (ii) North Birmingham, Alabama (336,000 square feet on 61 acres of
land); (iii) Union City, California (116,000 square feet on 70 acres of land);
and (iv) Burlington, New Jersey (329,000 square feet on 109 acres of land). Such
plants have annual rated capacities, on a one shift per day basis, of 200,000
tons, 190,000 tons, 78,000 tons and 140,000 tons, respectively, of ductile iron
pressure pipe. In addition, the division manufactures fittings, valves and
hydrants at its owned plant in Chattanooga, Tennessee (623,000 square feet on 80
acres of land). The general offices contain 122,000 square feet of office space
on 6 acres of owned land and are located in Birmingham, Alabama.

While the pipe business is generally sensitive to recessions because of its
partial dependence on the level of new construction activity, certain aspects of
Pressure Pipe's operations have in the past helped to reduce the impact on such
division of the effects of a downturn in new construction.

First, Pressure Pipe's products have experienced a strong level of demand
in the replacement market. The Company believes that the growth of the
replacement market will continue as a result of major expenditures by
governmental entities in an effort to rebuild the nation's infrastructure, such
as the replacement and upgrading

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of water and waste water transmission systems. In addition, legislation such as
the Clean Water Act and the Safe Drinking Water Act may force utilities and
cities to upgrade and/or replace their pipe systems.

Second, Pressure Pipe's facilities are located in regions of the country
which have exhibited consistent economic strength. The Burlington, New Jersey
plant is adjacent to the northeastern market with its significant replacement
potential and the division's operations in the South are located in areas of
steady economic growth. The West Coast, served by the Union City, California
plant, has a critical shortage of water for many of the large metropolitan areas
which will require major transmission pipelines in the future. Because freight
costs for pipe are high, locations close to important markets lower
transportation costs, thereby making the Pressure Pipe Division's products more
competitive.

Castings Division

The Castings Division produces a wide variety of gray and ductile iron
castings for a diversified customer base including special hardness castings for
the pollution control industry. In the year ended May 31, 1995, approximately
37% of the Castings Division's sales were sales of castings to the Pressure Pipe
Division, with the balance of the sales to various capital goods industries.
Manufacturing operations are located in Anniston, Alabama (228,000 square feet
on 21 acres of owned land).

Sloss Industries

Sloss Industries is a diversified manufacturing operation headquartered in
Birmingham, Alabama, which has four major product lines: (1) foundry coke; (2)
furnace coke; (3) slag wool; and (4) specialty chemicals.

Foundry coke is marketed to cast iron pipe plants and foundries producing
castings, such as for the automotive and agricultural equipment industries. It
is shipped primarily into four geographic markets: the East Coast; the
Southeast; Mexico; and the West Coast. Competition comes primarily from three
merchant suppliers: ABC Coke, Koppers Company, Inc., and Empire Coke Company. In
the year ended May 31, 1995, approximately 60% of the foundry coke produced by
Sloss Industries was sold to U.S. Pipe.

Furnace coke is sold primarily to basic steel producers. Furnace coke sales
were depressed in recent years. During fiscal 1995, 1994 and 1993, however,
Sloss Industries' furnace coke production was at near capacity as a result of a
contract with National Steel Corporation. Sloss Industries has only an estimated
1% of the market for furnace coke. Competition comes primarily from Koppers
Company, Inc. in the southern United States, Citizens Gas & Coke Utility and
steel producers with excess coking capacity in the Midwest.

Slag wool is utilized principally by acoustical ceiling manufacturers, and
is also used in fireproofing cements. A related product, Processed Mineral
Fiber, is used in friction materials and phenolic molding compounds. The
continued success of the slag wool business depends upon Sloss Industries'
ability to produce ceiling tile fiber of consistent high quality and react to
customer demands for specific "customized" fiber composition. Of the total slag
wool sales in the year ended May 31, 1995, approximately 71% was sold to
Armstrong World Industries and 28% to Apache Building Products Company.

Chemical products are manufactured in plants located in Birmingham, Alabama
and Ariton, Alabama. The Birmingham product line is composed primarily of
aromatic sulfonic acids and sulfonyl chlorides used in the pharmaceutical,
plasticizer, foundry and coatings industries, but also includes a custom
manufactured specialty monomer for the plastic industry. The Ariton facility
produces custom manufactured specialty products for the rubber and plastics
industries.

Sloss Industries' manufacturing facilities located in Birmingham, Alabama
include 120 coke ovens with an annual rated capacity of 450,000 tons and related
buildings of 148,400 square feet, a slag wool plant with an annual rated
capacity of 96,000 tons in a building of 63,000 square feet and a synthetic
chemicals plant in a building of 63,300 square feet, all on 521 acres of owned
land. Sloss Industries also operates a specialty chemical facility in Ariton,
Alabama in a building of 6,900 square feet, on 53 acres of owned land.

In the three years ended May 31, 1995, 1994 and 1993, Sloss Industries' net
sales and revenues amounted to $88.0 million, $81.7 million and $77.5 million,
respectively, including $11.1 million, $9.4 million and $8.7 million,
respectively, to U.S. Pipe.

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JW Aluminum

JW Aluminum Company ("JW Aluminum"), headquartered in Mt. Holly, South
Carolina, is a leading producer of fin stock used in heating and air
conditioning applications. Its second leading product is cable wrap used in the
manufacture of communications cable. JW Aluminum's other foil products are used
in a variety of convertor applications, such as lithoplate for newspapers and as
a facer on foam insulation products. Aluminum sheet products are used primarily
for general building applications such as siding, gutters, downspouts, trailer
siding, mobile home siding and skirting, residential siding and window
components.

JW Aluminum is one of a large number of suppliers nationwide of aluminum
sheet and foil. In fiscal 1995, JW Aluminum sold 120.6 million pounds of
aluminum products, 32% of which were sheet products and 68% foil products. JW
Aluminum has focused on directing its product mix away from building products
which are price sensitive, low value added products, toward higher value added
products such as fin stock, where product quality and service are relied upon
more than price.

JW Aluminum operates a single manufacturing facility in Mt. Holly, South
Carolina. Such facility is in a building of 210,000 square feet on 22 acres of
owned land. JW Aluminum's current rated capacity is 125 million pounds per year,
based on the present product mix.

In the three years ended May 31, 1995, 1994 and 1993, JW Aluminum's net
sales and revenues amounted to $134.2 million, $87.3 million and $82.3 million,
respectively, including $6.1 million, $2.1 million and $1.6 million,
respectively, to JW Window Components.

JW Window Components

JW Window Components produces a variety of screens and screen components
and a full line of window components, such as extruded aluminum components,
weatherstripping, sash balances and spiral balances. JW Window Components is
recognized as an industry leader in the production of block and tackle sash
balances. It also has the broadest product line of any supplier to the window
and patio door industry. The Company estimates that approximately 60% of total
sales are directed to the new construction market, approximately 30% to the
renovation market and approximately 10% to the commercial sector.

JW Window Components' products are sold through a network of independent
sales agents, who cover the continental United States, the Caribbean and Central
American countries.

JW Window Components operates three plants located in Elizabethton,
Tennessee (190,000 square feet on 31 acres of owned land); Sioux Falls, South
Dakota (50,000 square feet on 3 acres of owned land); and Merrill, Wisconsin
(54,000 square feet of leased space). The administrative offices are located in
the Company's headquarters building in Tampa, Florida.

In the three years ended May 31, 1995, 1994 and 1993, net sales and
revenues for JW Window Components amounted to $45.8 million, $38.7 million and
$36.4 million, respectively.

Southern Precision

Southern Precision Corporation's ("Southern Precision") products and
services include metal and wood pattern tooling, plastic and rubber mold
tooling, computerized numerically controlled machining of products and resin
coated sand for the foundry industry.

Southern Precision's Irondale, Alabama manufacturing facility, which
incorporates the plant, warehouse and administrative functions, is the largest
of its type in the Southeast (85,000 square feet of building located on 6 acres
of owned land). The facility and equipment enable the company to service larger
and more sophisticated tooling programs. Competition for resin coated sand,
which has been strong in recent years, is concentrated primarily in the
Southeast.

In order to expand production capacity for resin coated sand, Southern
Precision entered into an agreement with Borden, Inc. in February 1994 to lease
Borden, Inc.'s resin coated sand plant (together with the machinery and
equipment) containing approximately 14,000 square feet of space and located in
Birmingham, Alabama. The lease contained an option to purchase the plant at the
end of the third year. The transaction also

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included the execution by Southern Precision and Borden, Inc. of a sales
agreement, a license agreement and other ancillary agreements. On May 31, 1995,
Southern Precision exercised its option to purchase the plant and machinery and
equipment for approximately $1.5 million.

In the three years ended May 31, 1995, 1994 and 1993, Southern Precision's
net sales and revenues amounted to $14.4 million, $11.0 million and $10.7
million, respectively, including $2.4 million, $2.2 million and $1.6 million,
respectively, to U.S. Pipe.

Vestal Manufacturing

Vestal Manufacturing produces a diversified line of metal and foundry
products for residential, commercial and industrial use. Vestal Manufacturing
manufactures a line of energy saving fireplaces, fireplace inserts, accessories
and woodburning stoves, as well as lightweight castings for municipal markets
and metal building products.

Vestal Manufacturing's products are sold through a network of independent
sales agents to hardware and building materials distributors, home centers and
mass merchandisers throughout the United States and Canada.

Vestal Manufacturing's performance to a large extent is tied to residential
construction. Foreign competition has also been a factor in recent years.

Vestal Manufacturing, located in Sweetwater, Tennessee, operates a foundry
with 100,000 square feet of building and has a steel fabrication plant building
of 109,000 square feet, both on 32 acres of owned land. Vestal Manufacturing
also owns an unused 132,000 square foot plant and warehouse on 7 acres of land.
When market conditions are favorable, Vestal Manufacturing plans to sell the
unused facility.

In the three years ended May 31, 1995, 1994 and 1993, Vestal
Manufacturing's net sales and revenues amounted to $19.4 million, $17.4 million
and $15.2 million, respectively.

United Land

United Land owns approximately 56,000 acres of land and also owns
approximately 125,000 acres of mineral rights and 1,800 acres of surface rights,
all principally in Alabama.

United Land receives royalties resulting from leases to strip coal miners,
gas producers and timber companies. When market conditions are favorable,
management expects from time to time to sell excess real estate from the
holdings of United Land not utilized by any of the other subsidiaries of the
Company.

In the three years ended May 31, 1995, 1994 and 1993, United Land's net
sales and revenues amounted to $15.8 million, including a gain of $6.1 million
on the sale of certain excess real estate, $9.2 million and $9.3 million,
respectively.

Walter Land

Walter Land Company ("Walter Land") is a land sales operation with an
inventory at May 31, 1995 of approximately 7,500 acres, primarily on the south
side of Houma, Louisiana. The bulk of the commercial development in Houma is
tied directly to service and support for offshore oil and gas drilling, which
has been in a longer term recession. Land sales have been few and small in
recent years. Presently, the majority of Walter Land's income is derived from
rental income. Management and sale of the Louisiana properties are handled by
local personnel on a contract basis. In the three years ended May 31, 1995, 1994
and 1993, Walter Land's net sales and revenues amounted to $196,000, $247,000
and $241,000, respectively.

Cardem Insurance

Cardem Insurance is a Hamilton, Bermuda based offshore reinsurance company.
The predominant part of its business is reinsuring 75% of the risk on fire and
extended coverage insurance policies issued by Westchester Insurance Company, an
unrelated insurance company. Such insurance policies are with individual owners
of homes constructed by Jim Walter Homes. In the years ended May 31, 1995, 1994
and 1993, Cardem Insurance's net sales and revenues amounted to $11.8 million,
$12.0 million and $14.1 million, respectively.

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Seasonality

Certain of the businesses of the Company (primarily U.S. Pipe, Jim Walter
Homes, JW Window Components and Vestal Manufacturing) are subject to seasonal
variations to varying degrees. However, the businesses of the Company are
significantly influenced by the general economy.

Trade Names, Trademarks and Patents

The names of each of the Company's subsidiaries are well established in the
respective markets served by them, and management believes that the reputation
of such trade names is of some importance. The Company's subsidiaries have
numerous patents and trademarks. Management does not believe, however, that any
one such patent or trademark is of material importance.

Research and Development

Research activities conducted by each business are directed toward new
products, processes and building systems development, improvement of existing
products, development of new uses for existing products and cost reduction
efforts. Total research and development expenditures in each of the last three
fiscal years were less than 1% of net sales and revenues.

Raw Materials

Substantially all of the raw materials needed for the operations of the
Company and its subsidiaries are either produced by the Company and its
subsidiaries or are purchased from domestic sources. All materials used by the
various businesses of the Company are available in the quantities necessary to
support their respective operations.

Environmental

The Company and its subsidiaries are subject to a wide variety of laws and
regulations concerning the protection of the environment, both with respect to
the construction and operation of many of its plants, mines and other
facilities, and with respect to remediating environmental conditions that may
exist at its own and other properties. The Company believes that it and its
subsidiaries are in substantial compliance with federal, state and local
environmental laws and regulations. Expenditures for compliance of ongoing
operations and for remediation of environmental conditions arising from past
operations in the fiscal year ended May 31, 1995 were approximately $4.3
million. Because environmental laws and regulations on the federal, state, and
local levels continue to evolve, and because conditions giving rise to
obligations and liabilities under environmental laws are in some circumstances
not readily identified, it is difficult to forecast the amount of such
environmental expenditures or the effects of changing standards on business
operations, and the Company can give no assurance that such expenditures will
not, in the future, be material. Capital expenditures for environmental
requirements are anticipated in the next five years to average $6.0 million per
year.

U.S. Pipe is implementing an Administrative Consent Order ("ACO") for its
Burlington, New Jersey plant that was required under the New Jersey
Environmental Cleanup Responsibility Act (now known as the Industrial Site
Recovery Act) in connection with the completion of the LBO. The ACO required
soil and ground water cleanup. U.S. Pipe completed, pending final approval, the
soil cleanup required by the ACO. U.S. Pipe is now treating ground water as
ordered in the ACO, but it is not known how long treatment will be required in
order to meet the requirements of the ACO. Management does not believe the
cleanup costs will have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries.

The federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), generally imposes liability, which may be joint and
several and is without regard to fault or the legality of waste generation or
disposal, on certain classes of persons, including owners and operators of sites
at which hazardous substances are released into the environment (or pose a
threat of such release), persons that disposed or arranged for the disposal of
hazardous substances at such sites, and persons who owned or operated such sites
at the time of such disposal. CERCLA authorizes the EPA, the states and, in some
circumstances, private entities to take actions in response to public health or
environmental threats and to seek to recover the costs they incur from the same
classes of persons. Certain governmental authorities can also seek recovery for
damages to natural resources. Various subsidiaries of the Company have been
identified as potentially responsible parties by the

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EPA under CERCLA with respect to cleanup of hazardous substances at several
sites to which their wastes allegedly have been transported. The subsidiaries
are in the process of preliminary investigation of their relationship to these
sites, if any, to determine the nature of their potential liability and amount
of remedial costs to clean up such sites. Although no assurances can be given
that the Company will not be required in the future to make material
expenditures relating to these sites, management does not believe at this time
that the cleanup costs its subsidiaries will be called on to bear, if any,
associated with these sites will have a material adverse effect on the financial
condition or results of operations of the Company and its subsidiaries;
management believes the extent of the subsidiaries' involvement, if any, to be
minor in relation to that of other named potentially responsible parties, a
significant number of which are substantial companies.

Employees

As of May 31, 1995, the Company and its subsidiaries employed approximately
7,900 people, of whom approximately 4,900 were hourly workers and approximately
3,000 were salaried employees. Approximately 4,300 employees were represented by
unions under collective bargaining agreements, of which approximately 1,750 were
covered by one contract with the UMWA, which currently expires on August 1,
1998. The Company considers its relations with its employees to be satisfactory.

The Company and its subsidiaries have various pension and profit sharing
plans covering substantially all employees. In addition to its own pension
plans, contributions are made to certain multi-employer plans. The funding of
retirement and employee benefit plans is in accordance with the requirements of
the plans and, where applicable, in sufficient amounts to satisfy the "Minimum
Funding Standards" of the Employee Retirement Income Security Act of 1974
("ERISA"). The plans provide benefits based on years of service and compensation
or at stated amounts for each year of service.

Properties

The headquarters building of the Company is a modern twin tower eight-story
building of masonry and steel construction, containing approximately 200,000
square feet of office space, located on a plot of land in excess of 13 acres in
Tampa, Florida.

Legal Proceedings

Plan of Reorganization. The Plan of Reorganization was confirmed by the
Bankruptcy Court on March 2, 1995. A limited appeal from the order confirming
the Plan of Reorganization was filed by the United States on behalf of the EPA.
Notwithstanding the filing of such appeal, the Plan of Reorganization became
effective on March 17, 1995. The Company and the EPA have resolved all issues on
appeal. On July 11, 1995 the Bankruptcy Court entered its Order Granting Motion
to Approve Agreement of the United States and the Debtor Regarding Releases and
Injunctions Under Amended Joint Plan of Reorganization Dated as of December 9,
1994. A motion to dismiss the appeal has been filed and an order dismissing the
appeal will be entered shortly.

Despite the confirmation and effectiveness of the Plan of Reorganization,
the Bankruptcy Court continues to have jurisdiction to, among other things,
resolve disputed prepetition claims against the Company, resolve matters related
to the assumption, assumption and assignment, or rejection of executory
contracts pursuant to the Plan of Reorganization, and to resolve other matters
that may arise in connection with or relate to the Plan of Reorganization. (For
example, see Note 11 ("Litigation Related to Chapter 11 Distributions to Certain
Holders of Subordinated Notes and/or Debentures and Chapter 11 Adversary
Proceeding Filed by Certain Holders of Series B & C Senior Notes") of Notes to
Financial Statements.) Except as described in "Certain Risk Factors -- Tax
Considerations" and "-- Disputed Claims Reserves," provision was made under the
Plan of Reorganization in respect of all prepetition liabilities of the Company.

Asbestos-Related Litigation Settlements. As discussed more fully under
"Recent History", prior to filing the Chapter 11 Cases, the Company and the
Indemnitees were subject to significant and mounting Veil Piercing Litigation
arising from the LBO and the activities of Celotex, a former subsidiary of the
Company. Celotex filed for protection under Chapter 11 on October 12, 1990 as a
result, in part, of increasingly burdensome asbestos litigation. In the Veil
Piercing Litigation, the Asbestos Claimants sought (i) to pierce the corporate
veil that existed between Celotex and Original Jim Walter prior to the LBO and
(ii) to unwind the LBO. According to the Asbestos Claimants, if Original Jim
Walter were to be deemed responsible for Celotex's alleged multi-billion dollar
asbestos liabilities, the debt issued in connection with the LBO would have
rendered the Company

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insolvent, making the LBO a fraudulent conveyance. The Asbestos Claimants
asserted at various times that the amount of Celotex's asbestos liabilities
could reach $10 billion. Any finding that the Company could be liable for all or
any part of these liabilities would have threatened the Company's existence.

After the filing of the Chapter 11 Cases, the Company commenced the
Adversary Proceeding. After a full trial (the "Veil Piercing Trial"), the
Bankruptcy Court on April 18, 1994 found in favor of the Company on every claim
asserted in the Adversary Proceeding. The United States District Court for the
Middle District of Florida affirmed the Bankruptcy Court's decision on appeal on
October 13, 1995. The decision of the District Court was appealed to the United
States Court of Appeals for the Eleventh Circuit. On or about April 28, 1995, a
stipulation of dismissal of that appeal was filed pursuant to the terms of the
Veil Piercing Settlement described below.

On April 28, 1994, the Company commenced an action (the "Celotex Action")
in the Celotex bankruptcy proceeding seeking a ruling that, as a subsidiary of
Jim Walter Corporation, Celotex alone had standing to assert the Veil Piercing
Claims and that all creditors of Celotex were bound by the decisions in the
Adversary Proceeding. If granted, the relief sought in the Celotex Action would
have barred any future Veil Piercing Claims from being brought against the
Company or any other entity. Counsel for the Asbestos Claimants had indicated
that they would assert that only the named defendants in the Adversary
Proceeding could be bound by the decisions in that action, leaving thousands of
unnamed and future claimants free to relitigate the same issues raised therein.
The Celotex Action was dismissed without prejudice on October 13, 1994 for lack
of a case and controversy and for failure to join an indispensable party.
Counsel for the Asbestos Claimants asserted that they would vigorously oppose
any attempt by the Company to obtain an adjudication in any forum to the effect
that the Asbestos Claimants or any other individual claimants lack standing to
raise Veil Piercing Claims.

Prior to the Veil Piercing Trial, a number of the Company's creditors
reached a settlement agreement with the Asbestos Claimants and Celotex to
resolve the Veil Piercing Claims, the Veil Piercing Litigation and the Adversary
Proceeding (the "Initial Settlement"). The Company did not join in the Initial
Settlement and filed objections in the Chapter 11 Cases thereto.

On October 17, 1994, a hearing was commenced in the Chapter 11 Cases on the
fairness of the Initial Settlement and certain other issues relating to the
payment of post-petition interest to unsecured creditors of the Company and
challenges to the voting process. Before the completion of that hearing, all
parties conducted intensive settlement negotiations. As a result of those
negotiations, the Company, the Asbestos Claimants, certain creditors of the
Company, KKR, Jim Walter Corporation, Celotex and others agreed upon the terms
of a global settlement, ultimately resulting in the execution of the Second
Amended and Restated Veil Piercing Settlement Agreement dated as of November 22,
1994 (the "Veil Piercing Settlement"), the terms of which are embodied in and
made effective by the Plan of Reorganization.

Under the Veil Piercing Settlement, all pending and future Settlement
Claims are settled, satisfied, released, barred and discharged and all persons
that have asserted or may in the future assert Settlement Claims are permanently
enjoined from, among other things, (i) commencing, conducting or continuing in
any manner, directly or indirectly, any proceeding of any kind in respect of
Settlement Claims against, among others, the Company, KKR and any or all of
their present and former parents, subsidiaries, stockholders, partners,
officers, directors and employees (the "Released Parties"), (ii) enforcing,
levying, attaching, collecting or otherwise recovering by any manner, directly
or indirectly, any judgment, award, decree or order against any of the Released
Parties in respect of Settlement Claims and (iii) creating, perfecting or
otherwise enforcing in any manner, directly or indirectly, any encumbrance of
any kind against any of the Released Parties in respect of Settlement Claims.

The Veil Piercing Settlement was intended to resolve finally all Settlement
Claims. The Veil Piercing Settlement was signed by, among others, Celotex, Jim
Walter Corporation and counsel for the Asbestos Claimants, thus binding them to
the terms thereof. To implement the Veil Piercing Settlement, all present and
future holders of Settlement Claims other than Celotex, including Asbestos
Claimants, were certified by the Bankruptcy Court as a class (for settlement
purposes only) under applicable bankruptcy rules and the Federal Rules of Civil
Procedure (the "Class"). A representative of the Class was appointed by the
Bankruptcy Court (the "Class Representative"). All potential members of the
Class who could be identified received actual notice of the terms of the Veil
Piercing Settlement and the Plan of Reorganization in addition to wide
publication notice. The forms of notice were approved by the Bankruptcy Court.
The Class Representative and Celotex each filed proofs

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of claim in the Chapter 11 Cases for the Settlement Claims. The Company filed
objections to those proofs of claim and the Bankruptcy Court allowed the
Settlement Claims pursuant to the Veil Piercing Settlement in the aggregate
amount of $375 million.

The Plan of Reorganization established a class of all present and future
holders of Settlement Claims ("Class U-7"). A bar date for the filing of Class
U-7 claims was set and notice thereof was approved by the Bankruptcy Court and
given by the Company to all known Veil Piercing Claimants and by publication.
For voting purposes, every member of Class U-7 was temporarily allowed a $1
claim. Every Class U-7 claimant was given an opportunity to vote on the Plan of
Reorganization. Class U-7 approved the Plan of Reorganization by a vote of
73,861 in favor to 16 opposed. No member of Class U-7 filed an objection to the
Plan of Reorganization or to the Veil Piercing Settlement embodied therein.

The Plan of Reorganization provides that acceptance of the Plan of
Reorganization by Class U-7 binds any and all present or future holders of
Settlement Claims to the terms of the Plan of Reorganization and thus bars them
from bringing any Settlement Claims against the Company, the Indemnitees or any
of the other Released Parties. Under the terms of the Veil Piercing Settlement,
the stated amount of the settlement ($375 million) (the "Celotex Settlement
Fund") was paid under the Plan of Reorganization in the form of Common Stock,
cash and Notes to a fund (the "Celotex Settlement Fund Recipient") that will
hold the proceeds for the exclusive benefit of the Veil Piercing Claimants (as
defined in the Veil Piercing Settlement). Under the Plan of Reorganization, all
Settlement Claims must be channeled to the Celotex Settlement Fund Recipient to
be administered under the jurisdiction of the bankruptcy court in the Celotex
bankruptcy proceeding.

On March 2, 1995, the Bankruptcy Court entered a confirmation order which,
among other things, (i) provided for the satisfaction, discharge and release of
the Settlement Claims, (ii) included an injunction permanently channelling all
Settlement Claims to the Celotex Settlement Fund Recipient, (iii) found the Veil
Piercing Settlement to be fair and reasonable and (iv) provided that the Class
shall be deemed to have provided releases of all Released Parties under the Veil
Piercing Settlement.

By orders dated February 13 and 25, 1995, the Celotex bankruptcy court
approved the Veil Piercing Settlement and directed Celotex to render performance
in accordance with its terms. In addition, the Celotex bankruptcy court
appointed a legal representative to protect the interests of unknown asbestos
bodily injury claimants. After review of the Veil Piercing Settlement, that
legal representative informed the Celotex bankruptcy court that the Veil
Piercing Settlement should be approved as being in the best interests of such
claimants.

On March 17, 1995, the Celotex bankruptcy court issued an order authorizing
the Celotex Settlement Fund Recipient to receive the Celotex Settlement Fund for
the exclusive benefit of the Veil Piercing Claimants (as defined in the Veil
Piercing Settlement). The Celotex bankruptcy court also ordered that "all claims
of the type settled by the Veil Piercing Settlement . . . shall attach solely to
the [Celotex] Settlement Fund and all persons and entities are enjoined from
commencing or continuing any suit, arbitration or other proceeding of any type
against any and all of the Released Parties . . . arising out of any such
claims." The Celotex bankruptcy court also enjoined anyone from taking any
action against the Celotex Settlement Fund without the prior approval of the
Celotex bankruptcy court.

Under the terms of the Veil Piercing Settlement, all parties thereto have
agreed to use their best efforts to obtain a confirmation of a plan of
reorganization in the Celotex bankruptcy proceeding that includes a provision
for and injunction pursuant to Section 524(g) of the Bankruptcy Code. Section
524(g) is part of the 1994 amendments to the Bankruptcy Code. It provides for
permanent supplemental injunctions, such as the ones contemplated in the Veil
Piercing Settlement, to protect third parties who are not debtors in bankruptcy.
Thus, a supplemental injunction under Section 524(g) would operate to bar future
Settlement Claims against the Company, the Indemnitees and the other Released
Parties. There had been some disputes about the statutory authorization of such
injunctions under caselaw before the enactment of Section 524(g). Under Section
524(g), the Celotex bankruptcy court may (i) bind all present and future holders
of Settlement Claims to the terms of the Veil Piercing Settlement and (ii)
enjoin such holders from bringing Settlement Claims against any Released Party
in the future.

The Plan of Reorganization does not provide for a Section 524(g)
injunction. However, as discussed above, under the terms of the Veil Piercing
Settlement the parties to the Celotex bankruptcy proceeding are required to seek
in good faith the confirmation of a plan of reorganization that contains such a
provision. A plan of reorganization has already been proposed in the Celotex
bankruptcy proceeding which provides for an

49
<PAGE>

injunction under Section 524(g). Although there is no assurance that it will be
confirmed and consummated, if a Celotex plan of reorganization is confirmed and
consummated and it contains a Section 524(g) injunction, it would provide
additional protection for the Released Parties, including the Company.

Jim Walter Homes/Mid-State Homes. Jim Walter Homes and Mid-State Homes,
together with Mid-State Trust II and certain other parties, are involved in
litigation, primarily in the Bankruptcy Court, with approximately 750 owners of
houses constructed by Jim Walter Homes in south Texas. The homeowners seek
damages based upon alleged construction defects, common law fraud, and
violations of the Texas Deceptive Trade Practices Act, the Texas Consumer Credit
Code, federal and state debt collections statutes and the Racketeering Influence
Corruptions and Practices Act. Although Jim Walter Homes and Mid-State Homes
believe that the litigation is substantially without merit, a settlement
agreement ("Texas Settlement Agreement") has been reached with the attorney for
the homeowner claimants. The anticipated settlement amount will be approximately
$3.6 million in account balance reductions (of which approximately $1.25 million
represents a principal reduction), plus an approximate aggregate payment of
$27,500 in cash to certain clients and $2.9 million as attorney's fees (of which
$900,000 may be deferred and payable over the next five years). The consummation
of the Texas Settlement Agreement is subject to various conditions, including
approval by all of the parties thereto. It also contains provisions allowing
claimants to "opt out" or not participate in the Texas Settlement Agreement and
for the defendants to avoid the settlement in its entirety if, in their
judgment, the number of claimants who opt out is so large as to make the
settlement of little value. It also has a provision for the attorney for the
homeowner claimants to indemnify and hold harmless the defendants from any and
all claims, demands, causes of actions, lawsuits and settlements by the
homeowners. Further, it provides for the Bankruptcy Court to retain jurisdiction
over any claims which are not resolved by the Texas Settlement Agreement. On
June 27, 1995 the Bankruptcy Court ordered a notice to be sent to creditors of
the Company concerning the Texas Settlement Agreement which provided that any
objections to the settlement be filed with the Bankruptcy Court by July 12,
1995. On July 13, 1995, the Bankruptcy Court entered its Order Granting Motion
to Approve Compromise and Settlement Agreement and the parties have commenced
implementing the Texas Settlement Agreement.

In May 1995 Jim Walter Homes and Mid-State Homes settled a class action by
purchasers of houses constructed by Jim Walter Homes in South Carolina since
December 27, 1989 in which the plaintiffs contended that Jim Walter Homes
violated certain provisions of the South Carolina Consumer Protection Code (the
"South Carolina Statute") relating to a borrower's right to choose the
borrower's attorney in certain transactions. See Note 11 ("South Carolina Class
Actions") of Notes to Financial Statements for additional information concerning
the settlement. Jim Walter Homes and Mid-State Homes had filed an action in the
Bankruptcy Court for a declaratory judgment with respect to their liability, if
any, to purchasers of houses built by Jim Walter Homes in South Carolina from
July 1, 1982 (the date on which the South Carolina Statute become effective) to
December 27, 1989. Jim Walter Homes, Mid-State Homes and representatives of the
homeowners have negotiated a proposed settlement of that action which will
require a cash payment of approximately $3 million, which after application of
these settlement proceeds to pay existing arrearages on the homeowners'
mortgages will result in a net cash outlay of approximately $1,050,000. In
addition, legal fees of approximately $360,000 will be paid. The proposed
settlement is subject to the Bankruptcy Court's approval upon submission of an
appropriate motion. The proposed settlement may involve additional account
classifications which are in the process of being analyzed and which may be
included in an amended complaint to be filed in the above-described declaratory
judgment action.

Jim Walter Resources. On May 31, 1995 the Company and Jim Walter Resources
commenced a lawsuit in the Circuit Court for Tuscaloosa County, Alabama against
a group of insurance companies with which the Company has business interruption
insurance seeking damages in excess of $25 million for loss from interruption of
Jim Walter Resources' business resulting from a fire in November 1993 in Jim
Walter Resources' Mine No. 5. See "Business and Properties -- Jim Walter
Resources" and Note 11 of Notes to Financial Statements. The complaint also
seeks a declaratory judgment concerning the insurers' contentions that (i) the
risk which caused the loss was not insured because it was not fortuitous, but
was spontaneous combustion known to occur in Jim Walter Resources' mines, and
(ii) the Company failed to disclose the risk of loss from spontaneous combustion
and that the insurance policies are void or voidable because of such failure.
The lawsuit is in its initial stages, but the Company and Jim Walter Resources
believe their claim is meritorious and intend to pursue it vigorously.

U.S. Pipe -- Environmental Penalty. U.S. Pipe has recently entered into an
administrative consent order with the New Jersey Department of Environmental
Protection pursuant to which it agreed, among other things, to pay a civil
penalty of $187,000 to resolve alleged violations regarding its plant in
Burlington, New Jersey. The

50
<PAGE>

Company does not expect the civil penalty or any other aspect of the order to
have a materially adverse effect on its consolidated financial position. See
Note 11 of Notes to Financial Statements ("Environmental Matters").

Other. The Company and its subsidiaries are involved in various other
proceedings arising in the ordinary course of their businesses. Management does
not expect that any of such other proceedings will have a material adverse
effect on the Company's consolidated financial position.

MANAGEMENT
Directors and Executive Officers

Set forth below is a list showing the names, ages (as of July 1, 1995) and
positions of all Directors of the Company, and, where applicable, the executive
office or offices held by each Director with the Company.

Name Age Position
---- --- --------

James W. Walter 72 Chairman and Director.

G. Robert Durham 66 Director; President and Chief Executive Officer.

Kenneth J. Matlock 67 Director; Executive Vice President and Chief
Financial Officer.

Howard L. Clark, Jr. 51 Director.

James B. Farley 64 Director.

Eliot M. Fried 62 Director.

James L. Johnson 68 Director.

Robert I. Shapiro 45 Director.

Michael T. Tokarz 45 Director.

James W. Walter has been the Chairman and a Director of the Company since
1988. Mr. Walter will retire as Chairman of the Company effective October 6,
1995 and therafter will be the Chariman Emeritus and a Director of the Company.
Mr. Walter founded Walter Construction Co., a predecessor of Original Jim
Walter, in 1948 and Original Jim Walter (incorporated in 1955). He was President
and Chief Executive Officer of Original Jim Walter from 1955 to 1963, Chairman
and Chief Executive Officer from 1963 to 1983 and Chairman thereafter. He is a
Director of Anchor Glass Container Corporation and Contel Cellular, Inc.

G. Robert Durham has been President and Chief Executive Officer and a
Director of the Company since June 1991. Mr. Durham will also become the
Chairman of the Company effective October 6, 1995. He was Chairman, President
and Chief Executive Officer of Phelps Dodge Corporation, a producer of copper,
truck wheels and rims, and carbon black, from 1987 to 1989, when he took early
retirement. Prior to 1987 he was President and Chief Operating Officer (1985-
1987) and held other executive positions (1967-1985) with Phelps Dodge
Corporation and/or its affiliated companies. He also is a Director of Homestake
Mining Company, MinCorp Holdings Inc. and The FINOVA Group Inc. and a Trustee of
Mutual of New York.

Kenneth J. Matlock has been Executive Vice President and Chief Financial
Officer of the Company since 1991; prior thereto he was Senior Vice President
and Chief Financial Officer of the Company from 1988 to 1991. Mr. Matlock joined
Original Jim Walter in 1964, became Controller in 1970, Chief Financial Officer
in 1974 and Senior Vice President in 1984. Mr. Matlock has been a Director of
the Company since 1988.

Howard L. Clark, Jr. has been the Vice Chairman of Lehman, an investment-
banking firm, since February 1993; prior thereto he served as Chairman and Chief
Executive Officer of Shearson Lehman Brothers, Inc. Prior thereto he was an
Executive Vice President and the Chief Financial Officer of American Express
Company, a financial services firm. He also is a Director of Lehman, Plasti-
Line, Inc., The Maytag Corporation,

51
<PAGE>
the Securities Industry Association and The Fund American Companies, Inc. Mr.
Clark has been a Director of the Company since March 17, 1995.

James B. Farley is the retired Chairman of the Board, and a current
Trustee, of Mutual of New York, a life insurance company. He served as Chairman
and Chief Executive Officer of Mutual of New York from 1989 to 1994. He also is
a Director of Ashland Oil, Inc. and The Promus Companies. Mr. Farley has been a
Director of the Company since March 17, 1995.

Eliot M. Fried has been a Managing Director of Lehman or Shearson Lehman
Brothers, Inc. since 1991 and is Co-chairman of Lehman's Firm Wide Investment
Committee. He served as a Senior Vice President of Shearson Hayden Stone, a
predecessor firm of Lehman, from 1982 to 1991. He also is a Director of American
Marketing Industries, Bridgeport Machines, Inc., Energy Ventures, Inc., Lear
Seating Corporation, Sun Distributors L.P. and Vernitron Corporation. Mr. Fried
has been a Director of the Company since March 17, 1995.

James L. Johnson is Chairman Emeritus of GTE Corporation, a telephone
company and cellular service provider. From April 1988 to May 1992 he was
Chairman and Chief Executive Officer of GTE. He also is a Director of Contel
Cellular, Inc., CellStar Corporation, The FINOVA Group Inc., Harte-Hanks
Communications Inc. and Valero Energy Corp. and a Trustee of Mutual of New York.
Mr. Johnson has been a Director of the Company since March 17, 1995.

Robert I. Shapiro has been a Managing Director of Lehman since 1985. He is
Chairman of Lehman's Employee Benefit Plans Committee and a Trustee of the
Lehman Brothers Pension Plan. Mr. Shapiro has been a Director of the Company
since March 17, 1995.

Michael T. Tokarz has been a general partner of KKR, a private investment
firm, since January 1993; prior thereto he was an associate at KKR since
September 1985. He also is a Director of Safeway, Inc., K-III Communications
Corporation, Flagstar Companies, Inc., Flagstar Corporation, Neway Anchorlok
International, Inc., KSL Recreation Corporation and IDEX Corporation. Mr. Tokarz
has been a Director of the Company since 1987.

Except as described under "Board of Directors" below, Directors of the
Company are elected by the stockholders of the Company. Each Director holds
office until his successor is elected and qualified. The Company is not aware of
any family relationships among any of the foregoing Directors.

Set forth below is a list showing the names, ages (as of July 1, 1995) and
positions of the executive officers of the Company who are not Directors of the
Company.

52
<PAGE>

Name Age Offices
---- --- -------

William Carr . 64 President and Chief Operating Officer of Jim
Walter Resources

Frank A. Hult . 44 Vice President and Controller of the Company

Donald M. Kurucz 55 Vice President and Treasurer of the Company

Robert W. Michael 53 Senior Vice President and Group Executive of the
Company; President and Chief Operating Officer of
Jim Walter Homes

Sam J. Salario 66 President of Mid-State Homes; Vice President of
Jim Walter Homes

William N. Temple 62 Senior Vice President and Group Executive of the
Company; President and Chief Operating Officer of
U.S. Pipe

David L. Townsend 41 Vice President-Human Resources/Public Relations of
the Company

John F. Turbiville 66 Vice President-Legal and Secretary of the
Company

William H. Weldon 63 Senior Vice President-Finance and Chief Accounting
Officer of the Company

William Carr has been President and Chief Operating Officer of Jim Walter
Resources since 1991; prior thereto he was a Senior Executive Vice President and
Chief Operating Officer of Jim Walter Resources and President of its Mining
Division since 1976. He was a Vice President of Original Jim Walter from 1976 to
1988.

Frank A. Hult has been a Vice President of the Company since 1994 and the
Controller of the Company since 1991; he was Assistant Controller and Chief
Accountant (1989-1991) and Manager of Budgets (1988-1989) of the Company.
Previously he was Manager of Budgets (1984-1988) and Financial Analyst (1978-
1981) of Original Jim Walter and Manager-Operations Administration (1981-1984);
Plant Controller (1975-1978) and Cost Accountant (1974-1975) for Celotex.

Donald M. Kurucz has been a Vice President and the Treasurer of the Company
since 1991; he was Treasurer of the Company from 1988-1991. Previously he served
as Treasurer (1977-1988) and Assistant Treasurer (1975-1977) of Original Jim
Walter.

Robert W. Michael has been a Senior Vice President and Group Executive of
the Company since 1991 and President and Chief Operating Officer of Jim Walter
Homes since 1984. Prior thereto, he was Vice President-Sales (1975-1984), a
Regional Manager (1973-1975), an Assistant Regional Manager (1970-1973), a Main
Branch Manager (1967-1970) and a Sub-Branch Manager (1966-1967) with Jim Walter
Homes and held various managerial positions with Mid-State Homes (1964-1966). He
was a Vice President of Original Jim Walter (1984-1988).

Sam J. Salario has been President of Mid-State Homes since 1984, and a Vice
President of Jim Walter Homes since 1972. Previously he served as an Assistant
Vice President (1963-1984), a Regional Supervisor (1961-1963) and a
Representative (1960-1961) with Mid-State Homes.

William N. Temple has been a Senior Vice President and Group Executive of
the Company since 1991 and President and Chief Operating Officer of U.S. Pipe
since 1993; he was a Vice President of the Company from 1988 to 1991 and, from
1974, was a Vice President of Original Jim Walter. Previously he served as
President of the former Fasteners and Special Products Division of U.S. Pipe and
Vice President of U.S. Pipe (1972-1974), President of the former Southeastern
Bolt and Screw division of U.S. Pipe (1971-1974) and Controller of U.S. Pipe
(1965-1971).

David L. Townsend has been a Vice President of the Company since 1988.
Previously he served as a Vice President (since 1983), Director of Public
Relations (1982-1983) and Manager of Public Relations (1980-1982) of Original
Jim Walter and in various staff positions (1978-1980) with Original Jim Walter.

53
<PAGE>
John F. Turbiville has been a Vice President and the Secretary of the
Company since 1988. Previously he served as Assistant Secretary of the Company
(1988) and Original Jim Walter (1981-1988) and as a staff attorney (1979-1981)
with Original Jim Walter.

William H. Weldon has been a Senior Vice President and the Chief Accounting
Officer of the Company since 1991; he was Vice President, Controller and Chief
Accounting Officer of the Company from 1988 to 1991. Previously he served as
Vice President and Controller (1977-1988), Controller (1972-1977) and Assistant
Controller (1970-1972) of Original Jim Walter.

Executive officers serve at the pleasure of the Board of Directors. The
Company is not aware of any family relationships among any of the foregoing
executive officers.

Board of Directors

Pursuant to the Plan of Reorganization and the Charter, the Board of
Directors of the Company consists of nine (9) directors. For the first three
years after the Effective Date of the Plan of Reorganization (the "Initial Three
Year Term"), the Board will be selected as follows (subject to the exceptions
discussed in the next paragraph): three directors will be senior officers of the
Company (initially G. Robert Durham, James W. Walter and Kenneth J. Matlock; any
successors will be selected by the remaining directors from the senior officers
of the Company); one director will be a person designated by KKR (the "KKR
Director") (initially Michael T. Tokarz); three directors will be persons
designated by Lehman (the "Lehman Directors") (initially Howard L. Clark, Jr.,
Eliot M. Fried and Robert I. Shapiro); and two directors (the "Independent
Directors") (initially James B. Farley and James L. Johnson) will be persons who
(a) are not (i) officers, affiliates, employees, Interested Stockholders,
consultants or partners of any Significant Stockholder or any affiliate of any
Significant Stockholder or of any entity that was dependent upon any Significant
Stockholder or any affiliate of any Significant Stockholder for more than 5% of
its revenues or earnings in its most recent fiscal year, (ii) an officer,
employee, consultant or partner of the Company or any of its affiliates, or an
officer, employee, Interested Stockholder, consultant or partner or any entity
that was dependent upon the Company or any of its affiliates for more than 5% of
its revenues or earnings in its most recent fiscal year or (iii) any relative or
spouse of any of the foregoing persons or a relative of a spouse of any of the
foregoing persons and (b) are selected by management of the Company from a list
of qualified candidates provided by an independent search firm selected by
management and Lehman. For these purposes "Interested Stockholder" means, with
respect to any person, any other person that together with its affiliates and
associates beneficially owns (as defined in Rule 13d-3 under the Exchange Act)
5% or more of the equity securities of such person, and "Significant
Stockholder" means an Interested Stockholder of the Company.

If, at any time during the Initial Three Year Term, (i) after six months
following the Effective Date of the Plan of Reorganization, Lehman notifies KKR
that it has determined to transfer to KKR the right to appoint one of the three
Lehman Directors or (ii) Lehman and its affiliates fail to have beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of 8% of the
outstanding Common Stock (without giving effect to shares of Common Stock held
in escrow pursuant to the Plan of Reorganization; see "Security Ownership of
Management and Principal Stockholders" and "Description of Capital Stock --
Future Stock Issuances") (the "Outstanding Common Stock") and KKR and its
affiliates have beneficial ownership of 8% or more of the Outstanding Common
Stock at such time, then, in each case, KKR shall have the right to compel one
Lehman Director selected by Lehman to resign as a director and to appoint as a
successor an additional KKR Director. If, at any time during the Initial Three
Year Term, there are two KKR Directors and KKR and its affiliates fail to have
beneficial ownership of 8% or more of the Outstanding Common Stock while Lehman
and its affiliates have beneficial ownership of 8% or more of the Outstanding
Common Stock, then Lehman shall have the right to compel one KKR Director
selected by KKR to resign as a director and to appoint as a successor an
additional Lehman Director. If, at any time during the Initial Three Year Term,
either Lehman and its affiliates or KKR and its affiliates fail to have
beneficial ownership of 5% or more of the Outstanding Common Stock, then the
Lehman Directors or the KKR Director(s), as the case may be, shall resign and
the remaining directors shall appoint their successor(s) for the remainder of
the Initial Three Year Term; provided, however, that KKR shall be entitled to
have one KKR Director during the Initial Three Year Term if the number of shares
of Common Stock beneficially owned by KKR and its affiliates, together with
shares of Common Stock held in escrow pursuant to the Plan of Reorganization
that would be distributed to KKR or its affiliates upon release from escrow,
constitutes 5% or more of the Outstanding Common Stock and shares held in escrow
pursuant to the Plan of Reorganization.

54
<PAGE>

After the Initial Three Year Term, all the directors of the Company shall
be elected by the stockholders of the Company annually for a term of one year
each.

Committees of the Board of Directors

The Board of Directors of the Company has established a Tax Oversight
Committee, an Audit Committee, a Compensation Committee, a Finance Committee, a
Nominating Committee and an Environmental, Health and Safety Committee. The
Board may, from time to time, establish certain other committees to facilitate
the management of the Company.

The Tax Oversight Committee is responsible for (i) approving all
settlements and agreements by the Company or any of its subsidiaries regarding
all Federal Income Tax Claims and (ii) determining Veil Piercing Settlement Tax
Savings Amounts and related responsibilities, all as more particularly described
under "Description of Capital Stock -- Future Stock Issuances." The members of
the Tax Oversight Committee shall consist at all times of two Independent
Directors and a Director (or other person) designated by Lehman (initially
Robert I. Shapiro, Chairman, James B. Farley and James L. Johnson).

The Audit Committee is responsible for meeting with representatives of the
Company's independent certified public accountants and financial management to
review accounting, internal control, auditing and financial reporting matters,
and is also responsible, among other things, for maintaining liaison with and
exercising such supervision of the actions of said accountants in whatever
manner and to whatever extent shall be deemed, at its discretion, necessary,
proper and in the best interest of the Company and its stockholders. The Audit
Committee consists of five Directors who are not and never have been employees
of the Company (initially Eliot M. Fried, Chairman, James B. Farley, James L.
Johnson, Robert I. Shapiro and Michael T. Tokarz).

The Compensation Committee is responsible for reviewing and approving
officer and executive salaries in amounts over $100,000 annually and for
reviewing and recommending for approval by the Board of Directors executive and
key employee compensation plans, including incentive compensation and other
benefits, and consists of five Directors who are not and never have been
employees of the Company (initially James L. Johnson, Chairman, Howard L. Clark,
Jr., James B. Farley, Eliot M. Fried and Michael T. Tokarz).

The Finance Committee is responsible for recommendations to the Board of
Directors concerning financings, dividends, discretionary contributions by the
Company under the Company's employee benefit plans and other financial matters,
approval of the designation of the investment fund managers for the Company's
employee benefit plans, and approval of investment of the Company's funds, by
establishment of policies for investment of funds by the Company's officers. The
Financing Committee consists of five Directors (initially James B. Farley,
Chairman, Howard L. Clark, Jr., Eliot M. Fried, Michael T. Tokarz and James W.
Walter).

The Environmental, Health and Safety Committee is responsible for receiving
environmental, health and safety reports from the Company's and its
subsidiaries' environmental counsel and engineers and health and safety
personnel; examining and reporting upon the Company's and its subsidiaries'
compliance with environmental, reclamation, health and safety requirements and
the policies pertaining thereto; reporting the same to the Board of Directors;
approving the proposed scope of internal and independent environmental and
health and safety audits; and periodically evaluating and recommending to the
Board of Directors changes in the Company's and its subsidiaries' environmental,
health and safety policies. The Environmental, Health and Safety Committee
consists of three Directors (initially Michael T. Tokarz, Chairman, James L.
Johnson and Robert I. Shapiro).

The Nominating Committee is responsible for establishing the criteria for
and the qualifications of persons suitable for nomination as Directors,
including nominees recommended by stockholders, and reporting its
recommendations to the Board of Directors. During the Initial Three Year Term,
selection of Directors is subject to restrictions discussed in "Board of
Directors" above. The Nominating Committee consists of five Directors (initially
Howard L. Clark, Jr., Chairman, James B. Farley, Eliot M. Fried, James L.
Johnson and Michael T. Tokarz).

Pursuant to the Charter and By-laws, at all times during the Initial Three
Year Term each committee of the Board of Directors (other than the Tax Oversight
Committee, which shall be constituted as described above) shall include such
number of directors (but in any event at least one director) designated by each
of KKR and Lehman so that each of KKR and

55
<PAGE>
Lehman has representation on each such committee proportionate to the
representation it has on the Board of Directors. The Charter provides that the
foregoing provision of the By-laws and certain other provisions of the By-laws
cannot be amended by the Board of Directors during the Initial Three Year Term
unless 67% of the whole Board of Directors votes in favor of the amendment.
Thereafter, the affirmative vote of a majority of directors will be required to
amend those provisions.

Directors' Compensation

Non-employee Directors of the Company (Messrs. Clark, Farley, Fried,
Johnson, Shapiro and Tokarz) are paid retainer fees of $25,000 per year;
committee chairmen receive an additional retainer fee of $5,000 per year. Each
non-employee Director also receives a fee of $1,500 for each Board or committee
meeting attended. The Company and its subsidiaries do not pay fees to Directors
who are employees of any of the Company and its subsidiaries.

Executive Compensation

The following table sets forth information concerning compensation paid to
or accrued for the account of the Chief Executive Officer of the Company and
each of the next four (4) most highly compensated executive officers of the
Company whose cash compensation exceeded $100,000 (the Chief Executive Officer
and each other such executive officer, the "Named Executive Officers") during
the fiscal years ended May 31, 1995 and 1994 for services rendered in all
capacities:

56
<PAGE>

<TABLE><CAPTION>
SUMMARY COMPENSATION TABLE

Annual Compensation
-----------------------------------------
Name and Year ended All Other
Principal Position May 31,(1) Salary Bonus(2) Compensation(3)
--------------------------- ----------------- -------------------- -------------------- -----------------------

<S> <C> <C> <C> <C>
G. Robert Durham, 1995 $466,764 $1,225,000 N/A
President and CEO 1994 460,214 400,000 $69,275

James W. Walter, Chairman 1995 370,366 1,225,000 N/A
1994 369,603 400,000 53,880

Kenneth J. Matlock, 1995 258,351 840,000 N/A
Executive Vice President 1994 248,992 235,000 36,000
and Chief Financial
Officer

William H. Weldon, Senior 1995 183,618 565,000 N/A
Vice President--Finance 1994 173,688 160,000 25,798
and Chief Accounting
Officer

William N. Temple, Senior 1995 205,202 287,000 63,053(4)
Vice President and Group 1994 180,608 120,000 8,815
Executive; President of
U.S. Pipe
</TABLE>

(1) Disclosure is only provided as to the last two full fiscal years of the
Company because prior thereto it was not a "reporting company" pursuant to
Section 13(a) or 15(d) of the Exchange Act.

(2) For fiscal 1995, the amounts shown in this column include bonuses paid to
the Named Executive Officers pursuant to the Plan of Reorganization in
addition to incentive bonus compensation. At the time of filing of the
Chapter 11 Cases, accounting professionals for the official committees in
the Chapter 11 Cases recommended that the Company adopt a retention bonus
arrangement, a common method of assuring retention of key personnel during
bankruptcy proceedings. The Company decided not to adopt such a retention
bonus plan, but determined instead to pay bonuses informally upon
completion of the reorganization to key personnel who continued their
employment with the Company and its subsidiaries during the pendency of the
Chapter 11 Cases (which were initiated on December 27, 1989 and concluded
on March 17, 1995) despite the unavailability of long-term incentive
compensation plans and the limitations on salaries and incentive
compensation imposed by the Bankruptcy Court during such time. The
Company's proposal to make such informal payments was incorporated in the
Plan of Reorganization and approved by the Bankruptcy Court. Such bonuses
were paid upon the Effective Date of the Plan of Reorganization in the
amounts of $800,000, $800,000, $600,000, $400,000 and $175,000 for Messrs.
Durham, Walter, Matlock, Weldon and Temple, respectively.

(3) The amounts shown in this column for fiscal 1994 represent the Company's
contributions for the account of each of the Named Executive Officers to
the Walter Industries Profit Sharing Plan (the "Profit Sharing Plan") and
accruals for the related Supplemental Profit Sharing Plan (the
"Supplemental Profit Sharing Plan") which provides benefits which would
have been provided under the tax-qualified Profit Sharing Plan but for
restrictions on such benefits imposed by the Internal Revenue Code of 1986,
as amended (the "IRC"). The Profit Sharing Plan and the Supplemental Profit
Sharing Plan amounts are for the plan year ended August 31, 1994. Amounts
for the plan year ending August 31, 1995 are not currently available, but
are anticipated not to be materially different from amounts for the plan
year ended August 31, 1994.

(4) In fiscal 1995, Mr. Temple was paid $63,053 in reimbursement of expenses he
incurred in moving from Tampa, Florida, the location of the Company's
headquarters, to Birmingham, Alabama, the location of U.S. Pipe's
headquarters. No amount in respect of the Profit Sharing Plan or the
Supplemental Profit Sharing Plan is included for fiscal 1995. See Footnote
(3).

Pension Plans

The table below sets forth the aggregate estimated annual retirement
benefits payable under the Pension Plan for Salaried Employees of Subsidiaries,
Divisions and/or Affiliates of Walter Industries (the "Pension Plan") and under
the Company's unfunded, non-qualified, Supplemental Pension Plan (the
"Supplemental Pension Plan" and together with the Pension Plan, the "Pension
Plans") for employees retiring at normal retirement age (65) on June 1, 1995 and
is based on social security covered compensation in effect on June 1, 1995:

57
<PAGE>
<TABLE><CAPTION>

PENSION PLAN TABLE

Years of Service
Remuneration 15 20 25 30 35
--------------------------------------------------------------

Benefit payments under the Pension Plans are based on final average annual
compensation (including overtime pay, incentive compensation and certain other
forms of compensation reportable as wages taxable for federal income tax
purposes) for the five (5) consecutive years within the final ten (10) years of
employment prior to normal retirement date (65) which produce the highest
average. This is equivalent to the sum of the amounts included under the Salary
and Bonus column headings in the Summary Compensation Table above. Benefit
amounts are shown on a straight-line annuity basis, payable annually upon
retirement at age 65. No offsets are made for the value of any social security
benefits earned. In the case of the Supplemental Pension Plan, the applicable
company may, in its sole discretion, elect to furnish any and all benefits due
by purchasing annuities, or by other means at its disposal, including payment of
the present value of such benefits.

Only employees of the Company's subsidiaries (except Jim Walter Homes,
Mid-State Homes, Best Insurors, Inc. ("Best Insurors"), Best Insurors of
Mississippi, Inc., JW Insurance Services, Inc., Dixie Building Supplies, Inc.
("Dixie Building Supplies") and Coast to Coast Advertising, Inc.) participate in
the Pension Plans. Of the Named Executive Officers, only Messrs. Matlock (due to
his past service with a subsidiary of the Company) and Temple are participants
in the Pension Plans with six (6) and ten (10) years of credited service,
respectively; Messrs. Durham, Walter and Weldon are not participants in the
Pension Plans.

Certain Compensation Arrangements

Durham Employment Agreement. The Company has an employment agreement with
G. Robert Durham dated June 19, 1993 (the "Durham Employment Agreement"),
pursuant to which the Company agreed to employ Mr. Durham as, and Mr. Durham
agreed to serve as, President and Chief Executive Officer and a member of the
Board of Directors of the Company until May 31, 1995. The Durham Employment
Agreement was automatically renewed on June 1, 1995 and shall be automatically
renewed from year to year on each June 1 thereafter until terminated by either
Mr. Durham or the Company on 60 days' written notice to the other party. The
Durham Employment Agreement provides that Mr. Durham will receive a base annual
salary of $450,000, with additional incentive compensation to be determined by
the Company's Board of Directors in accordance with past practices. Under the
Durham Employment Agreement, Mr. Durham is entitled to be indemnified for his
acts as an officer of the Company, and is entitled to participate in other
Company employee benefit plans, including the Profit Sharing Plan and the
Supplemental Profit Sharing Plan.

If Mr. Durham's employment is terminated, Mr. Durham shall be entitled to
receive his then current base salary for the balance of the Company's fiscal
year in which employment is terminated plus, if such termination is without
cause, a pro rata amount of incentive compensation for that year. In the case of
Mr. Durham's death during any period of renewal of the Durham Employment
Agreement, his executor, administrator, testamentary trustee, legatees or
beneficiaries, as the case may be, shall be entitled to receive his then current
base salary during the nine-month period following the date of death.

Profit Sharing Plans. Under the Profit Sharing Plan and the Supplemental
Profit Sharing Plan, amounts contributed by the Company for the benefit of the
participants become payable upon termination of employment. In the case of the
Supplemental Profit Sharing Plan, accrued amounts are payable, at the discretion
of the Company, in either a lump sum or in sixty (60) equal monthly
installments. While the Profit Sharing Plan

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<PAGE>

provides retirement benefits for all salaried employees of the Company and
certain of its subsidiaries not covered by the Pension Plans, the Company makes
contributions to the Supplemental Profit Sharing Plan only for such employees as
to which the full contribution under the Profit Sharing Plan has been limited by
the IRC. For the Supplemental Profit Sharing Plan year to end August 31, 1995,
only four employees, Messrs. Walter, Durham, Matlock and Weldon, will qualify
for participation in the Supplemental Profit Sharing Plan.

Compensation Committee Interlocks or Insider Participation in Compensation
Decisions

During the fiscal year ended May 31, 1995, James W. Walter, Chairman and a
Director of the Company, and G. Robert Durham, President and Chief Executive
Officer and a Director of the Company, participated in deliberations of the
Company's Board of Directors concerning executive compensation.

Certain Related Transactions

In July 1986, Waltsons, Inc., a family owned corporation in which James W.
Walter, Chairman and a Director of the Company, has a twenty percent (20%)
interest, acquired a fifty percent (50%) interest in the operations of Booker &
Company, Inc. ("Booker"), a wholesale distributor of building supplies and
material headquartered in Tampa, Florida. For over 30 years, Booker has been a
supplier of various building supplies and materials to Dixie Building Supplies.
During the fiscal year ended May 31, 1995, Booker's sales of building supplies
and materials to such subsidiary totaled $5,433,513.

In March 1995, Lehman acted as an underwriter in connection with the public
issuance by Mid-State Trust IV of $959,450,000 of Mid-State Trust IV Asset
Backed Notes, for which it received underwriting commissions and fees of
approximately $__________. See "Business and Properties -- Mid-State Homes."

The Company believes that the terms of the agreements between the Company
and each of Booker and Lehman, respectively, are at least as favorable to the
Company as those that could be obtained from unaffiliated third parties.

SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS

The following tables furnish information, as of July 21, 1995, as to: (i)
shares of Common Stock beneficially owned by each Director and Named Executive
Officer of the Company and shares of Common Stock beneficially owned by all
Directors and executive officers of the Company as a group; and (ii) shares of
Common Stock known by the Company to be beneficially owned by any person owning
beneficially more than five percent (5%) of the outstanding shares of Common
Stock, together with such person's address. (Except as indicated below, to the
knowledge of the Company each person indicated in the table has sole voting and
investment power as to the shares shown.)

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<PAGE>

<TABLE><CAPTION>
Ownership of Directors and Executive Officers
---------------------------------------------

Name of Beneficial Owner Number of Shares Percent of Class(1)
------------------------ ---------------- -------------------

<S> <C> <C>
James W. Walter, 42,355(5) *
Chairman and Director

Howard L. Clark, Jr. (2) (2)
Director

James B. Farley 0 0%
Director

Eliot M. Fried (2) (2)
Director

James L. Johnson 0 0%
Director

Robert I. Shapiro (2) (2)
Director

Michael T. Tokarz 10,715,209(3) 21.0(3)
Director

G. Robert Durham 0 0%
Director, President and Chief Executive
Officer

Kenneth J. Matlock 5,573(5) *
Director, Executive Vice President
and Chief Financial Officer

William H. Weldon, 4,457(5) *
Senior Vice President--Finance
and Chief Accounting Officer

William N. Temple, 2,228(5) *
Senior Vice President and
Group Executive; President of U.S. Pipe

All Directors and executive officers as 10,795,454(4)(5) 21.2(4)(5)
a group
</TABLE>

____________________

* Owns less than 1% of outstanding Common Stock

(1) Unless otherwise indicated, all percentages in the table and the
accompanying footnotes are based on 50,988,626 shares of Common Stock being
issued (which includes 494,313 shares of Common Stock required to be issued
on September 13, 1995 (180 days after the Effective Date of the Plan of
Reorganization) pursuant to the Plan of Reorganization, but does not
include up to 3,880,140 additional shares that will be issued to an escrow
account on such date pursuant to the Plan of Reorganization; see Footnote
(5) and "Description of Capital Stock -- Future Stock Issuances"). As of
July 21, 1995, 44,981,755 of such shares of Common Stock had been
delivered, with certain former creditors and stockholders of the Company
and its subsidiaries having the rights to receive delivery of the remaining
5,512,558 shares of the 50,494,313 shares issued pursuant to the Plan of
Reorganization on the Effective Date of the Plan of Reorganization promptly
following their tender of certain required documentation on or prior to the
second anniversary of the Effective Date of the Plan of Reorganization.

(2) Messrs. Clark, Fried and Shapiro are the Vice Chairman and Managing
Directors, respectively, of Lehman. See "Ownership of Principal
Stockholders" below for information concerning ownership of shares by
Lehman and its affiliate, Lehman Holdings.

(3) Mr. Tokarz is a general partner of KKR Associates, which is the sole
general partner of each of JWC Associates, L.P., JWC Associates II, L.P.
and KKR Partners II, L.P. (the "KKR Investors") and Channel One, and thus
Mr. Tokarz may be deemed to be a "beneficial owner" of the shares owned by
the KKR Investors and Channel One (see "Ownership of Principal
Stockholders" below) within the meaning of Rule 13d-3 under the Exchange
Act. Mr. Tokarz disclaims beneficial ownership of such shares.

The number of shares of Common Stock indicated includes 452,684 shares
required to be issued to the KKR Investors on September 13, 1995 (180 days
after the Effective Date of the Plan of Reorganization) pursuant to the
Plan of Reorganization. In addition, on September 13, 1995, up to 3,553,380
additional shares of Common Stock will be issued to an escrow account for
the benefit of the KKR Investors pursuant to the Plan of Reorganization.
See Footnote (4) under "Ownership of Principal Stockholders" below and
"Description of Capital Stock -- Future Stock Issuances." For so long as
the KKR Investors have the power to exercise voting rights with respect
to all such shares, or if all such shares were distributed to the KKR
Investors, Mr. Tokarz may be deemed to be a "beneficial owner" of
approximately 14,268,589 shares of Common Stock, or 26.0% of the shares
of Common Stock outstanding after giving effect to such issuance.

(4) Includes 10,715,209 shares of Common Stock beneficially owned by the KKR
Investors and Channel One which are deemed to be beneficially owned by Mr.
Tokarz. See Footnote (3). Does not include shares of Common Stock owned by
Lehman Holdings. See Footnote (2).

(5) Includes 3,017, 397, 317, 158 and 458,397 additional shares of Common Stock
required to be issued to Messrs. Walter, Matlock, Weldon and Temple and to
all Directors and executive officers as a group (including 452,684 shares
of Common Stock required to

60
<PAGE>

be issued to the KKR Investors; see Footnotes (3) and (4)), respectively,
on September 13, 1995 (180 days after the Effective Date of the Plan of
Reorganization) pursuant to the Plan of Reorganization. In addition, up to
3,880,140 additional shares of Common Stock will be issued to an escrow
account on September 13, 1995 pursuant to the Plan of Reorganization. To
the extent that certain contingencies regarding federal income tax claims
of the Company are resolved satisfactorily, up to 23,689, 3,117, 2,493,
1,246 and 3,598,261 of the escrowed shares will be distributed to Messrs.
Walter, Matlock, Weldon and Temple and to all Directors and executive
officers as a group (including 3,553,380 shares to be distributed to the
KKR Investors), respectively, under the Plan of Reorganization. To the
extent such matters are not settled satisfactorily, the escrowed shares
will be returned to the Company and cancelled. Until such matters are
finally determined, such persons will have the power to exercise voting
rights with respect to such respective shares of Common Stock. See
"Description of Capital Stock -- Future Stock Issuances." For so long as
such persons have the power to exercise voting rights with respect to all
such shares, or if all such shares were distributed to such persons, such
persons would beneficially own approximately 66,044, 8,690, 6,950, 3,474
and 14,393,715 shares of Common Stock, respectively, which in the case of
each individual would constitute less than 1% of the shares of Common Stock
then outstanding after giving effect to such issuance and in the case of
all Directors and executive officers as a group would constitute
approximately 26.2% of the shares of Common Stock then outstanding after
giving effect to such issuance.

Ownership of Principal Stockholders
-----------------------------------

Name and Complete
Mailing Address Number of Shares Percent of Class(1)
-------------------- ---------------- -------------------

<S> <C> <C>
The Celotex Settlement Fund Recipient 10,941,326(2) 21.5(2)
1 Metro Center
4010 Boy Scout Boulevard
Tampa, Florida 33607

Lehman Brothers Holdings, Inc. 7,862,639(3)(5) 15.4(3)(5)
3 World Financial Center
New York, NY 10285

The KKR Investors (JWC Associates, L.P., 10,715,209(4) 21.0(4)
JWC Associates II, L.P. and
KKR Partners II, L.P.) and
Channel One Associates, L.P.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10009
</TABLE>

____________________

(1) Unless otherwise indicated, all percentages in the table and the
accompanying footnotes are based on 50,988,626 shares of Common Stock being
issued (which includes 494,313 shares of Common Stock required to be issued
on September 13, 1995 (180 days after the Effective Date of the Plan of
Reorganization) pursuant to the Plan of Reorganization, but does not
include up to 3,880,140 additional shares that will be issued to an escrow
account on such date pursuant to the Plan of Reorganization; see Footnote
(4) and "Description of Capital Stock -- Future Stock Issuances"). As of
July 21, 1995, 44,981,755 of such shares of Common Stock had been
delivered, with certain former creditors and stockholders of the Company
and its subsidiaries having the rights to receive delivery of the remaining
5,512,558 shares of the 50,494,313 shares issued pursuant to the Plan of
Reorganization on the Effective Date of the Plan of Reorganization promptly
following their tender of certain required documentation on or prior to the
second anniversary of the Effective Date of the Plan of Reorganization.

(2) If all the additional shares of Common Stock that may be issued pursuant to
the Plan of Reorganization to the KKR Investors and other former
stockholders of the Company are issued (see Footnote (4)), the percentage
would be reduced to approximately 19.9%.

The Celotex Settlement Fund Recipient has agreed to vote and execute
written consents with respect to the shares of Common Stock held by it in
proportion to the votes cast or consents executed and delivered by all
other holders of Common Stock. Identical restrictions on the voting of the
Celotex Settlement Fund Recipient's Common Stock are contained in the
Charter and in the Plan of Reorganization. See "Description of Capital
Stock -- Stockholder's Agreement" and "-- Tag-Along and Voting Rights
Agreement."

(3) Lehman transferred the shares of Common Stock which it received pursuant to
the Plan of Reorganization to its affiliate, Lehman Holdings. If all the
additional shares of Common Stock that may be issued pursuant to the Plan
of Reorganization to the KKR Investors and other former stockholders of the
Company are issued (see Footnote (4)), the percentage would be reduced to
approximately 14.3%

The Celotex Settlement Fund Recipient has agreed with Lehman that it will
vote and execute written consents with respect to the shares of Common
Stock held by it in proportion to the votes cast or consents executed and
delivered by all other holders of Common Stock. See "Description of Capital
Stock -- Tag-Along and Voting Rights Agreement" and Footnote (2) above.

(4) The shares of Common Stock are beneficially owned by the KKR Investors as
follows: 6,163,165 shares are beneficially owned by JWC Associates, L.P.;
40,839 shares are beneficially owned by JWC Associates II, L.P.; and
149,405 shares are beneficially owned by KKR Partners II, L.P., including
439,130, 2,909 and 10,645 shares, respectively, required to be issued to
such KKR Investors on September 13, 1995 (180 days after the Effective Date
of the Plan of Reorganization) pursuant to the Plan of Reorganization. See
"Description of Capital Stock -- Future Stock Issuances". The Company has
been advised that as of July 21,

61
<PAGE>

1995 Channel One beneficially owned 4,361,800 shares. KKR Associates is the
sole general partner of each of the KKR Investors and Channel One. The
general partners of KKR Associates are Henry R. Kravis, George R. Roberts,
Robert I. MacDonnell, Michael W. Michelson, Saul A. Fox, Paul E. Raether,
Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Scott M. Stewart,
Clifton S. Robbins and Edward A. Gilhuly.

In addition, pursuant to the Plan of Reorganization up to 3,880,140
additional shares of Common Stock will be issued to an escrow account on
September 13, 1995. To the extent that certain contingencies regarding
federal income tax claims of the Company are resolved satisfactorily, up to
3,553,380 of the escrowed shares will be distributed to the KKR Investors
under the Plan of Reorganization. To the extent such matters are not
settled satisfactorily, the escrowed shares will be returned to the Company
and cancelled. Until such matters are finally determined, the KKR Investors
will have the power to exercise voting rights with respect to such shares
of Common Stock. See "Description of Capital Stock -- Future Stock
Issuances." For so long as the KKR Investors have the power to exercise
voting rights with respect to all such shares, or if all such shares were
distributed to the KKR Investors, the KKR Investors and Channel One would
beneficially own approximately 14,268,589 shares of Common Stock, or 26.0%
of the shares of Common Stock then outstanding after giving effect to such
issuance.

(5) As a result of errors by the balloting agent in recording elections to
receive cash and Notes in lieu of a portion of Common Stock to be received
under the Plan of Reorganization by holders of subordinated debt of the
Company outstanding prior to the Effective Date of the Plan of
Reorganization, the exact number of shares of Common Stock to be received
by Lehman and other holders of such debt was determined by the Bankruptcy
Court. Appeals have been filed to the Bankruptcy Court's decision, which
appeals, if successful, could cause additional shares of Common Stock to be
delivered to Lehman (in lieu of a portion of the cash and Notes previously
delivered to Lehman) pursuant to the Plan of Reorganization. When such
appeals have been finally adjudicated, such number of shares will be
finally determinable. See Note 11 ("Litigation Related to Chapter 11
Distributions to Certain Holders of Subordinate Notes and/or Debentures")
of Notes to Financial Statements.

DESCRIPTION OF NOTES

General

The Notes being offered hereby are a portion of the Notes issued under an
Indenture dated as of March 17, 1995 (the "Indenture") between the Company and
United States Trust Company of New York, as trustee (the "Trustee"). The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and as in effect on March 9, 1995, the date of the
qualification of the Indenture under the Trust Indenture Act. The Notes are
subject to all such terms, and Holders and prospective Holders are referred to
the Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture, including definitions therein of certain terms used below. A copy of
the Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The definitions of certain terms used in the
following summary are set forth below under "Certain Definitions."

The Notes are secured by a first priority security interest in the Pledged
Shares described below under "Security". The Notes rank senior in right of
payment to all subordinated indebtedness of the Company and pari passu in right
of payment to all other senior indebtedness of the Company (including
indebtedness under the Bank Revolving Credit Facility described herein). As of
May 31, 1995, the aggregate amount of senior indebtedness of the Company was
$2,220,370,000 (including the Notes). As of May 31, 1995, the Company had no
subordinated indebtedness outstanding. See "Certain Covenants -- Limitation on
Incurrence of Indebtedness" below.

The Notes have been issued in fully registered form only, without coupons,
in denominations of $1,000 and integral multiples of $1,000. The Trustee is
acting as Registrar for the Notes and, together with the Company, as a Co-Paying
Agent. The Notes may be presented for registration of transfer and exchange at
the offices of the Registrar, which initially will be the Trustee's corporate
trust office. The Company may change any Paying Agent or Registrar without
notice to the Holders. The Company or any of its Subsidiaries may act in any
such capacity. The Company will pay principal (and premium, if any) on the Notes
at the Trustee's corporate office in New York, New York.

Principal, Maturity and Interest

The Notes are limited in aggregate principal amount to $490 million and
will mature on March 15, 2000. Interest on the Notes accrues at the rate of
12.19% per annum and is payable semiannually in cash on each September 15 and
March 15, commencing on September 15, 1995, to the Persons who are registered
Holders at the close of business on the September 1 and March 1 immediately
preceding the applicable interest payment

62
<PAGE>
date. The Company is obligated to pay interest (including post-petition interest
in any proceeding under the Bankruptcy Code) on overdue principal and overdue
installments of interest (without regard to any applicable grace period) at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful.

Security

Pursuant to the Indenture, the Company and each of its Subsidiaries which
directly owns the capital stock of Subsidiaries indirectly owned by the Company
have executed and delivered to the Trustee the Pledge Agreement and the
Subsidiary Pledge Agreements, respectively, which provide, among other things,
that the outstanding Capital Stock of each of the Company's direct and indirect
Subsidiaries (defined with respect to the Company not to include Mid-State Homes
and its Subsidiaries or Cardem Insurance), whether owned on or acquired or
created after the date of the Indenture (the "Pledged Shares"), be pledged to
the Trustee by the Company or the applicable Pledgor Subsidiaries. The payment
and performance when due of all of the obligations of the Company under the
Indenture with respect to the Notes are secured by a first priority security
interest in the Pledged Shares (the "Collateral").

Upon the acceleration of the maturity of the Notes or the failure to pay
principal at maturity or upon redemption or mandatory repurchase of all or any
portion of the Notes, the Pledge Agreement and Subsidiary Pledge Agreements
provide for the foreclosure by the Trustee upon the Pledged Shares. Under the
terms of the Indenture, the proceeds from the Pledged Shares shall be applied
first, to amounts owing to the Trustee in respect of fees and expenses of the
Trustee and second, to the obligations under the Notes and the Indenture.

Optional Redemption

The Notes will be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30, nor more than 60, days'
notice, at a redemption price equal to 101% of the principal amount of the Notes
to be redeemed, plus accrued and unpaid interest thereon, if any, to the date of
redemption; provided, however, that if a redemption is made from the Excess
Proceeds of any Asset Sales as discussed below under "Certain Covenants --
Limitation on Asset Sales", the redemption price will be 100% of the principal
amount of the Notes to be redeemed, plus accrued and unpaid interest thereon, if
any, to the date of redemption; and provided, further, however, that if such
redemption is in part, not less than $150 million aggregate principal amount of
Notes shall be outstanding immediately after giving effect to such redemption.

If less than all of the Notes are to be redeemed, selection of Notes for
redemption will be made by the Trustee in compliance with legal and stock
exchange requirements, if any, or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate.
Notes and portions of Notes selected shall be in amounts of $1,000 or whole
multiples of $1,000, except that if all of the Notes of a Holder are to be
redeemed, the entire outstanding amount of Notes held by such Holder, even if
not a multiple of $1,000, shall be redeemed. Notice of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount to be
redeemed. A new Note or Notes in principal amount equal to the unredeemed
portion will be issued in the name of the Holder thereof upon surrender of the
original Note.

Change of Control Offer to Purchase

Upon the occurrence of a Change of Control, each Holder will have the right
to require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Change of Control Payment"). Within 30 days following the date
on which the Company has actual knowledge that a Change of Control has occurred,
the Company will mail a notice to each Holder stating: (1) that the Change of
Control Offer is being made pursuant to such provisions under the Indenture and
that all Notes tendered will be accepted for payment; (2) the purchase price and
the purchase date, which will be no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"); (3)
that any Note not tendered will continue to accrue interest; (4) that, unless
the Company defaults in the payment of the Change of Control Payment, all Notes
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Payment Date; (5) that Holders
electing to have any Notes purchased pursuant to a Change of Control

63
<PAGE>
Offer will be required to surrender the Notes, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the third Business Day preceding the Change of Control Payment Date; (6) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (7) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. Notwithstanding anything to the contrary elsewhere in the
Indenture, the Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the purchase of the Notes
in connection with a Change of Control.

If the Change of Control Payment Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tendered pursuant to the Change of Control Offer.

On the Change of Control Payment Date, the Company shall (1) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer, (2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered and (3)
deliver or cause to be delivered to the Trustee the Notes so accepted together
with an Officers' Certificate stating the Notes or portions thereof tendered to
the Company. The Paying Agent shall promptly mail to each Holder of Notes so
accepted the Change of Control payment for such Notes, and the Trustee shall
promptly authenticate and mail to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided,
that each such new Note shall be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.

Not all highly leveraged transactions, reorganizations, restructurings,
recapitalizations, mergers, consolidations or similar transactions involving the
Company will constitute "Change of Control" transactions. For example, neither
(i) the acquisition by a Permitted Holder or a group consisting of one or more
Permitted Holders of Voting Stock of the Company representing more than 50% of
the voting power of all Voting Stock of the Company then outstanding, nor (ii) a
merger of the Company with another Person pursuant to which no Disqualified
Stock is issued and holders of Voting Stock of the Company prior to the merger
beneficially own a majority of the Voting Stock of the surviving corporation of
the merger outstanding immediately after the merger, will constitute a Change of
Control. See "Certain Definitions -- Change of Control," below.

The Indenture does not provide the Company's Board of Directors or the
Trustee with the right to waive the Company's obligations under the Indenture
upon the occurrence of a Change of Control. However, the Change of Control
purchase feature of the Notes may in certain circumstances make more difficult
or discourage a takeover of the Company and thus the removal of incumbent
management. In addition, a repurchase of Notes upon a Change of Control would
constitute an event of default under the Bank Revolving Credit Facility (see
"Description of Certain Other Indebtedness -- Bank Revolving Credit Facility")
and may also be prohibited under the terms of the Company's other financing
instruments. Finally, there can be no assurance that the Company will have the
financial ability to repurchase Notes upon a Change of Control.

Certain Covenants

Limitation on Asset Sales

The Company shall not, and shall not permit any of its Subsidiaries
(defined with respect to the Company not to include Mid-State Homes and its
Subsidiaries or Cardem Insurance) to, consummate any Asset Sale, unless: (i) the
Company (or its Subsidiaries, as the case may be) receives consideration at the
time of such sale or other disposition at least equal to the Fair Market Value
thereof; (ii) not less than 75% of the consideration received by the Company (or
its Subsidiaries, as the case may be) is in the form of cash or Cash
Equivalents; provided, however, that the amount of (a) any liabilities (as shown
on the Company's or such Subsidiary's most recent balance sheet or in the notes
thereto) of the Company or any Subsidiary (other than

64
<PAGE>
liabilities that are by their terms subordinated to the Notes) that are assumed
by the transferee of any such assets, (b) any notes or other obligations
received by the Company or its Subsidiaries from such transferee that are
converted by the Company or such Subsidiary into cash within 90 days following
receipt (to the extent of the cash received) and (c) any Marketable Securities
received by the Company or its Subsidiaries from such transferee that are
converted by the Company or such Subsidiary into cash within 90 days following
receipt (to the extent of the cash received), shall be deemed to be cash for
purposes of this clause (ii); and (iii) the Net Cash Proceeds received by the
Company (or its Subsidiaries, as the case may be) from such Asset Sale are
applied in accordance with the following paragraphs.

The Company may, (i) within 60 days following the receipt of Net Cash
Proceeds from any Asset Sale, apply such Net Cash Proceeds to the repayment of
Indebtedness of the Company under the Bank Revolving Credit Facility and to cash
collateralize letters of credit outstanding thereunder, in each case to the
extent required by (A) the terms of the Bank Revolving Credit Facility as in
effect on the Issue Date in connection with an Asset Sale not prohibited by the
Bank Revolving Credit Facility as in effect on the Issue Date, or (B) the terms
of a consent granted by the lenders under the Bank Revolving Credit Facility to
an Asset Sale prohibited by the Bank Revolving Credit Facility as in effect on
the Issue Date, provided that (x) any such repayment of Indebtedness shall
result in a permanent reduction in the revolving credit or other commitment
relating thereto in an amount equal to the principal amount so repaid, and (y)
at such time as any such letters of credit are not longer required to be cash
collateralized, any such cash collateralization shall be (1) utilized to repay
Indebtedness under the Bank Revolving Credit Facility which repayment shall
result in a permanent reduction in the revolving credit or other commitment
relating thereto in an amount equal to the principal amount so repaid or (2)
released to the Company and applied as Excess Proceeds in accordance with the
following paragraph; or (ii) in the case of the sale of Non-Core Assets or
Capital Stock of Non-Core Subsidiaries to the extent the aggregate proceeds are
less than $25 million in any twelve consecutive months, within 180 days
following the receipt of Net Cash Proceeds from any such Asset Sale, apply such
Net Cash Proceeds to make an investment in a Related Business.

If, upon completion of the applicable period, any portion of the Net Cash
Proceeds of any Asset Sale shall not have been applied by the Company as
described in clause (i) or (ii) above (the "Excess Proceeds") and such Excess
Proceeds, together with any remaining unapplied Excess Proceeds from any prior
Asset Sale, exceed $25 million, then the Company will be obligated either to
(A) redeem the Notes (on a pro rata basis if the amount available for such
redemption is less than the outstanding principal amount of the Notes plus
accrued and unpaid interest, if any, to the date of redemption) at a redemption
price of 100% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of redemption or (B) make an offer to purchase the Notes by
application of Excess Proceeds (on a pro rata basis if the amount available for
such purchase is less than the outstanding principal amount of the Notes plus
accrued and unpaid interest, if any, to the date of purchase) at a purchase
price of 100% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase; provided, however, that if following such a
redemption or an offer to purchase, assuming 100% acceptance, the outstanding
principal amount of the Notes would be less than $150 million in the aggregate,
the Company shall be obligated to either redeem or offer to purchase Notes to
the extent that following such a redemption or an offer to purchase, assuming
100% acceptance, the outstanding principal amount of the Notes would be equal to
$150 million in the aggregate, and the remaining Excess Proceeds shall be
utilized as provided in the following paragraph until such time as the aggregate
of all unapplied Excess Proceeds from all Asset Sales is sufficient to redeem or
purchase 100% of the outstanding principal amount of the Notes, at which time
the Company will be obligated to either redeem or offer to purchase the Notes as
provided above. If the aggregate principal amount of Notes surrendered by
Holders thereof in any Asset Sale Offer plus accrued and unpaid interest, if
any, is less than the amount of Excess Proceeds, then the unused portion of such
Excess Proceeds (exclusive of any Excess Proceeds which could not be utilized in
such Asset Sale Offer as a result of the proviso in the next preceding sentence)
may be used by the Company for general corporate purposes. Upon completion of an
Asset Sale Offer, the amount of Excess Proceeds shall be reset to the greater of
zero or the amount of Excess Proceeds whose application would result in the
aggregate principal amount of Notes outstanding being greater than zero and less
than $150 million. Such provisions under the Indenture do not apply to a
transaction described under "Change of Control Offer to Purchase" above or
"Limitations on Mergers, Consolidations or Sales of Assets" below.

Pending application as described in the above paragraphs, including to the
extent unapplied Excess Proceeds do not exceed $25 million or application of
Excess Proceeds would result in the aggregate principal amount of Notes
outstanding being greater than zero and less than $150 million, Net Cash
Proceeds shall be

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either invested in Cash Equivalents or remitted to the applicable lender to pay
down any Indebtedness outstanding under the Bank Revolving Credit Facility.

In the event that, pursuant to the provisions described above, the Company
commences an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it
shall follow the procedures described below. The Asset Sale Offer shall remain
open for a period of 20 Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable law (the
"Offer Period"). No later than five Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Notes required to be purchased pursuant to the provisions described
above (the "Offer Amount") or, if less than the Offer Amount has been tendered,
all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so
purchased shall be made in the same manner as interest payments are made.

If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.

Within 10 days of each date on which the aggregate amount of Excess
Proceeds exceeds $25 million, the Company shall send, by first class mail, a
notice to the Trustee and each of the Holders, which notice shall specify the
Purchase Date, which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state: (a) that the
Asset Sale Offer is being made pursuant to the provisions under the Indenture
described above and the length of time the Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date; (c) that any
Note not tendered or accepted for payment shall continue to accrue interest; (d)
that, unless the Company defaults in making such payment, any Note accepted for
payment pursuant to the Asset Sale Offer shall cease to accrue interest after
the Purchase Date; (e) that Holders electing to have a Note purchased pursuant
to an Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Company, a depositary if appointed by the Company, or a Paying
Agent at the address specified in the notice at least three Business Days before
the Purchase Date; (f) that each Holder shall be entitled to withdraw his
election if the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of the Note such Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have such Note purchased; (g)
that, if the aggregate principal amount of Notes surrendered by Holders exceeds
the Offer Amount, the Company shall select the Notes to be purchased on a pro
rata basis (with such adjustments as may be deemed appropriate by the Company so
that only Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased); and (h) that Holders whose Notes are purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered. Notwithstanding anything to the contrary in the Indenture,
the Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the purchase of the Notes in
connection with an Asset Sale Offer.

On the Purchase Date, the Company shall, to the extent lawful, accept for
payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes
or portions thereof tendered pursuant to the Asset Sale Offer, or if less than
the Offer Amount has been tendered, all Notes (or portions thereof) tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the such provisions under the Indenture. The Company or the Paying Agent,
as the case may be, shall promptly (but in any case not later than five Business
Days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee shall authenticate and mail or deliver such new Note to such Holder,
in a principal amount equal to any unpurchased portion of the Note surrendered.
Any Note not so accepted shall be promptly mailed or delivered by the Company to
the Holder thereof. The Company shall publicly announce the results of the Asset
Sale Offer on the Purchase Date.

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Limitation on Restricted Payments

The Indenture provides that the Company shall not, and shall cause each of
its Subsidiaries not to, directly or indirectly, make any Restricted Payment
unless: (i) no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted Payment;
(ii) at the time of and immediately after giving effect to such Restricted
Payment, at least $1.00 of additional Indebtedness could be incurred under the
Consolidated EBITDA to Consolidated Fixed Charges test applicable to
Indebtedness incurred by the Company (other than Subordinated Indebtedness) or a
Subsidiary pursuant to the provisions described under "Limitation on Incurrence
of Indebtedness" below; and (iii) immediately after giving effect to such
Restricted Payment, the aggregate amount of all Restricted Payments declared or
made after the Issue Date does not exceed the sum of (a) 50% of the Consolidated
Net Income of the Company (or if such Consolidated Net Income shall be a
deficit, minus 100% of such deficit) during the period (treated as one
accounting period) beginning on June 1, 1995 and ending on the last day of the
fiscal quarter immediately preceding the date of declaration or making of such
Restricted Payment plus (b) 100% of the aggregate Net Equity Proceeds received
by the Company from the issue or sale, after the Issue Date, of Capital Stock of
the Company (other than the issue or sale of (1) Disqualified Stock or (2)
Capital Stock of the Company to any Subsidiary of the Company or (3) Capital
Stock issued pursuant to the Plan of Reorganization) and any Indebtedness or
other securities of the Company (other than the issue or sale to any Subsidiary
of the Company) convertible into or exercisable for Qualified Capital Stock of
the Company which has been so converted or exercised, as the case may be plus
(c) 100% of the aggregate amount of cash and Cash Equivalents received by the
Company or any Subsidiary in repayment and termination of (x) any Investment (or
portion thereof) made after the Issue Date which was a Restricted Payment or (y)
any Mid-State Advance (or portion thereof) made after the Issue Date, net in
each case of the payment of commissions and other costs and expenses incurred by
the Company or such Subsidiary in connection therewith, and not to exceed the
amount of such Restricted Payment or Mid-State Advance, as the case may be, and
less any such amounts included in Consolidated Net Income of the Company; minus
(d) 100% of the aggregate amount of Mid-State Advances; plus (e) $25 million.

Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (i) the payment of any dividend within 60
days after the date of declaration thereof, if at such date of declaration such
payment complied with the provisions of the Indenture; (ii) the purchase,
redemption, acquisition or retirement of any shares of Capital Stock of the
Company in exchange for, or out of the net proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, shares of
Qualified Capital Stock of the Company; (iii) the redemption or retirement of
Indebtedness of the Company which is subordinate in right of payment to the
Notes, in exchange for, by conversion into, or out of the net proceeds of the
substantially concurrent issue or sale (other than to a Subsidiary of the
Company) of Qualified Capital Stock of the Company or Permitted Refinancing
Indebtedness; (iv) the declaration or payment of a regular quarterly Common
Stock dividend at a rate not to exceed $.025 per share; provided that no Default
or Event of Default has occurred and is continuing at the time, or shall occur
under any provision of the Indenture other than the provision of the Indenture
described herein (subject to the following proviso) as a result of any of the
actions contemplated in clauses (i) through (iv) above, and provided further, in
the case of clause (iv) above, at the time of and immediately after giving
effect to such Restricted Payment, at least $1.00 of additional indebtedness
could be incurred under the Consolidated EBITDA to Consolidated Fixed Charges
test applicable to Indebtedness incurred by the Company (other than Subordinated
Indebtedness) or a Subsidiary pursuant to certain provisions described below
under "Limitation on Incurrence of Indebtedness."

The Company shall cause Mid-State Homes and each of its Subsidiaries not
to, directly or indirectly, make any Restricted Payment except to the Company,
Mid-State Homes or to a Wholly Owned Subsidiary of the Company or Mid-State
Homes.

Limitation on Incurrence of Indebtedness

The Company will not, and will not permit any Subsidiary to, directly or
indirectly, incur any Indebtedness (including Acquired Indebtedness); provided
the Company or any Subsidiary may incur Indebtedness, including Acquired
Indebtedness, at any time after September 1, 1995, if (i) at the time of such
incurrence, the ratio of Consolidated EBITDA to Consolidated Fixed Charges for
the period of the four consecutive fiscal quarters then ended immediately prior
to such incurrence, taken as one period and calculated on a pro forma basis as
if such Indebtedness had been incurred and the proceeds therefrom applied on the
first day of such four-quarter period and, in the case of Acquired Indebtedness,
as if the related acquisition (whether by means of purchase, merger or
otherwise) also had occurred on such date with the appropriate adjustments

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with respect to such acquisition being included in such pro forma calculation,
would have been, in the case of an incurrence of Subordinated Indebtedness by
the Company, greater than 2.25 to 1 and, in the case of an incurrence of any
other Indebtedness by the Company or of any Indebtedness by a Subsidiary,
greater than 3.0 to 1 and (ii) no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the incurrence of
such Indebtedness; provided, however, that prior to June 1, 1996, the ratio of
Consolidated EBITDA to Consolidated Fixed Charges shall be calculated for the
period consisting of the number of complete fiscal quarters commencing with the
quarter beginning June 1, 1995 and ending immediately prior to such incurrence,
taken as one period, and all other above-described provisions shall remain
applicable. For purposes of making the computation referred to above,
acquisitions and divestitures that have been made by the Company or any of its
Subsidiaries, including all mergers or consolidations, during such four-quarter
(or, if applicable, shorter) period or subsequent to such four-quarter (or, if
applicable, shorter) period and on or prior to the time of such incurrence shall
be calculated on a pro forma basis assuming that all such acquisitions,
divestitures, mergers and consolidations had occurred on the first day of such
four-quarter (or, if applicable, shorter) period.

The foregoing limitation does not apply to the incurrence of Permitted
Indebtedness.

Limitation on Issuance of Capital Stock

The Company will not permit any of its Subsidiaries to issue any Capital
Stock (other than to the Company or to a Wholly Owned Subsidiary of the
Company). The Company will not issue Disqualified Stock. The Company will not
permit Mid-State Homes or any of its Subsidiaries to issue any Capital Stock to
any Person other than the Company or Mid-State Homes or any of their respective
Wholly Owned Subsidiaries.

Limitation on Liens

The Indenture provides that the Company shall not, and shall not permit any
of its Subsidiaries to, create, incur, assume or otherwise cause or suffer to
exist or become effective any Lien of any kind (other than Permitted Liens) upon
any property or assets of the Company or of any Subsidiary of the Company or any
Indebtedness of any Subsidiary of the Company, other than assets are not
governed by the Pledge Agreement or any Subsidiary Pledge Agreement, owned on or
acquired after the date of the Indenture unless all payments due under the
Indenture and the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer secured
by a Lien.

Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.

The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary of the Company to (i) pay dividends or make any
other distributions on its Capital Stock, or any other interest or participation
in or measured by its profits, owned by the Company or a Subsidiary; (ii) pay
any Indebtedness owed to the Company or a Subsidiary of the Company; (iii) make
loans or advances to the Company or a Subsidiary of the Company or Guarantee
Indebtedness of the Company or a Subsidiary; or (iv) transfer any of its
properties or assets to the Company or a Subsidiary of the Company, except for
(a) restrictions contained in the Bank Revolving Credit Facility as of the Issue
Date; (b) consensual encumbrances binding upon any Person at the time such
Person becomes a Subsidiary of the Company (unless the agreement creating such
consensual encumbrance was entered into in connection with, or in contemplation
of, such entity becoming a Subsidiary); (c) consensual encumbrances or
restrictions under any agreement that refinances or replaces any agreement
described in clauses (a) or (b) above, provided that the terms and conditions of
any such restrictions are no less favorable to the Holders than those under the
agreement so refinanced or replaced; (d) customary non-assignment provisions in
leases, purchase money financings and any encumbrance or restriction due to
applicable law; (e) restrictions imposed by law; (f) restrictions imposed on a
Subsidiary pursuant to a bona fide contract for disposition of all or
substantially all of the assets or 100% of the Capital Stock of such Subsidiary
by the Company; and (g) restrictions on the transfer of assets subject to Liens
permitted by the Indenture.

Limitation on Transactions with Affiliates

The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction or series of transactions
(including, without limitation, the sale, purchase or lease of any assets or
properties or the rendering of any services) with any Affiliate or holder of 5%
or more of the Company's or any

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Subsidiary's common stock (other than with the Company or a Wholly Owned
Subsidiary of the Company) (an "Affiliate Transaction"), on terms that are less
favorable to the Company or such Subsidiary, as the case may be, than would be
available in a comparable transaction negotiated on an arm's length basis with
an unrelated Person. In addition, the Company will not, and will not permit any
Subsidiary of the Company to, enter into an Affiliate Transaction, or any series
of related Affiliate Transactions, unless (i) with respect to such Affiliate
Transaction or Transactions involving or having a value of more than $1 million,
the Company has obtained the approval of a majority of the Board of Directors of
the Company (including a majority of the Company's disinterested directors) and
(ii) with respect to such Affiliate Transaction or Transactions involving or
having a value of more than $5 million (other than Affiliate Transactions
relating to the rendering of services, including, without limitation,
underwriting, financial advisory and similar services), the Company has
delivered to the Trustee an opinion of an independent investment banking firm or
appraisal firm of national standing to the effect that such Affiliate
Transaction or Transactions are fair to the Company or such Subsidiary, as the
case may be, from a financial point of view. Notwithstanding the foregoing, the
foregoing provision will not apply to Mid-State Advances to the extent permitted
by the provisions of the Indenture described under the second paragraph of
"Taxes" below or to the sale of mortgages by Jim Walter Homes to Mid-State Homes
and the servicing of such mortgages by Jim Walter Homes, in each case in the
ordinary course of business consistent with past practice.

The Company will not permit Mid-State Homes or any of its Subsidiaries to,
directly or indirectly, enter into any transaction or series of transactions
(including, without limitation, the sale, purchase or lease of any assets or
properties or the rendering of any services) with any Affiliate or holder of 5%
or more of the Company's or any of its Subsidiaries' common stock or of
Mid-State Homes' or any of its Subsidiaries' common stock (other than the
Company or Mid-State Homes or a Wholly Owned Subsidiary of the Company or of
Mid-State Homes) (a "Mid-State Affiliate Transaction") on terms that are less
favorable to Mid-State Homes or its Subsidiary, as the case may be, than would
be available in a comparable transaction negotiated on an arm's length basis
with an unrelated Person. In addition, the Company will not permit Mid-State
Homes or any of its Subsidiaries to enter into a Mid-State Affiliate Transaction
or any series of related Mid-State Affiliate Transactions unless (i) with
respect to such Mid-State Affiliate Transaction or Transactions involving or
having a value of more than $1 million, the Company has obtained the approval of
a majority of the Board of Directors of the Company (including a majority of the
Company's disinterested directors) and (ii) with respect to such Mid-State
Affiliate Transaction or Transactions involving or having a value of more than
$5 million (other than Mid-State Affiliate Transactions relating to the
rendering of services, including, without limitation, underwriting, financial
advisory and similar services), the Company has delivered to the Trustee an
opinion of an independent investment banking firm of national standing to the
effect that such Mid-State Affiliate Transaction or Transactions are fair to
Mid-State Homes or its Subsidiary, as the case may be, from a financial point of
view.

Limitation on Sale and Leaseback Transactions

Except to the extent included in clause (vii) of the definition of
Permitted Indebtedness (see "Certain Definitions" below), the Company will not,
and will not permit any of its Subsidiaries to, enter into any sale and
leaseback transaction with respect to any property (whether now owned or
hereafter acquired) unless (i) the sale or transfer of the property to be leased
complies with the requirements described above under "Limitation on Asset Sales"
and (ii) the Company or such Subsidiary would be entitled pursuant to the
provisions of the Indenture described above in clause (i) under "Limitation on
Incurrence of Indebtedness" to incur additional Indebtedness under the
Consolidated EBITDA to Consolidated Fixed Charges test applicable to
Indebtedness incurred by the Company (other than Subordinated Indebtedness) or a
Subsidiary in an amount at least equal to the Attributable Debt in respect of
such sale and leaseback transaction.

Limitation on Sale of Capital Stock of Subsidiaries

The Company will not, and will not permit any of its Subsidiaries to, sell,
pledge, hypothecate or otherwise convey or dispose of any Capital Stock of the
Company's Subsidiaries (other than pursuant to the Pledge Agreement or
Subsidiary Pledge Agreement governing the Pledged Shares) except for the sale by
the Company or a Subsidiary of all or part of the Capital Stock of a Non-Core
Subsidiary and except for the sale of 100% of the Capital Stock of any other
Subsidiary owned collectively by the Company and/or its Subsidiaries; provided
that in either case such sale complies with the provisions described above under
"Limitation on Asset Sales."

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The Company will not permit Mid-State Homes or any of its Subsidiaries to
sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of
the Subsidiaries of Mid-State Homes to any Person other than the Company or Mid-
State Homes or any of their respective Wholly Owned Subsidiaries.

Limitation on Mergers, Consolidations and Sales of Assets

The Company will not consolidate or merge with any other Person, or permit
any other Person to consolidate or merge with the Company, nor will the Company
sell, lease, convey or otherwise dispose of all or substantially all of its
assets unless (i) the entity formed by or surviving any such consolidation or
merger, or to which such sale, lease, conveyance or other sale shall have been
made (the "Surviving Entity"), is a corporation organized and existing under the
laws of the United States, any state thereof, or the District of Columbia; (ii)
if the Company is not the Surviving Entity, the Surviving Entity assumes by
supplemental indenture all of the obligations of the Company under the Notes and
the Indenture; (iii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after giving effect to such transaction (but prior to any purchase
accounting adjustments resulting from the transaction), the Consolidated Net
Worth of the Surviving Entity would be at least equal to the Consolidated Net
Worth of the Company immediately prior to such transaction; and (v) immediately
after giving effect to such transaction, the Surviving Entity could incur at
least $1.00 of additional Indebtedness under the Consolidated EBITDA to
Consolidated Fixed Charges test applicable to Indebtedness incurred by the
Company (other than Subordinated Indebtedness) or a Subsidiary pursuant to
certain provisions described above under "Limitation on Incurrence of
Indebtedness."

The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect, an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with such provisions under the Indenture and an Accountants'
Certificate setting forth the computations necessary to confirm the satisfaction
of the conditions set forth in clauses (iv) and (v) of such provisions under the
Indenture and certifying the accuracy thereof. The Trustee shall be entitled to
rely conclusively upon such Officers' Certificate, Opinion of Counsel and
Accountants' Certificate.

Payments For Consents

Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for any consent, waiver or amendment
of any of the provisions of the Indenture, the Notes, the Pledge Agreement or
any Subsidiary Pledge Agreement unless such consideration is offered to be paid
to all Holders which so consent, waive or agree to amend in the time frame set
forth in solicitation documents relating to such consent, waiver or agreement.

Stay, Extension and Usury Laws

The Company has agreed (to the extent that it may lawfully do so) that it
shall not at any time claim or take the benefit of any stay, extension or usury
law wherever enacted, now or at any time hereafter in force, that may affect the
covenants, or the performance, of the Indenture.

Provision of Information

The Company, whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, will furnish to the Holders (i) all
reports that would be required to be contained in a filing with the SEC on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all reports that
would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the SEC, the Company will file a copy of all such information
and reports with the SEC for public availability (unless the SEC will not accept
such a filing) for so long as any Notes are outstanding. The Company will also
make such information available to investors who request it in writing. In
addition, the Company agrees that, for so long as any Notes remain outstanding,
it will furnish to the Holders and to beneficial holders of Notes and to
prospective purchasers of Notes designated by the Holders, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

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Taxes

The Company must pay, and must cause each of its Subsidiaries to pay, prior
to delinquency, all material taxes, assessments and governmental levies, except
such as are being contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders.

The Company also must, and must cause each Person which is a member of the
Company's consolidated group for tax purposes to, calculate, pay and receive for
each taxable period the tax liability owed by and tax refunds (or credits for
losses utilized) due to each of the Company and each Person which is a member of
the Company's consolidated group for tax purposes, individually, and not in the
aggregate, consistent with past practice (i.e., each Person computes its tax
liability as if it had always filed a separate return, except that a Person that
incurs a net operating loss or capital loss is credited with the tax benefit of
such loss at the time such loss is utilized by any member of the consolidated
group), provided that so long as no Default or Event of Default shall have
occurred and be continuing at the time or immediately after giving effect to any
Mid-State Advance, the Company may advance to Mid-State Homes and its
Subsidiaries up to $7 million per year solely for purposes of payment of taxes
(each, a "Mid-State Advance") to the extent Mid-State Homes and its Subsidiaries
have no other source of payment available; provided, however, that the aggregate
amount of Mid-State Advances not previously repaid in cash or Cash Equivalents
may not exceed $21 million.

Events of Default and Remedies

Each of the following constitutes an "Event of Default" under the
Indenture:

(i) the failure by the Company to pay interest on the Notes when the
same becomes due and payable and such default continues for a period of 5
Business Days;

(ii) the failure by the Company to pay the principal or premium, if
any, on the Notes whether at maturity, upon redemption, upon acceleration
or otherwise (including the failure to purchase the Notes tendered pursuant
to a Change of Control Offer or Asset Sale Offer);

(iii) failure by the Company to perform any of its obligations under
certain provisions of the Pledge Agreement relating to the pledging of
additional capital stock of, and the limiting of the issuance of new shares
by, existing or new Subsidiaries of the Company, or failure by any
Subsidiary to perform any of its obligations under certain provisions of
any Subsidiary Pledge Agreement relating to the pledging of additional
capital stock of existing or new Subsidiaries of the Company or of such
Subsidiary and the limiting of the issuance of new shares by Subsidiaries
of such Subsidiary or the Trustee becoming entitled to exercise any
remedies pursuant to certain provisions of the Pledge Agreement or any
Subsidiary Pledge Agreement;

(iv) failure by the Company or any of its Subsidiaries to comply with
the provisions described above under "Change of Control Offer to Purchase"
and "Certain Covenants -- Limitation on Asset Sales" and "-- Limitation on
Mergers, Consolidations and Sales of Assets";

(v) failure by the Company or any of its Subsidiaries to comply with
the provisions described above under "Certain Covenants -- Taxes,"
"-- Limitation on Restricted Payments," "-- Limitation on Incurrence of
Indebtedness," "-- Limitation on Issuance of Capital Stock," "-- Limitation
on Liens," "-- Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries," "-- Limitation on Transaction with Affiliates,"
"-- Limitation on Sale and Leaseback Transactions," "-- Limitation on Sale
of Capital Stock of Subsidiaries" and "-- Payments for Consents" for 30
days after written notice specifying the failure and that the same is a
Default shall have been given to the Company by the Trustee or Holders of
25% in principal amount of the Notes outstanding;

(vi) failure by the Company or any of its Subsidiaries to comply with
any of its covenants or the breach by the Company or any of its
Subsidiaries of any of its representations or warranties under the
Indenture, the Pledge Agreement or any Subsidiary Pledge Agreement (other
than a breach of a covenant, representation or warranty which is
specifically described in clauses (i) - (v) above or (vii)-(x) below) for
60 days after written notice specifying the failure and that the same is a
Default shall have

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been given to the Company by the Trustee or Holders of 25% in principal
amount of the Notes outstanding;

(vii) default or defaults (including a payment default) under one or
more agreements, instruments, mortgages, bonds, debentures or other
evidence of Indebtedness under which the Company or any of its Significant
Subsidiaries has an outstanding principal amount of Indebtedness in excess
of $25 million individually or $50 million in the aggregate for all such
issues of all such Persons and either (x) such Indebtedness is already due
and payable in full or (y) such default or defaults have resulted in the
acceleration of the maturity of such Indebtedness;

(viii) any final judgment or order (not covered by insurance) is entered
against the Company or any Significant Subsidiary in excess of $25 million
individually or $50 million in the aggregate for all such final judgements
or orders against all such Persons and remains undischarged or are unstayed
for 60 days;

(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries; or

(x) any Lien granted or purported to be granted pursuant to the
Pledge Agreement or any Subsidiary Pledge Agreement shall be or become
unenforceable or invalid, or the priority thereof shall become diminished
or, the Company or any Subsidiary shall contest or disaffirm any such Lien.

If an Event of Default occurs and is continuing, the Trustee by written
notice to the Company, or the Holders of at least 25% of the aggregate principal
amount of the then outstanding Notes, by written notice to the Company and the
Trustee, may declare all of the Notes to be due and payable immediately. Upon
such declaration, the unpaid principal of, premium, if any, and accrued interest
on the Notes shall be due and payable. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any Significant Subsidiary, such an
amount shall ipso facto become immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.

If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of the principal of, premium, if any,
and interest on the Notes and to enforce the performance of any provision of the
Notes or the Indenture.

The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.

The Indenture provides that subject to certain exceptions, the Holders of
not less than a majority in aggregate principal amount of the then outstanding
Notes, by written notice to the Trustee, may on behalf of the Holders of all of
the Notes (a) waive any existing Default or Event of Default and its
consequences, except a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of, the Notes and/or (b) rescind
an acceleration and its consequences, including any related payment default that
resulted from such acceleration, if the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. Upon any such waiver or
rescission, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of the Indenture;
but no such waiver shall extend to any subsequent or other Default or impair any
right consequent thereon.

Holders of a majority in aggregate principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it under the Indenture; provided that the Trustee may take any
other actions it deems proper that are not inconsistent with these directions.
However, the Trustee may refuse to follow any direction that conflicts with law
or the Indenture or that the Trustee determines may be unduly prejudicial to the
rights of other Holders or that may involve the Trustee in personal liability.

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The Indenture provides that a Holder may pursue a remedy with respect to
the Indenture or the Notes only if: (i) the Holder gives to the Trustee written
notice of a continuing Event of Default; (ii) the Holders of at least 25% in
principal amount of the then outstanding Notes make a written request to the
Trustee to pursue the remedy; (iii) such Holder or Holders offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense; (iv) the Trustee does not comply with the
request within 60 days after receipt of the request and the offer and, if
requested, the provision of indemnity; and (v) during such 60-day period the
Holders of a majority in principal amount of the then outstanding Notes do not
give the Trustee a direction inconsistent with the request.

A Holder may not use the Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.

Notwithstanding any other provision of the Indenture, the right of any
Holder to receive payment of principal of and premium, if any, and interest on
the Notes, on or after the respective due dates expressed in the Notes
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.

Legal Defeasance and Covenant Defeasance

The Company may, at the option of its Board of Directors and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Notes, except for certain obligations as more fully described in the
Indenture regarding the rights of Holders of Notes to receive payments in
respect of principal of, premium, if any, and interest on such Notes from trust
funds, certain continuing obligations of the Company, the Trustee and the Paying
Agent and provisions in the Indenture regarding discharge and defeasance. In the
event of a Legal Defeasance, the security interests described above under
"Security" will be released.

In addition, the Company may, at the option of its Board of Directors and
at any time, elect to have the obligations of the Company released with respect
to certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance, the
Company must satisfy certain conditions including: (a) irrevocably depositing
with the Trustee cash, Government Securities or a combination thereof sufficient
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated date for payment thereof or on the applicable redemption date, (b)
delivering to the Trustee an Opinion of Counsel confirming that the Holders of
the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be taxed on the
same amounts, in the same manner and at the same time as would have been the
case if such defeasance had not occurred (which Opinion of Counsel, in the
case of a Legal Defeasance, will contain a description of an IRS ruling or
change in applicable federal income tax law to such effect), (c) no Default
or Event of Default (other than as a result of incurring Indebtedness in order
to fund the defeasance) (i) shall have occurred and be continuing on the date
of such deposit or (ii) regarding bankruptcy or insolvency events shall have
occurred and be continuing at any time during the period ending on the 91st
day after the date of deposit (it being understood that the condition
described in this clause (ii) is a condition subsequent and shall not be
deemed satisfied until the expiration of such period), (d) such defeasance
not resulting in a breach, violation or default under the Indenture or any
other material agreement to which the Company or any of its Subsidiaries is
a party or is bound, (e) delivering to the Trustee an Opinion of Counsel to
the effect that certain actions taken by the Company in accordance with the
provisions described in (a)-(g) will not have adverse consequences under
certain Sections of the Bankruptcy Code or the New York Debtor and Creditor
Law, or any successor to such Sections, (f) delivering to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of defeating, hindering, delaying or defrauding any actual
creditors of the Company, and (g) delivering to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.

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Satisfaction and Discharge

The Indenture will cease to be of further effect (except that the Company's
obligations relating to compensation and indemnity and the Company's, the
Trustee's and any Paying Agent's obligation relating to repayment to the Company
of unclaimed amounts shall survive) as to all outstanding Notes when (i) either
(a) all the Notes theretofore outstanding, authenticated and delivered (except
lost, stolen or destroyed Notes that have been replaced or paid) have been
delivered to the Trustee for cancellation and the Company has paid all sums
payable thereunder or (b) the Company, at the option of its Board of Directors,
elects to have either Legal Defeasance or Covenant Defeasance be applied to all
outstanding Notes upon compliance with the conditions set forth in the Indenture
and described above under "Legal Defeasance and Covenant Defeasance."

Transfer and Exchange

A holder may transfer the Notes in accordance with the Indenture. The
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company is
not required to transfer or exchange any Note selected for redemption. Also, the
Company is not required to transfer or exchange any Note for a period of 15 days
before a selection of Notes to be redeemed.

Amendment, Supplement and Waiver

The Company and the Trustee may amend or supplement the Indenture, the
Pledge Agreement, any Subsidiary Pledge Agreement or the Notes without the
consent of the Holders for certain specified purposes, including: curing any
ambiguities, defects or inconsistencies and making any change that does not
adversely affect the rights of any of the Holders under the Indenture.

Other amendments of or supplements to the Indenture, the Pledge Agreement
or any Subsidiary Pledge Agreement and the Notes may be made with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding, except that, without the consent of each Holder of the Notes
affected thereby, no amendment or waiver (with respect to any Notes held by a
non-consenting Holder) may: (i) reduce the principal amount of Notes whose
Holders must consent to an amendment, supplement or waiver of any provision of
the Indenture, the Pledge Agreement or any Subsidiary Pledge Agreements or the
Notes; (ii) reduce the principal of or change the fixed maturity of any Note;
(iii) alter any of the provisions permitting or requiring the redemption of the
Notes, except with respect to permitting or requiring redemption or repurchase
of Notes pursuant to provisions described above under "Change of Control Offer
to Purchase" and "Certain Covenants -- Limitation on Asset Sales," or reduce the
purchase price payable or change the time for payment in connection with
repurchases or redemptions of Notes pursuant to provisions described above under
"Change of Control Offer to Purchase" and "Certain Covenants -- Limitation on
Asset Sales;" (iv) reduce the rate of or change the time for payment of
interest, including default interest, on any Notes; (v) waive a Default or Event
of Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration); (vi) make the principal
of or the interest on any Note payable in money other than that stated in the
Notes; (vii) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal of premium, if any, or interest on the Notes; (viii) waive a
redemption payment with respect to any Note (other than a payment required
pursuant to provisions described above under "Change of Control Offer to
Purchase" and "Certain Covenants -- Limitation on Asset Sales"); (ix) alter the
ranking of the Notes relative to other Indebtedness of the Company; (x) release
any Pledged Shares which are the Capital Stock of a Significant Subsidiary,
except in connection with a sale, transfer or other disposition permitted by the
Indenture and the Pledge Agreement and Subsidiary Pledge Agreements, as the case
may be; (xi) waive or amend provisions in the Indenture regarding payments for
consents; or (xii) make any change in the provisions of the Indenture dealing
with the waiver of past defaults and the rights of holders of Notes to receive
payment or in the above-described amendment and waiver provisions.

In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or by any Subsidiary thereof or by any other Affiliate controlled by the
Company will not be considered outstanding. In determining whether Holders of
the required principal amount of Notes have (i) directed the time, method or
place of conducting any proceeding for any remedy available to the Trustee under
the Indenture, or exercising any trust or power conferred upon the

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Trustee, (ii) consented to the waiver of any past Event of Default and its
consequences or (iii) consented to the postponement of any interest payment,
Notes owned by Affiliates of the Company will be disregarded.

Governing Law

The Indenture provides that it and the Notes will be construed and
interpreted, and the rights of the parties determined, in accordance with the
law of the State of New York without reference to its choice of law provisions.

Trustee

The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. The Trustee will be permitted to engage in other transactions
with the Company; however, if the Trustee acquires any conflicting interest, it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue as Trustee or resign.

Additional Information

Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Company at 1500 North Mabry Highway, Tampa,
Florida 33607, Attention: Secretary.

Certain Definitions

Set forth below are certain defined terms used herein and in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.

"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary of the Company (or such Person is merged with
the Company or one of its Subsidiaries) or assumed in connection with the
acquisition of assets from any such Person and not incurred in connection with,
or in the contemplation of, such Person becoming a Subsidiary or such
acquisition.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.

"Asset Sale" means any sale, lease, transfer or other disposition or series
of related sales, leases, transfers or other dispositions, including, without
limitation, by merger or consolidation, pursuant to any sale and leaseback
transaction (other than to the extent included in clause (vii) of the definition
of Permitted Indebtedness) or by exchange of assets and whether by operation of
law or otherwise (other than sales in the ordinary course of business consistent
with past practice, including, without limitation, sales of mortgages by Jim
Walter Homes to Mid-State Homes in the ordinary course of business consistent
with past practice), made by the Company or any of its Subsidiaries to any
Person other than the Company or one of its Wholly Owned Subsidiaries of any
assets of the Company or any of its Subsidiaries including, without limitation,
assets consisting of any Capital Stock or other securities held by the Company
or any of its Subsidiaries, to the extent that any such sale, lease, transfer,
or other disposition or series of related sales, leases, transfers or other
dispositions relates to properties or assets having a Fair Market Value in
excess of $5 million or results in net proceeds in excess of $5 million.

"Attributable Debt" means, in respect of a sale and leaseback transaction,
at the time of determination, the greater of (a) the Fair Market Value of the
property subject to such transaction and (b) the present value (discounted at
the actual rate of interest implicit in such transaction) of the obligation of
the lessee for net rental payments during the remaining term of the lease
included in such sale and leaseback transaction (including any period for which
such lease has been extended or may, at the option of the lessor, be extended).

"Board of Directors" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.

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"Business Day" means any day other than a Legal Holiday.

"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether outstanding on or issued after the Issue Date,
including, without limitation, all Preferred Stock, and any warrants, options or
rights to purchase any of the foregoing.

"Cash Equivalents" means (i) United States dollars, (ii) securities issued
directly or fully Guaranteed or insured by the United States government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thomson Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) any security maturing not more than six months after the
date of acquisition, backed by standby or direct-pay letters of credit issued by
a bank meeting the qualifications described in clause (iii) above, (vi) any
security maturing not more than six months after the date of acquisition, issued
directly or fully Guaranteed or insured by any state, commonwealth or territory
of the United States, or by any political subdivision thereof, and rated at
least "A" by either Standard & Poor's Corporation or Moody's Investors Service
Inc. or rated in at least an equivalent rating category of another nationally
recognized securities rating agency and (vii) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within six months after the date of
acquisition.

"Change of Control" means (i) any sale, lease or other transfer of all or
substantially all of the assets of the Company to any Person (other than a
Wholly Owned Subsidiary of the Company) in one transaction or a series of
related transactions; (ii) the Company consolidates or merges with another
Person pursuant to a transaction in which the outstanding Voting Stock of the
Company is changed into or exchanged for cash, securities or other property,
other than any such transaction where (a) no Disqualified Stock is issued and
(b) holders of Voting Stock of the Company immediately prior to such transaction
beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as
in effect on the date of the Indenture), directly or indirectly, not less than a
majority of the Voting Stock of the surviving corporation of such merger or
consolidation outstanding immediately after such transaction; (iii) a Person or
group (other than a Permitted Holder or a group consisting of one or more
Permitted Holders) becomes the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act as in effect on the date of the Indenture) of
Voting Stock of the Company representing more than 50% of the voting power of
all Voting Stock of the Company then outstanding; (iv) Continuing Directors
cease to constitute at least a majority of the Board of Directors of the
Company; provided, however, that this clause (iv) shall not be applicable if the
Continuing Directors do not constitute at least a majority of the Board of
Directors as a result of the election of directors nominated by any of the
Permitted Holders; or (v) the stockholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company.

"Commodity Agreement" means any commodity purchase agreement, commodity
swap agreement or other similar agreement of any Person designed to protect such
Person or any of its Subsidiaries against fluctuations in commodity values.

"Consolidated Depreciation and Amortization Expense" of the Company and its
Subsidiaries means, for any period for which the determination thereof is to be
made, the depreciation and amortization expense (including, without limitation,
amortization of goodwill, other intangibles, debt discount and debt issue costs)
of the Company and such Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.

"Consolidated EBITDA" means, for any period, on a consolidated basis for
the Company and its Subsidiaries, the sum (without duplication) for such period
of (i) Consolidated Net Income plus, to the extent deducted in determining
Consolidated Net Income, each of (ii) Consolidated Income Tax Expense, (iii)

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Consolidated Depreciation and Amortization Expense, (iv) Consolidated Fixed
Charges and (v) Consolidated Post Retirement Benefits Other Than Pensions.

"Consolidated Fixed Charges" means, for the Company and its Subsidiaries,
for any period, the sum (without duplication) of (i) the aggregate amount of
interest, whether expensed or capitalized, paid, accrued or scheduled to be paid
or accrued during such period (including any non-cash interest payments or
accruals, the interest portion of Capital Lease Obligations, all amortization of
original issue discount, net cash costs pursuant to Interest Rate Agreements,
Currency Agreements and Commodity Agreements (including amortization of fees)
and the interest component of any deferred payment obligation) of the Company
and its Subsidiaries, determined on a consolidated basis in accordance with GAAP
and (ii) dividends in respect of Preferred Stock and Disqualified Stock.

"Consolidated Income Tax Expense" of the Company and its Subsidiaries
means, for any period for which the determination thereof is to be made, the
aggregate of the income tax expense of the Company and such Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP;
provided, however, that amounts payable for any period by Mid-State Homes and
its Subsidiaries or any other member of the Company's consolidated group for tax
purposes which is not a Subsidiary of the Company, pursuant to the provision of
the Indenture described above in the second paragraph under "Certain
Covenants -- Taxes", shall be excluded from the foregoing to the extent
excluded in determining Consolidated Net Income of the Company and its
Subsidiaries.

"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
that (i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the Person
whose Consolidated Net Income is being determined or a Wholly Owned Subsidiary
thereof, (ii) the Net Income of any Subsidiary that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction would limit
the amount that otherwise could be paid to, or received by, the Person whose
Consolidated Net Income is being determined or a Wholly Owned Subsidiary of such
Person not subject to any Payment Restriction, (iii) the Net Income of any
Person acquired by the Person whose Consolidated Net Income is being determined
or a Subsidiary thereof in a pooling of interests transaction for any period
prior to the date of such acquisition shall be excluded and (iv) the cumulative
effect of a change in accounting principles shall be excluded.

"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of Preferred Stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such Preferred Stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
Investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.

"Consolidated Post Retirement Benefits Other Than Pensions" means the
noncash portion of retirement benefits other than pensions as defined in FASB
Statements Numbers 88, 106 and 112, determined in accordance with GAAP.

"Continuing Directors" means, with respect to the Company, a director who
either was a member of the Board of Directors of the Company on the Issue Date
or who became a director of the Company subsequent to such date and whose
election, or nomination for election by the Company's stockholders, was duly
approved by a majority of the Continuing Directors then on the Board of
Directors of the Company, either by a specific vote or by approval of the proxy
statement issued by the Company on behalf of the entire Board of Directors of
the Company in which such individual is named as nominee for director.

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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement of any Person designed to
protect such Person or any of its Subsidiaries against fluctuations in currency
values.

"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.

"Disqualified Stock" means any Capital Stock of the Company or any
Subsidiary of the Company which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event or with the passage of time, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes, or which is exchangeable or convertible (whether at
the option of the Company or the holder thereof or upon the happening of any
event) into debt securities of the Company or any Subsidiary of the Company,
except to the extent and only to the extent that such exchange or conversion
rights cannot be exercised prior to the maturity of the Notes.

"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries outstanding on the Issue Date, until such Indebtedness is repaid.

"Fair Market Value" means with respect to any asset, property or Capital
Stock, the price which could be negotiated in an arm's length, free market
transaction between a willing seller and a willing buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. "Fair Market
Value" shall be determined by the Board of Directors of the Company acting in
good faith and shall be evidenced by a duly and properly adopted resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.

"Government Securities" means securities which are (i) direct obligations
of the United States of America for the payment of which the full faith and
credit of the United States is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America the payment of which is unconditionally Guaranteed as a
full faith and credit obligation by the United States of America which, in
either case, are not callable or redeemable at the option of the issuer thereof.

"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other liabilities.

"Holder" means the registered owner of the Notes as reflected on the books
of the Company.

"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee (including the Guarantee of the Indebtedness of a Subsidiary or other
Affiliate) or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence", "incurred," "incurrable" and "incurring" shall have meanings
correlative to the foregoing), provided that the accrual of interest (whether
such interest is payable in cash or in kind) and the accretion of original issue
discount shall not be deemed an incurrence of Indebtedness, provided, further
that (a) any Indebtedness or Disqualified Stock of a Person existing at the time
such Person becomes (after the Issue Date) a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) of the Company shall be deemed to be
incurred or issued for purposes of the provision of the Indenture described
above under "Certain Covenants -- Limitation on Issuance of Capital Stock", as
the case may be, by such Subsidiary at the time it becomes a Subsidiary of the
Company and (b) any amendment, modification or waiver of any document pursuant
to which Indebtedness was previously incurred shall be deemed to be an
incurrence of Indebtedness unless such amendment, modification or waiver does
not (i) increase the principal or premium thereof or interest rate thereon
(including by way of original issue discount), (ii) change to an earlier date
the stated maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under

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which such Indebtedness may or shall be redeemed or the Weighted Average Life to
Maturity thereof, (iii) if such Indebtedness is subordinated to the Notes,
modify or affect, in any manner adverse to the holders, such subordination, (iv)
if the Company is the obligor thereon, provide that a Subsidiary of the Company
not already an obligor thereon shall be an obligor thereon or (v) violate, or
cause the Indebtedness to violate, the provisions of the Indenture described
above under "Certain Covenants -- Limitation on Liens" and "-- Limitation on
Dividend and Other Payment Restrictions Affecting Subsidiaries."

"Indebtedness" means, with respect to any Person, without duplication, (i)
all liabilities, contingent or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property or (c) for the
payment of money relating to a Capital Lease Obligation; (ii) obligations under
reimbursement agreements of such Person with respect to letters of credit; (iii)
obligations of such Person with respect to Interest Rate Agreements, Currency
Agreements or Commodity Agreements; (iv) all liabilities of others of the kind
described in the preceding clause (i), (ii) or (iii) that (a) such Person has
Guaranteed, (b) have been incurred by a partnership in which it is a general
partner (to the extent such Person is liable, contingently or otherwise
therefor) or (c) are otherwise its legal liability (other than endorsements for
collection in the ordinary course of business); and (v) all obligations of
others secured by a Lien to which any of the properties or assets (including,
without limitation, leasehold interests and any other tangible or intangible
property rights) of such Person are subject, whether or not the obligations
secured thereby shall have been assumed by such Person or shall otherwise be
such Person's legal liability; provided, however, that notwithstanding anything
in the foregoing that may be deemed to be to the contrary, Indebtedness shall
not include (i) liabilities arising from agreements providing for
indemnification or adjustment of purchase price or from Guarantees securing any
obligations of the Company or any Subsidiary pursuant to such agreements,
incurred or assumed in connection with the disposition of any business, assets
or Subsidiary of the Company (other than Guarantees or similar credit support by
the Company or any Subsidiary of Indebtedness incurred by any Person acquiring
all or any portion of such business, assets or Subsidiary for the purpose of
financing such acquisition or Indebtedness relating to any sale and leaseback
transaction), provided that the maximum aggregate liability in respect of the
foregoing permitted pursuant to this clause (i) shall at no time exceed the net
proceeds actually received from the sale of such business, assets or Subsidiary;
(ii) any Trade Payables and any other accrued current liabilities incurred in
the ordinary course of business as the deferred purchase price of property
acquired in the ordinary course of business; (iii) liabilities arising from
Guarantees to suppliers, lessors, licensees, contractors, franchisees or
customers incurred in the ordinary course of business (exclusive of obligations
for the payment of money borrowed); (iv) liabilities in respect of performance
bonds provided by the Company or its Subsidiaries in the ordinary course of
business; (v) liabilities from the honoring by a bank or other financing
institution of a check, draft or similar instrument drawn against insufficient
funds in the ordinary course of business, provided that such liabilities are
extinguished within two Business Days of their incurrence; (vi) liabilities
under workers' compensation laws and similar legislation; (vii) Tax Claims
Indebtedness and (viii) borrowings under life insurance policies in effect on
the Issue Date to pay premiums under such policies, which borrowings shall not
exceed the cash surrender value thereof. The amount of Indebtedness of any
Person at any date shall be, without duplication, (i) the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability of any such contingent obligations at such date and (ii) in the case
of Indebtedness of others secured by a Lien to which the property or assets
owned or held by such Person is subject but which is otherwise nonrecourse to
such Person, the lesser of the Fair Market Value at such date of any assets
subject to a Lien securing the Indebtedness of others and the amount of the
Indebtedness secured.

"Interest Rate Agreement" means any swap agreement, interest rate collar
agreement or other similar agreement or arrangement of any Person designed to
protect such Person or any of its Subsidiaries against fluctuations in interest
rates.

"Investment" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances (other than advances to customers in
the ordinary course of business which are recorded as accounts receivable on the
balance sheet of the Company or its Subsidiaries not to exceed $1 million in the
aggregate at any one time outstanding) or capital contributions, (ii) all
Guarantees of Indebtedness or other obligations of any other Person by such
Person, (iii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other Person
and (iv) all other items that would be classified as investments (including,
without limitation, purchases of assets outside the ordinary course of business)
on a balance sheet of such Person prepared in accordance with GAAP; provided,
that notwithstanding anything in the foregoing that may be deemed to be to the
contrary, Investment shall not include

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(i) sales of goods or services on trade credit terms consistent with the
Company's and its Subsidiaries' past practices or otherwise consistent with
trade credit terms in common use in the industry and recorded as accounts
receivable on the balance sheet of the Person making such sale; (ii) loans and
advances to employees of the Company in the ordinary course of business and
consistent with past practices, including travel, moving and other like
advances; (iii) loans and advances to vendors or contractors in the ordinary
course of business not to exceed $1 million in the aggregate at any one time
outstanding; (iv) lease, utility and other similar deposits in the ordinary
course of business; (v) obligations or securities received in the ordinary
course of business in settlement of debts owing to the Company or a Subsidiary
thereof as a result of foreclosure, perfection or enforcement of any Lien; (vi)
Investments in existence on the Issue Date; (vii) Investments in securities not
consisting of cash or Cash Equivalents and received in connection with an Asset
Sale or other disposition of assets; and (viii) growth in accumulated earnings
of Persons who are not Subsidiaries of the Company.

"Issue Date" means March 17, 1995, the date on which Notes were issued
under the Indenture.

"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or the city in which the Trustee has its
Corporate Trust Office are not required to be open. If a payment date is a Legal
Holiday at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell (excluding options or
agreements for sales of assets not prohibited by the Indenture) or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).

"Marketable Securities" means securities listed and trading on any national
securities exchange or listed and trading on the National Market System of the
National Association of Securities Dealers Automated Quotation System; provided,
however, that (a) either any such security is freely tradable under the
Securities Act upon issuance or the holder thereof has contractual registration
rights that will permit the sale of such Marketable Security pursuant to an
effective registration statement not later than ninety days after issuance to
the Company or one of its Wholly Owned Subsidiaries and (b) such securities also
are so listed for trading privileges.

"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in cash or Cash Equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or Cash
Equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Subsidiary of the Company) and proceeds from the
conversion of other property received when converted to cash or Cash
Equivalents, net of (a) third-party brokerage commissions, sales commissions and
other third-party fees and expenses (including fees and expenses of counsel and
investment bankers) related to such Asset Sale, (b) provisions for all cash
taxes as a result of such Asset Sale, (c) payments made to repay Indebtedness
(other than Indebtedness under the Bank Revolving Credit Facility, repayment of
which is governed by the provision of the Indenture described above under
"Certain Covenants -- Limitation on Asset Sales") or any other obligation
outstanding at the time of such Asset Sale the incurrence of which was not
prohibited by the Indenture and that is secured by a Lien, the incurrence of
which was not prohibited by the Indenture, on the property or assets sold to the
extent required by the terms of such Lien and actually repaid in cash or Cash
Equivalents, and (d) amounts provided by the Company or any Subsidiary as a
reserve, to the extent required by GAAP, against any liabilities associated with
such Asset Sale and retained by the Company or any Subsidiary, as the case may
be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale; provided however, that the amounts of any such reserves, to the
extent not utilized for the foregoing purposes or no longer required from time
to time to be retained as reserves, shall be Net Cash Proceeds at such times
when any such amounts cease to be retained as reserves.

"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds received
by the Company, after payment of expenses, commissions and the like incurred in
connection therewith, and (b) in the case of any exchange, exercise, conversion
or surrender of any outstanding Indebtedness of the Company or any Subsidiary
for or into shares of Qualified Capital Stock of the Company, the amount of such
Indebtedness (or, if such Indebtedness was issued at

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an amount less than the stated principal amount thereof, the accrued amount
thereof as determined in accordance with GAAP) as reflected in the consolidated
financial statements of the Company prepared in accordance with GAAP as of the
most recent date next preceding the date of such exchange, exercise, conversion
or surrender (plus any additional cash amount required to be paid by the holder
of such Indebtedness to the Company or to any Wholly Owned Subsidiary of the
Company upon such exchange, exercise, conversion or surrender and less any and
all payments made to the holders of such Indebtedness, and all other expenses
incurred by the Company in connection therewith), in the case of each of clauses
(a) and (b) to the extent consummated after the Issue Date.

"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provisions for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions
and, for purposes of this definition only, disregarding limitations in the
definition of "Asset Sale" with respect to Fair Market Value and net proceeds),
or (b) the disposition of any securities or the extinguishment of any
Indebtedness of such Person or any of its Subsidiaries, (ii) any extraordinary
gain (but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss), (iii) for purposes of the provisions
described above under "Certain Covenants -- Limitation on Restricted Payments"
only, amortization of existing goodwill of the Company on the Issue Date in the
amount of $450 million and (iv) in the case of the Company and its Subsidiaries,
income tax expense payable pursuant to the provisions of the Indenture described
above in the second paragraph under "Certain Covenants -- Taxes" for any period
by Mid-State Homes and its Subsidiaries or any other member of the Company's
consolidated group for tax purposes which is not a Subsidiary of the Company, so
long as the Company is not in default under the provisions of the Indenture
described above in the second paragraph under "Certain Covenants -- Taxes"
(which income tax expense shall be included, if not excluded pursuant to
this clause (iv)), but including any cash payments with respect to
Consolidated Post Retirement Benefits Other Than Pensions.

"Non-Core Assets" means any assets other than those used directly or
indirectly in the same or a similar line of business (other than land held by
Walter Land, Hamer Properties, Inc. and J.W. Walter on the Issue Date) as the
Company and Homes Holdings Corporation, Jim Walter Homes, Jim Walter Resources,
Jim Walter Window Components, Inc., JW Aluminum, JW Resources, Land Holdings
Corporation, Mid-State Homes, Mid-State Holdings Corporation, Railroad Holdings
Corporation, Sloss Industries, Southern Precision, U.S. Pipe, United Land and
Vestal Manufacturing were engaged in on the Issue Date.

"Non-Core Subsidiary" means any Subsidiary substantially all of whose
assets consist of Non-Core Assets.

"Opinion of Counsel" means an opinion in writing signed by legal counsel
reasonably satisfactory to the Trustee.

"Other Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or assets subject to
such Lien, and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (ii) statutory
Liens of landlords, vendors and laborers and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's, or other like Liens arising
in the ordinary course of business and with respect to amounts which are not yet
delinquent or which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or
sale of the property or assets subject to such Lien, and for which a reserve or
other appropriate provision, if any, as shall be required by GAAP shall have
been made; (iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (iv) Liens incurred or deposits made to secure
the performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; (vi) Liens arising in the ordinary course of business upon specific
items of inventory or other goods and proceeds of any Person securing such
Person's obligations in respect of bankers' acceptances issued or created in
accordance with the Indenture for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods; (vii) Liens
incurred in the ordinary

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course of business securing reimbursement obligations with respect to commercial
letters of credit permitted under the Indenture which encumber documents and
other property relating to such letters of credit and products and proceeds
thereof; (viii) Liens incurred in the ordinary course of business in favor of
bona fide lessors of real or personal property; and (ix) leases or subleases
granted to others in the ordinary course of business and not materially
interfering with the ordinary course of business.

"Payment Restriction" means with respect to a Subsidiary of any Person, any
encumbrance, restriction or limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such Subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (b) make loans or advances to such Person or
any other Subsidiary of such Person, or (c) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person, or (ii) such
Person or any other Subsidiary of such Person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances, or (c) transfer of
properties or assets.

"Permitted Holders" means Lehman and its Affiliates, KKR, KKR Associates,
KKR Partners II, L.P., JWC Associates, L.P., JWC Associates II, L.P. and their
respective Affiliates and any group (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act as in effect on the date of the Indenture) including any of the
foregoing.

"Permitted Indebtedness" means (i) Indebtedness of the Company and its
Subsidiaries in respect of the Bank Revolving Credit Facility not to exceed
$150,000,000 in aggregate principal amount at any one time outstanding as
reduced in accordance with the provisions described above under "Certain
Covenants - Limitation on Asset Sales"; (ii) Existing Indebtedness; (iii)
Indebtedness pursuant to the Notes; (iv) unsecured Indebtedness of the Company
to any Wholly Owned Subsidiary of the Company and unsecured Indebtedness of any
Subsidiary of the Company to the Company or another Wholly Owned Subsidiary of
the Company to the extent permitted by the provisions described above under
"Certain Covenants -- Limitation on Restricted Payments"; (v) obligations with
respect to Interest Rate Agreements, Currency Agreements and Commodity
Agreements; (vi) Permitted Refinancing Indebtedness; and (vii) the incurrence by
the Company or any Subsidiary of Indebtedness represented by Capital Lease
Obligations, Attributable Debt, mortgage financings or Purchase Money
Obligations, in each case incurred for the purpose of financing all or any part
of the purchase price or cost of construction of property (including additions
or replacements to or refurbishments or renovations of existing property) newly
acquired or constructed for use in the business of the Company or such
Subsidiary, in an aggregate principal amount not to exceed $25 million at any
time outstanding.

"Permitted Investments" means (i) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company that is engaged primarily in a Related
Business; (ii) any Investments in Cash Equivalents; (iii) Investments by the
Company or any Wholly Owned Subsidiary of the Company in a Person, if as a
result of such Investment (a) such Person becomes a Wholly Owned Subsidiary of
the Company that is engaged primarily in a Related Business; or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary of the Company (which remains a Wholly Owned Subsidiary
following consummation of the transaction) and such Person is engaged primarily
in a Related Business; (iv) Mid-State Advances to the extent permitted by the
provision of the Indenture described above in the second paragraph under
"Certain Covenants -- Taxes" and (v) other Investments in one or more Persons
that do not exceed $25 million in the aggregate at any time outstanding.

"Permitted Liens" means (i) Liens existing on the Issue Date; (ii) Liens
existing on or after the date of the Indenture securing Indebtedness outstanding
under the Bank Revolving Credit Facility; (iii) Liens existing on or after the
date of the Indenture securing any obligations with respect to Interest Rate
Agreements, Currency Agreements or Commodity Agreements; (iv) Liens on property
of a Person existing at the time such Person is merged or consolidated with the
Company or any Subsidiary of the Company or at the time such Person becomes a
Subsidiary of the Company; provided that such Liens were not created in
connection with, or in contemplation of, such merger or consolidation and do not
extend to any assets other than those of the Person merged or consolidated with
the Company or the Subsidiary of the Company; (v) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company;
provided that such Liens were not created in connection with, or in
contemplation of, such acquisition; (vi) Purchase Money Liens and Liens to
secure Capital Lease Obligations and mortgage financings included in
clause (vii) of the definition of Permitted Indebtedness covering only the
property acquired with such Indebtedness; (vii) Liens on assets of

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Subsidiaries securing Indebtedness of Subsidiaries (other than Permitted
Indebtedness) incurred in compliance with the provisions described above under
"Certain Covenants -- Limitation on Incurrence of Indebtedness" and
"-- Limitation on Issuance of Capital Stock"; (viii) Liens securing Permitted
Refinancing Indebtedness; provided that such Liens extend to or cover only the
property or assets then securing the Indebtedness being refinanced; and (ix)
Other Permitted Liens.

"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that, except in
the case of the redemption of all of the outstanding Notes, in which case none
of the following shall be applicable, (i) the principal amount of such
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith), (ii) such Indebtedness
has a Weighted Average Life to Maturity equal to or greater than and a final
maturity no earlier than the Weighted Average Life to Maturity and final
maturity of the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, (iii) with respect to Subordinated Indebtedness, such
Indebtedness is subordinated in right of payment pursuant to terms at least as
favorable to the Holders as those, if any, contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, and (iv) no such Indebtedness incurred by the Company is
extended, refinanced, renewed, replaced, defeased or refunded with Indebtedness
incurred by a Subsidiary.

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.

"Pledge Agreement" means the Pledge Agreement dated as of the date of the
Indenture, as amended, amended and restated or otherwise modified from time to
time, pursuant to which the Company pledged the Pledged Shares owned by it to
the Trustee.

"Preferred Stock" means, with respect to any Person, all Capital Stock of
such Person which has a preference in liquidation or a preference with respect
to the payment of dividends to another class of Capital Stock.

"Purchase Money Liens" means Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture.

"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost (a) of acquiring any assets and (b) of construction or
improvement of property, in each case for use in the business of the Company and
its Subsidiaries (including Purchase Money Obligations of any other Person at
the time such other Person is merged with or is otherwise acquired by the
Company or a Subsidiary), provided that (i) the principal amount of such
Indebtedness does not exceed 100% of such cost, including construction or
improvement costs, (ii) any Lien securing such Indebtedness does not extend to
or cover any other asset or property other than the asset or property being so
acquired, constructed or improved and (iii) such Indebtedness is incurred, and
any Liens with respect thereto are granted, within 180 days of the acquisition
of such property or asset.

"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Stock.

"Related Business" means (1) a business engaged in on the Issue Date by any
of the Company, its Subsidiaries, Cardem Insurance, Mid-State Homes, Black
Warrior Methane and Black Warrior Transmission or (2) the business of mining or
manufacturing and/or selling products and/or providing services (other than
brokerage, investment advisory, investment banking, commercial lending or other
similar financial services not related to the primary business of Mid-State
Homes, Best Insurors or Cardem Insurance on the Issue Date) relating to building
products, water and waste water transmission, residential and/or non-residential
construction, coal, coke, methane gas, specialty chemicals and iron and aluminum
industrial and original equipment manufacture products.

"Restricted Investment" means an Investment other than a Permitted
Investment.

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"Restricted Payment" means, with respect to any Person, any of the
following: (i) any dividend or other distribution in respect of such Person's
Capital Stock (other than (a) dividends or distributions payable solely in
Capital Stock (other than Disqualified Stock) and (b) in the case of
Subsidiaries of a Person, dividends or distributions payable to such Person or
to a Wholly Owned Subsidiary of such Person); (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of such Person or
any of its Subsidiaries (other than the surrender of Qualified Capital Stock of
the Company in payment of the exercise price of employee stock options to
purchase Qualified Capital Stock of the Company issued pursuant to plans
approved by the stockholders of the Company); (iii) the making of any principal
payment on, or the purchase, defeasance, repurchase, redemption or other
acquisition or retirement for value, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, of any Indebtedness which is
subordinated in right of payment to the Notes; and (iv) the making of any
Restricted Investment.

"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule l-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.

"Subordinated Indebtedness" means any Indebtedness of the Company that
(i) has a final maturity date after, and a Weighted Average Life to Maturity
longer than, that of the Notes, (ii) is subordinated in right of payment to the
Notes pursuant to subordination provisions contained in the agreements or
instruments evidencing such Indebtedness or pursuant to which such Indebtedness
is issued, which subordination provisions are not less favorable to the Holders
than the subordination provisions set forth in Exhibit D to the Indenture and
(iii) is not Guaranteed by any Subsidiary of the Company.

"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) any other Person (other than a corporation) in
which such Person, one or more Subsidiaries thereof or such Person and one or
more Subsidiaries thereof, directly or indirectly, at the date of determination
thereof has at least a majority ownership interest; provided, however, that Mid-
State Homes and its Subsidiaries and Cardem Insurance shall not be deemed to be
Subsidiaries of the Company for purposes of the Indenture. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary.

"Subsidiary Pledge Agreements" means the Subsidiary Pledge Agreements dated
as of the date of the Indenture as amended, amended and restated or otherwise
modified from time to time pursuant to which the Subsidiaries of the Company
pledged the Pledged Shares owned by them to the Trustee.

"Tax Claims Indebtedness" means obligations of the Company and its
Subsidiaries to the IRS arising out of consolidated tax returns filed by the
Company and its Subsidiaries or their predecessors for fiscal years ended August
31, 1980, 1983, 1984, 1985, 1986, 1987 and May 31, 1988 (nine months), 1989,
1990 and 1991, as agreed to by the Company and the IRS and approved by a final
nonappealable order of the Bankruptcy Court to the extent required by the
Bankruptcy Code or, failing agreement, the amount determined by a final
nonappealable order of the Bankruptcy Court, in either case in an aggregate
amount of principal, interest and penalties not to exceed $40 million at any
time outstanding.

"Trade Payables" means any accounts payable or any other indebtedness or
monetary obligation to trade creditors created, assumed or Guaranteed by a
Person arising in the ordinary course of business of such Person in connection
with the acquisition of goods and services.

"Voting Stock" means, with respect to any Person, (i) one or more classes
of the Capital Stock of such Person having general voting power to elect at
least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency) and (ii) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (i) above.

"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at

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final maturity, in respect thereof, by (y) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (b) the then outstanding principal amount of such Indebtedness.

"Wholly Owned Subsidiary" means, with respect to any Person, a Subsidiary
of such Person all of the outstanding Capital Stock of which shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.

Senior Note Registration Rights Agreement

The Company has entered into a Registration Rights Agreement, dated as of
the Effective Date of the Plan of Reorganization (the "Senior Note Registration
Rights Agreement"), with certain holders ("Note Holders") of Notes pursuant to
which the Company agreed to file the Registration Statement of which this
Prospectus forms a part (the "Initial Senior Note Shelf Registration") and use
its reasonable best efforts to keep such Initial Senior Note Shelf Registration
continuously effective for up to one year.

After the expiration of the Initial Senior Note Shelf Registration, one or
more Note Holders may request to have all or part of their Notes as to which
registration pursuant to the Securities Act is required for public sale
("Registrable Notes") registered under the Securities Act, and all other Note
Holders have the right to participate in any such registration; provided that
(i) the Company is not required to effect more than two such registrations, (ii)
no such registration may be requested within 180 days of the effectiveness of
any such earlier registration or a registration as to which Note Holders have
"piggyback" registration rights (as discussed below), (iii) the Company is not
required to effect any such registration unless at least 20% of the principal
amount of Registrable Notes outstanding at the time of such request is to be
included in such registration and (iv) if the intended method of distribution is
an underwritten public offering, the Company may require the underwriting to be
conducted on a "firm commitment" basis. Any such requested registration may be
effected pursuant to a shelf registration statement under Rule 415 of the
Securities Act (a "Shelf Registration"); any such registration (other than a
Shelf Registration, which must be kept effective by the Company for up to one
year, if made pursuant to the first demand under the provisions described in
this paragraph, or nine months otherwise) need not be kept effective by the
Company for more than 90 days. If the intended method of distribution is an
underwritten public offering, the underwriters must be nationally recognized,
selected by Note Holders owning at least a majority of the aggregate principal
amount of Registrable Notes to be included in such registration (the "Majority
Selling Note Holders") and reasonably acceptable to the Company. In addition, if
the managing underwriter advises the Company in writing that, in its opinion,
the aggregate principal amount of Registrable Notes requested to be registered
exceeds the aggregate principal amount of such securities that can be sold
within a price range specified by the Majority Selling Note Holders, the
Registrable Notes requested to be included by Note Holders shall be included in
the registration on a pro rata basis in preference to any other Notes which the
Company or any person wishes to include in such registration.

If the Company at any time following the termination of the Initial Senior
Note Shelf Registration proposes to register any of its securities under the
Securities Act (other than any registration of Common Stock pursuant to the
Common Stock Registration Rights Agreement or any registration of any securities
on Form S-4 or Form S-8), the Note Holders have the right pursuant to a written
request submitted within 20 days (10 days in certain circumstances) of receipt
of notice thereof from the Company, to participate in such registration.

Upon a request of the Holders of a majority of the aggregate principal
amount of Registrable Notes requested to be included in a demand or "piggyback"
registration made at any time on or after March 17, 1996, the Company has agreed
to use its best efforts to (i) cause the Notes covered by such registration to
be listed on a national securities exchange or to be quoted through NASDAQ or
(ii) provide for at least two market makers for the Notes.

All expenses of the Company in connection with the performance of its
obligations under the Senior Note Registration Rights Agreement and the
reasonable fees, disbursements and other charges of one firm of counsel (per
registration) selected by the Majority Selling Note Holders (but excluding
underwriting discounts and commissions and transfer taxes) shall be borne by the
Company, except where some or all of the Note Holders withdraw or terminate
their requests prior to the registration statement becoming effective, in which
case such Note Holders shall be required to bear some or all of such expenses,
provided that if the Company elects not to proceed with a registration as to
which Note Holders have "piggyback" registration rights as described above or
elects not to proceed with any registration as described in the second
succeeding paragraph, the

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Company must bear all reasonable out-of-pocket costs (other than counsel fees,
disbursements and other charges not specifically referred to above) incurred by
a Note Holder in connection with such terminated registration. In addition,
pursuant to the Senior Note Registration Rights Agreement, the Company has
agreed to indemnify each offeror of Registrable Notes covered by a registration
statement filed pursuant to the Senior Note Registration Rights Agreement, each
other person who participates as an underwriter in such offering, each other
person who controls such offerors or underwriters and their respective
directors, officers, partners, agents and affiliates against certain
liabilities, including liabilities under the Securities Act.

The Company is not obligated to file any registration statement under the
Senior Note Registration Rights Agreement or any amendment or supplement thereto
(other than the Registration Statement of which this Prospectus forms a part and
amendments and supplements thereto) and may suspend any seller's rights to make
sales pursuant to any effective registration statement (provided that the right
to effect sales pursuant to the Registration Statement of which this Prospectus
forms a part may not be suspended prior to the ninetieth day following the date
hereof) at any time when the Company, in the good faith judgment of its Board of
Directors, reasonably believes that the filing thereof at the time requested, or
the offering of securities thereto, would adversely affect a pending or proposed
public offering of the Company's securities, a material financing, or a material
acquisition, merger, recapitalization, consolidation, reorganization or similar
transaction, or negotiations, discussions or pending proposals with respect
thereto. Such a deferral of the filing of a registration statement or an
amendment or supplement thereto or suspension of a seller's right to effect
sales may continue for no more than 10 days after the abandonment or
consummation of any of the foregoing proposals or transactions or 60 days after
the date of the Board's determination referred to in the preceding sentence. In
the event of such a suspension, the applicable registration period will be
extended by the number of days of the suspension.

Lock-Up Agreements

Pursuant to the Senior Note Registration Rights Agreement, each Note Holder
has agreed, if required by the managing underwriter of any underwritten offering
and except as required otherwise under applicable law, not to sell any debt
securities of the Company during the 10 days preceding or 120 days following the
effective date of an underwritten registration under the Senior Note
Registration Rights Agreement. The Company has agreed not to (and to cause
certain other holders of debt securities acquired after the Effective Date of
the Plan of Reorganization to agree not to) effect any public offering and sale
of any debt securities pursuant to an effective registration statement during
such period of time.

DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS

Bank Revolving Credit Facility

The Company and certain of its subsidiaries have entered into a revolving
credit facility (the "Bank Revolving Credit Facility") with Citicorp USA, Inc.,
NationsBank of Florida, N.A. and Merrill Lynch Capital Corporation. The Bank
Revolving Credit Facility is a three-year non-amortizing senior working capital
revolving credit facility pursuant to which borrowings not in excess of $150
million may be outstanding at any time, with a sublimit for trade and standby
letters of credit in an amount not in excess of $40,000,000 at any time
outstanding and a sub-facility for swingline advances in an amount not in excess
of $15,000,000 at any time outstanding, subject to compliance with a borrowing
base test comprised of eligible equipment, inventory and receivables. The
facility is secured by certain collateral, including equipment of JW Aluminum,
U.S. Pipe and Jim Walter Resources as well as the bank accounts, inventory and
accounts receivable of all of the borrowers and inter-company indebtedness.
Subject to certain exceptions, the net cash proceeds from the sale of collateral
must be applied to permanently reduce the facility. Under the facility each
borrower guarantees the obligations of each other borrower, subject to certain
limitations. As of May 31, 1995, there were no borrowings outstanding under this
facility; however, letters of credit in the aggregate face amount of $22,727,000
have been issued thereunder. The facility contains a number of covenants,
including restrictions on liens, indebtedness, leases, mergers, sales or
disposition of assets, investments, dividends, repurchases of shares of capital
stock, prepayment of indebtedness and capital expenditures, as well as financial
covenants with respect to leverage ratios, interest coverage, fixed charge
coverage ratios and earnings. Mid-State Homes and Cardem Insurance are not
parties to or governed by this facility. The borrowers are required to maintain
a leverage ratio (the ratio of indebtedness of the borrowers to EBITDA of the
borrowers) not more than a ratio ranging from 3.80 to 1 to 3.50 to 1 for
measurement periods in the year ending May 31, 1996, 3.35 to 1 for each
measurement period in the year ending May 31, 1997 and 3.30 to 1 thereafter. The
borrowers' interest coverage ratio (the ratio of EBITDA to interest

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expense) for all measurement periods is required to be at least 2.40 to 1. The
borrowers' fixed charge coverage ratio (the ratio of (a) EBITDA minus capital
expenditures to (b) the sum of all required principal payments on outstanding
indebtedness, interest expense and dividends paid) is required to be at least
1.0 to 1 for the measurement period ending August 31, 1995, 1.10 to 1 in each of
the remaining measurement periods in the year ending May 31, 1996 and 1.25 to 1
thereafter. The minimum EBITDA of the borrowers is $175 million for the year
ending May 31, 1996 and $180 million for the four most recently completed fiscal
quarters at each measurement period thereafter.

DESCRIPTION OF CAPITAL STOCK

Authorized Capital Stock

The Company's authorized capital stock consists of 200,000,000 shares of
Common Stock, par value $.01 per share. At July 21, 1995 there were 50,494,313
shares of Common Stock issued and outstanding. Harris Trust and Savings Bank is
the transfer agent and registrar for the Common Stock.

Common Stock

The holders of the Common Stock are entitled to one vote for each share
held of record on all matters as to which stockholders are entitled to vote.
There are no cumulative voting rights in the election of directors. The quorum
required at any stockholders' meeting for consideration of any matter is a
majority of the issued and outstanding shares of Common Stock, represented in
person or by proxy.

Holders of the Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of funds legally available for
dividends. In the event of any liquidation, dissolution or winding up of the
Company, the holders of the Common Stock are entitled to receive pro rata any
assets distributable to stockholders in respect of shares held by them, after
payment of all obligations of the Company.

The outstanding shares of the Common Stock are duly authorized, validly
issued, fully paid and nonassessable.

Future Stock Issuances

Pursuant to the Plan of Reorganization, the Company may be required to
issue additional Common Stock to the holders of common stock of the Company
immediately prior to the Effective Date of the Plan of Reorganization ("Original
Stockholders") on the dates and in the amounts described below, in each case on
a pro rata basis. Solely for the purpose of calculating the number of shares to
be issued in these issuances, such additional Common Stock will be valued at a
price per share of $22.86 (the "Common Stock Value Per Share"). Original
Stockholders will be entitled receive shares of Common Stock as follows:

(a) On the date on which a final, non-appealable order is entered
resolving the total amount of claims of the IRS against the Company or any
of its subsidiaries (other than Cardem Insurance and J.W. Railroad) arising
prior to the Effective Date of the Plan of Reorganization and entitled to
priority under Section 507(a)(7) of the Bankruptcy Code ("Federal Income
Tax Claims"), the Original Stockholders will receive Common Stock with an
aggregate Common Stock Value Per Share equal to the amount by which the
total amount of the Federal Income Tax Claims are reduced to below $27
million (the "Federal Income Tax Claims Differential"). Such Common Stock
shall be, first, issued by the Company directly to the Original
Stockholders up to a number of shares having an aggregate Common Stock
Value Per Share equal to the excess, if any, of (A) $88.7 million over (B)
the aggregate Common Stock Value Per Share of all shares of Common Stock
theretofore issued into escrow as described in the next paragraph, and
second, be satisfied by the release from such escrow of any remaining
shares of Common Stock issuable to Original Stockholders pursuant to such
provisions.

(b) As soon as practicable after the Tax Oversight Committee of the
Board of Directors has determined that a tax return for a tax year ending
on or after May 31, 1995 or a claim for refund or deduction for a tax year
ending prior to May 31, 1995 has been filed by the Company's consolidated
tax group or any member thereof on which a Veil Piercing Settlement Tax
Savings Amount (as defined below) is claimed (each such filing, a "Veil
Piercing Settlement Tax Savings Event"), the Company will

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issue and place in escrow with an escrow agent selected by the Company,
Lehman and AIF II, L.P., certain of its affiliates and certain accounts
controlled or managed by such affiliates (AIF II, L.P., such affiliates and
accounts, collectively, "Apollo") shares of Common Stock having an
aggregate Common Stock Value Per Share equal to the difference between
(a) the aggregate amount of federal, state and local tax payable by members
of the Company's consolidated group as reported on such members' relevant
tax returns and (b) the aggregate amount of federal, state and local income
tax that would have been reported on such returns if the distribution under
the Veil Piercing Settlement Agreement had not been made (the "Veil
Piercing Settlement Tax Savings Amount"). This amount will be determined by
the Tax Oversight Committee upon such Veil Piercing Settlement Tax Savings
Event. The Company intends to deduct in full in the year of payment the
payment made under the Plan of Reorganization to Celotex, in its capacity
as the Celotex Settlement Fund Recipient. The Company believes that such
payment is properly deductible, but there can be no assurance that the IRS
will not challenge the deduction and if it does so whether such challenge
will succeed. The issued shares will be released from escrow as soon as
practicable after the Tax Oversight Committee determines that the
applicable Veil Piercing Settlement Tax Savings Amount is no longer subject
to adjustment because (i) the statutory period during which assessments (or
denial of a refund claim) can be made with respect to such Veil Piercing
Settlement Tax Savings Amount has passed, (ii) the Company and the IRS or
other relevant taxing authority have entered into a closing or similar
agreement governing the years or issues in question with respect to such
Veil Piercing Settlement Tax Savings Amount, or (iii) a court decision
determining the income tax liability (or the right to such refund) with
respect to such Veil Piercing Settlement Tax Savings Amount has been
rendered and the time period for the filing of an appeal has passed.
Notwithstanding and in addition to the foregoing, the Plan of
Reorganization provides that if, on or prior to August 24, 1995 (the 160th
day following the Effective Date of the Plan of Reorganization), (i) one or
more Veil Piercing Settlement Tax Savings Events shall not have occurred in
respect of (and the Tax Oversight Committee shall not have determined) the
maximum Veil Piercing Settlement Tax Savings Amount that could result from
a good faith claim by the Company's consolidated tax group of both (a) a
refund with respect to tax years prior to the tax year in which the
Effective Date of the Plan of Reorganization occurs, and (b) a deduction
with respect to the tax year in which the Effective Date of the Plan of
Reorganization occurs (collectively, the "Initial Claim"), or (ii) the
Company shall not have issued and delivered into escrow certificates
representing shares of Common Stock having an aggregate Common Stock Value
Per Share equal to the full amount of such maximum Veil Piercing Settlement
Tax Savings Amount, then not later than September 13, 1995 (the 180th day
after the Effective Date of the Plan of Reorganization) the Company shall
issue and deliver into escrow certificates representing Common Stock having
an aggregate Common Stock Value Per Share equal to the sum of (i) that part
of the Veil Piercing Settlement Tax Savings Amount arising from the Initial
Claim in respect of which shares of Common Stock had not theretofore been
issued into escrow, as such Veil Piercing Settlement Tax Savings Amount
(whether or not a Veil Piercing Settlement Tax Savings Event shall
previously have occurred) shall be estimated in good faith by the Chief
Financial Officer of the Company and set forth in a certificate delivered
to the Tax Oversight Committee (and such amount shall be the Veil Piercing
Settlement Tax Savings Amount for purposes of provisions described in this
sentence) and (ii) an additional amount equal to the lesser of (A) $13
million and (B) an amount that would cause the total number of shares of
Common Stock to be issued into escrow to have an aggregate Common Stock
Value Per Share equal to $88.7 million. Notwithstanding and in addition to
the foregoing, $11.3 million of Common Stock (using the Common Stock Value
Per Share) will be issued directly to the Original Stockholders on a pro
rata basis at the same time as shares of Common Stock are first issued into
escrow. The Original Stockholders, on a pro rata basis, are entitled to
exercise all voting rights of, and receive all dividends and other
distributions on, Common Stock held in escrow. The amount of such dividends
and other distributions must be returned to the Company if such shares are
subsequently cancelled prior to release from escrow.

The Plan of Reorganization limits the number of shares issuable under the
provisions described in (a) and (b) above to that number of shares of Common
Stock that, when added to the shares issued to the Original Stockholders on the
Effective Date of the Plan of Reorganization, has an aggregate Common Stock
Value Per Share of $250 million. The Plan of Reorganization contains an
arbitration provision for the final determination of any dispute that may arise
between KKR (the principal Original Stockholder) and the Tax Oversight Committee
with respect to any determination made by the Tax Oversight Committee regarding
the provisions of the Plan of Reorganization described in (b) above. The Plan of
Reorganization also provides that, for purposes of the Federal Income Tax Claims
Differential, the amount of Federal Income Tax Claims shall not be reduced by
any Veil Piercing Settlement Tax Savings Amount and that any terms of any
settlement or agreement regarding Federal

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Income Tax Claims shall not be agreed to by the Company or any subsidiary
thereof without the prior consent of the Tax Oversight Committee.

The Company is authorized to issue additional shares of capital stock from
time to time. There are no specific restrictions upon such issuances, except
that the Charter prohibits the issuance of non-voting equity securities if, and
only to the extent that and so long as, Section 1123 of the Bankruptcy Code is
applicable and would prohibit such issuance. The Company's stockholders will not
have preemptive rights to purchase additional shares of capital stock of the
Company upon any issuance of such shares authorized by the Board.

Stockholder's Agreement

Pursuant to the Stockholder's Agreement dated as of the Effective Date of
the Plan of Reorganization (the "Stockholder's Agreement") between the Company
and the Celotex Settlement Fund Recipient, the Celotex Settlement Fund Recipient
has agreed, in any vote or action by written consent by holders of Common Stock
on any matter submitted to a vote of holders of Common Stock, to vote, and
execute written consents with respect to, the shares of Common Stock held by it
for and/or against such matter in proportion to the votes cast or consents
executed and delivered by all other holders of Common Stock. Identical
restrictions on the voting of the Celotex Settlement Fund Recipient's Common
Stock are contained in the Charter and in the Plan of Reorganization. Pursuant
to the Stockholder's Agreement, the Celotex Settlement Fund Recipient further
agreed not to, and to cause its affiliates not to, offer, sell, assign, give,
pledge, encumber or otherwise dispose of any shares of its Common Stock or any
interest therein or right thereto to any person that is a successor to or
creditor of the Celotex Settlement Fund Recipient or a creditor of Celotex (any
such creditor, a "Celotex Settlement Fund Beneficiary"), in such person's
capacity as such, unless such person executes and delivers an instrument, in
form and substance reasonably satisfactory to the Company, pursuant to which it
agrees to be bound by the Stockholder's Agreement to the same extent as the
Celotex Settlement Fund Recipient.

Tag-Along and Voting Rights Agreement

Pursuant to the Tag-Along and Voting Rights Agreement dated as of the
Effective Date of the Plan of Reorganization (the "Tag-Along and Voting Rights
Agreement") among Celotex, on behalf of the Celotex Settlement Fund Recipient,
Apollo and Lehman (collectively, the "Tag-Along Stockholders") each Tag-Along
Stockholder agreed that if it proposes to dispose of any Common Stock held by it
on the Effective Date of the Plan of Reorganization to any third party (other
than transactions described below), the other Tag-Along Stockholders will have
the right to include the shares of Common Stock held by them on the Effective
Date of the Plan of Reorganization in such disposition transaction on the same
terms and conditions, provided, however, that if the initiating Tag-Along
Stockholder is Lehman or Apollo, then Lehman or Apollo, respectively, will not
be entitled to participate in such disposition transaction. If the Tag-Along
Stockholders collectively desire to sell more shares of Common Stock than the
proposed purchaser desires to purchase, each Tag-Along Stockholder shall sell a
pro rata number of its shares. The foregoing does not apply to any transaction
effected on a national securities exchange, on NASDAQ or through a registered-
broker dealer or made pursuant to a public offering under an effective
registration statement under the Securities Act. The foregoing also does not
apply to any disposition by a Tag-Along Stockholder to an affiliate or by the
Celotex Settlement Fund Recipient to a successor or a Celotex Settlement Fund
Beneficiary. The parties have agreed that any of their transferees which is an
affiliate or, in the case of the Celotex Settlement Fund Recipient, a successor
or a Celotex Settlement Fund Beneficiary must, prior to such transfer, agree in
writing to be bound by the Tag-Along and Voting Rights Agreement as if it had
been an original party thereto.

The Celotex Settlement Fund Recipient also has agreed to, and to cause each
of its affiliates to, vote and execute written consents with respect to their
shares of Common Stock in proportion to the votes cast or consents executed and
delivered by all other holders of Common Stock, in any vote or action by written
consent by holders of Common Stock.

Common Stock Registration Rights Agreement

The Company has entered into a Registration Rights Agreement, dated as of
the Effective Date of the Plan of Reorganization (the "Common Stock Registration
Rights Agreement"), with certain holders ("Common Stock Holders") of Common
Stock pursuant to which the Company agreed to file the registration statement
referred to under "Prospectus Summary -- Contemporaneous Common Stock Offering"
(the "Initial Common

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Stock Shelf Registration") and use its reasonable best efforts to keep such
Common Stock Shelf Registration continuously effective for up to one year.

After the expiration of the Initial Common Stock Shelf Registration, one or
more Common Stock Holders may request to have all or part of their Common Stock
as to which registration pursuant to the Securities Act is required for public
sale ("Registrable Common Stock") registered under the Securities Act, and all
other Common Stock Holders have the right to participate in any such
registration; provided that (i) the Company is not required to effect more than
two such registrations, (ii) no such registration may be requested within 180
days of the effectiveness of any such earlier registration or a registration as
to which Common Stock Holders have "piggyback" registration rights (as discussed
below), (iii) the Company is not required to effect any such registration unless
at least 5% of the shares of Registrable Common Stock outstanding at the time of
such request is to be included in such registration and (iv) if the intended
method of distribution is an underwritten public offering, the Company may
require the underwriting to be conducted on a "firm commitment" basis. Any such
requested registration may be effected pursuant to a Shelf Registration; any
such registration (other than a Shelf Registration, which must be kept effective
by the Company for up to one year, if made pursuant to the first demand under
the provisions described in this paragraph or nine months otherwise) need not be
kept effective by the Company for more than 90 days.

If the Company at any time following the termination of the Initial Common
Stock Shelf Registration proposes to register any of its securities under the
Securities Act (other than any registration of Notes pursuant to the Senior Note
Registration Rights Agreement or any registration of any securities on Form S-4
or Form S-8), the Common Stock Holders have the right to participate in such
registration.

Upon a request of Common Stock Holders owning at least a majority of the
shares of Registrable Common Stock requested to be included in a demand or
"piggyback" registration made at any time on or after March 17, 1996, the
Company has agreed to use its best efforts to (i) cause the Common Stock covered
by such registration to be listed on a national securities exchange or to be
quoted through NASDAQ or (ii) provide for at least two market makers for the
Common Stock.

All expenses of the Company in connection with the performance of its
obligations under the Common Stock Registration Rights Agreement and the
reasonable fees, disbursements and other charges of one firm of counsel (per
registration) selected by the Common Stock Holders owning at least a majority of
the shares of Registrable Common Stock being registered (but excluding
underwriting discounts and commissions and transfer taxes) shall be borne by the
Company, except where some or all of the Common Stock Holders withdraw or
terminate their requests prior to the registration statement becoming effective,
in which case such Common Stock Holders shall be required to bear some or all of
such expenses, provided that if the Company elects not to proceed with a
registration as to which Common Stock Holders have "piggyback" registration
rights as described above or elects not to proceed with any registration as
described in the second succeeding paragraph, the Company must bear all
reasonable out-of-pocket costs (other than counsel fees, disbursements and other
charges not specifically referred to above) incurred by a Common Stock Holder in
connection with such terminated registration. In addition, pursuant to the
Common Stock Registration Rights Agreement, the Company has agreed to indemnify
each offeror of Registrable Common Stock covered by a registration statement
filed pursuant to the Common Stock Registration Rights Agreement, each other
person who participates as an underwriter in such offering, each other person
who controls such offerors or underwriters and their respective directors,
officers, partners, agents and affiliates against certain liabilities, including
liabilities under the Securities Act.

The Company is not obligated to file any registration statement under the
Common Stock Registration Rights Agreement or any amendment or supplement
thereto (other than the Initial Common Stock Shelf Registration Statement and
amendments and supplements thereto) and may suspend any seller's rights to make
sales pursuant to any effective registration statement (provided that the right
to effect sales pursuant to the Initial Common Stock Shelf Registration
Statement may not be suspended prior to the ninetieth day following the date
hereof) at any time when the Company, in the good faith judgment of its Board of
Directors, reasonably believes that the filing thereof at the time requested, or
the offering of securities thereto, would adversely affect a pending or proposed
public offering of the Company's securities, a material financing, or a material
acquisition, merger, recapitalization, consolidation, reorganization or similar
transaction, or negotiations, discussions or pending proposals with respect
thereto. Such a deferral of the filing of a registration statement or an
amendment or supplement thereto or suspension of a seller's right to effect
sales may continue for no more than 10 days after the abandonment or
consummation of any of the foregoing proposals or transactions or 60 days after
the date of

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the Board's determination referred to in the preceding sentence. In the event of
such a suspension, the applicable registration period will be extended by the
number of days of the suspension.

Lock-Up Agreements

Pursuant to the Common Stock Registration Rights Agreement, each Common
Stock Holder has agreed, if required by the managing underwriter of any
underwritten offering and except as required otherwise under applicable law, not
to sell any equity securities of the Company during the 10 days preceding or 120
days following the effective date of an underwritten registration under the
Common Stock Registration Rights Agreement. The Company has agreed not to (and
to cause certain other holders of equity securities acquired after the Effective
Date of the Plan of Reorganization to agree not to) effect any public offering
and sale of Common Stock pursuant to an effective registration statement during
such period of time.

Channel One Registration Rights Agreement

The Company has entered into a Registration Rights Agreement dated as of
August __, 1995 (the "Channel One Registration Rights Agreement") with Channel
One pursuant to which the Company has agreed to include in the Initial Common
Stock Shelf Registration all shares of Common Stock owned by Channel One. The
Company has also agreed to include all shares of Common Stock owned by Channel
One in each registration statement filed by the Company subsequent to the filing
of the Initial Common Stock Shelf Registration which includes shares of
Registrable Common Stock to the extent that the Company may do so without
breaching any of its obligations under the Common Stock Registration Rights
Agreement and otherwise on the terms and subject to the conditions of the Common
Stock Registration Rights Agreement that are applicable to the holders of the
shares of Registrable Common Stock included in such registration statement. The
Channel One Registration Rights Agreement provides that certain provisions of
the Common Stock Registration Rights Agreement are binding upon and applicable
to the parties thereto, including those provisions described above relating to
expenses, indemnification, postponements and suspensions.

Antitakeover Legislation

Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date on which such stockholder becomes an
"interested stockholder" unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an "interested stockholder," (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an "interested stockholder," the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66-2/3% of the outstanding voting stock which
is not owned by the "interested stockholder." Except as otherwise specified in
Section 203, an "interested stockholder" is defined to include (x) any person
that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person. For purposes of Section 203, the
Board has approved the transaction (the consummation of the Plan of
Reorganization) which resulted in Lehman and the Celotex Settlement Fund
Recipient becoming "interested stockholders" and, accordingly, the Company
believes that neither of them will be subject to the restrictions of Section 203
unless it ceases to be the owner of 15% or more of the outstanding voting stock
of the Company and seeks to reattain such level of ownership. The Board also
approved the purchase of Common Stock by Channel One and its affiliates and
associates of 15% or more of the outstanding voting stock of the Company through
open market purchases or otherwise. Accordingly, the Company believes that none
of Channel One and its affiliates and associates (including the KKR Investors)
will be subject to the restrictions of Section 203. In connection with the
above-described Board approval, Channel One and the KKR Investors agreed with
the Company that they will not, and will not permit any of their affiliates to,
vote any shares of Common Stock of the Company or otherwise take any other
action to modify the composition of the Board of Directors of the Company prior
to April 6, 1998 other than as expressly provided for in the Company's Charter
and the Plan of Reorganization and that during such period they will not
participate in the solicitation of proxies to vote, or seek to advise or

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influence any person with respect to, voting securities of the Company to modify
the composition of the Board of Directors, or propose, assist in or encourage
any person in connection with any of the foregoing.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following summary describes certain United States federal income tax
consequences of the ownership of Notes as of the date hereof. Except where
noted, it deals only with Notes held as capital assets by United States Holders
and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, life insurance companies,
persons holding Notes as a part of a hedging or conversion transaction or a
straddle or United States Holders whose "functional currency" is not the U.S.
dollar. Furthermore, the discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings
and judicial decisions thereunder as of the date hereof, and such authorities
may be repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below. This summary is also based
upon Treasury regulations issued under section 1273 and related sections of the
Code relating to original issue discount ("OID") (the "OID Regulations").
Persons considering the purchase, ownership or disposition of Notes should
consult their own tax advisors concerning the federal income tax consequences in
light of their particular situations as well as any consequences arising under
the laws of any other taxing jurisdiction.

As used herein, a "United States Holder" of a Note means a Holder that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source. A
"Non-United States Holder" of a Note is a Holder that is not a United States
Holder.

Payments of Interest

The Company believes that the Notes will not be issued with OID within the
meaning of section 1273 of the Code and the OID Regulations and will report
payments to holders accordingly. Thus, payments of interest on a Note will
generally be taxable to a United States Holder as ordinary income from domestic
sources at the time it is paid or accrued in accordance with the United States
Holder's method of accounting for tax purposes.

Market Discount

If a United States Holder purchases a Note for an amount that is less than
its stated redemption price at maturity, the amount of the difference will be
treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder will be required to treat any principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
Note as ordinary income to the extent of the market discount which has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. In addition, the United States
Holder may be required to defer, until the maturity of the Note or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Note.

Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue on a constant interest method. A United States
Holder of a Note may elect to include market discount in income currently as it
accrues (on

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either a ratable or constant interest method), in which case the rule described
above regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.

Amortizable Bond Premium

A United States Holder that purchases a Note for an amount in excess of the
sum of all amounts payable on the Note after the purchase date other than
qualified stated interest (as defined in the OID Regulations) will be considered
to have purchased the Note at a "premium." A United States Holder generally may
elect to amortize the premium over the remaining term of the Note on a constant
yield method. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Note. Bond premium on a Note
held by a United States Holder that does not make such an election will decrease
the gain or increase the loss otherwise recognized on disposition of the Note.
The election to amortize premium on a constant yield method once made applies to
all debt obligations held or subsequently acquired by the electing United States
Holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.

Sale, Exchange and Retirement of Notes

A United States Holder's tax basis in a Note will, in general, be the
United States Holder's cost therefor, increased by any market discount
previously included in income by the United States Holder and reduced by any
amortized premium and any cash payments on the Note other than qualified stated
interest. Upon the sale, exchange or retirement of a Note, a United States
Holder will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange or retirement (less any accrued interest, which
will be taxable as such) and the adjusted tax basis of the Note. In general,
such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange or retirement the Note has been
held for more than one year. Under current law, net capital gains of individuals
are, under certain circumstances, taxed at lower rates than items of ordinary
income. The deductibility of capital losses is subject to limitations.

Non-United States Holders

Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:

(a) no withholding of United States federal income tax will be
required with respect to the payment by the Company or any paying agent of
principal or interest on a Note owned by a Non-United States Holder,
provided (i) that the beneficial owner does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote within the meaning of section 871(h)(3) of
the Code and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Note is described in section 881(c)(3)(A) of the Code and
(iv) the beneficial owner satisfies the statement requirement (described
generally below) set forth in section 871(h) and section 881(c) of the Code
and the regulations thereunder;

(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange or retirement of a Note; and

(c) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Note would not have been,
if received at the time of such individual's death, effectively connected
with the conduct of a United States trade or business by such individual.

To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company with a statement to the effect that the beneficial owner is
not a U.S. person, citizen

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<PAGE>
or resident. Pursuant to current temporary Treasury regulations, these
requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a U.S.
person, citizen or resident (which certification may be made on an IRS Form W-8
(or successor form) or (2) a financial institution holding the Note on behalf of
the beneficial owner certifies, under penalties of perjury, that such statement
has been received by it and furnishes a paying agent with a copy thereof.

Payments to Non-United States Holders not meeting the requirements of
paragraph (a) above and thus subject to withholding of United States federal
income tax may nevertheless be exempt from such withholding if the beneficial
owner of the Note provides the Company with a properly executed (1) IRS Form
1001 (or successor form) claiming an exemption from withholding under the
benefit of a tax treaty or (2) IRS Form 4224 (or successor form) stating that
interest paid on the Note is not subject to withholding tax because it is
effectively connected with the owner's conduct of a trade or business in the
United States.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to certain
payments of principal and interest paid on the Notes and to the proceeds of sale
of a Note made to United States Holders other than certain exempt recipients
(such as corporations). A 31 percent backup withholding tax will apply to such
payments if the United States Holder fails to provide a taxpayer identification
number or certification of foreign or other exempt status or fails to report in
full dividend and interest income.

No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (a)(iv) under "Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person.

In addition, backup withholding and information reporting will not apply if
payments of the principal or interest on a Note are paid or collected by a
foreign office of a custodian, nominee or other foreign agent on behalf of the
beneficial owner of such Note, or if a foreign office of a broker (as defined in
applicable Treasury regulations) pays the proceeds of the sale of a Note to the
owner thereof. If, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a U.S. person, a controlled foreign
corporation or a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States,
such payments will not be subject to backup withholding but will be subject to
information reporting, unless (1) such custodian, nominee, agent or broker has
documentary evidence in its records that the beneficial owner is not a U.S.
person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption. Temporary Treasury regulations provide that
the Treasury is considering whether backup withholding will apply with respect
to such payments of principal or interest or the proceeds of a sale that are not
subject to backup withholding under the current regulations. Under proposed
Treasury regulations not currently in effect backup withholding will not apply
to such payments absent actual knowledge that the payee is a United States
person.

Payments of principal and interest on a Note paid to the beneficial owner
of a Note by a United States office of a custodian, nominee or agent, or the
payment by the United States office of a broker of the proceeds of sale of a
Note, will be subject to both backup withholding and information reporting
unless the beneficial owner provides the statement referred to in (a)(iv) above
and the payor does not have actual knowledge that the beneficial owner is a
United states person or otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF ANY INVESTMENT IN THE NOTES, INCLUDING
THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

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SELLING SECURITY HOLDERS

The following table sets forth information with respect to the Notes
offered hereby beneficially owned by each of the Selling Security Holders as of
July 21, 1995 (rounded to the nearest dollar). The Notes offered hereby may be
offered in whole or in part from time to time by or on behalf of the Selling
Security Holders named below.

Principal Amount of Notes Percentage of
Selling Security Holder Owned and Registered Hereunder Outstanding Notes
----------------------- ------------------------------ -----------------

<S> <C> <C>
Lehman Brothers Holdings, Inc. $ 93,864,000 19.2%
. . . . . . . . . . . . . . .
The Celotex Corporation, in
itscapacity as the Celotex
Settlement Fund Recipient . 124,745,000 25.4%
-------------- ---------
Total . . . . . . . . . $ 218,609,000 44.6%
================ ==========
</TABLE>

PLAN OF DISTRIBUTION

The Company will receive no proceeds from this offering. The Notes may be
sold from time to time to purchasers directly by any of the Selling Security
Holders. Alternatively, any of the Selling Security Holders may from time to
time offer the Notes through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Security Holders and/or the purchasers of Notes for whom they
may act as agent. The Selling Security Holders and any underwriters, dealers or
agents that participate in the distribution of Notes may be deemed to be
underwriters, and any profit on the sale of Notes by them and any discounts,
commissions or concessions received by any such underwriters, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. If the Company is advised that an underwriter has been engaged
with respect to the sale of any Notes offered hereby, or in the event of any
other material change in the plan of distribution, the Company will cause
appropriate amendments to the Registration Statement of which this Prospectus
forms a part to be filed with the Commission reflecting such engagement or other
change. See "Additional Information."

At the time a particular offer of Notes is made, to the extent required, a
Prospectus Supplement will be provided by the Company and distributed by the
relevant Selling Security Holder which will set forth the aggregate amount and
type of Notes being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Security Holders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.

The Notes may be sold from time to time in one or more transactions at a
fixed offering price, which may be changed, or at varying prices determined at
the time of sale or at negotiated prices. Such prices will be determined by the
Selling Security Holders or by agreement between the Selling Security Holders
and underwriters or dealers.

The Notes are not, and it is not anticipated that they will be, listed on
any exchange or quoted on NASDAQ or any other quotation system; however, certain
Holders of Notes have the right to require the Company to use its best efforts
to list their Notes on a national securities exchange or to otherwise provide
for the quotation of the Notes through NASDAQ in connection with the exercise on
or after March 17, 1996, by such Holders of certain registration rights with
respect to the Notes. See "Description of Notes -- Senior Notes Registration
Rights Agreement." To the Company's knowledge, no established public market for
the Notes currently exists and no assurances can be given that any public market
will develop for the Notes. Lehman has advised the Company that it presently
intends to make a market in the Notes, but it is not obligated to do so and it
may discontinue any such market making activity at any time in its sole
discretion. See "Certain Risk Factors -- Liquidity; Absence of Public Market"
and "-- Effect of Future Sales of Notes."

Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of the Notes may not simultaneously engage in market-
making activities with respect to such Notes for a period of nine business days
prior to the commencement of such distribution and ending upon the completion of
such distribution. In addition to and without limiting the foregoing, each
Selling Security Holder will be subject to

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applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation rules 10b-2, 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of any of the Notes by
the Selling Security Holders. All of the foregoing may affect the marketability
of the Notes and the ability of any person or entity to engage in market-making
activities with respect to the Notes.

Under guidelines adopted by the National Association of Securities Dealers,
Inc. (the "NASD"), the maximum commission that any NASD member firm can receive
in connection with a distribution of the Notes, without further clearance from
the NASD, is 8%.

Pursuant to the Senior Note Registration Rights Agreement, the Company is
obligated to pay substantially all of the expenses incident to the registration,
offering and sale of the Notes to the public other than commissions and
discounts of underwriters, dealers or agents, and the Selling Security Holders,
and any underwriter they may utilize, and their respective controlling persons
are entitled to be indemnified by the Company against certain liabilities,
including liabilities under the Securities Act. See "Description of Notes --
Senior Note Registration Rights Agreement".

LEGAL MATTERS

The validity of the Notes offered hereby has been passed upon for the
Company by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York.

EXPERTS

The consolidated financial statements as of May 31, 1995 and 1994 and for
each of the three years in the period ended May 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent certified public accountants, given on the authority of said
firm as experts in auditing and accounting.

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<PAGE>
INDEX TO DEFINED TERMS

Page
Defined Term Number
------------ ------

ACO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Acquired Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Adversary Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Affiliate Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Alabama Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Apollo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Asbestos Claimants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Asset Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Asset Sale Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Attributable Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Bank Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . 86
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Best Insurors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Black Warrior Methane . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Black Warrior Transmission . . . . . . . . . . . . . . . . . . . . . . . . . 41
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Booker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Capital Lease Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Cardem Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Celotex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Celotex Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Celotex Settlement Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Celotex Settlement Fund Beneficiary . . . . . . . . . . . . . . . . . . . . . 89
Celotex Settlement Fund Recipient . . . . . . . . . . . . . . . . . . . . . . 49
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Change of Control Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Change of Control Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Change of Control Payment Date . . . . . . . . . . . . . . . . . . . . . . . 63
Channel One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Channel One Registration Rights Agreement . . . . . . . . . . . . . . . . . . 91
Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Chapter 11 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Class Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Class U-7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Commodity Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Common Stock Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Common Stock Registration Rights Agreement . . . . . . . . . . . . . . . . . 89
Common Stock Value Per Share . . . . . . . . . . . . . . . . . . . . . . . . 87
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Depreciation and Amortization Expense . . . . . . . . . . . . . 76
Consolidated EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6

97
<PAGE>
Page
Defined Term Number
------------ ------

Consolidated Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . 77
Consolidated Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . 77
Consolidated Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Consolidated Post Retirement Benefits Other Than Pensions . . . . . . . . . . 77
Continuing Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Currency Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Disqualified Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Dixie Building Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Durham Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 58
Effective Date of the Plan of Reorganization . . . . . . . . . . . . . . . . 1
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
FAS 106 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Income Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Federal Income Tax Claims Differential . . . . . . . . . . . . . . . . . . . 87
Fraudulent Conveyance Lawsuit . . . . . . . . . . . . . . . . . . . . . . . . 7
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
HAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Incur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Independent Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Initial Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Initial Common Stock Shelf Registration . . . . . . . . . . . . . . . . . . . 89
Initial Senior Note Shelf Registration . . . . . . . . . . . . . . . . . . . 85
Initial Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Initial Three Year Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Interest Rate Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Interested Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
IRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Issue Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
J.W. Railroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
J-II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Jim Walter Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Jim Walter Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Jim Walter Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
JW Aluminum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
JW Window Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Kaneb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
KKR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

98
<PAGE>
Page
Defined Term Number
------------ ------

KKR Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
KKR Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
LBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Legal Holiday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Lehman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lehman Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Lehman Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Majority Selling Note Holders . . . . . . . . . . . . . . . . . . . . . . . . 85
Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Mid-State Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Mid-State Affiliate Transaction . . . . . . . . . . . . . . . . . . . . . . . 69
Mid-State Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mid-State Trust II Mortgage-Backed Notes . . . . . . . . . . . . . . . . . . 37
Mid-State Trust III Asset Backed Notes . . . . . . . . . . . . . . . . . . . 37
Mid-State Trust IV Asset Backed Notes . . . . . . . . . . . . . . . . . . . . 37
Mid-State Trust V Variable Funding Loan . . . . . . . . . . . . . . . . . . . 38
Mid-State Trust V Variable Funding Loan Agreement . . . . . . . . . . . . . . 32
Mine No. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Mine No. 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Mine No. 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MSHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 56
NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Net Cash Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Net Equity Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
New Alabama Power Contract . . . . . . . . . . . . . . . . . . . . . . . . . 25
Non-Core Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Non-Core Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Non-United States Holder . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Note Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Offer Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Offer Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Original Jim Walter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Original Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Other Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Outstanding Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Payment Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Permitted Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Permitted Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Permitted Refinancing Indebtedness . . . . . . . . . . . . . . . . . . . . . 83
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

99
<PAGE>
Page
Defined Term Number
------------ ------

Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Pledged Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Pro Forma Consolidated Statement of Operations . . . . . . . . . . . . . . . 9
Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Purchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Purchase Money Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Purchase Money Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 83
Qualified Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Registrable Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Registrable Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Related Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Released Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Restricted Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Restricted Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 203 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Senior Note Registration Rights Agreement . . . . . . . . . . . . . . . . . . 85
Settlement Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Significant Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Significant Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Sloss Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SNG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
South Carolina Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Southern Precision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Stockholder's Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Subsidiary Pledge Agreements . . . . . . . . . . . . . . . . . . . . . . . . 84
Supplemental Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Supplemental Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . . 57
Surviving Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Tag-Along and Voting Rights Agreement . . . . . . . . . . . . . . . . . . . . 89
Tag-Along Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Tax Claims Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Texas Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 50
Trade Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
U.S. Pipe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
UMWA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
United States Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Veil Piercing Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Veil Piercing Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Veil Piercing Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Veil Piercing Settlement Tax Savings Amount . . . . . . . . . . . . . . . . . 88
Veil Piercing Settlement Tax Savings Event . . . . . . . . . . . . . . . . . 87
Veil Piercing Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Vestal Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Walter Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Walter Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Weighted Average Life to Maturity . . . . . . . . . . . . . . . . . . . . . . 84

100
<PAGE>
Page
Defined Term Number
------------ ------

Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

101
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Pages
-----
Walter Industries, Inc. and Subsidiaries

Report of Independent Certified Public Accountants..........F-2

Consolidated Balance Sheet - May 31, 1995 and 1994..........F-3

Consolidated Statement of Operations and Retained
Earnings (Deficit) for the Three Years Ended
May 31, 1995..............................................F-4

Consolidated Statement of Cash Flows for the Three
Years Ended May 31, 1995..................................F-5

Notes To Financial Statements...............................F-6 to F-26

F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Walter Industries, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Walter Industries, Inc. and its subsidiaries at May 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1995 in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

Our report dated July 8, 1994 on the May 31, 1994 consolidated financial
statements included a paragraph that raised substantial doubt about the
Company's ability to continue as a going concern due to the Company and
substantially all of its subsidiaries filing a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. As
discussed in Note 1, on March 2, 1995 the Bankruptcy Court confirmed the
Company's Consensual Plan dated as of December 9, 1994, as modified on March 1,
1995, which resulted in the discharge of all claims against the Company that
arose before December 27, 1989, other than those claims being litigated in the
Bankruptcy Court, and substantially altered the rights and interests of equity
security holders. The plan became effective on March 17, 1995 and the Company
emerged from bankruptcy.

As discussed in Note 12 to the Financial Statements, the Company changed its
method of accounting for postretirement benefits other than pensions in fiscal
year 1993.

Price Waterhouse LLP
Tampa, Florida
July 12, 1995

F-2

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

May 31,
--------------------------
1995 1994
----------- -----------
(in thousands)
<S> <C> <C>
ASSETS
Cash (includes short-term investments of $ 84,872,000
and $177,040,000) (Notes 3 and 13) $ 128,007 $ 203,303
Short-term investments, restricted (Notes 3 and 13) 128,002 107,552
Instalment notes receivable (Notes 1, 4, 8 and 13) 4,256,866 4,176,040
Less - Provision for possible losses ( 26,556) ( 26,301)
Unearned time charges (2,869,282) (2,790,560)
----------- ----------
Net 1,361,028 1,359,179

Trade receivables 160,584 135,431
Less - Provision for possible losses ( 7,998) ( 7,392)
----------- ----------
Net 152,586 128,039
Federal income tax receivable (Note 8) 99,875 -
Other notes and accounts receivable 30,236 10,774
Inventories, at lower of cost (first in, first out or average)
or market:
Finished goods 111,792 95,270
Goods in process 29,593 27,090
Raw materials and supplies 53,453 48,533
Houses held for resale 1,599 1,686
----------- ----------
Total inventories 196,437 172,579

Prepaid expenses 12,694 11,335

Property, plant and equipment, at cost (Note 5) 1,186,407 1,123,939
Less - Accumulated depreciation, depletion and amortization ( 523,615) ( 466,076)
----------- ----------
Net 662,792 657,863

Investments 6,191 5,753
Deferred income taxes (Note 8) 16,544 -
Unamortized debt expense 34,167 31,656
Other assets 43,698 39,936
Excess of purchase price over net assets acquired (Notes 1 and 6) 372,896 412,923
----------- -----------
$ 3,245,153 $ 3,140,892
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Bank overdrafts (Note 3) $ 33,746 $ 29,879
Accounts payable (Note 1) 108,137 59,468
Accrued expenses 150,907 122,665
Income taxes payable (Note 8) 53,261 21,543
Deferred income taxes (Note 8) - 73,152
Long-term senior debt (Notes 1, 7 and 13) 2,220,370 871,970
Accrued interest (Note 7) 37,854 258,032
Accumulated postretirement health benefits obligation (Note 12) 228,411 209,962
Other long-term liabilities 51,693 48,890
Liabilities subject to Chapter 11 proceedings (Notes 1 and 7) - 1,727,684
Stockholders' equity (deficit) (Notes 1, 7, 9 and 10):
Common stock, $.01 par value per share:
Authorized - 200,000,000 shares and 50,000,000 shares
Issued - 50,494,313 shares and 31,120,773 shares 505 311
Capital in excess of par value 1,159,384 155,293
Retained earnings (deficit), per accompanying statement ( 793,165) ( 434,520)
Excess of additional pension liability over
unrecognized prior years service cost ( 5,950) ( 3,437)
----------- -----------
Total stockholders' equity (deficit) 360,774 ( 282,353)
----------- -----------
$ 3,245,153 $ 3,140,892
=========== ===========
</TABLE>

F-3
<PAGE>
<TABLE><CAPTION>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)

For the years ended May 31,
---------------------------------------------------
1995 1994 1993
----------- ----------- ----------
(in thousands except
per share amount)

<S> <C> <C> <C>
Sales and revenues:
Net sales $ 1,181,635 $ 1,068,387 $ 1,072,615
Time charges (Note 4) 222,221 238,097 218,696
Miscellaneous 30,838 17,383 23,160
Interest income from Chapter 11
proceedings (Note 1) 7,628 4,657 4,515
----------- ----------- -----------
1,442,322 1,328,524 1,318,986
----------- ----------- -----------

Cost and expenses:
Cost of sales 951,381 845,061 804,411
Depreciation, depletion and
amortization (Note 5) 72,037 71,035 70,483
Selling, general and administrative 130,616 127,901 124,616
Postretirement health benefits (Note 12) 25,961 25,585 23,474
Provision for possible losses 4,485 4,611 4,236
Chapter 11 costs (Note 1) 442,362 14,254 9,802
Interest and amortization of debt
discount and expense (Notes 1, 5 and 7) 304,548 155,470 171,581
Amortization of excess of purchase price
over net assets acquired (Note 6) 40,027 48,515 39,461
----------- ----------- -----------
1,971,417 1,292,432 1,248,064
----------- ----------- -----------
( 529,095) 36,092 70,922

Income tax benefit (expense) (Note 8):
Current 80,754 ( 41,598) ( 48,141)
Deferred 89,696 12,681 23,813
----------- ----------- -----------

Income (loss) from operations before
cumulative effect of accounting change ( 358,645) 7,175 46,594

Cumulative effect of change in accounting
principle - postretirement benefits other
than pensions (net of income tax benefit
of $61,823,000) (Note 12) - - ( 104,608)
----------- ----------- ----------
Net income (loss) ( 358,645) 7,175 ( 58,014)

Retained earnings (deficit) at
beginning of year ( 434,520) ( 441,695) ( 383,681)
----------- ----------- ----------

Retained earnings (deficit) at end
of year $( 793,165) $( 434,520) $( 441,695)
=========== =========== ===========
Net loss per share (note 9):
- Primary $( 7.10)
===========
</TABLE>

F-4
<PAGE>

<TABLE><CAPTION>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

For the years ended May 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
OPERATIONS
Net income (loss) $( 358,645) $ 7,175 $( 58,014)
Charges to income not affecting cash:
Settlement of Chapter 11 claims with
debt and new Common Stock 444,752 - -
Depreciation, depletion and amortization 72,037 71,035 70,483
Provision for deferred income taxes ( 89,696) ( 12,681) ( 23,813)
Accumulated postretirement health benefits
obligation (Note 12) 18,449 20,057 189,905
Adjustment to deferred taxes for accounting change (Note 12) - - ( 61,823)
Provision for other long-term liabilities 294 280 ( 781)
Amortization of excess of purchase price
over net assets acquired (Note 6) 40,027 48,515 39,461
Amortization of debt discount and expense 11,783 17,597 22,148
----------- --------- ---------
139,001 151,978 177,566
Decrease (increase) in:
Short-term investments, restricted ( 20,450) ( 1,932) 1,334
Instalment notes receivable, net (a) ( 1,849) 27,680 ( 23,607)
Trade and other receivables, net ( 44,009) 12,747 1,429
Federal income tax receivable ( 99,875) - -
Inventories ( 23,858) ( 5,940) 627
Prepaid expenses ( 1,359) ( 3,433) 236
Increase (decrease) in:
Bank overdrafts (Note 3) 3,867 11,958 ( 9,758)
Accounts payable 28,925 6,772 ( 1,692)
Accrued expenses 28,242 6,427 ( 1,682)
Income taxes payable ( 15,348) 2,408 9,111
Accrued interest 24,156 47,833 32,605
Liabilities subject to Chapter 11 proceedings (Note 1):
Accounts payable - 1,438 811
Accrued expenses - ( 152) 4
----------- --------- ---------
Cash flows from operations 17,443 257,784 186,984
----------- --------- ---------

FINANCING ACTIVITIES
Issuance of long-term
senior debt (Notes 1 and 7) 974,450 2,000 256,128
Additions to unamortized debt expense ( 17,153) - ( 4,794)
Retirement of long-term senior debt (Note 7) ( 120,250) (178,865) (161,959)
Payment of liabilities subject
to Chapter 11 proceedings ( 604,044)(b) - (121,217)
Payment of accrued postpetition interest on
Chapter 11 secured debt obligations ( 244,334) - -
----------- --------- ---------
Cash flows from financing activities ( 11,331) (176,865) ( 31,842)
----------- --------- ---------

INVESTING ACTIVITIES
Additions to property, plant and equipment,
net of normal retirements ( 76,966) ( 65,858) ( 68,901)
(Increase) in investments ( 438) ( 185) ( 128)
(Increase) in other assets ( 4,004) ( 1,943) ( 1,617)
----------- --------- ---------
Cash flows from investing activities ( 81,408) ( 67,986) ( 70,646)
----------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ( 75,296) 12,933 84,496
Cash and cash equivalents at beginning of year 203,303 190,370 105,874
----------- --------- ---------
Cash and cash equivalents at end of year (Note 3) $ 128,007 $ 203,303 $ 190,370
=========== ========= =========
</TABLE>

(a) Consists of sales and resales, net of repossessions and provision for
possible losses, of $155,236,000, $153,776,000 and $172,707,000 and cash
collections on account and payouts in advance of maturity of
$153,387,000, $181,456,000 and $149,100,000, for the years ended May 31,
1995, 1994 and 1993, respectively.

(b) In addition, $490 million of Series B Senior Notes and 44,050,974 shares
of new Common Stock were issued to satisfy a portion of the allowed
claims of holders of secured and subordinated debt and settle a portion
of the asbestos-related veil piercing claims and 6,443,339 shares of new
Common Stock were issued to the former shareholders in cancellation of
their original holdings.

F-5
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - Recent History

Walter Industries, Inc. (formerly Hillsborough Holdings Corporation) (the
"Company") was organized in August 1987 by a group of investors led by Kohlberg
Kravis Roberts & Co. ("KKR") for the purpose of acquiring Jim Walter
Corporation, a Florida corporation ("Original Jim Walter"). Following its
organization, the Company organized and acquired all of the outstanding capital
stock of a group of direct wholly-owned subsidiaries (the "First Tier
Subsidiaries"). The First Tier Subsidiaries (except JWC Holdings Corporation)
and the Company organized and acquired all of the outstanding capital stock of
Walter Industries, Inc. ("Old Walter Industries"). JWC Holdings Corporation, a
Florida corporation and a First Tier Subsidiary ("JWC Holdings"), organized and
acquired all of the outstanding shares of J-II Acquisition Corporation, a
Florida corporation ("J-II"). Old Walter Industries and J-II, in turn,
organized and acquired all of the outstanding capital stock of Hillsborough
Acquisition Corporation ("HAC").

On September 18, 1987, HAC acquired approximately 95% of the outstanding
common stock of Original Jim Walter at a price of $60 per share in cash,
pursuant to an Agreement and Plan of Merger dated as of August 12, 1987 (the
"Acquisition"). On January 7, 1988, the Company caused Original Jim Walter to
be merged (the "Merger") into HAC (which changed its name to "Jim Walter
Corporation") and the remaining 5% of its common stock was converted into the
right to receive $60 in cash for each share. On that same date: (i) HAC
distributed substantially all of its assets (principally excluding the stock of
certain subsidiaries of Original Jim Walter engaged in building materials
businesses) to Old Walter Industries in redemption of all of its shares of
capital stock owned by Old Walter Industries; (ii) HAC merged into J-II; and
(iii) J-II changed its name to "Jim Walter Corporation". On April 1, 1991, Old
Walter Industries merged into Hillsborough Holdings Corporation thereby
completing its previously adopted plan of liquidation. The Company changed its
name to Walter Industries, Inc. in connection with such merger. Prior to
September 18, 1987, the Company had no significant assets or liabilities and
did not engage in any activities other than those related to the Acquisition.
The purchase price of the shares of Original Jim Walter was approximately
$2,425,000,000 plus expenses of the Acquisition and assumption of certain
outstanding indebtedness. For financial statement purposes, the Acquisition
has been accounted for as a purchase as of September 1, 1987 and, accordingly,
the purchase price has been allocated based upon the fair value of assets
acquired and liabilities assumed (see Note 6).

On December 27, 1989, the Company and 31 of its subsidiaries (including the
subsidiary in the next sentence, the "Debtors") each filed a voluntary petition
for reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Middle
District of Florida, Tampa Division (the "Bankruptcy Court"). On December 3,
1990, one additional small subsidiary filed a voluntary petition for
reorganization under the Bankruptcy Code. Two other small subsidiaries did not
file petitions for reorganization.

The Debtors' Chapter 11 cases resulted from a sequence of events stemming
primarily from an inability of the Company's interest reset advisors to reset
interest rates on approximately $624 million of outstanding Senior Extendible
Reset Notes and Senior Subordinated Extendible Reset Notes on which interest
rates were scheduled to be reset effective January 2, 1990. The inability to
reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the then pending asbestos-related litigation,
including the possibility either that such litigation would lead to the
prohibition of further asset sales and debt repayment or that substantial new
asbestos-related claims might become assertable against the Company, which
uncertainties materially hindered the ability of the Company and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time, both of which
depressed the bid value of such notes.

On December 9, 1994, the Supplement to Disclosure Statement For Amended
Joint Plan of Reorganization Dated as of December 9, 1994 (the "Consensual
Plan") was filed with the Bankruptcy Court. The Consensual Plan, as modified
on March 1, 1995, was confirmed by the Bankruptcy Court on March 2, 1995, and
became effective on March 17, 1995 (the "Effective

F-6
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

Date"). Despite the confirmation and effectiveness of the Consensual Plan, the
Bankruptcy Court continues to have jurisdiction to, among other things, resolve
disputed prepetition claims against the Company and other matters that may
arise in connection with or relate to the Consensual Plan (see Note 8).

The essential terms of the Consensual Plan are as follows: Revolving Credit
Bank Claims, Working Capital Bank Claims, Series B and C Senior Note Claims,
and other unsecured creditors (i.e., trade creditors) received the full allowed
----
amounts of their claims in cash plus interest at negotiated amounts including a
portion in shares of new common stock ("Common Stock"). Subordinated Note
Claims received, depending on elections made, either shares of Common Stock or
a combination of cash, new debt securities and shares of Common Stock, in
either case having an aggregate reorganization value equal to their prepetition
claims. In addition, Pre-LBO Debenture Claims received shares of Common Stock
having an aggregate reorganization value equal to $11.3 million in settlement
of the fraudulent conveyance action commenced by the indenture trustees for the
Pre-LBO Debentures. The asbestos-related veil piercing claimants received
cash, new debt securities and Common Stock with an aggregate reorganization
value of $375 million in settlement of all asbestos-related veil piercing or
fraudulent conveyance claims. In addition, the attorneys for the asbestos-
related veil piercing claimants received a cash payment of $15 million. The
Company's former stockholders received shares of Common Stock having a
reorganization value equal to $150 million. In addition, the former
stockholders will receive shares of Common Stock having a reorganization value
of $11.3 million and have the right to receive additional shares of Common
Stock upon realization of certain future tax benefits (see Note 9).

Pursuant to the Consensual Plan, trade creditors with prepetition allowed
claims in excess of $1,000 received 75% of their allowed claims in cash
following the Effective Date and are entitled to receive the remaining 25% six
months following the Effective Date with additional interest for such period at
the prime rate. At May 31, 1995, the remaining amount to be distributed to
trade creditors approximated $23.5 million.

In connection with the Consensual Plan, on March 16, 1995, pursuant to
approval by the Bankruptcy Court, Mid-State Homes, Inc. ("Mid-State"), a
wholly-owned indirect subsidiary of the Company, sold mortgage instalment notes
having a gross amount of $2,020,258,000 and an economic balance of $826,671,000
to Mid-State Trust IV ("Trust IV"), a business trust in which Mid-State owns
all the beneficial interest. In addition, on such date Mid-State sold its
beneficial interest in Mid-State Trust II ("Trust II") to Trust IV. Trust II
had a total collateral value of $910,468,000 with $605,750,000 of Mortgage-
Backed Notes outstanding. These sales were in exchange for the net proceeds
from the public issuance by Trust IV of $959,450,000 of Asset Backed Notes.
The assets of Trust IV are not available to satisfy claims of general creditors
of Mid-State, or the Company and its subsidiaries. The liabilities of Trust IV
for its publicly issued debt are to be satisfied solely from proceeds of the
underlying instalment notes and are non-recourse to Mid-State and the Company
and its subsidiaries.

On February 27, 1995, Mid-State established Mid-State Trust V ("Trust V"),
a business trust in which Mid-State owns all the beneficial interest, to
provide funds to Mid-State for its current purchases of instalment notes
receivable from Jim Walter Homes, Inc. ("Jim Walter Homes").

As of March 3, 1995, Trust V entered into a Variable Funding Loan Agreement
with Enterprise Funding Corporation, an affiliate of NationsBank N.A., as
lender and NationsBank N.A. (Carolinas), as Administrative Agent. The
agreement provides for a three-year $500 million credit facility secured by the
instalment notes and mortgages Trust V purchases from Mid-State.

On February 27, 1995, the Company and certain of its subsidiaries entered
into a Bank Revolving Credit Facility, providing up to $150 million at any time
outstanding for working capital needs with a sub-limit for trade and standby
letters of credit not in

F-7
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

excess of $40 million and a sub-facility for swingline advances in an amount
not in excess of $15 million.

The Company recorded approximately $583.8 million of additional expenses
related to consummation of the Consensual Plan, including approximately $141.4
million of additional interest and amortization of debt discount and expense,
$390 million in settlement of all asbestos-related veil piercing claims and
related legal fees and $52.4 million for professional fees, settlement of
various disputed claims and other expenses, in the fiscal year ended May 31,
1995.

The following unaudited pro forma consolidated statement of operations was
prepared to illustrate the estimated effects of the Consensual Plan and related
financings as if they had occurred as of June 1, 1994.

F-8
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

<TABLE><CAPTION>
Pro Forma Consolidated Statement of Operations
(Unaudited)

For the year ended May 31, 1995
-------------------------------------
As Reported Adjustments Pro Forma
----------- ----------- -----------
(in thousands except
per share amount)
<S> <C> <C> <C>
Sales and Revenues
Net sales $1,181,635 $1,181,635
Time charges 222,221 222,221
Miscellaneous 30,838 30,838
Interest income from Chapter 11 proceedings 7,628 $( 7,628)1 -
---------- --------- ----------
1,442,322 ( 7,628) 1,434,694
---------- --------- ----------
Cost and expenses:
Cost of sales 951,381 951,381
Depreciation, depletion and amortization 72,037 72,037
Selling, general and administrative 130,616 130,616
Postretirement health benefits 25,961 25,961
Provision for possible losses 4,485 4,485
Chapter 11 costs 442,362 (442,362)2 -
Interest and amortization of debt discount
and expense 304,548 ( 81,364)3 223,184
Amortization of excess of purchase price
over net assets acquired 40,027 40,027
---------- --------- ----------
1,971,417 (523,726) 1,447,691
---------- --------- ----------
( 529,095) 516,098 ( 12,997)

Income tax benefit (expense) 170,450 (195,730)4 ( 25,280)
---------- --------- ----------
Net income (loss) $( 358,645) $ 320,368 $( 38,277)
========== ========= ==========

Net loss per share $( .75)5
==========

Weighted average shares outstanding 50,988,626
</TABLE>

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

Changes from the historical financial statement in the pro forma consolidated
statement of operations consist of the following adjustments (all amounts in
thousands):

(1) Interest income from Chapter 11 proceedings of $7,628, which would not
have been realized assuming the Consensual Plan became effective June
1, 1994, has been eliminated.

(2) Chapter 11 costs of $442,362, which would not have been incurred assuming
the Consensual Plan became effective June 1, 1994, have been eliminated.

(3) Interest and amortization of debt discount and expense has been reduced
$81,364 to give retroactive effect as if all indebtedness to be repaid
pursuant to the Consensual Plan was so done as of June 1, 1994 and the $490
million of Series B Senior Notes had been outstanding for the full year
ended May 31, 1995. Borrowings under the Trust IV Asset Backed Notes were
assumed to increase during the period June 1, 1994 through November 30,
1994 proportionately with the comparable period increase in the
outstanding economic balance of the instalment notes sold by Mid-State
to Trust IV on March 16, 1995.

Borrowings under the Trust V Variable Funding Loan Agreement were based on
78% of Jim Walter Homes' credit sales during the six-month period December
1, 1994 through May 31, 1995. This time period is subsequent to the Trust
IV cut-off date for purchases of instalment notes from Mid-State. No
working capital borrowings were assumed under the Bank Revolving Credit
Facility. Pro forma interest expense, however, includes letter of credit
fees and unused working capital commitment fees.

(4) The provision for income taxes has been adjusted at the applicable
statutory rates to give effect to the pro forma adjustments described
above.

(5) Net loss per share has been computed based on the weighted average number
of common shares outstanding (including 494,313 additional shares
of Common Stock to be issued six months after the Effective Date of the
Consensual Plan, but not including up to 3,880,140 additional shares that
will be issued to an escrow account on September 13, 1995 pursuant to the
Consensual Plan of Reorganization because such issuance is contingent on
future events and would be anti- dilutive).

F-9
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2 - Principles of Consolidation

The Company through its direct and indirect subsidiaries currently offers a
diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and
industrial markets. The consolidated financial statements include the accounts
of the Company and all of its subsidiaries. All significant intercompany
balances have been eliminated.

NOTE 3 - Cash and Restricted Short-Term Investments

Cash includes short-term investments with original maturities of less than
one year. These investments are readily convertible to cash and are stated at
cost which approximates market. The Company's cash management system provides
for the reimbursement of all major bank disbursement accounts on a daily basis.
Checks issued but not yet presented to the banks for payment are classified as
bank overdrafts.

Restricted short-term investments include temporary investment of reserve
funds and collections on instalment notes receivable owned by Trusts II, III,
IV and V ($103,714,000). These funds are available only to pay expenses of the
Trusts and principal and interest on indebtedness of the Trusts. Miscellaneous
other segregated accounts restricted to specific uses ($24,288,000), are also
included in restricted short-term investments.

NOTE 4 - Instalment Notes Receivable

The instalment notes receivable arise from sales of partially-finished
homes to customers for time payments primarily over periods of twelve to thirty
years and are secured by first mortgages or similar security instruments.
Revenue and income from the sale of homes is included in income upon completion
of construction and legal transfer to the customer. The buyer's ownership of
the land and the improvements necessary to complete the home constitute a
significant equity investment which the Company has access to should the buyer
default on payment of the instalment note obligation. Of the gross amount of
$4,256,866,000 an amount of $3,955,239,000 is due after one year. Instalment
payments estimated to be receivable within each of the five years from May 31,
1995 are $301,627,000, $294,808,000, $289,012,000, $283,044,000 and
$274,370,000, respectively, and $2,814,005,000 after five years. Time charges
are included in equal parts in each monthly payment and are taken into income
as collected. This method approximates the interest method since a much larger
provision for loan losses and other expenses would be required if time charge
income were accelerated. The aggregate amount of instalment notes receivable
having at least one payment ninety or more days delinquent was 3.17% and 3.23%
of total instalment notes receivable at May 31, 1995 and 1994, respectively.

Mid-State purchases instalment notes from Jim Walter Homes on homes
constructed and sold by Jim Walter Homes and services such instalment mortgage
notes. Trust II, Trust III and Trust IV are business trusts organized by Mid-
State, which owns all of the beneficial interest in Trust III and Trust IV.
Trust IV owns all of the beneficial interest in Trust II. The Trusts were
organized for the purpose of purchasing instalment notes receivable from Mid-
State from the net proceeds from the issuance of the Trust II Mortgage-Backed
Notes, the Trust III Asset Backed Notes and the Trust IV Asset Backed Notes
described in Note 7. The assets of Trust II, Trust III and Trust IV, including
the instalment notes receivable, are not available to satisfy claims of general
creditors of the Company and its subsidiaries. The liabilities of Mid-State
Trusts II, III and IV for their publicly issued debt are to be satisfied solely
from the proceeds of the underlying instalment notes and are non-recourse to
the Company and its subsidiaries. Of the gross amount of instalment notes
receivable at May 31, 1995 of $4,256,866,000 with an economic balance of
$2,057,896,000, receivables owned by Trust II had a gross book value of
$1,396,138,000 and

F-10
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

an economic balance of $846,481,000, receivables owned by Trust III had a gross
book value of $472,980,000 and an economic balance of $239,200,000 and
receivables owned by Trust IV had a gross book value of $1,970,887,000 and an
economic balance of $814,182,000. On February 27, 1995, Mid-State established
Trust V (see Note 1). At May 31, 1995, receivables owned by Trust V had a
gross book value of $254,871,000 and an economic balance of $92,466,000.

NOTE 5 - Property, Plant and Equipment

Property, plant and equipment are summarized as follows (see Note 1
regarding purchase accounting):
May 31,
-------------------------
1995 1994
----------- -----------
(in thousands)
Land and minerals $ 196,798 $ 200,337
Land improvements 20,140 18,941
Buildings and leasehold improvements 110,758 104,999
Mine development costs 125,903 123,761
Machinery and equipment 703,138 663,898
Construction in progress 29,670 12,003
----------- -----------
Total $ 1,186,407 $ 1,123,939
=========== ===========

The Company provides depreciation for financial reporting purposes
principally on the straight line method over the useful lives of the assets.
Assets (primarily mine development costs) extending for the full life of a coal
mine are depreciated on the unit of production basis. For federal income tax
purposes accelerated methods are used for substantially all eligible
properties. Depletion of minerals is provided based on estimated recoverable
quantities.

The Company has capitalized interest on qualifying properties in accordance
with Financial Accounting Standards Board Statement No. 34. Interest
capitalized for the years ended May 31, 1995, 1994 and 1993 was immaterial.
Interest paid in cash for the years ended May 31, 1995, 1994 and 1993 was
$437,357,000, $91,293,000 and $117,853,000, respectively.

NOTE 6 - Goodwill

The excess of purchase price over net assets acquired in connection with
the Acquisition is being amortized over periods ranging up to twenty years. At
May 31, 1995, the accumulated amortization of goodwill was approximately $402.1
million. The Company evaluates, on a regular basis, whether events and
circumstances have occurred that indicate the carrying amount of goodwill may
warrant revision or may not be recoverable. The Company measures impairment of
goodwill based on estimated future undiscounted cash flows from operations of
the related business unit. At May 31, 1995, the net unamortized balance of
goodwill is not considered to be impaired.

F-11
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7 - Debt

Long-term debt, in accordance with its contractual terms, consisted of the
following at each year end:
May 31,
------------------------
1995 1994
---------- -----------
(in thousands)
Senior debt:
Trust II Mortgage-Backed Notes $ 584,000 $ 671,000
Trust III Asset Backed Notes 173,527 200,970
Trust IV Asset Backed Notes 953,843 -
Trust V Variable Funding Loan 15,000 -
Series B Senior Notes Due 2000 490,000 -
Bank Revolving Credit Facility - -
Other 4,000 -
---------- ----------
$2,220,370 $ 871,970
========== ==========

Long-term debt included as liabilities subject to Chapter 11 Proceedings at May
31, 1994 consisted of the following (see Note 1):
(in thousands)

Revolving Credit Agreement $ 228,249
Series B Senior Extendible Reset Notes 176,300
Series C Senior Extendible Reset Notes 5,000
Senior Subordinated Extendible Reset Notes 443,046
Subordinated Notes 350,000
13-1/8% Subordinated Notes 50,000
13-3/4% Subordinated Debentures 100,000
10-7/8% Subordinated Debentures
(less unamortized discount of $7,513,000) 82,487
Other 7,080
----------

$1,442,162
==========

The Trust II Mortgage-Backed Notes (see Note 4) were issued in five
classes in varying principal amounts. Three of the classes have been fully
repaid. The two remaining classes A3 and A4 bear interest at the rates of
9.35% and 9.625%, respectively. Interest on each class of notes is payable
quarterly on each January 1, April 1, July 1 and October 1 (each a "Payment
Date"). On each Payment Date, regular scheduled principal payments will be
made on the Class A3 and Class A4 Notes in order of maturity. Maturities of
the balance of these Mortgage-Backed Notes range from April 1, 1998 for the
Class A3 Notes to April 1, 2003 for the Class A4 Notes. The Class A3 and Class
A4 Notes are subject to special principal payments and the Class A4 Notes may
be subject to optional redemption under specified circumstances. The scheduled
principal amount of notes maturing in each of the five years from May 31, 1995
is $87,000,000, $87,000,000, $87,000,000, $64,600,000 and $64,600,000,
respectively.

The Trust III Asset Backed Notes (see Note 4) bear interest at 7-5/8%,
constitute a single class and have a final maturity date of April 1, 2022.
Payments are made quarterly on January 1, April 1, July 1 and October 1, based
on collections on the underlying collateral less amounts paid for interest on
the notes and Trust III expenses.

The Trust IV Asset Backed Notes (see Notes 1 and 4) bear interest at
8.33%, constitute a single class and have a final maturity of April 1, 2030.
Payments are made quarterly on January 1, April 1, July 1 and October 1 based
on collections on the underlying collateral less amounts paid for interest on
the notes and Trust IV expenses.

On March 3, 1995, Mid-State Trust V entered into the three-year $500
million Variable Funding Loan Agreement described in Note 1. It is
contemplated that this facility will be

F-12
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

an evergreen three-year facility with periodic paydowns from the proceeds of
permanent financings similar to those done by Mid-State Trusts II, III and IV.
Accordingly, the $15 million of borrowings outstanding at May 31, 1995 has been
classified as long-term debt. Interest is based on the cost of A-1 and P-1
rated commercial paper plus 3/4%. Commitment fees on the unused facility are
.55%.

The Series B Senior Notes Due 2000 ("Senior Notes") were issued by the
Company pursuant to the Consensual Plan as part of the distribution made in
payment of claims of holders of certain unsecured indebtedness of the Company
and certain of its subsidiaries (see Note 1). Interest on the Senior Notes is
payable semi-annually on September 15 and March 15 of each year at the rate of
12.19%. The Senior Notes may be redeemed at any time at the option of the
Company, in whole or in part, at a redemption price of 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption, provided that no partial redemption may occur which results in less
than $150 million aggregate principal amount of the Senior Notes being
outstanding. Additionally, the Company is obligated in certain circumstances
to apply net cash proceeds from certain asset sales to either redeem or offer
to purchase notes at a price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of redemption or
purchase, provided that no such redemption or purchase may occur which results
in less than $150 million aggregate principal amount of Senior Notes
outstanding. The Senior Notes rank pari passu with all other senior
indebtedness of the Company. The Senior Notes are secured by the capital stock
of most of the Company's subsidiaries.

The Bank Revolving Credit Facility is a three-year non-amortizing
senior working capital revolving credit facility pursuant to which borrowings
not in excess of $150 million may be outstanding at any time, with a sub-limit
for trade and standby letters of credit in an amount not in excess of $40
million at any time outstanding and a sub-facility for swingline advances in an
amount not in excess of $15 million at any time outstanding. The facility is
secured by assets of certain subsidiaries of the Company. Subject to certain
exceptions the net cash proceeds from the sale of collateral must be applied to
permanently reduce the facility. Under the facility each borrower guarantees
the obligations of each other borrower, subject to certain limitations.
Interest at the option of the borrowers through November 30, 1995 is at (i) the
Citibank Base Rate plus 3/4% or (ii) a LIBOR rate plus 2-1/4%. The fee for
outstanding letters of credit is 1-3/4%. Thereafter, interest shall be
determined by the Performance Level in effect from time to time ranging from
1/4% to 1% over the Citibank Base Rate, 1-3/4% to 2-1/2% over the LIBOR rate
and 1-1/4% to 2% for letters of credit. A commitment fee of 1/2 of 1% per
annum is required based upon the unutilized commitment. As of May 31, 1995,
there were no borrowings outstanding under this facility; however, letters of
credit in the aggregate face amount of $22,727,000 have been issued thereunder.

The Senior Notes, the Bank Revolving Credit Facility and the Trust V
Variable Funding Loan Agreement contain a number of significant covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, make capital expenditures,
pay dividends, create liens on assets, enter into leases, make investments or
acquisitions, engage in mergers or consolidations, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities (including change of control and asset sale transactions). In
addition, under the Bank Revolving Credit Facility, the Company is required to
maintain specified financial ratios and comply with certain financial tests,
including minimum interest coverage, fixed charge coverage ratios and maximum
leverage ratios, some of which become more restrictive over time.

F-13
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8 - Income Taxes

Income tax expense (benefit) is made up of the following components:

<TABLE><CAPTION>
May 31, 1995 May 31, 1994 May 31, 1993
------------------------ ------------------------- ----------------------
Current Deferred Current Deferred Current Deferred
-------- -------- -------- -------- -------- ---------
(in thousands)

<S> <C> <C> <C> <C> <C> <C>
United States $(80,445) $(88,815) $ 38,712 $(11,716) $ 44,093 $(22,682)
State and local ( 309) ( 881) 2,886 ( 965) 4,048 ( 1,131)
-------- -------- -------- -------- -------- --------
Total $(80,754) $(89,696) $ 41,598 $(12,681) $ 48,141 $(23,813)
======== ======== ======== ======== ======== ========
</TABLE>

Federal income tax paid in fiscal 1995, 1994 and 1993 was
approximately $30.6 million, $37.1 million and $35.9 million. State income
taxes paid in fiscal 1995, 1994 and 1993 were approximately $4.0 million, $2.1
million and $3.1 million, respectively.

The Company complies with Statement of Financial Accounting Standards
No. 109 ("FAS 109"), "Accounting for Income Taxes". FAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events which have been
recognized in the Company's financial statements or tax returns. FAS 109
generally considers all expected future events other than changes in tax law or
rates.

The income tax expense (benefit) at the Company's effective tax rate
differed from the statutory rate as follows:

<TABLE><CAPTION>
For the years ended May 31,
-----------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate ( 35.0)% 35.0% 34.0%
Effect of:
Adjustment to deferred taxes - 5.3 -
State and local income tax ( .2) 3.3 2.7
Percentage depletion ( .5) ( 1.7) ( 8.3)
Enacted tax rate change - 9.4 -
Amortization of net investment tax credit - - ( .3)
Nonconventional source fuel credit - ( 10.8) ( 7.7)
Amortization of excess of purchase price over
net assets acquired 2.7 47.1 19.0
Benefit of capital loss carryforward ( 1.5) ( 8.5) ( 4.7)
Effect of rate change and loss of credits
on loss carryback 2.3 - -
Other, net - 1.0 ( .4)
--------- --------- ---------

Effective tax rate ( 32.2)% 80.1% 34.3%
========= ========= =========
</TABLE>

F-14
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was
signed into law raising the federal corporate income tax rate to 35% from 34%,
retroactive to January 1, 1993. FAS 109 requires that deferred tax
liabilities and assets be adjusted in the period of enactment for the effect
of an enacted change in the tax laws or rates. The effect of the change was
$2,833,000 and such amount is included in the provision for deferred income
taxes for the year ended May 31, 1994. Deferred tax liabilities (assets)
are comprised of the following:

May 31,
--------------------------
1995 1994
---------- ----------
(in thousands)

<S> <C> <C>
Instalment sales method for
instalment notes receivable
in prior years $ 43,312 $ 52,549
Depreciation 116,625 117,053
Difference in basis of assets
under purchase accounting 23,894 27,269
Capital loss carryforward ( 7,977) ( 12,600)
Tax credit carryforward ( 31,488) -
Accrued expenses ( 81,855) ( 43,716)
Postretirement benefits other
than pensions ( 87,032) ( 80,003)
Valuation allowance 7,977 12,600
--------- ---------

Total deferred tax (asset) liability $( 16,544) $ 73,152
========= =========
</TABLE>

The Revenue Act of 1987 eliminated the instalment sales method of tax
reporting for instalment sales after December 31, 1987.

The Company has a capital loss carryforward of approximately $22.8
million which expires in fiscal 1997. The Company has established a valuation
allowance of approximately $8.0 million to offset the deferred tax asset
related to the carryforward since the Company cannot predict whether capital
gains sufficient to offset the carryforward will be realized in the two-year
carryforward period.

As a result of the loss incurred in the 1995 fiscal year, the Company
has recorded a federal income tax receivable of approximately $99.9 million.
The Company has also recorded as an asset, in the deferred tax accounts, the
benefit of an alternative minimum tax credit carryover of approximately $31.5
million.

Under the Internal Revenue Code, if certain substantial changes in the
Company's ownership occur, there are annual limitations on the amount of loss
and credit carryforwards. The Reorganization created an ownership change;
however, the Company believes that the annual limitation will not affect the
realization of the capital loss carryforward and the alternative minimum tax
credit carryforward.

The Company allocates federal income tax expense (benefit) to its
subsidiaries based on their separate taxable income (loss).

A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the Internal
Revenue Service in the amounts of $110,560,883 with respect to fiscal years
ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189
with respect to fiscal years ended May 31, 1988 (nine months) and May 31, 1989
and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31,
1991. Objections to the proofs of claim have been filed by the Company and the
various issues are being litigated in the Bankruptcy Court. The Company
believes that such proofs of claim are substantially without merit and intends
to defend such claims against the Company vigorously.

F-15
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 9 - Stockholders' Equity

As of the Effective Date, the outstanding old common stock issued in
connection with the Acquisition was cancelled and all stock option plans were
terminated. Pursuant to the Consensual Plan, the Company is authorized to
issue 200,000,000 shares of Common Stock, $.01 par value. All 50,494,313
shares outstanding at May 31, 1995 were issued in connection with the
Consensual Plan.

Pursuant to the Consensual Plan, 494,313 additional shares of Common
Stock will be issued to all former stockholders as of the Effective Date six
months after the Effective Date of the Consensual Plan. In addition, up to
3,880,140 additional shares of Common Stock will be issued to an escrow account
six months after the Effective Date of the Consensual Plan. To the extent that
certain federal income tax matters of the Company are resolved satisfactorily,
up to a maximum 3,880,140 of the escrowed shares will be distributed to all
former stockholders of the Company as of the Effective Date. To the extent
such matters are not resolved satisfactorily, the escrowed shares will be
returned to the Company and cancelled.

Primary net loss per share has been computed using the weighted
average number of common shares outstanding, assuming the new capital structure
had been effective as of June 1, 1994. In management's opinion, per share
information for fiscal years 1994 and 1993 is not relevant given the
significant change in the Company's capital structure which occurred as a
result of the Company's reorganization pursuant to the Consensual Plan (see
Note 1).

NOTE 10 - Stock Options

The Company has reserved 3,000,000 shares of its Common Stock for
issuance under the 1995 Long-Term Incentive Stock Plan of Walter Industries,
Inc. This plan was established pursuant to the Consensual Plan which provided
that 6% of the shares to be outstanding on the Effective Date could be so
reserved. As of May 31, 1995, no options had been granted.

NOTE 11 - Litigation and Other Matters

Veil-Piercing Suits
-------------------

Beginning in early 1989, the Company and certain of its officers,
directors and shareholders were named as co-defendants in a number of lawsuits
brought by persons ("Asbestos Claimants") claiming that the Company should be
held liable for all asbestos-related liabilities of The Celotex Corporation
("Celotex") and/or its parent, Jim Walter Corporation ("JWC"). The stock of a
predecessor of JWC (Original Jim Walter) was acquired by a company known as
Hillsborough Acquisition Corporation ("HAC"), a former subsidiary of the
Company, pursuant to a 1988 leveraged buyout ("LBO"). Asserting a variety of
theories of derivative liability, including piercing the corporate veil, the
suits alleged, among other things, that Original Jim Walter was liable for all
asbestos-related liabilities of Celotex and that the distribution by HAC of
substantially all of its assets to the Company pursuant to the LBO was
therefore a fraudulent conveyance (the "Veil-Piercing Suits.").

On December 27, 1989, the Company and certain of its subsidiaries
filed for protection (the "Bankruptcy Case"), under Chapter 11 of Title 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
Middle District of Florida, Tampa Division, which stayed all Veil-Piercing
Suits pursuant to the automatic stay. On January 2, 1990, the Company filed a
declaratory judgment action ("Adversary Proceeding") against all Asbestos
Claimants who had filed Veil-Piercing Suits seeking a ruling that the Company
could not be held liable for any asbestos-related liabilities of Celotex or JWC
on any grounds, asserting that the corporate veil separating Original Jim
Walter and Celotex was intact, and asserting that the LBO could not be deemed a
fraudulent conveyance.

F-16
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

On April 18, 1994, the Bankruptcy Court ruled in favor of the Company
on all of the claims asserted in the Adversary Proceeding. The ruling was
affirmed by the District Court for the Middle District of Florida on October
13, 1994. Thereafter, a settlement (the "Veil- Piercing Settlement") was
entered into among the Company, certain of its creditors, Celotex, JWC and
representatives of the Asbestos Claimants pursuant to which all the Veil-
Piercing Suits would be dismissed and the Company and its officers, directors
and relevant stockholders would be released from all liabilities relating to
the LBO or associated with asbestos-related liabilities of Celotex or JWC. The
Veil-Piercing Settlement is embodied in the Consensual Plan that was confirmed
by the Bankruptcy Court pursuant to an order signed on March 2, 1995. The
Consensual Plan binds all known and unknown claimants and enjoins such persons
or entities from bringing any suits against the Company in the future for
asbestos or LBO related claims. Dismissal of the Veil-Piercing Suits is in
process and all of these suits will be dismissed in the near future pursuant to
the terms of the Veil-Piercing Settlement and the Consensual Plan.

South Carolina Class Actions
----------------------------

On December 6, 1994, three South Carolina homeowners filed an amended
petition in the United States District Court for the District of South
Carolina, Columbia Division, (the "South Carolina District Court") seeking to
certify a class against Jim Walter Homes and Mid-State for alleged violations
of a South Carolina statute, which provided, among other things, that
homeowners, under certain circumstances, were to be informed that they could
employ attorneys to represent them in the closing of the purchase of their
homes. The petition sought to certify a class of homeowners who purchased
their homes subsequent to the filing of the Bankruptcy Case.

On January 18, 1995, counsel for the South Carolina homeowners filed
in the Bankruptcy Case a Notice of Class Demand for Recoupment or, in the
Alternative, Class Claim for Administrative Expense Priority and/or Class Claim
for Setoff for an estimated amount in excess of $122 million. At the same
time, counsel for the South Carolina homeowners also filed an objection to the
Consensual Plan asserting that payment of the Administrative Claim would render
the Consensual Plan not feasible.

Following extensive negotiations among counsel for the South Carolina
homeowners, the Debtors and the various creditor committees and constituencies,
a stipulation and settlement agreement (the "Homeowners Settlement Agreement")
was entered into. After two noticed hearings, the Bankruptcy Court entered a
preliminary order on February 28, 1995 and a final order on May 16, 1995
approving the Homeowners Settlement Agreement, as amended, and authorized the
Debtors to take such action and to execute such documents as are necessary to
consummate the agreement. On May 25, 1995, the South Carolina District Court
held a Fairness Hearing and found that the proposed settlement as set forth in
the Homeowners Settlement Agreement was fair, reasonable and adequate and in
the best interests of the settlement class. The settlement, which related to
the postpetition claims of the South Carolina homeowners, essentially provided
for (i) a reduction in the mortgage notes covering the property owned by the
homeowners in the aggregate principal amount of approximately $15.5 million
(less the allocated portion of any class members who "opt out" of the class);
(ii) cash disbursements of $1,000 each (with an aggregate cap of $300,000) to
certain classes of former homeowners who no longer have mortgage balances;
(iii) waiver of the first two months' mortgage payments after implementation of
the settlement; and (iv) legal fees and expenses for the South Carolina
homeowners' counsel in an amount as determined by the South Carolina District
Court, but not to exceed $3 million. The South Carolina District Court in
entering its order and final judgment on May 25, 1995, among other things,
authorized and approved the consummation of the Homeowners Settlement Agreement
in accordance with its terms and conditions, which included the release and
satisfaction of all actions, claims and demands against the Company, its past
and present directors, officers, employees, and others, including Jim Walter
Homes and Mid-State (except claims for construction defects and claims for
breach of express written warranties made by Jim Walter Homes), and approved
payment of fees, costs and expenses in the amount of $3 million to the
homeowners' South Carolina counsel.

F-17
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

On February 28, 1995, Jim Walter Homes and Mid-State filed an
adversary action for declaratory judgment against all South Carolina homeowners
who purchased their homes between July 1, 1982 and December 27, 1989, and who
might assert prepetition claims against Jim Walter Homes and Mid-State for
alleged violation of the above mentioned South Carolina statute. The complaint
seeks, among other things, a declaration that Jim Walter Homes and Mid-State
did not violate the above mentioned South Carolina statute or, for other
enumerated reasons, should not be responsible for any damages alleged to the
South Carolina homeowners. The Debtors and homeowners have negotiated a
proposed settlement with prospective counsel for the South Carolina prepetition
claimants which will require a cash payment of approximately $3 million, which
after application of these settlement proceeds to pay existing arrearages on
the homeowners' mortgages, will result in a net cash outlay of approximately
$1,050,000. In addition, legal fees of approximately $360,000 will be paid.
The proposed settlement is subject to the Bankruptcy Court's approval upon
submission of an appropriate motion.

Texas Litigation
----------------

Since May 1991, Jim Walter Homes and Mid-State, together with Trust II
and certain other parties (collectively, the "Debtor/Mid-State Parties"), have
been involved in various lawsuits, primarily in the Bankruptcy Court, with
approximately 750 owners of houses constructed by Jim Walter Homes in south
Texas. The homeowners seek damages based upon alleged construction defects,
common law fraud, and violations of the Texas Deceptive Trade Practices Act,
the Texas Consumer Credit Code, federal and state debt collections statutes and
the Racketeering Influence Corruptions and Practices Act. Although Jim Walter
Homes and Mid-State believe that the litigation is substantially without merit,
a settlement agreement ("Settlement Agreement") has been reached with the
attorney for the homeowner claimants. The anticipated settlement figure will
be approximately $3,600,000 in account balance reductions (of which
approximately $1,250,000 represents a principal reduction), plus an approximate
aggregate of $27,500 cash to certain clients and $2,900,000 as attorney's fees
(of which $900,000 may be deferred and payable over the next five years). The
consummation of the Settlement Agreement is subject to various conditions,
including approval by all of the parties thereto. It also contains provisions
allowing claimants to "opt out" or not participate in the agreement and for the
Debtor/Mid-State Parties to avoid the settlement in its entirety if, in their
judgment, the number of claimants who opt out is so large as to make the
settlement of little value. It also has a provision for the attorney for the
homeowner claimants to indemnify and hold harmless Jim Walter Homes, Mid-State,
Trust II, and the other parties, from any and all claims, demands, causes of
actions, lawsuits and settlements by the homeowners. Further, it provides for
the Bankruptcy Court to retain jurisdiction over any claims which are not
resolved by the Settlement Agreement.

At a hearing in the Bankruptcy Court, held on June 27, 1995, on
Debtors' Motion to Approve Compromise and Settlement Agreement, the Bankruptcy
Court instructed the Debtors to prepare an Order to be sent to the creditors of
the Company, providing that any objections to the settlement be filed with the
Bankruptcy Court by July 12, 1995.

Suit by the Company and Jim Walter Resources, Inc. for Business
---------------------------------------------------------------
Interruption Losses
-------------------

On May 31, 1995 the Company and Jim Walter Resources, Inc. ("JWR")
commenced a lawsuit in the Circuit Court for Tuscaloosa County, Alabama (Civil
Action No. CV-95-625) against certain insurers claiming damages for loss from
interruption of JWR's business resulting from a fire on or about November 17,
1993 in JWR's underground coal mine No. 5, which caused the mining of coal to
become impossible because of blockage of corridors and passageways resulting
from efforts to extinguish or control the fire. After JWR believed that it had
taken the necessary steps to extinguish or control the fire, it resumed its
longwall mining. JWR learned, however, that the intensity of the fire, which
it believed to have been isolated and controlled, increased substantially,
making it necessary to seal off portions of the mine and to lose permanently
the corridors and passageways without which the longwall panel currently being
mined could not be completed. JWR's longwall mining was interrupted until
another longwall panel could be prepared. In addition to the

F-18
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

mining of coal, JWR produced natural gas from wells drilled into the mine,
production from which was lost because of the loss of the longwall panel. As a
proximate consequence of the fire on November 17, 1993, the Company and JWR
claimed losses compensable under the business interruption coverage of the
policies in excess of $25 million, for which judgment was demanded, together
with interest and costs.

Additionally, the complaint is for a declaratory judgment concerning
the insurers' contention that the risk which caused the loss was not insured
because it was not fortuitous, but was spontaneous combustion known to occur in
JWR's mines. Further, the insurers contend the Company failed to disclose the
risk of loss from spontaneous combustion and that the policies are void or
voidable because of such failure. Plaintiffs seek declaratory judgment in
their favor on these contentions and that each defendant is liable to
plaintiffs for its pro rata part of plaintiffs' business interruption loss.

The suit is in its initial stages, but the Company and JWR believe the
claim is meritorious and intend to pursue it vigorously.

Litigation Related to Chapter 11 Distributions to Certain
---------------------------------------------------------
Holders of Subordinated Notes and/or Debentures.
------------------------------------------------

The Plan of Reorganization originally proposed by certain creditors
and committees (the "Creditors' Plan") provided that subordinated bondholders
could elect to receive "Qualified Securities" (cash and/or new senior notes) in
lieu of shares of Common Stock. Such elections (the "Subordinated Note Claim
Election") were to be made on the ballots used for voting on the Creditors'
Plan. A balloting agent was retained to receive and separately tabulate
ballots cast on the Creditors' Plan and the Debtors' Fifth Amended Joint Plan
of Reorganization (the "Company's Plan"). Voting on the Company's Plan and the
Creditors' Plan took place during the period August 12, 1994 through September
23, 1994.

Subsequent to September 23, 1994, the balloting agent filed with the
Bankruptcy Court two (2) separate voting certifications. The voting
certification with respect to the Creditors' Plan not only set forth the voting
results but also listed the names of subordinated bondholders who made the
Subordinated Note Claim Election.

The Consensual Plan ultimately confirmed by the Bankruptcy Court
(which technically constituted a modification of the Creditors' Plan), (a) kept
in place the Subordinated Note Claim Election provisions and prior elections,
(b) contained as Exhibit 8 a schedule prepared by the balloting agent which set
forth the names of the subordinated bondholders who made the Subordinated Note
Claim Election (the "Exhibit 8 Schedule"), and (c) contained a new election
(the "Class U-4 Exchange Election") which provided that those subordinated
bondholders who made the Subordinated Note Claim Election were eligible to make
the Class U-4 Exchange Election whereby they could essentially "exchange"
shares of Common Stock for new senior notes which Lehman Brothers Inc. was
otherwise entitled to receive.

In February 1995, the balloting agent filed a voting certification
with the Bankruptcy Court which listed those subordinated bondholders who made
the Class U-4 Exchange Election (the "Exchange Election Schedule").

In preparing to make distributions to subordinated bondholders, it
came to the attention of the Company that the Exhibit 8 Schedule and the
Exchange Election Schedule were inaccurate. As a result, the Company reviewed
all ballots that the balloting agent claimed to be in its possession and
determined that discrepancies existed between the Exhibit 8 Schedule and
Exchange Election Schedule and certain of the ballots cast by subordinated
bondholders.

On or about April 5, 1995, the Company filed a motion with the
Bankruptcy Court seeking to amend the Exhibit 8 Schedule and the Exchange
Election Schedule. On April 28, 1995, an order reflecting the Bankruptcy
Court's decision was entered (the "April 28 Order").

F-19
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

Four bondholders each filed a motion with the Bankruptcy Court seeking
a stay of the April 28 Order pending appeal to the United States District Court
in Tampa, Florida (the "District Court"). On May 10, 1995 the Bankruptcy Court
denied each of the stay motions. Two of such bondholders then each filed
emergency motions for a stay pending appeal with the District Court. On May
11, 1995 the District Court issued an order denying the emergency motions.

On May 14, 1995, one of such bondholders filed a petition for a writ
of mandamus with the Eleventh Circuit Court of Appeals which was denied on May
15, 1995.

Appeals from the April 28 Order were filed with the District Court by
six bondholders. The appeals raise similar issues and ultimately seek the same
relief - reversal of the April 28 Order as it applies to appellants and the
modification of the consideration that appellants are to be provided under the
Consensual Plan, so that a portion of their distribution would be comprised of
Qualified Securities, instead of Common Stock of the Company.

The Company has filed motions to consolidate the appeals and intends
to file motions to dismiss as moot the appeals of the appellants. At this time
the Company is unable to predict whether or not the appeals will be dismissed,
or the ultimate outcome of such appeals.

Chapter 11 Adversary Proceeding Filed by Certain Holders of
------------------------------------------------------------
Series B & C Senior Notes
-------------------------

On June 15, 1995, certain holders of Series B & C Notes (the
"Noteholders") commenced an adversary proceeding in the Bankruptcy Court
against the Company, as Disbursing Agent, and its subsidiaries (the "Debtors")
seeking payment of interest for the period from the Effective Date (March 17,
1995) until the date distribution was received by such Noteholders. The Debtors
believe there is no merit to the complaint and intend to vigorously oppose the
relief requested therein. Given the early stage of this proceeding, the
Debtors cannot predict the ultimate outcome of the litigation.

Environmental Matters
---------------------

A Company subsidiary, United States Pipe and Foundry Company ("U.S.
Pipe"), was issued a revised New Jersey Pollutant Discharge Elimination System
("NJPDES") Permit in May 1991 relating to its facility in Burlington, New
Jersey, authorizing the discharge of storm water runoff to the Delaware River.
U.S. Pipe filed a timely appeal of the Permit to challenge certain effluent
limitations. In July 1992, the New Jersey Department of Environmental
Protection ("NJDEP") issued to U.S. Pipe an Administrative Order and Notice of
Civil Administrative Penalty Assessment ("Order"), assessing a penalty in the
amount of $545,000 for alleged failure to comply with the effluent limitations
in the Permit. U.S. Pipe filed a timely appeal of the Order.

Extensive negotiations with the NJDEP were undertaken over the next
three years. On May 16, 1995, U.S. Pipe entered into an Administrative Consent
Order ("ACO") with NJDEP settling both the permit appeal and the penalty case.
Under the ACO, U.S. Pipe will pay a civil penalty of $187,000 over a twelve-
month period to resolve all outstanding alleged permit violations through the
date of the ACO. In addition, U.S. Pipe will conduct studies of its Burlington
facility and will design and build a storm water treatment system to improve
the quality of storm water discharged to the Delaware River. During the time
that U.S. Pipe conducts these activities, it will not be required to meet
effluent limitations, but is obligated to monitor and report the quality of
storm water discharges. By executing the ACO, U.S. Pipe withdraws its appeals
of the Permit and the Order. The ACO is presently undergoing public review and
comment; if no significant changes are made to the ACO as a result of public
input, the agreement should be finalized in July.

F-20
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

The cost to construct the storm water treatment system required under
the ACO has not yet been ascertained but is estimated by the engineers to range
from $500,000 - $1,000,000. Work on this project is expected to take three
years or more.

The Company is a party to a number of other lawsuits arising in the
ordinary course of its business. While the results of litigation cannot be
predicted with certainty, the Company believes that the final outcome of such
other litigation will not have a materially adverse effect on the Company's
consolidated financial condition.

NOTE 12 - Pension and Other Employee Benefits

The Company has various pension and profit sharing plans covering
substantially all employees. In addition to its own pension plans, the Company
contributes to certain multi-employer plans. Total pension expense for the
years ended May 31, 1995, 1994 and 1993, was $8.2 million, $9.7 million and
$16.5 million, respectively. The funding of retirement and employee benefit
plans is in accordance with the requirements of the plans and, where
applicable, in sufficient amounts to satisfy the "Minimum Funding Standards" of
the Employee Retirement Income Security Act of 1974 ("ERISA"). The plans
provide benefits based on years of service and compensation or at stated
amounts for each year of service.

The net pension costs for Company administered plans are as follows:

For the years ended May 31,
-------------------------------
1995 1994 1993
-------- -------- -------
(in thousands)

Service cost-benefits earned during the period $ 5,817 $ 5,334 $ 5,233
Interest cost on projected benefit obligation 16,174 16,333 15,634
Actual loss (return) on assets 4,304 (19,352) (18,131)
Net amortization and deferral (21,377) 3,145 3,174
-------- -------- ----------
Net pension costs $ 4,918 $ 5,460 $ 5,910
======== ======== ========

F-21
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

The following table sets forth the funded status of Company
administered plans:

<TABLE><CAPTION>
May 31, 1995 May 31, 1994
-------------------------- -------------------------------
Plans in which Plans in which
-------------------------- -------------------------------
Assets exceed Accumulated Assets exceed Accumulated
accumulated benefits accumulated benefits
benefits exceed assets benefits exceed assets
----------- ------------- ----------- -------------

<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligations:
Vested benefits $ 134,589 $ 47,474 $ 133,348 $ 41,353
Non-vested benefits 5,849 1,207 5,599 1,604
---------- --------- ---------- ----------
$ 140,438 $ 48,681 $ 138,947 $ 42,957
========== ========= ========== ==========
Plan assets at fair value, primarily
stocks and bonds $ 169,635 $ 31,023 $ 187,443 $ 27,012
Projected benefit obligations 169,984 49,681 166,386 42,957
---------- --------- ---------- ----------
Plan assets in excess of (less than)
projected benefit obligations ( 349) ( 18,658) 21,057 ( 15,945)
Unamortized portion of transition
(asset) obligation at June 1, 1986 ( 10,507) 4,785 ( 11,281) 5,002
Unrecognized net loss from actual
experience different from
that assumed 20,545 6,610 808 2,903
Prior service cost not recognized 696 2,269 836 2,487
Contribution to plans after
measurement date - 667 879 819
---------- --------- ---------- ----------
Prepaid (accrued) pension cost 10,385 ( 4,327) 12,299 ( 4,734)
Additional liability - ( 12,664) - ( 10,393)
---------- --------- ---------- ----------
Prepaid pension cost (pension
liability) recognized in the
balance sheet $ 10,385 $( 16,991) $ 12,299 $( 15,127)
========== ========= ========== ==========
</TABLE>

The projected benefit obligations were determined using an assumed
discount rate of 8% in fiscal 1995 and 1994 and, where applicable, an
assumed 5% rate of increase in future compensation levels. The assumed
long-term rate of return on plan assets is 8%.

Under the labor contract with the United Mine Workers of America, Jim
Walter Resources makes payments into multi-employer pension plan trusts
established for union employees. Under ERISA, as amended by the
Multiemployer Pension Plan Amendments Act of 1980, an employer is liable
for a proportionate part of the plans' unfunded vested benefits
liabilities. The Company estimates that its allocated portion of the
unfunded vested benefits liabilities of these plans amounted to
approximately $48.7 million at May 31, 1995. However, although the net
liability can be estimated, its components, the relative position of each
employer with respect to actuarial present value of accumulated benefits
and net assets available for benefits, are not available to the Company.

The Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" in fiscal 1993. Upon adoption, the Company elected to record
the transition obligation of $166.4 million pre-tax ($104.6 million
after tax) as a one-time charge against earnings, rather than amortize
it over a longer period. This obligation is primarily related to the
health benefits for eligible retirees. Post-retirement benefit costs
were $26.0 million in 1995, $25.6 million in 1994 and $23.5 million in
1993. Amounts paid for postretirement benefits were $7.5 million in
1995, $5.5 million in 1994 and $6.5 million in 1993.

F-22
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

The net periodic postretirement benefit cost includes the following
components:

<TABLE><CAPTION>
For the years ended May 31,
---------------------------------------
1995 1994 1993
---------- --------- --------
(in thousands)
<S> <C> <C> <C>

Service cost $ 8,491 $ 9,302 $ 8,495
Interest cost 17,470 16,283 14,979
-------- -------- --------
Net periodic postretirement benefit cost $ 25,961 $ 25,585 $ 23,474
======== ======== ========
</TABLE>

The accumulated postretirement benefits obligation at May 31, 1995 and
1994 are as follows:

<TABLE><CAPTION>
May 31,
-----------------------------
1995 1994
---------- ----------
(in thousands)

<S> <C> <C>
Retirees $ 92,550 $ 72,779
Fully eligible, active participants 30,129 26,234
Other active participants 111,084 122,228
--------- ---------
Accumulated postretirement benefit
obligation 233,763 221,241
Unrecognized net loss ( 5,352) ( 11,279)
--------- ---------
Postretirement benefit liability recognized
in the balance sheet $ 228,411 $ 209,962
========= =========
</TABLE>

The principal assumptions used to measure the accumulated
postretirement benefit obligation include a discount rate of 8% in fiscal
1995 and 1994 and a health care cost trend rate of 10% declining to 5.5%
over a ten year period and remaining level thereafter in fiscal 1995 and a
health care cost trend rate of 13% declining to 6% over an eleven year
period in fiscal 1994. A one percent increase in trend rates would
increase the accumulated postretirement benefit obligation by 17% and
increase net periodic postretirement benefit cost for 1995 by 20%.

Certain subsidiaries of the Company maintain profit sharing plans.
The total cost of these plans for the years ended May 31, 1995, 1994 and
1993 was $3.0 million, $3.1 million and $3.0 million, respectively.

NOTE 13 - Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" ("FAS 107") requires disclosure
of estimated fair values for all financial instruments for which it is
practicable to estimate fair value. Considerable judgment is necessary in
developing estimates of fair value and a variety of valuation techniques
are allowed under FAS 107. The derived fair value estimates resulting
from the judgments and valuation techniques applied cannot be
substantiated by comparison to independent materials or to disclosures by
other companies with similar financial instruments. Furthermore, FAS 107
fair value disclosures do not purport to be the amount which could be
attained in immediate settlement of the financial instrument. Fair value
estimates are not necessarily more relevant than historical cost values
and have limited usefulness in evaluating long-term assets and liabilities
held in the ordinary course of business. Accordingly, management believes
that the disclosures required by FAS 107 have limited relevance to the
Company and its operations.

The following methods and assumptions were used to estimate fair value
disclosures:

F-23
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

Cash (including short-term investments) and short-term investments,
restricted - The carrying amounts reported in the balance sheet
approximates fair value.

Instalment notes receivable - The estimated fair value of instalment
notes receivable at May 31, 1995 was in the range of $2.0 billion to
$2.1 billion. The estimated fair value is based upon valuations
prepared by an investment banking firm as of January 31, 1995 adjusted
to reflect increases in value for the addition of net new mortgages to
May 31, 1995. The value of mortgage-backed instruments such as
instalment notes receivable are very sensitive to changes in interest
rates.

Debt - The estimated fair value of long term debt at May 31, 1995
was $2.332 billion based on current yields for comparable debt
issues or prices for actual transactions.

NOTE 14 - Segment Information

Information relating to the Company's business segments is set forth
on pages F-25 and F-26. Due to the divestiture of several building
materials subsidiaries in recent years, the Company has restructured
certain of its segment information. Prior years' information has been
restated.

F-24
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION

<TABLE><CAPTION>
For the years ended May 31,
-------------------------------------------
1995 1994 1993
---------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Sales and Revenues:

Homebuilding and related financing $ 407,119 $ 424,530 $ 419,378
Industrial and other products 284,230 224,673 212,606
Water and waste water transmission products 412,237 357,189 331,214
Natural resources(e) 332,251 319,410 351,017
Corporate 6,485 2,722 4,771
---------- ---------- ----------
Consolidated sales and revenues(a)(f) $1,442,322 $1,328,524 $1,318,986
========== ========== ==========

Contributions to Operating Income:

Homebuilding and related financing $ 76,525 $ 101,954 $ 88,902
Industrial and other products 11,902 13,851 11,301
Water and waste water transmission products 28,454 25,641 16,040
Natural resources 20,072 ( 1,175) 50,807
---------- ---------- ----------
136,953 140,271 167,050
Less-Unallocated corporate interest and
other expense(b) ( 666,048) ( 104,179) ( 96,128)
Income taxes 170,450 ( 28,917) ( 24,328)
---------- ---------- ----------

Income (loss) from operations (c) $( 358,645) $ 7,175 $ 46,594
========== ========== ==========

Depreciation, Depletion and Amortization:
Homebuilding and related financing $ 3,336 $ 3,093 $ 3,113
Industrial and other products 9,073 9,821 9,390
Water and waste water transmission products 16,520 16,063 15,764
Natural resources 41,434 40,326 40,714
Corporate 1,674 1,732 1,502
---------- ---------- ----------

Total $ 72,037 $ 71,035 $ 70,483
========== ========== ==========

Gross Capital Expenditures:
Homebuilding and related financing $ 4,192 $ 3,210 $ 6,284
Industrial and other products 24,692 10,054 8,605
Water and waste water transmission products 15,538 14,426 12,821
Natural resources 46,214 40,224 42,941
Corporate 681 1,917 1,057
---------- ---------- ----------

Total $ 91,317 $ 69,831 $ 71,708
========== ========== ==========
</TABLE>

F-25
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION

<TABLE><CAPTION>
May 31,
------------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Identifiable Assets:

Homebuilding and related financing $1,789,582 $1,832,919 $1,907,199
Industrial and other products 213,836 173,618 171,672
Water and waste water transmission products 480,617 490,004 493,297
Natural resources 465,680 450,468 475,533
Corporate (d) 295,438 193,883 175,533
---------- ---------- ----------
Total $3,245,153 $3,140,892 $3,223,234
========== ========== ==========
</TABLE>

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

(a) Inter-segment sales (made primarily at prevailing market prices) are
deducted from sales of the selling segment and are insignificant in
amount with the exception of the sales of the Industrial and Other
Products Group to the Water and Waste Water Transmission Products
Group of $13,373,000, $11,480,000 and $10,298,000 and sales of the
Natural Resources Group to the Industrial and Other Products Group of
$5,397,000, $5,650,000 and $7,121,000 in 1995, 1994 and 1993,
respectively.
(b) Excludes interest expense incurred by the Homebuilding and Related
Financing Group of $131,560,000, $128,828,000 and $137,945,000 in
1995, 1994 and 1993, respectively. The balance of unallocated
expenses is attributable to all groups and cannot be reasonably
allocated to specific groups.
(c) Includes postretirement health benefits of $25,961,000, $25,585,000
and $23,474,000 in 1995, 1994 and 1993. A breakdown by segment is as
follows:

<TABLE><CAPTION>
For the years ended May 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Homebuilding and related financing $ 2,295 $ 2,170 $ 1,991
Industrial and other products 3,610 3,662 3,284
Water and waste water transmission products 4,362 4,391 4,136
Natural resources 15,004 14,681 13,437
Corporate 690 681 626
--------- -------- --------
$ 25,961 $ 25,585 $ 23,474
========= ======== ========
</TABLE>

(d) Primarily cash and corporate headquarters buildings and equipment.
(e) Includes sales of coal of $297,650,000, $289,279,000 and $321,834,000
in 1995, 1994 and 1993, respectively. Jim Walter Resources' coal
supply contract with Alabama Power Company that had been in effect
since January 1, 1979, as amended, was superceded by a new contract
executed May 10, 1994. The new contract is effective from July 1,
1994 through August 31, 1999 with Jim Walter Resources' option to
extend such contract through August 31, 2004, subject to mutual
agreement on the market pricing mechanism and other terms and
conditions of such extension. Sales to Alabama Power Company in the
years ended May 31, 1995, 1994 and 1993 were 13%, 11% and 12% of net
sales and revenues, respectively.
(f) Export sales, primarily coal, were $129,071,000, $155,966,000 and
$183,188,000 in 1995, 1994 and 1993, respectively. Export sales to
any single geographic area do not exceed 10% of consolidated net
sales and revenues.

F-26

<PAGE>

No dealer, salesman or other
person has been authorized to
give any information or to make
any representations, other than
those contained in this
Prospectus or any Prospectus
Supplement, in connection with
the offering made by this Walter Industries, Inc.
Prospectus and any Prospectus
Supplement, and information or
and representations not herein
contained, if given or made,
must not be relied upon as $218,609,000
having been authorized. This
Prospectus or any Prospectus Principal Amount of
Supplement does not constitute 12.19% Series B Senior Notes
an offer to sell, or a Due 2000
solicitation of an offer to buy,
the securities offered hereby to
any person or by anyone in any
jurisdiction in which such offer ________________________
or solicitation may not be made.
Neither the delivery of this PROSPECTUS
Prospectus or any Prospectus ________________________
Supplement nor any sales made
hereunder or thereunder shall
under any circumstances create
any implication that the
information contained herein is
correct as of any time
subsequent to the date hereof or
thereof or that there has been
no change in the affairs of the August , 1995
Company since the date hereof or
thereof.

___________________________
TABLE OF CONTENTS
Page

Available Information . . 5
Additional Information . . 5
Prospectus Summary . . . . 6
Certain Risk Factors . . . 13
The Company . . . . . . . 18
Recent History . . . . . . 19
Capitalization . . . . . . 21

Pro Forma Consolidated
Statement of Operations 22
Selected Historical
Consolidated Financial
Data . . . . . . . . . . 24
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations . . . . . . . 25
Business and Properties . 35
Management . . . . . . . . 51
Security Ownership of
Management and Principal
Stockholders . . . . . . 59
Description of Notes . . . 62
Description of Certain Other
Indebtedness . . . . . . 86
Description of Capital Stock
87
Certain Federal Income Tax
Consequences . . . . . . 92
Selling Security Holders . 95
Plan of Distribution . . . 95
Legal Matters . . . . . . 96
Experts . . . . . . . . . 96
Index to Defined Terms . . 97

Index to Financial
Statements . . . . . . . F-1
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
---------------------------------------------

PROSPECTUS
----------

WALTER INDUSTRIES, INC.

12.19% Series B Senior Notes Due 2000

______________________________

This Prospectus will be used by Lehman Brothers Inc. in connection with offers
and sales in market-making transactions in the 12.19% Series B Senior Notes Due
2000 (the "Notes") of Walter Industries, Inc. (the "Company"). Lehman Brothers
Inc. may act as principal or agent in such transactions. The Notes may be
offered in negotiated transactions or otherwise. Sales will be at prices related
to prevailing market prices at the time of sale.

______________________________

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.

______________________________

The date of this Prospectus is August , 1995

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

<TABLE>
<S> <C>
Registration fee . . . . . . . . . . . . . . . . . . . . . . $ 113,742.23
Trustee's fee . . . . . . . . . . . . . . . . . . . . . . . . *
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . *
Printing and engraving expenses . . . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . *
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ *
============
____________________
* To be provided by amendment.
</TABLE>

Item 14. Indemnification of Directors and Officers

Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.

Article IV of the By-laws of the Company provides for indemnification of its
officers and directors to the fullest extent permitted by Section 145 of the
DGCL.

Section 102(b)(7) of the DGCL provides that a Delaware corporation may
eliminate or limit the personal liability of a director to a Delaware
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL relating to the unlawful payment of a
dividend or an unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.

Article 6 of the Restated Certificate of Incorporation of the Company
provides for the elimination of personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except as otherwise provided
by the DGCL.

The Company has entered into a Directors and Officers Indemnification
Agreement which provides that directors and officers shall be indemnified to the
fullest extent permitted by applicable law and obligates the Company to
indemnify the directors and officers of the Company (a) if any director or
officer is or may become a party to any proceeding against all expenses
reasonably incurred by such director or officer in connection with the defense
or settlement of such proceeding, but only if such director or officer acted in
good faith and in a manner which such director or officer reasonably believed to
be in or not opposed to the best interests of the Company, and in the case of a
criminal action or proceeding, in addition, only if such director or officer had
no reasonable

II-1
<PAGE>
cause to believe that his or her conduct was unlawful, (b) if a director or
officer is or may become a party to any proceeding by or in the name of the
Company to procure a judgement in its favor against all expenses reasonably
incurred by such director or officer in connection with the defense or
settlement of such proceeding, but only if such director or officer acted in
good faith and in a manner which such director or officer reasonably believed to
be in or not opposed to the best interests of the Company, except no
indemnification for expenses need be made in respect of any claim in which such
director or officer shall have been adjudged liable to the Company unless a
court in which the proceeding is brought determines otherwise and (c) if a
director or officer has been successful on the merits or otherwise in defense of
any proceeding or claim.

The Common Stock Registration Rights Agreement and the Senior Note
Registration Rights Agreement each require the Company, on the one hand, and the
Holders referred to therein, on the other hand, under certain circumstances, to
indemnify each other and, in the case of the Company's indemnification
obligations, each other person who participates as an underwriter in an offering
thereunder, and each other person who controls such parties and/or underwriters
and their respective directors, officers, partners, agents and affiliates
against certain liabilities, including liabilities under the Securities Act,
incurred in connection with each registration of securities pursuant to such
registration rights agreement.

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 hereunder or otherwise, the
Registrant has been advised that in the opinion of the 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 to 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 against
the Registrant by such director, officer or controlling person, in connection
with the Notes being registered hereby, 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.

Item 15. Recent Sales of Unregistered Securities

Pursuant to the Plan of Reorganization, 50,494,313 shares of Common Stock
were issued to certain former creditors and stockholders of the Company and its
subsidiaries and $490,000,000 principal amount of Series B Senior Notes were
issued to certain former creditors of the Company and its subsidiaries on the
Effective Date of the Plan of Reorganization. All such securities were issued in
satisfaction of various prepetition claims allowed by the Bankruptcy Court. In
reliance on the exemption provided by Section 1145 of the Bankruptcy Code, none
of such securities were registered under the Securities Act in connection with
their issuance pursuant to the Plan of Reorganization.

II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>
2(a)(i) -- Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its subsidiaries, dated as
of December 9, 1994 (1)

2(a)(ii) -- Modification to the Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its
subsidiaries, as filed in the Bankruptcy Court on March 1, 1995 (2)

2(a)(iii) -- Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan of Reorganization of Walter
Industries, Inc. and certain of its subsidiaries, as modified (3)

3(a) -- Restated Certificate of Incorporation of the Company (3)

3(b) -- By-Laws of the Company (3)

4(a)(i) ** -- 12.19% Series B Senior Note Indenture

4(a)(ii) ** -- Form of Company Pledge Agreement (included as Exhibit B to Exhibit 4(a)(i))

4(a)(iii) ** -- Form of Subsidiary Pledge Agreement (included as Exhibit C to Exhibit 4(a)(i))

4(a)(iv) ** -- Form of 12.19% Series B Senior Note Certificate (included as Exhibit A to Exhibit 4(a)(i))

5 * -- Opinion of Simpson Thacher & Bartlett regarding legality of the securities being registered

10(a) -- Stockholder's Agreement (3)

10(b)(i) -- Form of Common Stock Registration Rights Agreement (3)

10(b)(ii) ** -- Form of Senior Note Registration Rights Agreement

10(b)(iii) * -- Channel One Registration Rights Agreement

10(c) -- Durham Employment Agreement (3)

10(d) -- Second Amended and Restated Veil Piercing Settlement Agreement (included as Exhibit 3A to Exhibit 2(a)(i))
(1)

10(e) ** -- 12.19% Series B Senior Note Indenture (see Exhibit 4(a))

10(f) -- Bank Revolving Credit Facility

10(g) -- Director and Officer Indemnification Agreement, dated as of March 3, 1995, among the Company and the
Indemnitees parties thereto (5)

10(h) -- New Alabama Power Contract (4)(5)

12 -- Computation of Ratio of Earnings to Fixed Charges

21 ** -- Subsidiaries of the Company

23(a) -- Consent of Price Waterhouse LLP

23(b) * -- Consent of Simpson Thacher & Bartlett (included in their opinion filed as Exhibit 5 hereto)
</TABLE>

II-3
<PAGE>
<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>

24 ** -- Powers of Attorney

25 -- Statement on Form T-1 of the Eligibility of the Senior Trustee (1)

27 -- Financial Data Schedule
</TABLE>
_________________

* To be filed by amendment.

** Previously filed.

(1) This Exhibit is incorporated by reference to the Application for
Qualification of Indenture on Form T-3 filed by the Company with the Commission
on February 6, 1995.

(2) This Exhibit is incorporated by reference to Amendment No. 2 to the
Application for Qualification of Indenture on Form T-3 filed by the Company with
the Commission on March 7, 1995.

(3) This Exhibit is incorporated by reference to the Registration Statement on
Form S-1 (File No. 33-59013) filed by the Company with the Commission on May 2,
1995.

(4) Portions of this document have been omitted pursuant to a request for
confidential treatment.

(5) This Exhibit is incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 33-59013) filed by the Company with
the Commission on May 2, 1995.

(b) Financial Statement Schedules

Schedule No.
------------

V Report of Property, Plant and Equipment
VI Report of Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment
VIII Valuation and Qualifying Accounts

Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered

II-4
<PAGE>
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement Amendment to be signed on its behalf
by the undersigned, hereunto duly authorized in the City of Tampa, State of
Florida on the 9th day of August, 1995.

WALTER INDUSTRIES, INC.

By /s/ William H. Weldon
----------------------------
William H. Weldon
Senior Vice President-Finance and Chief
Accounting Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment has been signed by the following persons in the
capacities indicated on August 9, 1995.

<TABLE><CAPTION>
Signature Title
--------- -----

<S> <C>
* Chairman of the Board and Director
----------------------------------------------------
James W. Walter

* President, Chief Executive Officer
----------------------------------------------------
G. Robert Durham and Director (Principal Executive Officer)

* Executive Vice President, Chief
----------------------------------------------------
Kenneth J. Matlock Financial Officer and Director (Principal
Financial Officer)

/s/ William H. Weldon Senior Vice President-Finance and Chief
----------------------------------------------------
William H. Weldon Accounting Officer (Principal Accounting Officer)

* Director
----------------------------------------------------
Howard L. Clark, Jr.

* Director
----------------------------------------------------
James B. Farley

* Director
----------------------------------------------------
Eliot M. Fried

* Director
----------------------------------------------------
James L. Johnson

* Director
----------------------------------------------------
Robert I. Shapiro

* Director
----------------------------------------------------
Michael T. Tokarz
</TABLE>

*By /s/ William H. Weldon
--------------------------
William H. Weldon
Attorney-in-fact

II-6
<PAGE>

<TABLE><CAPTION>
INDEX TO FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedules Page
----------------------------- ----

<S> <C> <C>
V Report of Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
VI Report of Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment . . . . . . . . . S-5
VIII Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
</TABLE>

All other schedules are omitted because the required information is not present
in amounts sufficient to require submission of the schedules, or because the
information required is included in the consolidated financial statements or
notes thereto.

S-1
<PAGE>
<TABLE><CAPTION>

SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1995

Balance at Balance
Beginning Additions Retirements at End
Classification(1) of Year at Cost or Sales Other of Year
-------------------------------------- -------------- ----------- --------------- -------------- --------------
(in thousands)

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 200,337 $ 1,856 $ 5,534 $ 139 $ 196,798
Land improvements . . . . . . . . . . 18,941 839 91 451 20,140
Building and leasehold improvements . 104,999 3,332 3,607 6,034 110,758
Machinery and equipment . . . . . . . 663,898 14,901 19,617 43,956 703,138
Mine development costs . . . . . . . 123,761 -- -- 2,142 125,903
Construction in progress . . . . . . 12,003 70,389 -- (52,722) 29,670
---------- ------- ------- ------- ----------
$1,123,939 $91,317 $28,849 $ -- $1,186,407
========== ======= ======= ======= ==========
</TABLE>

(1) The Company and its subsidiaries provide depreciation for financial
reporting purposes principally on the straight line method over the useful
lives of the assets. For federal income tax purposes accelerated methods
are used for substantially all eligible properties. The depreciable
property categories and the principal rates for depreciation used are as
follows:

Land Improvements . . . . . . . . . . . . . . . . . 3 1/2% to 10%
Buildings . . . . . . . . . . . . . . . . . . . . . 2 1/2% to 20%
Machinery and equipment . . . . . . . . . . . . 3 1/2% to 33-1/3%
Leasehold improvements . . . . . . . . . . . Over term of leases
Mine development costs . . . . . . . . . . . Over life of mines

Depletion on minerals is based on the estimated recoverable quantities and
the costs of the properties.

S-2
<PAGE>
<TABLE><CAPTION>
SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT

For the Year Ended May 31, 1994

Land and minerals . . . . . . . . . . $ 200,000 $ 436 $ 117 $ 18 $200,337
Land improvements . . . . . . . . . . 17,349 886 42 748 18,941
Building and leasehold improvements . 99,597 3,007 720 3,115 104,999
Machinery and equipment . . . . . . . 617,987 6,360 17,819 57,370 663,898
Mine development costs . . . . . . . 116,576 -- 2,262 9,447 123,761
Construction in progress . . . . . . 23,559 59,142 -- (70,698) 12,003
---------- ------- ------- ------- ----------
$1,075,068 $69,831 $20,960 $ -- $1,123,939
========== ======= ======= ======= ==========
</TABLE>

Land Improvements . . . . . . . . . . . . . . . . 3 1/2% to 10%
Buildings . . . . . . . . . . . . . . . . . . . . 2 1/2% to 20%
Machinery and equipment . . . . . . . . . . . 3 1/2% to 33-1/3%
Leasehold improvements . . . . . . . . . . Over term of leases
Mine development costs . . . . . . . . . . Over life of mines

Depletion on minerals is based on the estimated recoverable quantities and
the costs of the properties.

S-3
<PAGE>
<TABLE><CAPTION>
SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT

For the Year Ended May 31, 1993

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 198,927 $ 1,219 $ 168 $ 22 $200,000
Land improvements . . . . . . . . . . 16,556 1,122 72 (257) 17,349
Building and leasehold improvements . 98,947 3,712 1,016 (2,046) 99,597
Machinery and equipment . . . . . . . 567,218 7,948 10,867 53,688 617,987
Mine development costs . . . . . . . 116,576 -- -- -- 116,576
Construction in progress . . . . . . 17,259 57,707 -- (51,407) 23,559
---------- ------- ------- ------- ----------
$1,015,483 $71,708 $12,123 $ -- $1,075,068
========== ======= ======= ======= ==========
</TABLE>

Depletion on minerals is based on the estimated recoverable quantities and
the costs of the properties.

S-4
<PAGE>

SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1995

Balance at Additions Balance
Beginning Charged to Retirements at End
Classification of Year Cost and Expenses or Sales Other of Year
-------------------------------------- -------------- ----------------- --------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 42,944 $ 5,671 $ -- $ -- $ 48,615
Land improvements . . . . . . . . . . 5,105 947 61 -- 5,991
Building and leasehold improvements . 35,846 4,562 1,388 59 39,079
Machinery and equipment . . . . . . . 367,152 59,190 13,049 (59) 413,234
Mine development costs . . . . . . . 15,029 1,667 -- -- 16,696
---------- ------- ------- ------- --------
$466,076 $72,037 $14,498 $ -- $523,615
========== ======= ======= ======= ========
</TABLE>

S-5
<PAGE>

<TABLE><CAPTION>
SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1994

Balance at Additions Balance
Beginning Charged to Retirements at End
Classification of Year Cost and Expenses or Sales Other of Year
-------------------------------------- -------------- ----------------- --------------- -------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 37,961 $ 4,983 $ -- $ -- $ 42,944
Land improvements . . . . . . . . . . 4,272 885 52 -- 5,105
Building and leasehold improvements . 31,671 4,264 89 -- 35,846
Machinery and equipment . . . . . . . 323,557 58,188 14,593 -- 367,152
Mine development costs . . . . . . . 14,567 2,715 2,253 -- 15,029
---------- ------- ------- ------- --------
$412,028 $71,035 $16,987 $ -- $466,076
========== ======= ======= ======= ========
</TABLE>

S-6
<PAGE>

<TABLE><CAPTION>
SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1993

Balance at Additions Balance
Beginning Charged to Retirements at End
Classification of Year Cost and Expenses or Sales Other of Year
-------------------------------------- -------------- ----------------- --------------- -------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 32,366 $ 5,595 $ -- $ -- $ 37,961
Land improvements . . . . . . . . . . 4,203 729 32 (628) 4,272
Building and leasehold improvements . 30,163 4,410 628 (2,274) 31,671
Machinery and equipment . . . . . . . 270,739 58,572 8,656 2,902 323,557
Mine development costs . . . . . . . 13,390 1,177 -- -- 14,567
---------- ------- ------- ------ --------
$350,861 $70,483 $ 9,316 $ -- $412,028
========== ======= ======= ====== ========
</TABLE>

S-7
<PAGE>
<TABLE><CAPTION>

SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1995

Additions
Balance at Charged to Balance
Beginning Cost and Deductions at End
Description of Year Expenses from reserves of Year
-------------------------------------------- ---------------- ---------------- ---------------- -----------------
(in thousands)

<S> <C> <C> <C> <C>
Reserves (provision for possible losses)
deducted from instalment notes
receivable . . . . . . . . . . . . . . . $26,301 $1,155 $ 900(1) $26,556
======= ====== ====== =======

Reserve (provision for possible losses)
deducted from trade receivables . . . . . $ 7,392 $3,330 $2,724(1) $ 7,998
======= ====== ====== =======

Accrued workmen's compensation(2) . . . . . $ 3,737 $ 763 $ -- $ 4,500
======= ====== ====== =======

Black lung reserves(2) . . . . . . . . . . $21,997 $ -- $ 130(3) $21,867
======= ====== ====== =======
</TABLE>

____________________
(1) Notes and accounts written off as uncollectible.
(2) Included in other long-term liabilities.
(3) Losses sustained.

S-8
<PAGE>
<TABLE><CAPTION>
SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1994

Reserves (provision for possible losses)
deducted from instalment notes
receivable . . . . . . . . . . . . . . . $26,579 $ 905 $1,183(1) $26,301
======= ====== ====== =======

Reserve (provision for possible losses)
deducted from trade receivables . . . . . $ 7,324 $3,706 $3,638(1) $ 7,392
======= ====== ====== =======

Accrued workmen's compensation(3) . . . . . $ 2,887 $ 824 $ (26)(2) $ 3,737
======= ====== ====== =======
Black lung reserves(3) . . . . . . . . . . $22,190 $ -- $ 193(4) $21,997
======= ====== ====== =======
</TABLE>

____________________
(1) Notes and accounts written off as uncollectible.
(2) Expenditures or losses sustained and liabilities reclassified from
accounts payable.
(3) Included in other long-term liabilities.
(4) Losses sustained.

S-9
<PAGE>
<TABLE><CAPTION>
SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1993

<S> <C> <C> <C> <C>
Reserves (provision for possible losses)
deducted from instalment notes
receivable . . . . . . . . . . . . . . . $25,965 $1,303 $ 689(1) $26,579
======= ====== ====== =======

Reserve (provision for possible losses)
deducted from trade receivables . . . . . $ 6,080 $2,940 $1,696(1) $ 7,324
======= ====== ====== =======

Accrued workmen's compensation(3) . . . . . $ 3,411 $ (488) $ 36(2) $ 2,887
======= ====== ====== =======

Black lung reserves(3) . . . . . . . . . . $22,345 $ -- $ 155(4) $22,190
======= ====== ====== =======
</TABLE>

____________________
(1) Notes and accounts written off as uncollectible.
(2) Expenditures or losses sustained and liabilities reclassified from
accounts payable.

(3) Included in other long-term liabilities.

(4) Losses sustained.

S-10
<PAGE>

EXHIBIT INDEX

<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>
2(a)(i) -- Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its subsidiaries, dated as
of December 9, 1994 (1)

2(a)(ii) -- Modification to the Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its
subsidiaries, as filed in the Bankruptcy Court on March 1, 1995 (2)

2(a)(iii) -- Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan of Reorganization of Walter
Industries, Inc. and certain of its subsidiaries, as modified (3)

3(a) -- Restated Certificate of Incorporation of the Company (3)

3(b) -- By-Laws of the Company (3)

4(a)(i) ** -- 12.19% Series B Senior Note Indenture

4(a)(ii) ** -- Form of Company Pledge Agreement (included as Exhibit B to Exhibit 4(a)(i))

4(a)(iii) ** -- Form of Subsidiary Pledge Agreement (included as Exhibit C to Exhibit 4(a)(i))

4(a)(iv) ** -- Form of 12.19% Series B Senior Note Certificate (included as Exhibit A to Exhibit 4(a)(i))

5 * -- Opinion of Simpson Thacher & Bartlett regarding legality of the securities being registered

10(a) -- Stockholder's Agreement (3)

10(b)(i) -- Form of Common Stock Registration Rights Agreement (3)

10(b)(ii) ** -- Form of Senior Note Registration Rights Agreement

10(b)(iii) * -- Channel One Registration Rights Agreement

10(c) -- Durham Employment Agreement (3)

10(d) -- Second Amended and Restated Veil Piercing Settlement Agreement (included as Exhibit 3A to Exhibit 2(a)(i))
(1)

10(e) ** -- 12.19% Series B Senior Note Indenture (see Exhibit 4(a))

10(f) -- Bank Revolving Credit Facility

10(g) -- Director and Officer Indemnification Agreement, dated as of March 3, 1995, among the Company and the
Indemnitees parties thereto (5)

10(h) -- New Alabama Power Contract (4)(5)

12 -- Computation of Ratio of Earnings to Fixed Charges

21 ** -- Subsidiaries of the Company

23(a) -- Consent of Price Waterhouse LLP

23(b) * -- Consent of Simpson Thacher & Bartlett (included in their opinion filed as Exhibit 5 hereto)
</TABLE>

<PAGE>
<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>
24 ** -- Powers of Attorney

25 -- Statement on Form T-1 of the Eligibility of the Senior Trustee (1)

27 -- Financial Data Schedule
</TABLE>
_________________

* To be filed by amendment.

** Previously filed.

(1) This Exhibit is incorporated by reference to the Application for
Qualification of Indenture on Form T-3 filed by the Company with the Commission
on February 6, 1995.

(2) This Exhibit is incorporated by reference to Amendment No. 2 to the
Application for Qualification of Indenture on Form T-3 filed by the Company with
the Commission on March 7, 1995.

(3) This Exhibit is incorporated by reference to the Registration Statement on
Form S-1 (File No. 33-59013) filed by the Company with the Commission on May 2,
1995.

(4) Portions of this document have been omitted pursuant to a request for
confidential treatment.

(5) This Exhibit is incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 33-59013) filed by the Company with
the Commission on May 2, 1995.

Exhibit 10 (F)

EXECUTION COPY

U.S.$150,000,000
CREDIT AGREEMENT
Dated as of February 27, 1995

Among

WALTER INDUSTRIES, INC.
as Swing Line Borrower
-- ----- ---- --------

and

JIM WALTER HOMES, INC.,
JIM WALTER RESOURCES, INC.,
JW ALUMINUM COMPANY,
JW WINDOW COMPONENTS, INC.,
SLOSS INDUSTRIES CORPORATION,
SOUTHERN PRECISION CORPORATION,
UNITED STATES PIPE AND FOUNDRY COMPANY and
VESTAL MANUFACTURING COMPANY
as Working Capital Borrowers
-- ------- ------- ---------

and

THE INITIAL LENDERS AND THE INITIAL ISSUING BANKS NAMED HEREIN
as Initial Lenders and as Initial Issuing Banks
-- ------- ------- --- -- ------- ------- -----

and

CITICORP USA, INC.
as Swing Line Bank
-- ----- ---- ----

and

CITICORP USA, INC.,
MERRILL LYNCH CAPITAL CORPORATION and
NATIONSBANK OF FLORIDA, N.A.
as Co-Administrative Agents
-- ----------------- ------

and

CITICORP SECURITIES, INC.,
MERRILL LYNCH CAPITAL CORPORATION and
NATIONSBANC CAPITAL MARKETS, INC.
as Co-Arrangers
-- ------------

and

THE FIRST NATIONAL BANK OF BOSTON
as Co-Agent
-- --------

and

CITICORP USA, INC.
as Facilities Manager
-- ---------- -------

<PAGE>

TABLE OF CONTENTS

PRELIMINARY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE I . . . . . . . . . . . . . . 2

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . 2
SECTION 1.02. Computation of Time Periods . . . . . . . . . . . . 34
SECTION 1.03. Accounting Terms . . . . . . . . . . . . . . . . . 34

ARTICLE II . . . . . . . . . . . . . . 34

AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT

SECTION 2.01. The Advances . . . . . . . . . . . . . . . . . . . 34
SECTION 2.02. Making the Advances . . . . . . . . . . . . . . . . 36
SECTION 2.03. Issuance of and Drawings and Reimbursement
Under Letters of Credit . . . . . . . . . . . . . . 38
SECTION 2.04. Repayment of Advances . . . . . . . . . . . . . . . 40
SECTION 2.05. Termination or Reduction of the Commitments . . . . 41
SECTION 2.06. Prepayments . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.07. Interest . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.08. Fees . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.09. Conversion of Advances . . . . . . . . . . . . . . 46
SECTION 2.10. Increased Costs, Etc. . . . . . . . . . . . . . . . 47
SECTION 2.11. Payments and Computations . . . . . . . . . . . . . 48
SECTION 2.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 2.13. Sharing of Payments, Etc. . . . . . . . . . . . . . 51
SECTION 2.14. Defaulting Lenders . . . . . . . . . . . . . . . . 52
SECTION 2.15. Use of Proceeds and of Letters of Credit . . . . . 54

ARTICLE III . . . . . . . . . . . . . . 55

CONDITIONS OF LENDING

SECTION 3.01. Conditions Precedent to Initial Extension of
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 3.02. Conditions Precedent to Each Borrowing,
Issuance and Renewal . . . . . . . . . . . . . . . 61
SECTION 3.03. Determinations Under Section 3.01 . . . . . . . . . 62

ARTICLE IV . . . . . . . . . . . . . . 62

REPRESENTATIONS AND WARRANTIES

SECTION 4.01. Representations and Warranties of the Borrowers . . 62

<PAGE>

ARTICLE V . . . . . . . . . . . . . . 68

COVENANTS OF THE BORROWERS . . . . . . . . . . 68

SECTION 5.01. Affirmative Covenants . . . . . . . . . . . . . . . 68
SECTION 5.02. Negative Covenants . . . . . . . . . . . . . . . . 74
SECTION 5.03. Reporting Requirements . . . . . . . . . . . . . . 87
SECTION 5.04. Financial Covenants . . . . . . . . . . . . . . . . 92

ARTICLE VI

PARENT GUARANTEE

SECTION 6.01. Parent Guarantee . . . . . . . . . . . . . . . . . 94
SECTION 6.02. Guarantee Absolute . . . . . . . . . . . . . . . . 94
SECTION 6.03. Waivers and Acknowledgments . . . . . . . . . . . . 95
SECTION 6.04. Subrogation . . . . . . . . . . . . . . . . . . . . 96
SECTION 6.05. Continuing Guarantee; Assignments . . . . . . . . . 96

ARTICLE VII

EVENTS OF DEFAULT

SECTION 7.01. Events of Default . . . . . . . . . . . . . . . . . 97
SECTION 7.02. Actions in Respect of the Letters of Credit
upon Default . . . . . . . . . . . . . . . . . . . 100

ARTICLE VIII

THE AGENTS

SECTION 8.01. Authorization and Action . . . . . . . . . . . . . 100
SECTION 8.02. Facilities Manager's Reliance, Etc. . . . . . . . . 101
SECTION 8.03. Citicorp, Merrill Lynch, NationsBank and Bank
of Boston and Affiliates . . . . . . . . . . . . . 102
SECTION 8.04. Lender Party Credit Decision . . . . . . . . . . . 102
SECTION 8.05. Indemnification . . . . . . . . . . . . . . . . . . 102
SECTION 8.06. Successor Facilities Managers . . . . . . . . . . . 103

ARTICLE IX

MISCELLANEOUS . . . . . . . . . . . . . 104

SECTION 9.01. Amendments, Etc. . . . . . . . . . . . . . . . . . 104
SECTION 9.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . 105
SECTION 9.03. No Waiver; Remedies . . . . . . . . . . . . . . . . 106
SECTION 9.04. Costs and Expenses . . . . . . . . . . . . . . . . 106
SECTION 9.05. Right of Setoff . . . . . . . . . . . . . . . . . . 108
SECTION 9.06. Binding Effect . . . . . . . . . . . . . . . . . . 108
SECTION 9.07. Assignments and Participations . . . . . . . . . . 108

<PAGE>

SECTION 9.08. No Liability of the Issuing Banks . . . . . . . . . 111
SECTION 9.09. Confidentiality . . . . . . . . . . . . . . . . . . 112
SECTION 9.10. Execution in Counterparts . . . . . . . . . . . . . 112
SECTION 9.11. Governing Law, Submission to Jurisdiction, Etc. . . 112
SECTION 9.12. Waiver of Jury Trial . . . . . . . . . . . . . . . 114

SCHEDULES

Schedule I - Commitments, Applicable Lending Offices and
Borrowers' Accounts
Schedule II - Disclosed Information
Schedule 3.01(e) - Disclosed Litigation
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Authorizations and Approvals
Schedule 4.01(p) - Plans and Multiemployer Plans
Schedule 4.01(w) - Environmental Laws and Environmental Permits
Schedule 4.01(x) - Environmental Clean-up and Investigation
Schedule 4.01(aa) - Open Years
Schedule 4.01(ee) - Surviving Indebtedness
Schedule 4.01(ff) - Leased Real Property
Schedule 4.01(gg) - Material Contracts
Schedule 4.01(hh) - Investments
Schedule 5.02(a) - Existing Liens

EXHIBITS

Exhibit A - Form of Note
Exhibit B - Form of Notice of Working Capital Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Security Agreement
Exhibit E - Form of Subsidiaries Guarantee
Exhibit F - Form of Borrowing Base Certificate
Exhibit G - Terms of Subordination

<PAGE>

CREDIT AGREEMENT

CREDIT AGREEMENT dated as of February 27, 1995 among WALTER
INDUSTRIES, INC., a Delaware corporation (the "Swing Line Borrower"), and
-------------------
JIM WALTER HOMES, INC., a Florida corporation ("Jim Walter Homes"), JIM
----------------
WALTER RESOURCES, INC., an Alabama corporation ("Jim Walter Resources"), JW
--------------------
ALUMINUM COMPANY, a Delaware corporation ("JW Aluminum"), JW WINDOW
-----------
COMPONENTS, INC., a Delaware corporation ("JW Window"), SLOSS INDUSTRIES
---------
CORPORATION, a Delaware corporation ("Sloss"), SOUTHERN PRECISION
-----
CORPORATION, a Delaware corporation ("Southern Precision"), UNITED STATES
------------------
PIPE AND FOUNDRY COMPANY, a Delaware corporation ("U.S. Pipe"), and VESTAL
---------
MANUFACTURING COMPANY, a Delaware corporation ("Vestal" and, together with
------
Jim Walter Homes, Jim Walter Resources, JW Aluminum, JW Window, Sloss,
Southern Precision and U.S. Pipe, the "Working Capital Borrowers"), the
-------------------------
banks, financial institutions and other institutional lenders listed on the
signature pages hereof under the caption "The Initial Lenders"
(collectively, the "Initial Lenders"), the initial issuing banks listed on
---------------
the signature pages hereof under the caption "The Initial Issuing Banks"
(collectively, the "Initial Issuing Banks"), CITICORP USA, INC.
---------------------
("Citicorp"), as the swing line bank under this Agreement (the "Swing Line
-------- ----------
Bank"), Citicorp, Merrill Lynch Capital Corporation ("Merrill Lynch") and
---- -------------
NationsBank of Florida, N.A. ("NationsBank"), as the co-administrative
-----------
agents (the "Co-Administrative Agents") under the Loan Documents (as
------------------------
hereinafter defined), Citicorp Securities, Inc., Merrill Lynch and
NationsBanc Capital Markets, Inc., as the co-arrangers (the "Co-Arrangers")
------------
under the Loan Documents, THE FIRST NATIONAL BANK OF BOSTON
("Bank of Boston"), as the co-agent (the "Co-Agent") under the Loan
-------------- --------
Documents, and Citicorp, as the facilities manager and the collateral agent
(together with any successor appointed pursuant to Article VIII, the
"Facilities Manager") for the Lender Parties and the other Secured Parties
------------------
(each as hereinafter defined).

PRELIMINARY STATEMENTS

(1) The Swing Line Borrower and certain of its Subsidiaries (as
hereinafter defined) (collectively, the "Debtors") are debtors and debtors
-------
in possession under Chapter 11 of the Bankruptcy Code (11 U.S.C. Sec.Sec. 101 et
seq., the "Bankruptcy Code") in the United States Bankruptcy Court for the
---------------
Middle District of Florida, Tampa Division (the "Bankruptcy Court").
----------------

(2) The Debtors have filed the Amended Joint Plan of
Reorganization dated as of December 9, 1994 (as amended, supplemented or
otherwise modified in accordance with its terms, to the extent permitted in
accordance with this Agreement, and together with all exhibits thereto, the
"Plan of Reorganization") for the resolution of certain creditors' claims
----------------------
outstanding against, and of the equity interest of certain parties in, the
Swing Line Borrower and the other Debtors.

(3) The Borrowers (as hereinafter defined) have requested that,
immediately upon substantial consummation (as defined in Section 1101(2)(c)
of the Bankruptcy Code, "Substantial Consummation") of the plan of
------------------------
reorganization approved in the Confirmation Order, the Lender Parties agree
to lend to the Borrowers from time to time up to $150,000,000 at any time
outstanding in order to provide working capital for the Borrowers and their
Included Subsidiaries (as hereinafter defined). The Lender Parties have
indicated their willingness to agree to lend such amounts on the terms and
conditions of this Agreement.

<PAGE>

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

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms. As used in this Agreement,
---------------------
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and the plural forms of the terms
defined):

"Accounts" has the meaning specified in Annex A of the Depositor
--------
Account Transfer Agreement.

"Adjusted Indebtedness" means, at any date of determination, (a)
---------------------
Consolidated Funded Indebtedness of the Borrowers and their Included
Subsidiaries at such date less (b) to the extent otherwise included in
the calculation of Consolidated Funded Indebtedness under clause (a)
above, the sum of all non-recourse indebtedness of (i) Mid-State Trust
II and Mid-State Trust III outstanding under the mortgage-backed
securities issued thereby, (ii) Mid-State Trust IV and Mid-State Trust
V outstanding under the Mortgage-Backed Securities and the Mortgage
Warehousing Facility and (iii) one or more bankruptcy-remote
subsidiaries of Mid-State under the securities issued pursuant to
Section 5.02(b)(iii)(C).

"Adjusted Interest Coverage Ratio" means, with respect to the
--------------------------------
Borrowers and their Included Subsidiaries for any period, the ratio of
(a) (i) Consolidated EBITDA of the Borrowers and their Included
Subsidiaries for such period minus (ii) all Capital Expenditures made
by the Borrowers and their Included Subsidiaries during such period to
(b) Cash Interest Expense of the Borrowers and their Included
Subsidiaries for such period.

"Advance" means a Letter of Credit Advance, a Swing Line Advance
-------
or a Working Capital Advance.

"Affiliate" means, as to any Person, any other Person that,
---------
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 5% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.

"Agents" means, collectively, the Facilities Manager, the Co-
------
Administrative Agents, the Co-Arrangers and the Co-Agent.

"Applicable Lending Office" means, with respect to each Lender
-------------------------
Party, such Lender Party's Domestic Lending Office in the case of a
Base Rate Advance and such Lender Party's Eurodollar Lending Office in
the case of a Eurodollar Rate Advance; provided that, in the case of
any Issuing Bank or the Swing Line Bank, such Issuing Bank's or the
Swing Line Bank's

<PAGE>

Domestic Lending Office, as the case may be, shall be its Applicable
Lending Office for all purposes under the Loan Documents.

"Applicable Margin" means (a) at any time during the period from
-----------------
the date of the Initial Extension of Credit through November 30, 1995,
0.75% per annum for Base Rate Advances, 2.25% for Eurodollar Rate
Advances and 1.75% per annum for fees on outstanding Standby Letters
of Credit and (b) at any time and from time to time thereafter, a
percentage per annum equal to the applicable percentage set forth
below for the Performance Level set forth below:

Standby
Eurodollar Letter of
Performance Base Rate Rate Credit
Level Advances Advances fees

I 0.25% 1.75% 1.25%

II 0.50% 2.00% 1.50%

III 0.75% 2.25% 1.75%

IV 1.00% 2.50% 2.00%

For purposes of clause (b) of the immediately preceding sentence, the
Applicable Margin for each Base Rate Advance shall be determined by
reference to the Performance Level in effect from time to time and the
Applicable Margin for each Eurodollar Rate Advance and for any Standby
Letter of Credit fees shall be determined by reference to the
Performance Level in effect on the first day of each Interest Period
for such Advance or on the date of issuance of such Standby Letter of
Credit, as the case may be.

"Application Date" has the meaning specified in Section
----------------
2.06(b)(vii).

"Appropriate Borrower" means, with respect to each Facility, any
--------------------
Borrower that may request an Advance for all or a portion of such
Facility.

"Appropriate Borrower's Account" means, with respect to each
------------------------------
Borrower, the account of such Borrower maintained by such Borrower
with Citibank as set forth opposite the name of such Borrower on Part
B of Schedule I hereto, or such other account of such Borrower as is
agreed upon in writing between such Borrower and the Facilities
Manager from time to time.

"Assignment and Acceptance" means an assignment and acceptance
-------------------------
entered into by a Lender Party and an Eligible Assignee, and accepted
by the Swing Line Borrower, the Facilities Manager and the Issuing
Banks, in accordance with Section 9.07 and in substantially the form
of Exhibit C hereto.

"Available Amount" means, with respect to any Letter of Credit at
----------------
any time, the maximum amount available to be drawn under such Letter
of Credit at such time (assuming compliance at such time with all
conditions to drawing).

<PAGE>

"Available Cash Flow" means, with respect to the Borrowers and
-------------------
their Included Subsidiaries for any period, (a) Consolidated EBITDA of
the Borrowers and their Included Subsidiaries for such period less (b)
the sum of (i) any Change in Working Capital of the Borrowers and
their Included Subsidiaries for such period, (ii) all Capital
Expenditures made by the Borrowers and their Included Subsidiaries
during such period, (iii) all Cash Income Taxes paid by the Borrowers
and their Included Subsidiaries during such period, (iv) the aggregate
amount of all Required Principal Payments made by the Borrowers and
their Included Subsidiaries during such period and (v) all Interest
Expense of the Borrowers and their Included Subsidiaries for such
period.

"Bank of Boston" has the meaning specified in the recital of
--------------
parties to this Agreement.

"Bankruptcy Code" has the meaning specified in the Preliminary
---------------
Statements to this Agreement.

"Bankruptcy Court" has the meaning specified in the Preliminary
----------------
Statements to this Agreement.

"Base Rate" means a fluctuating interest rate per annum in effect
---------
from time to time, which rate per annum shall at all times be equal to
the highest of:

(a) the rate of interest announced publicly by Citibank in
New York, New York, from time to time, as Citibank's base rate;

(b) the sum (adjusted to the nearest 1/4 of 1% or, if there
is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2
of 1% per annum plus (ii) the rate obtained by dividing (A) the
latest three-week moving average of secondary market morning
offering rates in the United States for three-month certificates
of deposit of major United States money market banks, such
three-week moving average (adjusted to the basis of a year of 360
days) being determined weekly on each Monday (or, if such day is
not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank on
the basis of such rates reported by certificate of deposit
dealers to and published by the Federal Reserve Bank of New York
or, if such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from
three New York certificate of deposit dealers of recognized
standing selected by Citibank, by (B) a percentage equal to 100%
minus the average of the daily percentages specified during such
three-week period by the Board of Governors of the Federal
Reserve System (or any successor thereto) for determining the
maximum reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities consisting of or
including (among other liabilities) three-month Dollar
nonpersonal time deposits in the United States plus (iii) the
average during such three-week period of the annual assessment
rates estimated by Citibank for determining the then current
annual assessment payable by Citibank to the Federal Deposit
Insurance Corporation (or any successor thereto) for insuring
Dollar deposits of Citibank in the United States; and

<PAGE>

"Base Rate Advance" means an Advance that bears interest as
-----------------
provided in Section 2.07(a)(i).

"Blocked Accounts" has the meaning specified in Section 1 of the
----------------
Security Agreement.

"Blocked and Collection Accounts Letters" has the meaning
---------------------------------------
specified in Section 6(a) of the Security Agreement.

"Board of Directors" means, with respect to any Person, the board
------------------
of directors of such Person or any duly authorized committee of such
board.

"Borrowers" means, collectively, the Swing Line Borrower and the
---------
Working Capital Borrowers.

"Borrowing" means a Swing Line Borrowing or a Working Capital
---------
Borrowing.

"Borrowing Base Certificate" has the meaning specified in Section
--------------------------
3.01(m)(xvii).

"Business Day" means a day of the year on which commercial or
------------
investment banks are not required or authorized by law to close in
New York City and, if the applicable Business Day relates to any
Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.

"Capital Assets" means equipment, fixed assets, real property or
--------------
improvements, or replacements or substitutions therefor or additions
thereto, that have been or should be, in accordance with GAAP,
reflected as additions to property, plant or equipment on a
Consolidated balance sheet of such Person and its Subsidiaries or that
have a useful life of more than one year.

"Capital Expenditures" means, with respect to any Person for any
--------------------
period, the sum (without duplication) of (a) all expenditures made,
directly or indirectly, by such Person or any of its Subsidiaries
during such period for Capital Assets plus (b) the aggregate principal
amount of all Indebtedness (including, without limitation, Obligations
under Capitalized Leases) assumed or incurred in connection with any
such expenditures.

"Capitalized Leases" means all leases that have been or should
------------------
be, in accordance with GAAP, recorded as capitalized leases.

"Cardem" means Cardem Insurance Co., Ltd., a Bermuda corporation
------
and a wholly owned Subsidiary of the Swing Line Borrower.

"Cash Collateral Account" has the meaning specified in the
-----------------------
Preliminary Statements to the Security Agreement.

"Cash Collateral Account Letter" has the meaning specified in
------------------------------
Section 5(a) of the Security Agreement.

"Cash Equivalents" means any of the following types of
----------------
Investments, to the extent owned by any Borrower or any of its
Subsidiaries free and clear of all Liens (other than Liens created

<PAGE>

under the Collateral Documents) and having a maturity of not greater
than 180 days from the date of acquisition thereof:

(a) readily marketable direct obligations of the Government
of the United States or any agency or instrumentality thereof or
obligations unconditionally guaranteed by the full faith and
credit of the Government of the United States;

(b) insured certificates of deposit or bankers' acceptances
of, or time deposits with, any commercial bank that (i) is a
member of the Federal Reserve System, (ii) issues (or the parent
of which issues) commercial paper rated as described in
clause (c) below, (iii) is organized under the laws of the United
States or any state thereof and (iv) has combined capital and
surplus of at least $500,000,000; or

(c) commercial paper in an aggregate amount of no more than
$5,000,000 per issuer outstanding at any time, issued by any
corporation organized under the laws of any state of the United
States and rated at least "Prime-1" (or the then equivalent
grade) by Moody's Investors Service, Inc. or "A-1" (or the then
equivalent grade) by Standard & Poor's Ratings Group, or carrying
an equivalent rating by a nationally recognized rating agency
acceptable to the Lender Parties if both Moody's Investors
Service, Inc. and Standard & Poor's Ratings Group cease
publishing ratings of investments.

"Cash Income Taxes" means, with respect to any Person for any
-----------------
period, the aggregate amount of all payments in respect of income
taxes made in cash by such Person to any applicable Governmental
Authority during such period, after giving effect, to the extent
available, to the application of net operating losses available to
such Person.

"CERCLA" means the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended from time to time.

"CERCLIS" means the Comprehensive Environmental Response,
-------
Compensation and Liability Information System maintained by the U.S.
Environmental Protection Agency.

"Change in Working Capital" means, for any period, the amount
-------------------------
(whether positive or negative) by which the Working Capital of such
Person and its Subsidiaries for such period exceeds the Working
Capital of such Person and its Subsidiaries for the immediately
preceding period.

"Change of Control" means, at any time:
-----------------

(a) (i) any "person" or "group" (each as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) either
(A) becomes the "beneficial owner" (as defined in Rule 13d-3 of
the Exchange Act), directly or indirectly, of Voting Stock of the
Swing Line Borrower (or securities convertible into or
exchangeable for such Voting Stock) representing 33-1/3% or more
of the combined voting power of all Voting Stock of the Swing
Line Borrower (on a fully diluted basis) or (B) otherwise has the
ability, directly or indirectly, to elect a majority of the Board
of Directors of the Swing Line Borrower;

<PAGE>

(ii) during any period of up to 24 consecutive months,
commencing on the date of the consummation of the Plan of
Reorganization, individuals who at the beginning of such 24-month
period were directors of the Swing Line Borrower shall cease for
any reason (other than the death, disability or retirement of an
officer of the Swing Line Borrower that is serving as a director
at such time so long as another officer of the Swing Line
Borrower replaces such Person as a director) to constitute a
majority of the Board of Directors of the Swing Line Borrower;

(iii) any Person or two or more Persons acting in concert
shall have acquired by contract or otherwise, or shall have
entered into a contract or arrangement that, upon consummation
thereof, will result in its or their acquisition of the power to
exercise, directly or indirectly, a controlling influence on the
management or policies of the Swing Line Borrower; or

(iv) with respect to any pledge or other security agreement
covering all or any portion of the shares of capital stock of the
Swing Line Borrower that are owned beneficially and of record by
any of the Equity Investors or their nominees, any secured party
or pledgee thereunder shall become the holder of record of any
such shares or shall receive dividends or other cash or cash
equivalent distributions (including, without limitation, stock
repurchases) in respect thereof, or shall proceed to exercise
voting or other consensual rights in respect thereof (whether by
proxy, voting or other similar arrangement or otherwise), or
shall otherwise commence to realize upon such shares;

(b) the Swing Line Borrower shall cease to, directly or
indirectly, own and control legally and beneficially all of the
issued and outstanding shares of common stock of each of the
Working Capital Borrowers (other than as a result of the sale of
all of the shares of capital stock of any of JW Window, Southern
Precision or Vestal pursuant to Section 5.02(e)(vi)); or

"Citibank" means Citibank, N.A., a national banking association.
--------

"Citicorp" has the meaning specified in the recital of parties to
--------
this Agreement.

"Co-Administrative Agents" has the meaning specified in the
------------------------
recital of parties to this Agreement.

"Co-Agent" has the meaning specified in the recital of parties to
--------
this Agreement.

"Co-Arrangers" has the meaning specified in the recital of
------------
parties to this Agreement.

"Collateral" means all "Collateral" referred to in the Collateral
----------
Documents and all other property and assets that are or are intended
under the terms of the Collateral Documents to be subject to any Lien
in favor of the Facilities Manager for the benefit of the Secured
Parties.

"Collateral Documents" means, collectively, the Security
--------------------
Agreement, the Cash Collateral Account Letter, the L/C Cash Collateral
Account Letter, the Blocked Account Letters and each

<PAGE>

other agreement that creates or purports to create a Lien in favor of
the Facilities Manager for the benefit of the Secured Parties.

"Collection Accounts" has the meaning specified in Section 1 of
-------------------
the Security Agreement.

"Commitment" means a Letter of Credit Commitment or a Working
----------
Capital Commitment.

"Commitment Date" has the meaning specified in Section
---------------
2.06(b)(vii).

"Commitment Letter" means the Commitment Letter dated February
-----------------
10, 1995 from the Co-Administrative Agents and the Co-Arrangers to the
Swing Line Borrower.

"Confidential Information" means information that is furnished to
------------------------
the Facilities Manager or any Secured Party by or on behalf of any
Borrower in a writing designated as confidential, but does not include
any such information that is or becomes generally available to the
public or that is or becomes available to the Facilities Manager or
such Lender Party from a source other than a Borrower that is not, to
the best of the Facilities Manager's or such other Secured Party's
knowledge, as the case may be, acting in violation of a
confidentiality agreement with such Borrower.

"Confirmation Order" means the order of the Bankruptcy Court
------------------
confirming the Plan of Reorganization and approving the transactions
and settlements contemplated therein.

"Consolidated" refers to the consolidation of accounts in
------------
accordance with GAAP.

"Conversion", "Convert" and "Converted" each refer to a
---------- ------- ---------
conversion of Working Capital Advances of one Type into Working
Capital Advances of the other Type pursuant to Section 2.09 or 2.10.

"Current Assets" of any Person means all assets of such Person
--------------
that would, in accordance with GAAP, be classified as current assets
of a company conducting a business the same as or similar to that of
such Person, after deducting adequate reserves in each case in which a
reserve is required in accordance with GAAP.

"Current Liabilities" of any Person means (a) all Indebtedness of
-------------------
such Person that by its terms is payable on demand or matures within
one year after the date of determination (excluding any Indebtedness
renewable or extendible, at the option of such Person, to a date more
than one year from such date or arising under a revolving credit or
similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date), (b) all
amounts of Funded Indebtedness of such Person required to be paid or
prepaid within one year after such date and (c) all other items
(including, without limitation, taxes accrued as estimated) that in
accordance with GAAP would be classified as current liabilities of
such Person.

"Debtors" has the meaning specified in the Preliminary Statements
-------
to this Agreement.

"Default" means any Event of Default or any event that would
-------
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.

<PAGE>

"Defaulted Advance" means, with respect to any Lender Party at
-----------------
any time, the portion of any Advance required to be made by such
Lender Party to any Borrower pursuant to Section 2.01 or 2.02 at or
prior to such time that has not been made by such Lender Party or by
the Facilities Manager for the account of such Lender Party pursuant
to Section 2.02(e) as of such time. In the event that a portion of a
Defaulted Advance shall be deemed made pursuant to Section 2.14(a),
the remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made pursuant to
Section 2.01 on the same date as the Defaulted Advance so deemed made
in part.

"Defaulted Amount" means, with respect to any Lender Party at any
----------------
time, any amount required to be paid by such Lender Party to the
Facilities Manager or any other Lender Party under this Agreement or
under any other Loan Document at or prior to such time that has not
been so paid as of such time, including, without limitation, any
amount required to be paid by such Lender Party to (a) the Swing Line
Bank pursuant to Section 2.02(b) to purchase a portion of a Swing Line
Advance made by the Swing Line Bank, (b) any Issuing Bank pursuant to
Section 2.03(c) to purchase a portion of a Letter of Credit Advance
made by such Issuing Bank, (c) the Facilities Manager pursuant to
Section 2.02(e) to reimburse the Facilities Manager for the amount of
any Advance made by the Facilities Manager for the account of such
Lender Party, (d) any other Lender Party pursuant to Section 2.13 to
purchase any participation in Advances owing to such other Lender
Party and (e) the Facilities Manager or any Issuing Bank pursuant to
Section 8.05 to reimburse the Facilities Manager or such Issuing Bank
for such Lender Party's Pro Rata Share of any amount required to be
paid by the Lender Parties to the Facilities Manager or such Issuing
Bank as provided therein. In the event that a portion of a Defaulted
Amount shall be deemed paid pursuant to Section 2.14(b), the remaining
portion of such Defaulted Amount shall be considered a Defaulted
Amount originally required to be paid under this Agreement or under
any other Loan Document on the same date as the Defaulted Amount so
deemed paid in part.

"Defaulting Lender" means, at any time, any Lender Party that, at
-----------------
such time, (a) owes a Defaulted Advance or a Defaulted Amount or
(b) shall take any action or shall be the subject of any action or
proceeding of a type described in Section 7.01(f).

"Depositor Account Transfer Agreement" means the agreement dated
------------------------------------
as of March 3, 1995 between Jim Walter Homes and Mid-State, as such
agreement may be amended, supplemented or otherwise modified from time
to time in accordance with the terms hereof and thereof.

"Disclosed Information" means the agreements, instruments and
---------------------
other documents received, and the oral communications participated in,
by the Co-Administrative Agents and the Co-Arrangers in connection
with the structuring of the terms of the Facilities prior to the date
of the Commitment Letter, which agreements, instruments, documents and
communications are set forth on Schedule II hereto.

"Disclosed Litigation" has the meaning specified in
--------------------
Section 3.01(e).

"Dollars" and the sign "$" each means lawful money of the United
------- -
States.

"Domestic Lending Office" means, with respect to any Lender
-----------------------
Party, the office of such Lender Party specified as its "Domestic
Lending Office" opposite its name on Part A of

<PAGE>

Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender Party, as the case may be, or such other
office of such Lender Party as such Lender Party may from time to time
specify to the Borrowers and the Facilities Manager.

"EBIT" means, for any period, the sum of (a) net income (or net
----
loss), (b) interest expense, (c) income tax expense, (d) noncash
liabilities otherwise deducted in calculating net income resulting
from FASB No. 106 Adjustments and (e) extraordinary and unusual losses
deducted in calculating net income less extraordinary and unusual
gains added in calculating net income, in each case determined on a
Consolidated basis and in accordance with GAAP for such period;
provided, however, that in the case of the Borrowers and their
Included Subsidiaries for any period ending on or prior to May 31,
1995, all nonrecurring charges related to the consummation of the Plan
of Reorganization that are deductible from net income (or addable to
net loss) of the Borrowers and their Included Subsidiaries in
accordance with GAAP shall be excluded for purposes of calculating
EBIT for such period.

"EBITDA" means, for any period, (a) EBIT plus (b) the sum of
------
(i) depreciation expense and (ii) amortization expense, in each case
determined on a Consolidated basis and in accordance with GAAP for
such period; provided, however, that in the case of the Borrowers and
their Included Subsidiaries for any period ending on or prior to May
31, 1995, all nonrecurring charges related to the consummation of the
Plan of Reorganization that are deductible from net income (or addable
to net loss) of the Borrowers and their Included Subsidiaries in
accordance with GAAP shall be excluded for purposes of calculating
EBITDA for such period.

"Eligible Assignee" means (a) with respect to the Working Capital
-----------------
Facility:

(i) a Lender Party;

(ii) an Affiliate of a Lender Party;

(iii) a commercial bank organized under the laws of the
United States, or any state thereof, and having total assets in
excess of $1,000,000,000;

(iv) a savings and loan association or savings bank
organized under the laws of the United States, or any state
thereof, and having a combined capital and surplus of at least
$250,000,000;

(v) a commercial bank organized under the laws of any other
country that is a member of the OECD or has concluded special
lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow, or a
political subdivision of any such country, and having total
assets in excess of $1,000,000,000, so long as such bank is
acting through a branch or agency located in the United States;

(vi) the central bank of any country that is a member of the
OECD;

(vii) any finance company, insurance company or other
financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans in the
ordinary course of its business and has total assets in excess of
$250,000,000; or

<PAGE>

(viii) any other Person approved by the Facilities Manager;

provided, however, that any Person satisfying the qualifications set
forth in subclauses (a)(iii) through (a)(viii) above shall be approved
by the Issuing Banks, and, so long as no Default shall have occurred
and be continuing, by the Swing Line Borrower, in each case such
approval not to be unreasonably withheld or delayed; and provided
further, however, that any Person otherwise satisfying the
requirements of this definition shall have delivered the Internal
Revenue Service forms required to be delivered by it pursuant to
Section 2.12; and

(b) with respect to the Letter of Credit Facility, a Person that
is an Eligible Assignee under subclause (a)(iii) or (a)(v) of this
definition and is approved by the Facilities Manager and, so long as
no Default shall have occurred and be continuing, the Swing Line
Borrower, such approval not to be unreasonably withheld or delayed;
provided, however, that neither any Loan Party nor any Affiliate of a
Loan Party shall qualify as an Eligible Assignee under clause (a) or
(b) of this definition.

"Eligible Collateral" means, collectively, Eligible Equipment,
-------------------
Eligible Inventory and Eligible Receivables.

"Eligible Equipment" means only such Equipment of the Borrowers
------------------
as the Co-Administrative Agents for purposes of the Initial Extension
of Credit in their reasonable judgment, and as the Facilities Manager
from time to time thereafter in its reasonable judgment, shall deem to
constitute Eligible Equipment for purposes of this Agreement. The
value of such Equipment shall be determined by the Co-Administrative
Agents for purposes of the Initial Extension of Credit in their
reasonable judgment, and by the Facilities Manager from time to time
thereafter in its reasonable judgment, taking into consideration,
among other factors, its orderly liquidation value. By way of example
only, and without limiting the discretion of the Co-Administrative
Agents or the Facilities Manager, as the case may be, to consider any
Equipment not to be Eligible Equipment, the Co-Administrative Agents
or the Facilities Manager may consider any of the following classes of
Equipment not to be Eligible Equipment:

(a) Equipment located on leaseholds as to which the lessor
has not entered into a consent and agreement providing the
Facilities Manager with the right to receive notices of default,
the right to repossess such Equipment at any time and such other
rights as may be reasonably requested by the Facilities Manager;

(b) Equipment for which appraisals have not been completed
by the Facilities Manager or an independent qualified appraiser
acceptable to the Facilities Manager utilizing procedures and
criteria acceptable to the Facilities Manager for determining the
value of such Equipment;

(c) Equipment with respect to which the representations and
warranties set forth in Section 9 of the Security Agreement
applicable to Equipment are not true and correct; and

(d) Equipment in respect of which the Security Agreement,
after giving effect to the related filings of financing
statements that have then been made, if any, does not or has
ceased to create a valid and perfected first priority lien or
security interest in favor

<PAGE>

of the Secured Parties, securing the Secured Obligations, and as
to which no other Liens exist.

"Eligible Inventory" means only such Inventory of the Borrowers
------------------
as the Co-Administrative Agents for purposes of the Initial Extension
of Credit in their reasonable judgment, and as the Facilities Manager
from time to time thereafter in its reasonable judgment, shall deem to
constitute Eligible Inventory for purposes of this Agreement. The
value of such Inventory shall be determined by the Co-Administrative
Agents for purposes of the Initial Extension of Credit in their
reasonable judgment, and by the Facilities Manager from time to time
thereafter in its reasonable judgment, taking into consideration,
among other factors, the lowest of its cost, its book value determined
in accordance with GAAP and its liquidation value. By way of example
only, and without limiting the discretion of the Co-Administrative
Agents or the Facilities Manager, as the case may be, to consider any
Inventory not to be Eligible Inventory, the Co-Administrative Agents
or the Facilities Manager may consider any of the following classes of
Inventory not to be Eligible Inventory:

(a) Inventory located on leaseholds as to which the lessor
has not entered into a consent and agreement providing the
Facilities Manager with the right to receive notices of default,
the right to repossess such Inventory at any time and such other
rights as may be reasonably requested by the Facilities Manager;

(b) Inventory that is obsolete, unusable or otherwise
unavailable for sale;

(d) Inventory that fails to meet all standards imposed by
any Governmental Authority having regulatory authority over such
Inventory or its use or sale;

(e) Inventory that is subject to any licensing, patent,
royalty, trademark, trade name or copyright agreement with any
third party from whom any Borrower has received notice of a
dispute in respect of such agreement;

(f) Inventory located outside the United States;

(g) Inventory that is not in the possession of or under the
sole control of a Borrower;

(h) Inventory consisting of work in process, except for any
such Inventory of JW Aluminum and U.S. Pipe;

(i) Inventory with respect to which the representations and
warranties set forth in Section 9 of the Security Agreement
applicable to Inventory are not true and correct; and

(j) Inventory in respect of which the Security Agreement,
after giving effect to the related filings of financing
statements that have then been made, if any, does not or has
ceased to create a valid and perfected first priority lien or
security interest in favor

<PAGE>

of the Secured Parties, securing the Secured Obligations, and as
to which no other Liens exist.

"Eligible Receivables" means only such Receivables of the
--------------------
Borrowers as the Co-Administrative Agents for purposes of the Initial
Extension of Credit in their reasonable judgment, and as the
Facilities Manager from time to time thereafter in its reasonable
judgment, shall deem to constitute Eligible Receivables for purposes
of this Agreement. The value of such Receivables shall be determined
by the Co-Administrative Agents for purposes of the Initial Extension
of Credit in their reasonable judgment, and by the Facilities Manager
from time to time thereafter in its reasonable judgment, taking into
consideration, among other factors, their book value determined in
accordance with GAAP. By way of example only, and without limiting
the discretion of the Co-Administrative Agents or the Facilities
Manager, as the case may be, to consider any Receivables not to be
Eligible Receivables, the Co-Administrative Agents or the Facilities
Manager may consider any of the following classes of Receivables not
to be Eligible Receivables:

(a) Receivables that do not arise out of sales of goods or
the rendering of services in the ordinary course of the relevant
Borrower's business;

(b) Receivables on terms other than those normal or
customary in the relevant Borrower's business;

(d) Receivables more than 90 days past the original invoice
date or more than 60 days past the date due;

(e) Receivables owing from any Person from which an
aggregate amount of more than 50% of the Receivables owing
therefrom is more than 60 days past the date due;

(f) Receivables owing from any Person that (i) has disputed
liability for any Receivable owing from such Person or (ii) has
otherwise asserted any claim, demand or liability, whether by
action, suit, counterclaim or otherwise; provided, however, that
for purposes of subclause (f)(i) above, such Receivables shall
only be excluded to the extent of amounts being disputed by such
Person at any date of determination;

(g) Receivables owing from any Person that shall take or be
the subject of any action or proceeding of a type described in
Section 7.01(f);

(h) Receivables (i) owing from any Person that is also a
supplier to or creditor of any Borrower unless such Person has
waived any right of setoff in a manner acceptable to the
Facilities Manager or (ii) representing any manufacturer's or
supplier's credits, discounts, incentive plans or similar
arrangements entitling any Borrower to discounts on future
purchases therefrom; provided, however, that for purposes of
subclause (h)(i) above, such Receivables shall only be excluded
to the extent of amounts owing from such supplier or creditor at
any date of determination;

<PAGE>

(i) Receivables arising out of sales to account debtors
outside the United States unless such Receivables are fully
backed by an irrevocable letter of credit on terms, and issued by
a financial institution, acceptable to the Facilities Manager and
such irrevocable letter of credit is in the possession of the
Facilities Manager;

(j) Receivables arising out of sales on a bill-and-hold,
guaranteed sales, sales-or-return, sales on approval or on a
consignment basis or sales subject to any right of return, setoff
or chargeback;

(k) Receivables owing from an account debtor that is an
agency, department or instrumentality of the United States or any
state thereof unless the relevant Borrower shall have satisfied
the requirements of the Assignment of Claims Act of 1940, as
amended, and any similar state legislations, and the Facilities
Manager is satisfied as to the absence of setoffs, counterclaims
and other defenses on the part of such account debtor;

(l) Receivables with respect to which the representations
and warranties set forth in Section 9 of the Security Agreement
applicable to Receivables are not true and correct; and

(m) Receivables in respect of which the Security Agreement,
after giving effect to the related filings of financing
statements that have then been made, if any, does not or has
ceased to create a valid and perfected first priority lien or
security interest in favor of the Secured Parties, securing the
Secured Obligations, and as to which no other Liens exist.

"Environmental Action" means any action, suit, demand, demand
--------------------
letter, claim, notice of noncompliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, any Environmental Permit or any Hazardous Material.

"Environmental Law" means any federal, state, local or foreign
-----------------
statute, law, ordinance, rule, regulation, code, order, writ,
judgment, injunction, decree or judicial or agency interpretation,
policy or guidance relating to pollution or to protection of the
environment, health, safety and natural resources (including, without
limitation, those relating to the use, handling, transportation,
treatment, storage, disposal, release or discharge of Hazardous
Materials).

"Environmental Permit" means any permit, approval, identification
--------------------
number, license or other authorization required under any
Environmental Law.

"Equipment" has the meaning specified in Section 1 of the
---------
Security Agreement.

"Equity Investors" means Lehman Brothers Inc., Kohlberg Kravis
----------------
Roberts & Co., KKR Associates, KKR Partners II, L.P., JWC Associates,
L.P., JW Associates II, L.P. and their respective Affiliates.

"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, and the regulations promulgated
and the rulings issued thereunder.

<PAGE>

"ERISA Affiliate" means any Person that for purposes of Title IV
---------------
of ERISA is a member of the controlled group of any Loan Party, or
under common control with any Loan Party, within the meaning of
Section 414 of the Internal Revenue Code.

"ERISA Event" means:
-----------

(a) (i) the occurrence of a reportable event, within the
meaning of Section 4043 of ERISA, with respect to any Plan unless
the 30-day notice requirement with respect to such event has been
waived by the PBGC or (ii) the requirements of subsection (1) of
Section 4043(b) of ERISA (without regard to subsection (2) of
such section) are met with respect to a contributing sponsor (as
defined in Section 4001(a)(13) of ERISA) of a Plan, and an event
described in any of subsections (9) through (13) of Section
4043(c) of ERISA could reasonably be expected to occur with
respect to such Plan within the following 30-day period;

(b) the application for a minimum funding waiver with
respect to a Plan;

(c) the provision by the administrator of any Plan of a
notice of intent to terminate such Plan, pursuant to
Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of
ERISA);

(d) the cessation of operations at a facility of any Loan
Party or any ERISA Affiliate in the circumstances described in
Section 4062(e) of ERISA;

(e) the withdrawal by any Loan Party or any ERISA Affiliate
from a Multiple Employer Plan during a plan year for which it was
a substantial employer, as defined in Section 4001(a)(2) of
ERISA;

(f) the conditions for imposition of a Lien under Section
302(f) of ERISA shall have been met with respect to any Plan;

(g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan, pursuant to Section 307 of
ERISA; or

(h) the institution by the PBGC of proceedings to terminate
a Plan, pursuant to Section 4042 of ERISA, or the occurrence of
any event or condition described in Section 4042 of ERISA that
constitutes grounds for the termination of, or the appointment of
a trustee to administer, such Plan.

"Eurocurrency Liabilities" has the meaning specified in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.

"Eurodollar Lending Office" means, with respect to any Lender
-------------------------
Party, the office of such Lender Party specified as its "Eurodollar
Lending Office" opposite its name on Part A of Schedule I hereto or in
the Assignment and Acceptance pursuant to which it became a Lender
Party, as the case may be (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Lender Party as
such Lender Party may from time to time specify to the Borrowers and
the Facilities Manager.

<PAGE>

"Eurodollar Rate" means, for any Interest Period for all
---------------
Eurodollar Rate Advances comprising part of the same Working Capital
Borrowing, an interest rate per annum equal to the rate per annum
obtained by dividing (a) the rate per annum at which deposits in
Dollars are offered by the principal office of Citibank in London,
England to prime banks in the London interbank market at 11:00 A.M.
(London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to Citicorp's Eurodollar Rate
Advance comprising part of such Working Capital Borrowing to be
outstanding during such Interest Period and for a period equal to such
Interest Period by (b) a percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage for such Interest Period.

"Eurodollar Rate Advance" means an Advance that bears interest as
-----------------------
provided in Section 2.07(a)(ii).

"Eurodollar Rate Reserve Percentage" means, for any Interest
----------------------------------
Period for all Eurodollar Rate Advances comprising part of the same
Working Capital Borrowing, the reserve percentage applicable two
Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor thereto) for determining the
maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for a
member bank of the Federal Reserve System in New York City with
respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest
rate on Eurodollar Rate Advances is determined) having a term equal to
such Interest Period.

"Events of Default" has the meaning specified in Section 7.01.
-----------------

"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended through the date of this Agreement, and the regulations
promulgated and the rulings issued thereunder.

"Facilities Manager" has the meaning specified in the recital of
------------------
parties to this Agreement.

"Facilities Manager's Account" means the account of the
----------------------------
Facilities Manager maintained by the Facilities Manager with Citibank
at its office at 399 Park Avenue, New York, New York 10043, Account
No. 40585488, Attention: Ms. Hein Nugent, or such other account
maintained by the Facilities Manager and designated by the Facilities
Manager in a written notice to the Borrowers and the Lender Parties.

"Facility" means the Letter of Credit Facility, the Swing Line
--------
Facility or the Working Capital Facility.

"Fair Market Value" means, with respect to any property or asset
-----------------
(including, without limitation, capital stock) on any date of
determination, the value of the consideration obtainable in a sale of
such property or asset in the open market on such date assuming an
arm's-length sale that has been arranged without duress or compulsion
between a willing seller and a willing and knowledgeable purchaser in
a commercially reasonable manner over a reasonable period of time
under all conditions necessary or desirable for a fair sale (taking
into account the nature and characteristics of such property or
asset); provided that the Fair Market Value of any property or asset
shall be determined in good faith by the Board of Directors of the
Swing Line Borrower and evidenced by a duly adopted resolution thereof
certified by a Responsible Officer of the

<PAGE>

Swing Line Borrower and delivered to the Facilities Manager; provided,
however, that any determination of the Fair Market Value of any
property (whether real or personal) that is customarily appraised
shall be based upon an appraisal by an independent qualified appraiser
when such property is determined in good faith by the Board of
Directors of the Swing Line Borrower to have a Fair Market Value in
excess of $5,000,000.

"FASB No. 106 Adjustments" means adjustments to income (or loss)
------------------------
resulting from "retirement benefits other than pensions" (as defined
in the Statement of Financial Accounting Standards No. 106).

"Federal Funds Rate" means, for any period, a fluctuating
------------------
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day
for such transactions received by the Facilities Manager from three
federal funds brokers of recognized standing selected by it.

"Final Order" has the meaning specified in Article I of the Plan
-----------
of Reorganization.

"Fiscal Quarter" means, with respect to any Borrower or any of
--------------
its Subsidiaries, the period commencing June 1 in any Fiscal Year and
ending on the next succeeding August 31, the period commencing
September 1 in any Fiscal Year and ending on the next succeeding
November 30, the period commencing December 1 in any Fiscal Year and
ending on the next succeeding February 28 or 29, as the case may be,
or the period commencing March 1 in any Fiscal Year and ending on the
next succeeding May 31, as appropriate, or, if such Borrower or such
Subsidiary was not in existence on the first day in any such period,
the period commencing on the date such Borrower or such Subsidiary is
incorporated, organized or otherwise created and ending on the last
day of such period.

"Fiscal Year" means, with respect to any Borrower or any of its
-----------
Subsidiaries, the period commencing on June 1 in any calendar year and
ending on the next succeeding May 31 or, if such Borrower or such
Subsidiary was not in existence on June 1 in any calendar year, the
period commencing on the date such Borrower or such Subsidiary is
incorporated, organized or otherwise created and ending on the next
succeeding May 31.

"Fixed Charge Coverage Ratio" means, with respect to the
---------------------------
Borrowers and their Included Subsidiaries for any period, the ratio of
(a) (i) Consolidated EBITDA of the Borrowers and their Included
Subsidiaries for such period minus (ii) all Capital Expenditures made
by the Borrowers and their Included Subsidiaries during such period to
(b) the sum of (i) the aggregate amount of all Required Principal
Payments made by the Borrowers and their Included Subsidiaries during
such period, (ii) all Interest Expense of the Borrowers and their
Included Subsidiaries for such period and (iii) the aggregate amount
of all dividends on any capital stock of the Swing Line Borrower paid
during such period.

"Foreclosure Accounts" has the meaning specified in Annex A of
--------------------
the Depositor Account Transfer Agreement.

<PAGE>

"Funded Indebtedness" means, with respect to any Person,
-------------------
Indebtedness in respect of the Advances, in the case of the Borrowers,
and all other Indebtedness of such Person that by its terms matures
more than one year after the date of determination or matures within
one year from such date but is renewable or extendible, at the option
of such Person, to a date more than one year after such date or arises
under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one
year after such date.

"GAAP" has the meaning specified in Section 1.03.
----

"Governmental Authority" means any nation or government, any
----------------------
state or other political subdivision thereof, and any governmental,
executive, legislative, judicial, administrative or regulatory agency,
department, authority, instrumentality, commission, board or similar
body, whether federal, state, local or foreign (including, without
limitation, the NASD).

"Guarantee Supplement" has the meaning specified in Section 7(b)
--------------------
of the Subsidiaries Guarantee.

"Guaranteed Obligations" has the meaning specified in Section
----------------------
6.01.

"Hazardous Materials" means (a) petroleum or petroleum products,
-------------------
byproducts or breakdown products, radioactive materials, asbestos-
containing materials, polychlorinated biphenyls and radon gas and
(b) any other chemicals, materials or substances designated,
classified or regulated as hazardous, toxic, a pollutant or a
contaminant under any applicable Environmental Law.

"Hedge Agreements" means interest rate swap, cap or collar
----------------
agreements, interest rate future or option contracts, commodity future
or option contracts, currency swap agreements, currency future or
option contracts and other similar agreements.

"Holdback Reserve " means, with respect to any Person for any
----------------
sale, lease, transfer or other disposition of any property or assets,
an amount equal to any amount required to be reserved (and properly
reserved for) by such Person in accordance with GAAP against any
contingent liabilities that (a) are associated with the property and
assets of such Person being sold, leased, transferred or otherwise
disposed of in such transaction in accordance with the terms of the
Loan Documents (including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities resulting from indemnification obligations for
other similar contingent liabilities) and (b) are required to be
retained or indemnified by such Person under the documentation
evidencing the terms and conditions of such transaction, as such
amount may be reduced from time to time pursuant to Section
2.01(a)(ii) or 2.05(b)(ii)(A); provided that, in the case of any
Holdback Reserve established in connection with the sale, lease,
transfer or other disposition of Collateral otherwise permitted under
the Loan Documents, any amount so reserved is applied, on the date
such reserve is established, to prepay Advances outstanding on such
date, if any, in accordance with Section 2.06(b)(iii).

"Included Subsidiaries" means all Subsidiaries of the Borrowers
---------------------
other than Mid-State and Cardem.

"Indebtedness" means, with respect to any Person:
------------

<PAGE>

(a) all indebtedness of such Person for borrowed money;

(b) all Obligations of such Person for the deferred
purchase price of property and assets or services (other than
trade payables that are incurred in the ordinary course of such
Person's business and are not overdue by more than 60 days);

(d) all Obligations of such Person created or arising under
any conditional sale or other title retention agreement with
respect to property or assets acquired by such Person (even
though the rights and remedies of the seller or the lender under
such agreement in the event of default are limited to
repossession or sale of such property or assets);

(e) all Obligations of such Person as lessee under
Capitalized Leases;

(f) all Obligations, contingent or otherwise, of such
Person under acceptance, letter of credit or similar facilities;

(g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any
shares of capital stock of or other ownership or profit interest
in such Person or in any other Person, or any warrants, rights or
options to acquire such shares, valued, in the case of Redeemable
Preferred Stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends;

(h) all Obligations of such Person in respect of Hedge
Agreements;

(i) all Obligations of such Person for production payments
from property operated by or on behalf of such Person and other
similar arrangements with respect to natural resources;

(j) all Indebtedness of other Persons referred to in
clauses (a) through (i) above guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or
purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell
or lease (as lessee or lessor) property or assets, or to purchase
or sell services, primarily for the purpose of enabling the
debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds
to or in any other manner to invest in the debtor (including any
agreement to pay for property, assets or services irrespective of
whether such property or assets are received or such services are
rendered) or (iv) otherwise to assure a creditor against loss;
and

(k) all Indebtedness referred to in clauses (a) through (j)
above of another Person secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on property and assets (including,

<PAGE>

without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness.

"Indemnified Party" has the meaning specified in Section 9.04(b).
-----------------

"Initial Extension of Credit" means the earlier to occur of the
---------------------------
initial Borrowing and the initial issuance of a Letter of Credit.

"Initial Issuing Banks" has the meaning specified in the recital
---------------------
of parties to this Agreement.

"Initial Lenders" has the meaning specified in the recital of
---------------
parties to this Agreement.

"Initial Pledged Indebtedness" has the meaning specified in
----------------------------
Section 1 of the Security Agreement.

"Insufficiency" means, with respect to any Plan, the amount, if
-------------
any, of its unfunded benefit liabilities (as defined in
Section 4001(a)(18) of ERISA).

"Interest Coverage Ratio" means, with respect to the Borrowers
-----------------------
and their Included Subsidiaries for any period, the ratio of (a)
Consolidated EBITDA of the Borrowers and their Included Subsidiaries
for such period to (b) Interest Expense of the Borrowers and their
Included Subsidiaries for such period.

"Interest Expense" means, with respect to any Person for any
----------------
period, interest expense on all Indebtedness of such Person for such
period net of interest income for such period, whether paid or
accrued, determined on a Consolidated basis for such Person and its
Subsidiaries and in accordance with GAAP, and including, without
limitation, (a) in the case of any such Person that is a Borrower,
interest expense in respect of Indebtedness resulting from Advances,
(b) the interest component of all obligations under Capitalized
Leases, (c) commissions, discounts and other fees and charges payable
in connection with letters of credit (including, without limitation,
Letters of Credit), (d) the net payment, if any, payable in connection
with Hedge Agreements less the net credit, if any, received in
connection with Hedge Agreements and (e) in the case of any such
Person that is a Borrower, all fees paid by such Person pursuant to
Section 2.08(a).

"Interest Period" means, for each Eurodollar Rate Advance
---------------
comprising part of the same Working Capital Borrowing, the period
commencing on the date of such Eurodollar Rate Advance or the date of
the Conversion of any Base Rate Advance into such Eurodollar Rate
Advance and ending on the last day of the period selected by the
Borrower requesting such Borrowing or Conversion pursuant to the
provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending
on the last day of the period selected by such Borrower pursuant to
the provisions below. The duration of each Interest Period shall be
one, two, three or six months, as the Borrower requesting such
Borrowing or Conversion, upon notice received by the Facilities
Manager not later than 12:00 Noon (New York City time) on the third
Business Day prior to the first day of such Interest Period, may
select; provided, however, that:

(a) such Borrower may not select any Interest Period that
ends after the Termination Date;

<PAGE>

(b) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Working
Capital Borrowing shall be of the same duration;

(c) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day
of such Interest Period shall be extended to occur on the next
succeeding Business Day, provided, however, that, if such
extension would cause the last day of such Interest Period to
occur in the next succeeding calendar month, the last day of such
Interest Period shall occur on the immediately preceding Business
Day; and

(d) whenever the first day of any Interest Period occurs on
a day of an initial calendar month for which there is no
numerically corresponding day in the calendar month that succeeds
such initial calendar month by the number of months equal to the
number of months in such Interest Period, such Interest Period
shall end on the last Business Day of such succeeding calendar
month.

"Internal Revenue Code" means the Internal Revenue Code of 1986,
---------------------
as amended from time to time, and the regulations promulgated and the
rulings issued thereunder.

"Inventory" has the meaning specified in Section 1 of the
---------
Security Agreement.

"Investment" means, with respect to any Person, any loan or
----------
advance to such Person, any purchase or other acquisition of any
shares of capital stock of or other ownership or profit interest in
such Person, any warrants, rights, options, obligations or other
securities of such Person, any capital contribution to such Person or
any other investment in such Person, including, without limitation,
any arrangement pursuant to which the investor incurs Indebtedness of
the types referred to in clause (j) or (k) of the definition of
"Indebtedness" in respect of such Person.

"Issuing Bank" means any Initial Issuing Bank and each Eligible
------------
Assignee to which a Letter of Credit Commitment has been assigned
pursuant to Section 9.07, as issuer of one or more Letters of Credit.

"Jim Walter Homes" has the meaning specified in the recital of
----------------
parties to this Agreement.

"Jim Walter Resources" has the meaning specified in the recital
--------------------
of parties to this Agreement.

"JW Aluminum" has the meaning specified in the recital of parties
-----------
to this Agreement.

"JW Window" has the meaning specified in the recital of parties
---------
to this Agreement.

"L/C Cash Collateral Account" has the meaning specified in the
---------------------------
Preliminary Statements to the Security Agreement.

"L/C Cash Collateral Account Letter" has the meaning specified in
----------------------------------
Section 5(c) of the Security Agreement.

<PAGE>

"L/C Related Documents" has the meaning specified in
---------------------
Section 2.04(c)(ii)(A).

"Lender Party" means any Lender, any Issuing Bank or the Swing
------------
Line Bank.

"Lenders" means the Initial Lenders and each Eligible Assignee to
-------
which a Working Capital Commitment has been assigned pursuant to
Section 9.07.

"Letter of Credit" has the meaning specified in Section 2.01(c).
----------------

"Letter of Credit Advance" means an advance made by any Issuing
------------------------
Bank or any Lender pursuant to Section 2.03(c).

"Letter of Credit Agreement" has the meaning specified in
--------------------------
Section 2.03(a).

"Letter of Credit Commitment" means, with respect to any Issuing
---------------------------
Bank at any time, the amount set forth opposite such Issuing Bank's
name on Part A of Schedule I hereto under the caption "Letter of
Credit Commitment" or, if such Issuing Bank has entered into one or
more Assignments and Acceptances, the amount set forth for such
Issuing Bank in the Register maintained by the Facilities Manager
pursuant to Section 9.07(e) as such Issuing Bank's "Letter of Credit
Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.05.

"Letter of Credit Facility" means, at any time, the aggregate
-------------------------
amount of the Issuing Banks' Letter of Credit Commitments at such
time, as such amount may be reduced at or prior to such time pursuant
to Section 2.05.

"Leverage Ratio" means, with respect to the Borrowers and their
--------------
Included Subsidiaries at any date of determination, the ratio of (a)
Adjusted Indebtedness at such date to (b) Consolidated EBITDA of the
Borrowers and their Included Subsidiaries as of the last day of the
most recently completed Measurement Period prior to such date.

"License" means, with respect to any Person, any license
-------
(including, without limitation, any license or certificate of
authority from any applicable Governmental Authority), permit,
authorization, approval, registration or consent (whether federal,
state, local, foreign or otherwise) that is required for such Person
to conduct its business as now conducted and as proposed to be
conducted.

"Lien" means any lien, security interest or other charge or
----
encumbrance of any kind, or any other type of preferential
arrangement, including, without limitation, the lien or retained
security title of a conditional vendor and any easement, right of way
or other encumbrance on title to real property.

"Loan Documents" means, collectively, this Agreement, the Notes,
--------------
the Subsidiaries Guarantee, the Collateral Documents, the Letter of
Credit Agreements and each other agreement evidencing any Obligation
of the Loan Parties secured by the Collateral Documents, in each case
as amended, supplemented or otherwise modified hereafter from time to
time in accordance with Section 9.01.

<PAGE>

"Loan Parties" means, collectively, the Borrowers and each
------------
Subsidiary of any Borrower that enters into a security agreement after
the date of this Agreement pursuant to Section 5.01(q) or enters into
a Security Agreement Supplement or a Guarantee Supplement after the
date of this Agreement pursuant to Section 5.02(j).

"Loan Value" means, with respect to any Eligible Collateral, an
----------
amount equal to a percentage of the value of any item of Eligible
Collateral determined by the Co-Administrative Agents for purposes of
the Initial Extension of Credit in their reasonable discretion and by
the Facilities Manager from time to time thereafter in its reasonable
discretion. By way of example only, and without limiting the
discretion of the Co-Administrative Agents or the Facilities Manager,
as the case may be, to determine any such percentage to be applicable,
the Co-Administrative Agents or the Facilities Manager may determine
to apply, with respect to all Eligible Collateral, the sum of up to
the following amounts and, with respect to a particular category of
Eligible Collateral, up to the following amount for such category of
Eligible Collateral:

(a) with respect to Eligible Equipment, up to 60% of the
value of such Equipment; provided, however, that, notwithstanding
the foregoing provisions of this clause (a), the aggregate Loan
Values attributed to all Eligible Equipment shall not exceed
$25,000,000;

(b) with respect to Eligible Inventory:

(i) up to 75% of the value of finished goods of Jim
Walter Resources;

(ii) up to 60% of the value of finished goods of JW
Aluminum;

(iii) up to 25% of the value of finished goods of JW
Window;

(iv) up to 60% of the value of finished goods of Sloss;

(v) up to 45% of the value of finished goods of U.S.
Pipe;

(vi) up to 60% of the value of raw materials of JW
Aluminum;

(vii) up to 25% of the value of raw materials of JW
Window;

(viii) up to 60% of the value of raw materials of Sloss;

(ix) up to 60% of the value of raw materials of U.S.
Pipe;

(x) up to 50% of the value of work in process of JW
Aluminum; and

(xi) up to 20% of the value of work in process of U.S.
Pipe;

provided, however, that, notwithstanding the foregoing
provisions of this clause (b), the aggregate Loan Values
attributed to all Eligible Inventory shall not exceed
$75,000,000; and

<PAGE>

(i) up to 80% of the value of such Receivables of JW
Window until the Facilities Manager receives
information reasonably acceptable to it regarding
the Receivables of JW Window and, thereafter, up
to 85% of the value of such Receivables of JW
Window; and

(ii) up to 85% of the value of such Receivables of Jim
Walter Resources, JW Aluminum, Sloss and U.S.
Pipe.

"Margin Stock" has the meaning specified in Regulation U.
------------

"Material Adverse Change" means any material adverse change in
-----------------------
the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Swing Line Borrower and
its Subsidiaries, taken as a whole.

"Material Adverse Effect" means a material adverse effect on
-----------------------
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Swing Line Borrower and
its Subsidiaries, taken as a whole, (b) the rights and remedies of the
Facilities Manager or any Lender Party under any Loan Document or
Related Document or (c) the ability of the Loan Parties, taken as a
whole, to pay any amounts owing under or in respect of the Loan
Documents when the same shall be due and payable or of any Loan Party
to perform its other Obligations under any Loan Document or Related
Document to which it is or is to be a party.

"Material Contract" means, with respect to any Person, each
-----------------
contract to which such Person is a party involving aggregate
consideration payable to or by such Person of $20,000,000 or more or
otherwise material to the business, condition (financial or
otherwise), operations, performance, properties or prospects of such
Person and its Subsidiaries, taken as a whole; provided, however,
that, notwithstanding the foregoing, leases of real property, the
Related Documents, the Senior Notes Documents and the documentation
evidencing Surviving Indebtedness, the Mortgage-Backed Securities and
the Mortgage Warehousing Facility shall not constitute Material
Contracts.

"Measurement Period" means, at any date of determination, the
------------------
most recently completed four consecutive Fiscal Quarters of the
Borrowers and their Included Subsidiaries on or immediately prior to
such date or, if less than four consecutive Fiscal Quarters of the
Borrowers and their Included Subsidiaries have been completed since
the date of the Initial Extension of Credit, the Fiscal Quarters of
the Borrowers and their Included Subsidiaries, or the portion of the
first Fiscal Quarter thereof, since the date of the Initial Extension
of Credit; provided, however, that, notwithstanding the foregoing, all
calculations of EBITDA for purposes of determining the Leverage Ratio
on any date of determination shall include EBITDA for the most
recently completed four consecutive Fiscal Quarters of the Borrowers
and their Included Subsidiaries, regardless of whether such period has
been completed since the date of the Initial Extension of Credit.

"Merrill Lynch" has the meaning specified in the recital of
-------------
parties to this Agreement.

"Mid-State" means Mid-State Homes, Inc., a Florida corporation
---------
and a wholly owned Subsidiary of the Swing Line Borrower.

<PAGE>

"Mortgage-Backed Securities" means, collectively, the Mid-State
--------------------------
Trust IV Asset Backed Notes issued on or about the date of the Initial
Extension of Credit pursuant to the Indenture between Mid-State Trust
IV, as the Issuer, and First Union National Bank of Florida, as the
Trustee.

"Mortgage Warehousing Facility" means the mortgage warehousing
-----------------------------
facility established on or about the date of this Agreement by Mid-
State in an aggregate amount of at least $500,000,000 (subject to
certain availability criteria set forth therein), pursuant to which
Mid-State will obtain limited recourse financing secured by certain
building and installment contracts generated by Jim Walter Homes and
by mortgages, other security agreements and promissory notes related
thereto.

"Multiemployer Plan" means a multiemployer plan (as defined in
------------------
Section 4001(a)(3) of ERISA) to which any Loan Party or any ERISA
Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an
obligation to make contributions.

"Multiple Employer Plan" means a single employer plan (as defined
----------------------
in Section 4001(a)(15) of ERISA) that (a) is maintained for employees
of any Loan Party or any ERISA Affiliate and at least one Person other
than the Loan Parties and the ERISA Affiliates or (b) was so
maintained and in respect of which any Loan Party or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated.

"NationsBank" has the meaning specified in the recital of parties
-----------
to this Agreement.

"Net Cash Proceeds" means, with respect to any sale, lease,
-----------------
transfer or other disposition of any property or assets, the aggregate
amount of cash received from time to time (whether as initial
consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only:

(a) reasonable and customary brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and
other similar fees and commissions;

(b) the amount of taxes payable in connection with or as a
result of such transaction; provided, however, that, in the case
of taxes that are deductible under this clause (b) but for the
fact that they would not be paid at the time of receipt of such
cash, such Person may deduct an amount equal to the necessary Tax
Reserve, if any, for such transaction;

(d) the amount of any Indebtedness secured by a Lien on
such property or assets that, by the terms of such transaction,
is required to be repaid upon such disposition,

in each case to the extent, but only to the extent, that the amounts
so deducted are, at the time of receipt of such cash, actually paid to
a Person that is not an Affiliate of such Person or any

<PAGE>

Loan Party and that are properly attributable to such transaction or
to the property and assets that are the subject thereof.

"New Subsidiary" has the meaning specified in Section 5.02(j).
--------------

"Note" means a promissory note of a Working Capital Borrower
----
payable to the order of any Lender, in substantially the form of
Exhibit A hereto, evidencing the aggregate indebtedness of the Working
Capital Borrowers to such Lender resulting from the Working Capital
Advances made by such Lender.

"Notice of Issuance" has the meaning specified in
------------------
Section 2.03(a).

"Notice of Renewal" has the meaning specified in Section 2.01(c).
-----------------

"Notice of Swing Line Borrowing" has the meaning specified in
------------------------------
Section 2.02(b).

"Notice of Termination" has the meaning specified in
---------------------
Section 2.01(c).

"Notice of Working Capital Borrowing" has the meaning specified
-----------------------------------
in Section 2.02(a).

"NPL" means the National Priorities List under CERCLA.
---

"Obligation" means, with respect to any Person, any payment,
----------
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether
or not the right of any creditor to payment in respect of such claim
is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured,
and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 7.01(f). Without
limiting the generality of the foregoing, the Obligations of the Loan
Parties under the Loan Documents include (a) the obligation to pay
principal, interest, Letter of Credit commissions, charges, expenses,
fees, attorneys' fees and disbursements, indemnities and other amounts
payable by any Loan Party under any Loan Document and (b) the
obligation of any Loan Party to reimburse any amount in respect of any
of the foregoing that any Lender Party, in its sole discretion, may
elect to pay or to advance on behalf of such Loan Party.

"OECD" means the Organization for Economic Cooperation and
----
Development.

"Open Year" has the meaning specified in Section 4.01(aa).
---------

"Other Taxes" has the meaning specified in Section 2.12(b).
-----------

"Parent Guarantee" has the meaning specified in Section 6.01.
----------------

"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.

"Performance Level" means Performance Level I, Performance
-----------------
Level II, Performance Level III or Performance Level IV, as
appropriate. For purposes of determining the Performance Level at any
date of determination:

<PAGE>

(a) if the Adjusted Interest Coverage Ratio and the
Leverage Ratio shall fall within different Performance Levels at
such date, the Performance Level shall be deemed to be the lower
of the two Performance Levels (e.g., Performance Level II being
lower than Performance Level I, Performance Level III being lower
than Performance Level II and Performance Level IV being lower
than Performance Level III) in effect at such date;

(b) not more than one increase in the Performance Level
shall occur in any three-month period; and

(c) no change in the Performance Level shall be effective
until three Business Days after the date on which the Facilities
Manager receives financial statements pursuant to Section 5.03(b)
or 5.03(c) reflecting such change, provided, however, that if the
Borrowers have not submitted to the Facilities Manager the
information required under this clause (c) within five Business
Days after the date on which such information is required under
Section 5.03(b) or 5.03(c), as the case may be, the Performance
Level shall be deemed to be at Performance Level IV for so long
as such information has not been submitted.

"Performance Level I" means, at any date of determination, that
-------------------
the Borrowers and their Included Subsidiaries shall have maintained
for the most recently completed Measurement Period prior to such date
(a) an Adjusted Interest Coverage Ratio of greater than or equal to
2.00:1 and (b) a Leverage Ratio of less than or equal to 2.50:1.

"Performance Level II" means, at any date of determination, that
--------------------
(a) the Performance Level does not meet the requirements of
Performance Level I and (b) the Borrowers and their Included
Subsidiaries shall have maintained for the most recently completed
Measurement Period prior to such date (i) an Adjusted Interest
Coverage Ratio of greater than or equal to 1.60:1 and (ii) a Leverage
Ratio of less than or equal to 3.00:1.

"Performance Level III" means, at any date of determination, that
---------------------
(a) the Performance Level does not meet the requirements of
Performance Level I or Performance Level II and (b) the Borrowers and
their Included Subsidiaries shall have maintained for the most
recently completed Measurement Period prior to such date (i) an
Adjusted Interest Coverage Ratio of greater than or equal to 1.20:1
and (ii) a Leverage Ratio of less than or equal to 3.50:1.

"Performance Level IV" means, at any date of determination, that
--------------------
the Performance Level does not meet the requirements of Performance
Level I, Performance Level II or Performance Level III.

"Permitted Liens" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced:

(a) Liens for taxes, assessments and governmental charges
or levies to the extent not required to be paid under
Section 5.01(b);

(b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing
obligations (other than Indebtedness for borrowed money) that
(i) are not overdue for a period of more than 30 days or (ii) are
being contested in good faith

<PAGE>

and by proper proceedings and as to which appropriate reserves
are being maintained in accordance with GAAP;

(c) pledges or deposits to secure obligations under
workers' compensation laws, unemployment insurance or other
similar legislation (other than in respect of employee benefit
plans subject to ERISA) or to secure public or statutory
obligations;

(d) Liens securing the performance of, or payment in
respect of, bids, tenders, government contracts (other than for
the repayment of borrowed money), surety and appeal bonds and
other obligations of a similar nature incurred in the ordinary
course of business;

(e) any interest or title of a lessor or sublessor and any
restriction or encumbrance to which the interest or title of such
lessor or sublessor may be subject that is incurred in the
ordinary course of business and, either individually or when
aggregated with all other Permitted Liens in effect on any date
of determination, could not be reasonably expected to have a
Material Adverse Effect; and

(f) easements, rights of way, zoning restrictions and other
encumbrances on title to real property that do not, either
individually or in the aggregate, render title to the property
encumbered thereby unmarketable or materially and adversely
affect either the use of such property for its present purposes
or the conduct of the business of any Loan Party in the ordinary
course.

"Person" means an individual, partnership, corporation (including
------
a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.

"Plan" means a Single Employer Plan or a Multiple Employer Plan.
----

"Plan of Reorganization" has the meaning specified in the
----------------------
Preliminary Statements to this Agreement.

"Pre-Commitment Information" means, collectively, (a) the
--------------------------
information furnished in writing on or prior to the date of this
Agreement by or on behalf of any Borrower or any of its Subsidiaries
to any Lender Party and relating to the Borrowers and their
Subsidiaries or to the Transaction and (b) the oral communications
referred to in Section 3.01(m)(xiii) and 3.01(m)(xiv) and in the
Disclosed Information.

"Preferred Stock" means, with respect to any corporation, capital
---------------
stock issued by such corporation that is entitled to a preference or
priority over any other capital stock issued by such corporation upon
any distribution of such corporation's assets, whether by dividend or
upon liquidation.

"Pro Rata Share" of any amount means, with respect to any Lender
--------------
at any time, the product of (a) a fraction the numerator of which is
the amount of such Lender's Working Capital Commitment at such time
and the denominator of which is the Working Capital Facility at such
time and (b) such amount.

<PAGE>

"Receivables" has the meaning specified in Section 1 of the
-----------
Security Agreement.

"Redeemable" means, with respect to any shares of capital stock,
----------
other ownership or profit interest, Indebtedness or other right or
Obligation, any such shares, interest, Indebtedness, right or
Obligation that (a) the issuer has undertaken to redeem at a fixed or
determinable date or dates, whether by operation of a sinking fund or
otherwise, or upon the occurrence of a condition not solely within the
control of the issuer or (b) is redeemable at the option of the
holder.

"Register" has the meaning specified in Section 9.07(e).
--------

"Registration Rights Agreements" means, collectively, (a) the
------------------------------
Registration Rights Agreement dated on or about the date of the
Initial Extension of Credit among the Swing Line Borrower and certain
holders of the Senior Notes and (b) the Registration Rights Agreement
dated on or about the date of the Initial Extension of Credit among
the Swing Line Borrower and certain holders of the common stock of the
Swing Line Borrower, in either case as such agreement may be amended,
supplemented or otherwise modified hereafter from time to time in
accordance with the terms hereof and thereof.

"Regulation U" means Regulation U of the Board of Governors of
------------
the Federal Reserve System, as in effect from time to time and
including any successor regulation thereto.

"Related Documents" means, collectively, the Plan of
-----------------
Reorganization, the Registration Rights Agreements, the Stockholders
Agreement and the Veil Piercing Settlement Agreement.

"Required Lenders" means at any time Lender Parties owed or
----------------
holding not less than a majority in interest of the Working Capital
Facility at such time; provided, however, that if any Lender Party
shall be a Defaulting Lender at such time, there shall be excluded
from the determination of Required Lenders at such time the Working
Capital Commitment, if any, of such Lender Party at such time.

"Required Principal Payments" means, with respect to any Person
---------------------------
for any period, any regularly scheduled principal payment or any
required prepayment or redemption of Funded Indebtedness of such
Person made during such period, but excluding any such payments to the
extent refinanced through the incurrence of additional Indebtedness
under Section 5.02(b)(vii)(G).

"Responsible Officer" means any executive officer of any Borrower
-------------------
or any of its Subsidiaries or any other officer of any Borrower or any
of its Subsidiaries responsible for overseeing or reviewing compliance
with this Agreement or any other Loan Document.

"Secured Obligations" has the meaning specified in Section 2 of
-------------------
the Security Agreement.

"Secured Parties" means, collectively, the Facilities Manager,
---------------
the other Agents, the Lender Parties and the other Persons to which
are owing the Obligations that are or are purported to be secured by
the Collateral under the terms of the Collateral Documents.

"Security Agreement" has the meaning specified in
------------------
Section 3.01(m)(viii).

<PAGE>

"Security Agreement Supplement" has the meaning specified in
-----------------------------
Section 21(c) of the Security Agreement.

"Senior Notes" means the senior fixed-rate notes due 2000 in an
------------
aggregate principal amount not to exceed $500,000,000 to be issued by
the Swing Line Borrower immediately prior to the Initial Extension of
Credit pursuant to the terms of the Senior Notes Documents.

"Senior Notes Documents" means the Senior Notes Indenture, the
----------------------
instruments evidencing the Senior Notes, the pledge agreements related
thereto and all other agreements, instruments and other documents
pursuant to which the Senior Notes will be issued, in each case as
such agreement, instrument or document may be amended, supplemented or
otherwise modified hereafter from time to time in accordance with the
terms hereof and thereof.

"Senior Notes Indenture" means the Indenture dated on or about
----------------------
the date of the Initial Extension of Credit among the Swing Line
Borrower and United States Trust Company of New York, as Trustee, as
such agreement, instrument or document may be amended, supplemented or
otherwise modified hereafter from time to time in accordance with the
terms hereof and thereof.

"Single Employer Plan" means a single employer plan (as defined
--------------------
in Section 4001(a)(15) of ERISA) that (a) is maintained for employees
of any Loan Party or any ERISA Affiliate and no Person other than the
Loan Parties and the ERISA Affiliates or (b) was so maintained and in
respect of which any Loan Party or any ERISA Affiliate could have
liability under Section 4069 of ERISA in the event such plan has been
or were to be terminated.

"Sloss" has the meaning specified in the recital of parties to
-----
this Agreement.

"Solvent" and "Solvency" mean, with respect to any Person on any
------- --------
date of determination, that, on such date:

(a) the fair value of the property and assets of such
Person is greater than the total amount of liabilities
(including, without limitation, contingent liabilities) of such
Person;

(b) the present fair salable value of the property and
assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its
debts as they become absolute and matured;

(c) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's
ability to pay such debts and liabilities as they mature; and

(d) such Person is not engaged in business or in a
transaction, and is not about to engage in business or in a
transaction, for which such Person's property and assets would
constitute an unreasonably small capital.

The amount of contingent liabilities at any time shall be computed as
the amount that, in the light of all of the facts and circumstances
existing at such time, represents the amount that can reasonably be
expected to become an actual or matured liability.

<PAGE>

"Southern Precision" has the meaning specified in the recital of
------------------
parties to this Agreement.

"Standby Letter of Credit" means any Letter of Credit issued
------------------------
under the Letter of Credit Facility, other than a Trade Letter of
Credit.

"Stockholders Agreement" means the Stockholders Agreement dated
----------------------
on or about the date of the Initial Extension of Credit among the
Swing Line Borrower, the Equity Investors and the other holders of the
common stock of the Swing Line Borrower from time to time, as such
agreement may be amended, supplemented or otherwise modified hereafter
from time to time in accordance with the terms hereof and thereof.

"Subsidiaries Guarantee" has the meaning specified in Section
----------------------
3.01(m)(ix).

"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, joint venture, limited liability company, trust or estate
of which (or in which) more than 50% of

(a) the issued and outstanding shares of capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the
time shares of capital stock of any other class or classes of
such corporation shall or might have voting power upon the
occurrence of any contingency),

(b) the interest in the capital or profits of such limited
liability company, partnership or joint venture, or

is at the time, directly or indirectly, owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries; provided, however,
that, notwithstanding the foregoing, any special purpose subsidiary of
Mid-State created or maintained in connection with any financing
permitted under Section 5.02(b)(iii) or 5.02(b)(vii)(A) shall not
constitute a Subsidiary of any Loan Party for purposes of the Loan
Documents.

"Substantial Consummation" has the meaning specified in the
------------------------
Preliminary Statements to this Agreement.

"Surviving Indebtedness" means all Indebtedness of the Borrowers
----------------------
and their Subsidiaries existing immediately prior to the consummation
of the Plan of Reorganization and not being repaid, redeemed,
extinguished or otherwise satisfied in the Transaction, which
Indebtedness shall be set forth on Schedule 4.01(ee) hereto as of the
date of the Initial Extension of Credit.

"Swing Line Advance" means an advance made by (a) the Swing Line
------------------
Bank pursuant to Section 2.01(b) or (b) any Lender pursuant to
Section 2.02(b).

"Swing Line Bank" means Citicorp, as the initial lender of all
---------------
Swing Line Advances.

"Swing Line Borrower" has the meaning specified in the recital of
-------------------
parties to this Agreement.

<PAGE>

"Swing Line Borrowing" means a borrowing consisting of a Swing
--------------------
Line Advance made by the Swing Line Bank.

"Swing Line Facility" has the meaning specified in
-------------------
Section 2.01(b)(i).

"Taxes" has the meaning specified in Section 2.12(a).
-----

"Tax Reserve" means, with respect to any Person for any sale,
-----------
lease, transfer or other disposition of any property or assets, an
amount equal to the amount properly reserved by such Person in
accordance with GAAP as such Person's reasonable estimate of taxes to
be paid by such Person solely as a result of such sale, lease,
transfer or disposition (computed on the basis of statutory rates in
effect at the time of such sale, lease, transfer or disposition after
giving effect to deductions, credit carryforwards, carrybacks and
similar items of such Person or such other amount as such Person
estimates in good faith and with the concurrence of the Required
Lenders) other than any taxes for which such Person or any of its
Subsidiaries is indemnified, as such amount may be reduced from time
to time pursuant to Section 2.01(a)(ii) or 2.05(b)(ii)(B); provided
that, in the case of any Tax Reserve established in connection with
the sale, lease, transfer or other disposition of Collateral otherwise
permitted under the Loan Documents, any amount so reserved is applied,
on the date such reserve is established, to prepay Advances
outstanding on such date, if any, in accordance with Section
2.06(b)(iii).

"Termination Date" means the earlier of (a) February 27, 1998 and
----------------
(b) the date of termination in whole of the Commitments pursuant to
Section 2.05 or 7.01.

"Trade Letter of Credit" means any Letter of Credit that is
----------------------
issued under the Letter of Credit Facility for the benefit of a
supplier of Inventory to any Working Capital Borrower or any of its
Subsidiaries to effect payment for such Inventory, the conditions to
drawing under which include the presentation to the Issuing Bank that
issued such Letter of Credit of negotiable bills of lading, invoices
and related documents sufficient, in the judgment of such Issuing
Bank, to create a valid and perfected lien and security interest in
such Inventory, bills of lading, invoices and related documents in
favor of such Issuing Bank.

"Transaction" means, collectively, (a) the consummation of the
-----------
Plan of Reorganization, (b) the issuance of the Senior Notes and the
Mortgage-Backed Securities, (c) the entering into of the Loan
Documents and the Mortgage Warehousing Facility, (d) the payment or
other satisfaction of the pre-petition claims of certain creditors of
the Debtors, (e) the refinancing of certain existing indebtedness of
the Borrowers and their Subsidiaries, (f) the payment of the fees and
expenses relating to the consummation of the Plan of Reorganization
and the other transactions related to the foregoing and (g) the
consummation of the equity and other transactions contemplated by the
foregoing.

"Type" refers to the distinction between Working Capital Advances
----
bearing interest at the Base Rate and Working Capital Advances bearing
interest at the Eurodollar Rate.

"Unused Working Capital Commitment" means, with respect to any
---------------------------------
Lender at any time:

(a) such Lender's Working Capital Commitment at such time
less

(b) the sum of

<PAGE>

(i) the aggregate principal amount of all Working
Capital Advances, all Swing Line Advances and all Letter of
Credit Advances made by such Lender (in its capacity as a
Lender) and outstanding at such time; and

(ii) such Lender's Pro Rata Share of

(A) the aggregate Available Amount of all Letters
of Credit outstanding at such time,

(B) the aggregate principal amount of all Letter
of Credit Advances made by the Issuing Banks (in their
capacity as Issuing Banks) pursuant to Section 2.03(c)
and outstanding at such time other than any such Letter
of Credit Advance that, at or prior to such time, has
been assigned in part to such Lender pursuant to
Section 2.03(c),

(C) the aggregate principal amount of all Swing
Line Advances made by the Swing Line Bank (in its
capacity as the Swing Line Bank) pursuant to
Section 2.01(b) and outstanding at such time other than
any such Swing Line Advance that, at or prior to such
time, has been assigned in part to such Lender pursuant
to Section 2.02(b), and

(D) the aggregate amount of all Holdback Reserves
and all Tax Reserves established in connection with the
sale, lease, transfer or other disposition of
Collateral otherwise permitted under the Loan Documents
and in effect at such time;

provided, however, that, solely for purposes of calculating the
commitment fees payable pursuant to Section 2.08(a) at any time, the
aggregate principal amount of all Swing Line Advances made by the
Swing Line Bank pursuant to Section 2.01(b) and outstanding at such
time shall be deducted from the Working Capital Commitment of the
Lender that is also the Swing Line Bank and not ratably from the
Working Capital Commitments of all of the Lenders until such time as
any such Swing Line Advance has been assigned to the Lenders pursuant
to Section 2.02(b) and becomes Swing Line Advances made by the
Lenders.

"U.S. Pipe" has the meaning specified in the recital of parties
---------
to this Agreement.

"Veil Piercing Settlement Agreement" means the Second Amended and
----------------------------------
Restated Veil Piercing Settlement Agreement dated as of November 22,
1994 by and among certain asbestos victim defendants named in
Adversary Proceeding 90-0003 and Adversary Proceeding 90-0004, certain
representatives of such defendants, The Celotex Corporation, Jim
Walter Corporation and its subsidiaries (other than The Celotex
Corporation), the Plan Proponents referred to therein and certain
Settling Equityholders referred to therein, as such agreement may be
amended, supplemented or otherwise modified hereafter from time to
time in accordance with the terms hereof and thereof.

"Vestal" has the meaning specified in the recital of parties to
------
this Agreement.

"Voting Stock" means shares of capital stock issued by a
------------
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies,

<PAGE>

entitled to vote for the election of directors (or persons performing
similar functions) of such Person, even if the right so to vote has
been suspended by the happening of such a contingency.

"Withdrawal Liability" has the meaning specified in Part I of
--------------------
Subtitle E of Title IV of ERISA.

"Working Capital" means, with respect to any Person for any
---------------
period, the amount by which Current Assets of such Person and its
Subsidiaries (excluding therefrom cash and Cash Equivalents) for such
period exceed Current Liabilities of such Person and its Subsidiaries
(excluding therefrom all amounts required to be paid or prepaid with
respect to any principal amounts of Funded Indebtedness within one
year after the end of such period) for such period, in each case
determined on a Consolidated basis for such Person and its
Subsidiaries.

"Working Capital Advance" has the meaning specified in
-----------------------
Section 2.01(a)(i).

"Working Capital Borrowers" has the meaning specified in the
-------------------------
recital of parties to this Agreement.

"Working Capital Borrowing" means a borrowing consisting of
-------------------------
simultaneous Working Capital Advances of the same Type made by the
Lenders.

"Working Capital Commitment" means, with respect to any Lender at
--------------------------
any time, the amount set forth opposite such Lender's name on Part A
of Schedule I hereto under the caption "Working Capital Commitment"
or, if such Lender has entered into one or more Assignments and
Acceptances, the amount set forth for such Lender in the Register
maintained by the Facilities Manager pursuant to Section 9.07(e) as
such Lender's "Working Capital Commitment", as such amount may be
reduced at or prior to such time pursuant to Section 2.05.

"Working Capital Facility" means, at any time, the aggregate
------------------------
amount of the Lenders' Working Capital Commitments at such time.

SECTION 1.02. Computation of Time Periods. In this Agreement,
---------------------------
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including", the word
"through" means "through and including" and each of the words "to" and
"until" means "to but excluding".

SECTION 1.03. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section 4.01(f)
("GAAP").
----

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT

SECTION 2.01. The Advances. (a) The Working Capital Advances.
------------ ----------------------------
(i) Each Lender severally agrees, on the terms and conditions hereinafter
set forth, to make advances (each, a "Working Capital Advance") to the
-----------------------
Working Capital Borrowers from time to time on any Business Day during the

<PAGE>

period from the date hereof until the Termination Date in an amount for
each such Advance not to exceed such Lender's Unused Working Capital
Commitment at such time. Each Working Capital Borrowing shall be in an
aggregate amount of $2,500,000 or an integral multiple of $1,000,000 in
excess thereof (other than a Borrowing the proceeds of which shall be used
solely to repay or to prepay in full outstanding Swing Line Advances made
by the Swing Line Bank or outstanding Letter of Credit Advances made by an
Issuing Bank) and shall consist of Working Capital Advances made
simultaneously by the Lenders according to their Pro Rata Share of the
Working Capital Facility. Within the limits of each Lender's Unused
Working Capital Commitment in effect from time to time, each Working
Capital Borrower may borrow under this Section 2.01(a), prepay pursuant to
Section 2.06(a) and reborrow under this Section 2.01(a).

(ii) Holdback Reserves and Tax Reserves. The Working Capital
----------------------------------
Commitment of each Lender shall be reserved against at any time and from
time to time by such Lender's Pro Rata Share of the sum of all Holdback
Reserves and all Tax Reserves established in connection with the sale,
lease, transfer or other disposition of any Collateral otherwise permitted
under the Loan Documents and in effect at such time, which amount shall be
available to be borrowed solely for purposes of paying the contingent
liabilities or the tax obligations in respect of which such Holdback
Reserves or such Tax Reserves, respectively, were established; provided
that the applicable Borrower shall, at the time any such Holdback Reserve
or Tax Reserve is established, prepay Advances outstanding on such date, if
any, in accordance with, and to the extent required under, Section
2.06(b)(iii). Each such Holdback Reserve shall be reduced on each date on
which the Working Capital Borrower that established such reserve notifies
the Facilities Manager that all or a portion of the contingent liabilities
for which such Holdback Reserve was established have been paid by such
Borrower or any of its Subsidiaries in an amount equal to such payment and
on each date on which such Holdback Reserve is permanently reduced pursuant
to Section 2.05(b)(ii)(A) by an amount equal to such permanent reduction.
Each such Tax Reserve shall be reduced on each date on which the Working
Capital Borrower that established such reserve notifies the Facilities
Manager that all or a portion of the tax obligations for which such Tax
Reserve was established have been paid by or on behalf of such Borrower or
any of its Subsidiaries in an amount equal to such payment and on each date
on which such Tax Reserve is permanently reduced pursuant to Section
2.05(b)(ii)(B) by an amount equal to such permanent reduction.

(b) The Swing Line Advances. The Swing Line Borrower may
-----------------------
request the Swing Line Bank to make, and the Swing Line Bank may, if in its
sole discretion it elects to do so, make, on the terms and conditions
hereinafter set forth, Swing Line Advances to the Swing Line Borrower from
time to time on any Business Day during the period from the date hereof
until the Termination Date (i) in an aggregate amount not to exceed at any
time outstanding $15,000,000 (the "Swing Line Facility") and (ii) in an
-------------------
amount for each such Swing Line Borrowing not to exceed the aggregate
Unused Working Capital Commitments of the Lenders at such time. No Swing
Line Advance shall be used for the purpose of funding the payment of
principal of any other Swing Line Advance. Each Swing Line Borrowing shall
be in an amount of $1,000,000 or an integral multiple of $100,000 in excess
thereof and shall be made as a Base Rate Advance. Within the limits of the
Swing Line Facility and subject to the limits referred to in clause (ii)
above, so long as the Swing Line Bank, in its sole discretion, elects to
make Swing Line Advances, the Swing Line Borrower may borrow under this
Section 2.01(b), repay pursuant to Section 2.04(b) or prepay pursuant to
Section 2.06(a) and reborrow under this Section 2.01(b).

(c) Letters of Credit. Each Issuing Bank severally agrees, on
-----------------
the terms and conditions hereinafter set forth, to issue letters of credit
(the "Letters of Credit") for the account of any Working Capital Borrower
-----------------
from time to time on any Business Day during the period from the date
hereof until 60 days before the Termination Date (i) in an aggregate
Available Amount for all Letters of Credit

<PAGE>

issued by such Issuing Bank not to exceed at any time such Issuing Bank's
Letter of Credit Commitment at such time and (ii) in an Available Amount
for each such Letter of Credit not to exceed the lesser of (A) the Letter
of Credit Facility at such time and (B) the Unused Working Capital
Commitments of the Lenders at such time. No Trade Letter of Credit shall
have an expiration date later than the earlier of (1) 180 days after the
date of issuance thereof and (2) 60 days before the Termination Date. No
Standby Letter of Credit shall have an expiration date (including all
rights of the Working Capital Borrower that requested such Letter of Credit
or the beneficiary named in such Standby Letter of Credit to require
renewal) later than one year after the date of issuance thereof, but any
such Standby Letter of Credit may by its terms be renewable annually upon
notice (a "Notice of Renewal") given to the Issuing Bank that issued such
-----------------
Standby Letter of Credit and the Facilities Manager at least three Business
Days prior to any date for notice of renewal set forth in such Standby
Letter of Credit and upon fulfillment of the applicable conditions set
forth in Article III unless such Issuing Bank has notified the Working
Capital Borrower that requested such Letter of Credit (with a copy to the
Facilities Manager) at least 30 Business Days prior to the date of
automatic renewal of its election not to renew such Standby Letter of
Credit (a "Notice of Termination"); provided that the terms of each Standby
---------------------
Letter of Credit that is automatically renewable annually (x) shall require
the Issuing Bank that issued such Standby Letter of Credit to give the
beneficiary named in such Standby Letter of Credit notice of any Notice of
Termination, (y) shall permit such beneficiary, upon receipt of such
notice, to draw under such Standby Letter of Credit prior to the date such
Standby Letter of Credit otherwise would have been automatically renewed
and (z) shall not permit the expiration date (after giving effect to any
renewal) of such Standby Letter of Credit in any event to be extended to a
date later than 60 days before the first anniversary of the scheduled
Termination Date; and provided further that the Borrowers shall deposit
into the L/C Cash Collateral Account at least five Business Days prior to
the scheduled Termination Date an amount equal to 105% of the sum of (I)
the aggregate Available Amount of all Standby Letters of Credit that have
an expiration date (after giving effect to any renewal) that extends beyond
the scheduled Termination Date and (II) the aggregate amount of all fees
and expenses owing on or in respect of such Standby Letters of Credit. If
either a Notice of Renewal is not given by the Working Capital Borrower
that requests any Standby Letter of Credit or a Notice of Termination is
given by the applicable Issuing Bank pursuant to the immediately preceding
sentence, such Standby Letter of Credit shall expire on the date on which
it otherwise would have been automatically renewed; provided, however, that
if a Notice of Renewal is not received by the applicable Issuing Bank, such
Issuing Bank may, in its discretion, unless otherwise instructed by the
Facilities Manager or the Working Capital Borrower that requested any such
Letter of Credit, deem that a Notice of Renewal had been timely delivered
and, in such case, a Notice of Renewal shall be deemed to have been so
delivered for all purposes under this Agreement. Within the limits of the
Letter of Credit Facility and subject to the limits referred to above, the
Working Capital Borrowers may request the issuance of Letters of Credit
under this Section 2.01(c), repay any Letter of Credit Advances resulting
from drawings thereunder pursuant to Section 2.04(c) and request the
issuance of additional Letters of Credit under this Section 2.01(c).

SECTION 2.02. Making the Advances. (a) Making the Working
------------------- ------------------
Capital Advances. Except as otherwise provided in this Section 2.02, each
----------------
Working Capital Borrowing shall be made on notice, given not later than
12:00 Noon (New York City time) on the first Business Day prior to the date
of the proposed Working Capital Borrowing in the case of a Borrowing
comprised of Base Rate Advances and on the third Business Day prior to the
date of the proposed Working Capital Borrowing in the case of a Borrowing
comprised of Eurodollar Rate Advances, by a Working Capital Borrower to the
Facilities Manager, which shall give to each Lender prompt notice thereof
by telex or telecopier; provided that if the Swing Line Bank elects, in its
sole discretion, not to make a Swing Line Advance to the Swing Line
Borrower on any Business Day in accordance with Section 2.01(b), a Working
Capital Borrowing comprised of Base Rate Advances may be made by a Working
Capital Borrower in lieu thereof on notice,

<PAGE>

given not later than 12:00 Noon (New York City time) on the same Business
Day as the date the proposed Swing Line Borrowing otherwise would have been
made. Each notice of a Working Capital Borrowing (a "Notice of Working
-----------------
Capital Borrowing") shall be by telephone, confirmed immediately in
-----------------
writing, or by telex or telecopier, in substantially the form of Exhibit B
hereto, specifying therein the requested (i) date of such Working Capital
Borrowing (which shall be a Business Day), (ii) Type of Advances comprising
such Working Capital Borrowing, (iii) aggregate amount of such Working
Capital Borrowing, (iv) in the case of a Working Capital Borrowing
comprised of Eurodollar Rate Advances, initial Interest Period for each
such Advance and (v) amount of the proceeds of such Working Capital
Borrowing, if any, that are to be applied to pay, or to reimburse the
Working Capital Borrower requesting such Borrowing for, contingent
liabilities for which a Holdback Reserve was established or for tax
obligations for which a Tax Reserve was established, as the case may be.
Each Lender shall, before 2:00 P.M. (New York City time) on the date of any
Working Capital Borrowing, make available for the account of its Applicable
Lending Office to the Facilities Manager at the Facilities Manager's
Account, in same day funds, such Lender's Pro Rata Share of such Working
Capital Borrowing. After the Facilities Manager's receipt of such funds
and upon fulfillment of the applicable conditions set forth in Article III,
the Facilities Manager will make such funds available to the Working
Capital Borrower that requested such Working Capital Borrowing by crediting
the Appropriate Borrower's Account of such Working Capital Borrower;
provided, however, that the Facilities Manager shall first make a portion
of such funds equal to (A) the aggregate principal amount of all Swing Line
Advances and all Letter of Credit Advances made by the Swing Line Bank or
any Issuing Bank, as the case may be, and by any other Lender and
outstanding on the date of such Working Capital Borrowing plus (B) interest
accrued and unpaid thereon to and as of such date, available to the Swing
Line Bank or such Issuing Bank, as the case may be, and to such other
Lenders for repayment of such Swing Line Advances and such Letter of Credit
Advances.

(b) Making the Swing Line Advances. Each Swing Line Borrowing
------------------------------
shall be made on notice, given not later than 12:00 Noon (New York City
time) on the date of the proposed Swing Line Borrowing, by the Swing Line
Borrower to the Swing Line Bank and the Facilities Manager. Each notice of
a Swing Line Borrowing (a "Notice of Swing Line Borrowing") shall be by
------------------------------
telephone, confirmed immediately in writing, or by telex or telecopier,
specifying therein the requested (i) date of such Swing Line Borrowing
(which shall be a Business Day), (ii) amount of such Swing Line Borrowing
and (iii) maturity, if any, of such Swing Line Borrowing. If, in
accordance with Section 2.01(b), it elects to make the requested Swing Line
Advance, the Swing Line Bank will make the amount thereof available for the
account of its Applicable Lending Office to the Facilities Manager at the
Facilities Manager's Account, in same day funds. After the Facilities
Manager's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Facilities Manager will make such
funds available to the Swing Line Borrower by crediting the Appropriate
Borrower's Account of the Swing Line Borrower. Upon written demand by the
Swing Line Bank, with a copy of such demand to the Facilities Manager, each
Lender shall purchase from the Swing Line Bank, and the Swing Line Bank
shall sell and assign to each Lender, such Lender's Pro Rata Share of such
outstanding Swing Line Advance as of the date of such purchase, by making
available for the account of its Applicable Lending Office to the
Facilities Manager for the account of the Swing Line Bank, by deposit into
the Facilities Manager's Account, in same day funds, an amount equal to
such Lender's Pro Rata Share of the outstanding principal amount of such
Swing Line Advance. The Swing Line Borrower hereby agrees to each such
sale and assignment. Promptly after receipt thereof, the Facilities
Manager shall transfer such funds to the Swing Line Bank. Each Lender
agrees to purchase its Pro Rata Share of an outstanding Swing Line Advance
on (A) the Business Day on which demand therefor is made by the Swing Line
Bank so long as notice of such demand is given not later than 2:00 P.M.
(New York City time) on such Business Day or (B) the first Business Day
next succeeding such demand if notice of such demand is given after such

<PAGE>

time. Upon any such assignment by the Swing Line Bank to any Lender of a
portion of a Swing Line Advance, the Swing Line Bank represents and
warrants to such Lender that the Swing Line Bank is the legal and
beneficial owner of such interest being assigned by it free and clear of
any liens and security interests, but makes no other representation or
warranty and assumes no responsibility with respect to such Swing Line
Advance, the Loan Documents or any Loan Party. If and to the extent that
any Lender shall not have so made its Pro Rata Share of such Swing Line
Advance available to the Facilities Manager, such Lender agrees to pay to
the Facilities Manager forthwith on demand such amount, and to pay interest
thereon, for each day from the date of demand by the Swing Line Bank until
the date such amount is paid to the Facilities Manager, at the Federal
Funds Rate. If such Lender shall pay to the Facilities Manager such amount
for the account of the Swing Line Bank on any Business Day, such amount so
paid in respect of principal shall constitute a Swing Line Advance made by
such Lender on such Business Day for all purposes of this Agreement, and
the outstanding principal amount of the Swing Line Advance made by the
Swing Line Bank shall be reduced by such amount on such Business Day.

(c) Limitations on Working Capital Borrowings. Anything in
-----------------------------------------
Section 2.02(a) to the contrary notwithstanding, none of the Working
Capital Borrowers may select (i) Eurodollar Rate Advances for the initial
Borrowing or for any Working Capital Borrowing if the aggregate amount of
such Borrowing is less than $5,000,000 or if the obligation of the Lenders
to make Eurodollar Rate Advances shall then be suspended pursuant to
Section 2.09 or 2.10 or (ii) Interest Periods for Eurodollar Rate Advances
that are longer than one month during the period from the date of this
Agreement to May 1, 1995 (or such earlier date as shall be specified in
their sole discretion by the Co-Arrangers in a written notice to the
Borrowers and the Lenders). In addition, the Working Capital Advances made
on any date and comprised of Eurodollar Rate Advances may not be
outstanding as part of more than three separate Borrowings.

(d) Binding Effect of Notices of Borrowing. Each Notice of
--------------------------------------
Working Capital Borrowing and each Notice of Swing Line Borrowing shall be
irrevocable and binding on the Borrower that requested such Borrowing. In
the case of any Working Capital Borrowing that the related Notice of
Working Capital Borrowing specifies is to be comprised of Eurodollar Rate
Advances, the Working Capital Borrower that requested such Borrowing shall
indemnify each Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill on or before the date
specified in such Notice of Working Capital Borrowing for such Borrowing
the applicable conditions set forth in Article III, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Lender to fund
the Working Capital Advance to be made by such Lender as part of such
Borrowing when such Working Capital Advance, as a result of such failure,
is not made on such date.

(e) Assumption of Facilities Manager, Etc. Unless the
-------------------------------------
Facilities Manager shall have received notice from a Lender prior to the
date of any Working Capital Borrowing that such Lender will not make
available to the Facilities Manager such Lender's Pro Rata Share of such
Borrowing, the Facilities Manager may assume that such Lender has made such
Pro Rata Share available to the Facilities Manager on the date of such
Borrowing in accordance with Section 2.02(a) and the Facilities Manager
may, in reliance upon such assumption, make available to the Working
Capital Borrower that requested such Borrowing on such date a corresponding
amount. If and to the extent that such Lender shall not have so made such
Pro Rata Share available to the Facilities Manager, such Lender and the
applicable Working Capital Borrower severally agree to pay or to repay to
the Facilities Manager forthwith on demand such corresponding amount, and
to pay interest thereon, for each day from the date such amount is made
available to such Working Capital Borrower until the date such amount is
paid or repaid to the Facilities Manager, at (i) in the case of such
Working Capital Borrower, the interest rate applicable at

<PAGE>

such time under Section 2.07 to Working Capital Advances comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall pay to the Facilities Manager such corresponding amount,
such amount so paid shall constitute such Lender's Advance as part of such
Working Capital Borrowing for all purposes under this Agreement and if, in
addition, the applicable Working Capital Borrower has repaid such amount,
such amount shall be remitted to such Working Capital Borrower.

(f) Failure to Make Advances. The failure of any Lender to make
------------------------
the Advance to be made by it as part of any Borrowing shall not relieve any
other Lender of its obligation hereunder to make its Advance on the date of
such Borrowing, but no Lender shall be responsible for the failure of any
other Lender to make the Advance to be made by such other Lender on the
date of any Borrowing.

SECTION 2.03. Issuance of and Drawings and Reimbursement Under
------------------------------------------------
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall
----------------- --------------------
be issued upon notice, given not later than 12:00 Noon (New York City time)
on the third Business Day prior to the date of the proposed issuance of
such Letter of Credit, by a Working Capital Borrower to any Issuing Bank,
which shall give to the Facilities Manager and each Lender prompt notice
thereof by telex or telecopier. Each notice of issuance of a Letter of
Credit (a "Notice of Issuance") shall be by telephone, confirmed
------------------
immediately in writing, or by telex or telecopier, specifying therein the
requested (i) date of such issuance (which shall be a Business Day),
(ii) Available Amount of such Letter of Credit, (iii) expiration date of
such Letter of Credit (which shall comply with the requirements of Section
2.01(c)), (iv) name and address of the beneficiary of such Letter of Credit
and (v) form of such Letter of Credit, and shall be accompanied by such
application and agreement for a letter of credit (a "Letter of Credit
----------------
Agreement") as the Issuing Bank issuing such Letter of Credit may specify
---------
to such Working Capital Borrower for use in connection with such requested
Letter of Credit. If (A) the requested form of such Letter of Credit is
acceptable to the Issuing Bank issuing such Letter of Credit in its sole
discretion and (B) neither such Issuing Bank nor the Facilities Manager has
received notice of objection to such issuance from Lenders holding not less
than a majority in interest of the Working Capital Commitments, such
Issuing Bank will, upon fulfillment of the applicable conditions set forth
in Article III, make such Letter of Credit available to the Working Capital
Borrower requesting such issuance at its address referred to in
Section 9.02 or as otherwise agreed with such Working Capital Borrower in
connection with such issuance. In the event and to the extent that the
provisions of any Letter of Credit Agreement shall conflict with this
Agreement, the provisions of this Agreement shall govern.

(b) Letter of Credit Reports. Each Issuing Bank shall furnish
------------------------
(i) to the Facilities Manager on the first Business Day of each week, a
written report summarizing issuance and expiration dates of Letters of
Credit issued by such Issuing Bank during the previous week and drawings
during such week under all Letters of Credit issued by such Issuing Bank,
(ii) to each Lender on the first Business Day of each month, a written
report summarizing issuance and expiration dates of Letters of Credit
issued by such Issuing Bank during the preceding month and drawings during
such month under all Letters of Credit issued by such Issuing Bank and
(iii) to the Facilities Manager and each Lender on the first Business Day
of each calendar quarter, a written report setting forth the average daily
aggregate Available Amount of all Letters of Credit issued by such Issuing
Bank during the immediately preceding calendar quarter.

(c) Drawing and Reimbursement. The payment by any Issuing Bank
-------------------------
of a draft drawn under any Letter of Credit shall constitute for all
purposes of this Agreement the making by such Issuing Bank of a Letter of
Credit Advance, which shall be a Base Rate Advance, in the amount of such
draft. Upon written demand by any Issuing Bank with an outstanding Letter
of Credit Advance, with a copy

<PAGE>

of such demand to the Facilities Manager, each Lender shall purchase from
such Issuing Bank, and such Issuing Bank shall sell and assign to each
Lender, such Lender's Pro Rata Share of such outstanding Letter of Credit
Advance as of the date of such purchase, by making available for the
account of its Applicable Lending Office to the Facilities Manager for the
account of such Issuing Bank, by deposit into the Facilities Manager's
Account, in same day funds, an amount equal to such Lender's Pro Rata Share
of the outstanding principal amount of such Letter of Credit Advance.
Promptly after receipt thereof, the Facilities Manager shall transfer such
funds to such Issuing Bank. Each Working Capital Borrower hereby agrees to
each such sale and assignment. Each Lender agrees to purchase its Pro Rata
Share of an outstanding Letter of Credit Advance on (i) the Business Day on
which demand therefor is made by the Issuing Bank that made such Advance so
long as notice of such demand is given not later than 2:00 P.M. (New York
City time) on such Business Day or (ii) the first Business Day next
succeeding such demand if notice of such demand is given after such time.
Upon any such assignment by an Issuing Bank to any Lender of a portion of a
Letter of Credit Advance, such Issuing Bank represents and warrants to such
Lender that such Issuing Bank is the legal and beneficial owner of such
interest being assigned by it free and clear of any liens and security
interests, but makes no other representation or warranty and assumes no
responsibility with respect to such Letter of Credit Advance, the Loan
Documents or any Loan Party. If and to the extent that any Lender shall
not have so made its Pro Rata Share of such Letter of Credit Advance
available to the Facilities Manager, such Lender agrees to pay to the
Facilities Manager forthwith on demand such amount, and to pay interest
thereon, for each day from the date of demand by such Issuing Bank until
the date such amount is paid to the Facilities Manager, at the Federal
Funds Rate, for its account or the account of such Issuing Bank, as
applicable. If such Lender shall pay to the Facilities Manager such amount
for the account of such Issuing Bank on any Business Day, such amount so
paid in respect of principal shall constitute a Letter of Credit Advance
made by such Lender on such Business Day for all purposes of this
Agreement, and the outstanding principal amount of the Letter of Credit
Advance made by such Issuing Bank shall be reduced by such amount on such
Business Day.

(d) Failure to Make Letter of Credit Advances. The failure of
-----------------------------------------
any Lender to make the Letter of Credit Advance to be made by it on the
date specified in Section 2.03(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but
no Lender shall be responsible for the failure of any other Lender to make
the Letter of Credit Advance to be made by such other Lender on such date.

SECTION 2.04. Repayment of Advances. (a) Working Capital
--------------------- ---------------
Advances. Each Working Capital Borrower shall repay to the Facilities
--------
Manager for the ratable account of the Lenders on the Termination Date the
aggregate principal amount of the Working Capital Advances made to such
Working Capital Borrower and outstanding on such date.

(b) Swing Line Advances. The Swing Line Borrower shall repay to
-------------------
the Facilities Manager for the account of the Swing Line Bank and each
Lender that has made a Swing Line Advance on the earlier of (i) the
maturity date, if any, specified in the applicable Notice of Swing Line
Borrowing and (ii) the Termination Date the principal amount of each Swing
Line Advance owing to each of them and outstanding on such date.

(c) Letter of Credit Advances. (i) Each Working Capital
-------------------------
Borrower shall repay to the Facilities Manager for the account of each
Issuing Bank and each Lender that has made a Letter of Credit Advance on
the earlier of (A) the date of demand therefor and (B) the Termination Date
the

<PAGE>

principal amount of each Letter of Credit Advance made to such Working
Capital Borrower by each of them and outstanding on such date.

(ii) The Obligations of each Working Capital Borrower under this
Agreement, any Letter of Credit Agreement and any other agreement or
instrument relating to any Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of
this Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the
following circumstances:

(A) any lack of validity or enforceability of any Loan Document,
any Letter of Credit Agreement, any Letter of Credit or any other
agreement or instrument relating thereto (collectively, the "L/C
---
Related Documents");
-----------------

(B) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of such Working
Capital Borrower in respect of any L/C Related Document or any other
amendment or waiver of or any consent to departure from all or any of
the L/C Related Documents;

(C) the existence of any claim, setoff, defense or other right
that such Working Capital Borrower may have at any time against any
beneficiary or any transferee of a Letter of Credit (or any Persons
for whom any such beneficiary or any such transferee may be acting),
any Issuing Bank or any other Person, whether in connection with any
transaction contemplated by the L/C Related Documents or any unrelated
transaction;

(D) any statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect, or any statement therein being untrue or inaccurate in
any respect;

(E) any payment by an Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit, unless such draft or
certificate is substantially different from the applicable form
specified by such Letter of Credit;

(F) any taking, exchange, release or nonperfection of any
Collateral or other collateral, or any taking, release or amendment or
waiver of or consent to departure from Section 6.01, the Subsidiaries
Guarantee or any other guarantee, for all or any of the Obligations of
such Working Capital Borrower in respect of the L/C Related Documents;
or

(G) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation,
any other circumstance that might otherwise constitute a defense
available to, or a discharge of, such Working Capital Borrower or a
guarantor.

SECTION 2.05. Termination or Reduction of the Commitments. (a)
-------------------------------------------
Optional. The Borrowers jointly and not severally, upon at least three
--------
Business Days' notice to the Facilities Manager, may terminate in whole or
reduce in part the unused portions of the Letter of Credit Facility and the
Unused Working Capital Commitments; provided, however, that each partial
reduction of either Facility shall be in an aggregate amount of $5,000,000
or an integral multiple of $1,000,000 in excess thereof.

<PAGE>

(b) Mandatory. (i) The Working Capital Facility shall be
---------
automatically and permanently reduced from time to time upon any sale,
lease, transfer or other disposition of any Collateral (other than any
sale, lease, transfer or other disposition permitted under Sections
5.02(e)(i), 5.02(e)(v) and 5.02(e)(vi)) by an amount equal to 100% of the
Net Cash Proceeds from such sale, lease, transfer or disposition.

(ii) The Working Capital Facility shall be automatically and
permanently reduced from time to time:

(A) on the earlier of (1) the date that is 24 months after the
date on which any Borrower or any of its Subsidiaries received Net
Cash Proceeds from any of the transactions described in clause (i) of
this Section 2.05(b) for which a Holdback Reserve was established and
(2) the date on which the contingent liabilities for which such
Holdback Reserve was established are no longer required to be reserved
against in accordance with GAAP, by an amount equal to 100% of the
amount of such Holdback Reserve outstanding at such date (after giving
effect to any reduction of such Holdback Reserve under
Section 2.01(a)(ii) on such date); and

(B) on the date on which the tax return covering the tax
obligations for which a Tax Reserve was established in connection with
any transaction described in clause (i) of this Section 2.05(b) is
required to be filed (whether or not such filing is actually made), by
an amount equal to 100% of the amount of such Tax Reserve outstanding
at such date (after giving effect to any reduction of such Tax Reserve
under Section 2.01(a)(ii) on such date).

(iii) The Letter of Credit Facility shall be automatically
and permanently reduced from time to time on the date of each permanent
reduction in the Working Capital Facility by the amount, if any, by which
the Letter of Credit Facility on such date exceeds the Working Capital
Facility on such date (after giving effect to any such reduction of the
Working Capital Facility on such date).

(iv) The Swing Line Facility shall be automatically and
permanently reduced from time to time on the date of each permanent
reduction in the Swing Line Facility by the amount, if any, by which the
Swing Line Facility on such date exceeds the Working Capital Facility on
such date (after giving effect to any such reduction of the Working Capital
Facility on such date).

(c) Application of Commitment Reductions. Upon each reduction
------------------------------------
of the Working Capital Facility pursuant to this Section 2.05, the Working
Capital Commitment of each Lender shall be reduced by such Lender's Pro
Rata Share of the amount by which the Working Capital Facility is reduced.
Upon each reduction of the Letter of Credit Facility pursuant to this
Section 2.05, the Letter of Credit Commitment of each Issuing Bank shall be
reduced by such Issuing Bank's Pro Rata Share of the amount by which the
Letter of Credit Facility is reduced.

SECTION 2.06. Prepayments. (a) Optional. Each Appropriate
----------- --------
Borrower may, upon the same Business Day's notice to the Facilities Manager
in the case of Swing Line Advances and upon at least three Business Days'
notice to the Facilities Manager in the case of any other Advances, stating
the proposed date and aggregate principal amount of the prepayment, and if
such notice is given such Borrower shall, prepay the aggregate principal
amount of the Advances comprising part of the same Borrowing outstanding on
such date in whole or ratably in part, together with accrued interest to
the date of such prepayment on the aggregate principal amount prepaid;
provided, however, that each partial prepayment shall be in an aggregate
principal amount of $1,000,000 or an integral multiple of $500,000

<PAGE>

in excess thereof; and provided further that no such prepayment of a
Eurodollar Rate Advance shall be made other than on the last day of an
Interest Period therefor.

(b) Mandatory. (i) The Borrowers shall, on each Business Day,
---------
prepay an aggregate principal amount of the Advances outstanding on such
day equal to the amount, if any, by which (A) the sum of (1) the aggregate
principal amount of all Working Capital Advances, all Letter of Credit
Advances and all Swing Line Advances outstanding on such day and (2) the
aggregate Available Amount of all Letters of Credit outstanding on such day
exceeds (B) the lesser of (1) the Working Capital Facility on such day
(after giving effect to any permanent reduction thereof pursuant to Section
2.05 on such day) and (2) the aggregate Loan Values of all Eligible
Collateral on such day (as reflected in the Borrowing Base Certificate most
recently delivered pursuant to Section 5.03(e)).

(ii) The relevant Borrower shall, on the date of receipt of the
Net Cash Proceeds by such Borrower or any of its Subsidiaries from any
sale, lease, transfer or other disposition permitted under Section
5.02(e)(vi), (A) prepay all Advances made to any Borrower being sold or
transferred pursuant to such section and outstanding on such date and (B)
deposit into the L/C Cash Collateral Account an amount equal to 105% of the
sum of (1) the aggregate Available Amount of all Letters of Credit issued
at the request of any Borrower being sold or transferred pursuant to such
section and outstanding on such date and (2) the aggregate amount of all
fees and expenses owing or to be owing on or in respect of such Standby
Letters of Credit.

(iii) The relevant Borrower shall, on the date of receipt by such
Borrower or any of its Subsidiaries of the Net Cash Proceeds from any sale,
lease, transfer or other disposition described in Section 2.05(b)(i),
prepay an aggregate principal amount of the Advances outstanding on such
date equal to 100% of the aggregate amount of the Holdback Reserve, if any,
and the Tax Reserve, if any, established in connection therewith.

(iv) The Borrowers hereby irrevocably authorize the Facilities
Manager, on each Business Day, to apply all funds on deposit in the Cash
Collateral Account on such day to the prepayment of the aggregate principal
amount of the Advances outstanding on such day in accordance with the terms
of Section 8 of the Security Agreement.

(v) The Borrowers shall, on each Business Day, pay to the
Facilities Manager for deposit into the L/C Cash Collateral Account an
amount sufficient to cause the aggregate amount on deposit in such account
on such day to equal the amount, if any, by which (A) the aggregate
Available Amount of all Letters of Credit outstanding on such day exceeds
(B) the Letter of Credit Facility on such day (after giving effect to any
permanent reduction thereof pursuant to Section 2.05 on such day).

(vi) The Borrowers shall, on the fifth Business Day prior to the
scheduled Termination Date, pay to the Facilities Manager for deposit into
the L/C Cash Collateral Account an amount equal to 105% of the sum of (A)
the aggregate Available Amount of all Standby Letters of Credit outstanding
on such day that have an expiration date that extends beyond the scheduled
Termination Date and (B) the aggregate amount of all fees and expenses
owing or to be owing on or in respect of such Standby Letters of Credit.

(vii) Notwithstanding any of the other provisions of this Section
2.06,

<PAGE>

(A) if, following the occurrence of any "Asset Sale" (as such
term is defined in the Senior Notes Indenture), the Swing Line
Borrower is required to commit by a particular date (a "Commitment
----------
Date") to apply or cause its Subsidiaries to apply an amount equal to
----
any of the "Net Cash Proceeds" (as defined in the Senior Notes
Indenture) thereof in a particular manner, or to apply by a particular
date (an "Application Date") an amount equal to any such "Net Cash
----------------
Proceeds" in a particular manner, in either case in order to excuse
the Swing Line Borrower from being required to make an offer to redeem
or to repurchase all or a portion of the Senior Notes as a result of
such "Asset Sale", and the Swing Line Borrower shall have failed to so
commit or to so apply an amount equal to such "Net Cash Proceeds" at
least 30 days before the Commitment Date or the Application Date, as
the case may be, or

(B) if the Swing Line Borrower at any other time shall have
failed to apply or to commit or cause to be applied or committed an
amount equal to any such "Net Cash Proceeds", and within 30 days
thereafter assuming no further application or commitment of an amount
equal to such "Net Cash Proceeds" the Swing Line Borrower would
otherwise be required to make an offer to redeem or to repurchase all
or a portion of the Senior Notes as a result of such "Asset Sale",

then, in either such case, the Swing Line Borrower shall immediately prepay
an aggregate principal amount of the Advances equal to 100% of the amount
of such "Net Cash Proceeds" required to excuse the Swing Line Borrower from
making any such offer of redemption or repurchase.

(viii) Notwithstanding any of the other provisions of this Section
2.06(b) or of Section 2.06(c), so long as no Default under Section 7.01(a)
or 7.01(f) or Event of Default shall have occurred and be continuing, if
any prepayment of Eurodollar Rate Advances is required to be made under
clause (i), (iii), (iv) or (vii) of this Section 2.06(b) other than on the
last day of the Interest Period therefor, the relevant Borrower may in its
sole discretion (but shall not be required to), deposit the amount of any
such prepayment otherwise required hereunder in the Cash Collateral Account
until the last day of such Interest Period, at which time the Facilities
Manager shall be authorized (without any further action by any Borrower) to
apply such amount to the prepayment of such Advances in accordance with
Section 2.06(c).

(c) Application of Prepayments. Prepayments of the Facilities
--------------------------
made pursuant to clause (i), (iii), (iv) or (vii) of Section 2.06(b) shall
be:

(i) first, applied to prepay Letter of Credit Advances made by
any Issuing Bank and outstanding on such date;

(ii) second, if no Letter of Credit Advances made by an Issuing
Bank remain outstanding, applied to prepay Swing Line Advances made by
the Swing Line Bank and outstanding on such date;

(iii) third, if no Swing Line Advances made by the Swing Line Bank
remain outstanding, applied to prepay Letter of Credit Advances made
by the Lenders and outstanding on such date;

(iv) fourth, if no Letter of Credit Advances made by the Lenders
remain outstanding, applied to prepay Swing Line Advances made by the
Lenders and outstanding on such date;

<PAGE>

(v) fifth, if no Swing Line Advances made by the Lenders remain
outstanding, applied to prepay Working Capital Advances comprising
part of the same Borrowings and outstanding on such date; and

(vi) sixth, if no Working Capital Advances remain outstanding,
deposited into the L/C Cash Collateral Account to cash collateralize
100% of the Available Amount of the Letters of Credit outstanding on
such date. Upon the drawing of any Letter of Credit for which funds
are on deposit in the L/C Cash Collateral Account, such funds shall be
applied to reimburse the relevant Issuing Bank or the Lenders, as
applicable.

(d) Prepayments to Include Accrued Interest. All prepayments
---------------------------------------
under Section 2.06(b) shall be made together with accrued interest to the
date of such prepayment on the principal amount prepaid.

SECTION 2.07. Interest. (a) Scheduled Interest. Each Borrower
-------- ------------------
shall pay interest on the unpaid principal amount of each Advance made to
such Borrower from the date of such Advance until such principal amount
shall be paid in full, at the following rates per annum:

(i) Base Rate Advances. During such periods as such Advance is
------------------
a Base Rate Advance, a rate per annum equal at all times to the sum of
(A) the Base Rate in effect from time to time and (B) the Applicable
Margin in effect from time to time, payable in arrears quarterly on
the first day of each September, December, March and June during such
periods and on the date such Base Rate Advance shall be Converted or
paid in full.

(ii) Eurodollar Rate Advances. During such periods as such
------------------------
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of
(A) the Eurodollar Rate for such Interest Period for such Advance and
(B) the Applicable Margin in effect on the first day of such Interest
Period, payable in arrears on the last day of such Interest Period
and, if such Interest Period has a duration of more than three months,
on each day that occurs during such Interest Period every three months
from the first day of such Interest Period and on the date such
Eurodollar Rate Advance shall be Converted or paid in full.

(b) Default Interest. Upon the occurrence and during the
----------------
continuance of a Default under Section 7.01(a) or 7.01(f) or an Event of
Default, the Borrowers shall pay interest on (i) the unpaid principal
amount of each Advance owing to each Lender Party, payable in arrears on
the dates referred to in Section 2.07(a)(i) or 2.07(a)(ii), as applicable,
and on demand, at a rate per annum equal at all times to 2.00% per annum
above the rate per annum required to be paid on such Advance pursuant to
Section 2.07(a)(i) or 2.07(a)(ii), as applicable, and (ii) to the fullest
extent permitted by law, the amount of any interest, fee or other amount
payable under the Loan Documents that is not paid when due, from the date
such amount shall be due until such amount shall be paid in full, payable
in arrears on the date such amount shall be paid in full and on demand, at
a rate per annum equal at all times to 2.00% per annum above the rate per
annum required to be paid, in the case of interest, on the Type of Advance
on which such interest has accrued pursuant to Section 2.07(a)(i) or
2.07(a)(ii), as applicable, and, in all other cases, on Base Rate Advances
pursuant to Section 2.07(a)(i).

(c) Notice of Interest Rate. Promptly after receipt of a Notice
-----------------------
of Working Capital Borrowing pursuant to Section 2.02(a), the Facilities
Manager shall give notice to the Working Capital

<PAGE>

Borrower requesting such Borrowing and each Lender of the applicable
interest rate determined by the Facilities Manager pursuant to Section
2.07(a)(i) or 2.07(a)(ii), as applicable.

SECTION 2.08. Fees. (a) Commitment Fee. The Borrowers shall
---- --------------
pay to the Facilities Manager for the account of the Lenders a commitment
fee, from March 1, 1995 in the case of each Initial Lender and from the
effective date specified in the Assignment and Acceptance pursuant to which
it became a Lender in the case of each other Lender until the Termination
Date, payable in arrears on the date of the Initial Extension of Credit,
thereafter in arrears quarterly on the first day of each September,
December, March and June, commencing June 1, 1995, and on the Termination
Date, at the rate of 0.50% per annum on the average daily Unused Working
Capital Commitment of such Lender during such quarter; provided, however,
that no commitment fee shall accrue on any of the Commitments of a
Defaulting Lender so long as such Lender shall be a Defaulting Lender.

(b) Letter of Credit Fees, Etc. (i) The Working Capital
--------------------------
Borrowers shall pay to the Facilities Manager for the account of each
Lender a commission, payable in arrears quarterly on the first day of each
September, December, March and June, commencing June 1, 1995, and on the
earlier to occur of (A) the full drawing, expiration, termination or
cancellation of any such Letter of Credit and (B) on the Termination Date,
on such Lender's Pro Rata Share of the average daily aggregate Available
Amount during such quarter of (1) all Standby Letters of Credit outstanding
from time to time at the Applicable Margin and (2) all Trade Letters of
Credit outstanding at any such time at a rate of 0.50% per annum; provided,
however, that the commission on each Standby Letter of Credit that has an
expiration date that extends beyond the Termination Date shall accrue on
such Standby Letter of Credit through the full drawing, expiration,
termination or cancellation thereof at the Applicable Margin and shall be
payable in arrears quarterly on the first day of each September, December,
March and June and on the date of the full drawing, expiration, termination
or cancellation of such Standby Letter of Credit.

(ii) The Working Capital Borrowers shall pay to each Issuing
Bank, for its own account:

(A) a fronting fee, payable in arrears quarterly on the first
day of each September, December, March and June, commencing June 1,
1995, and on the earlier to occur of (1) the full drawing, expiration,
termination or cancellation of any such Letter of Credit and (2) on
the Termination Date, on the average daily Available Amount during
such quarter (x) each Standby Letter of Credit issued by such Issuing
Bank at a rate of 0.25% per annum and (y) each Trade Letter of Credit
issued by such Issuing Bank at a rate of 0.05% per annum; provided,
however, that the fronting fee on each Standby Letter of Credit that
has an expiration date that extends beyond the Termination Date shall
accrue on such Standby Letter of Credit through the full drawing,
expiration, termination or cancellation thereof at a rate of 0.25% per
annum and shall be payable in arrears to the Issuing Bank that issued
such Standby Letter of Credit quarterly on the first day of each
September, December, March and June and on the date of the full
drawing, expiration, termination or cancellation of such Standby
Letter of Credit; and

(B) such other commissions, transfer fees and other fees and
charges in connection with the issuance or administration of each
Letter of Credit as the Working Capital Borrower requesting such
Letter of Credit and such Issuing Bank shall agree.

<PAGE>

(c) Agents' Fees. The Borrowers shall pay to the Facilities
------------
Manager, for its own account and the account of the other Agents, such fees
as may from time to time be agreed among any of the Borrowers and the
Facilities Manager or such other Agents, as the case may be.

SECTION 2.09. Conversion of Advances. (a) Optional. Each
---------------------- --------
Working Capital Borrower may on any Business Day, upon notice given to the
Facilities Manager not later than 12:00 Noon (New York City time) on the
third Business Day prior to the date of the proposed Conversion and subject
to the provisions of Sections 2.07 and 2.10, Convert all or any portion of
the Working Capital Advances made to such Working Capital Borrower of one
Type comprising the same Borrowing into Advances of the other Type;
provided, however, that (i) any Conversion of Eurodollar Rate Advances into
Base Rate Advances shall be made only on the last day of an Interest Period
for such Eurodollar Rate Advances, (ii) any Conversion of Base Rate
Advances into Eurodollar Rate Advances shall be in an amount not less than
the minimum amount specified in Section 2.02(c), (iii) no Conversion of any
Working Capital Advances shall result in more separate Working Capital
Borrowings comprised of Eurodollar Rate Advances than permitted under
Section 2.02(c) and (iv) each Conversion of Working Capital Advances
comprising part of the same Borrowing shall be made among the Lenders in
accordance with their respective Pro Rata Shares of the Working Capital
Facility. Each such notice of Conversion shall, within the restrictions
specified above, specify (A) the date of such Conversion (which shall be a
Business Day), (B) the Working Capital Advances to be Converted and (C) if
such Conversion is into Eurodollar Rate Advances, the duration of the
initial Interest Period for such Advances. Each notice of Conversion shall
be irrevocable and binding on the Working Capital Borrower requesting such
Conversion.

(b) Mandatory. (i) On the date on which the aggregate unpaid
---------
principal amount of Eurodollar Rate Advances comprising any Working Capital
Borrowing shall be reduced, by payment, prepayment or otherwise, to less
than $5,000,000, such Advances shall automatically Convert into Base Rate
Advances.

(ii) If any Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances made to such Borrower in
accordance with the provisions set forth in the definition of "Interest
Period" in Section 1.01, the Facilities Manager will forthwith so notify
such Borrower and the Lenders, whereupon each such Eurodollar Rate Advance
will automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance.

(iii) Upon the occurrence and during the continuance of any
Default under Section 7.01(a) or 7.01(f) or any Event of Default, (A) each
Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and
(B) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.

SECTION 2.10. Increased Costs, Etc. (a) If, due to either
--------------------
(i) the introduction of or any change in or any change in the
interpretation of any law or regulation or (ii) the compliance with any
directive, guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any
increase in the cost to any Lender Party of agreeing to make or of making,
funding or maintaining Eurodollar Rate Advances or of agreeing to issue or
of issuing or maintaining Letters of Credit or of agreeing to make or of
making or maintaining Letter of Credit Advances, then the Borrowers shall
from time to time, upon demand by such Lender Party (with a copy of such
demand to the Facilities Manager), pay to the Facilities Manager for the
account of such Lender

<PAGE>

Party additional amounts sufficient to compensate such Lender Party for
such increased cost. A certificate as to the amount of such increased
cost, submitted to the Borrowers by such Lender Party, shall be conclusive
and binding for all purposes, absent manifest error.

(b) If any Lender Party determines that compliance with any law
or regulation or any directive, guideline or request from any central bank
or other Governmental Authority (whether or not having the force of law)
affects or would affect the amount of capital required or expected to be
maintained by such Lender Party or any corporation controlling such Lender
Party and that the amount of such capital is increased by or based upon the
existence of such Lender Party's commitment to lend or to issue Letters of
Credit hereunder and other commitments of such type or the issuance or
maintenance of the Letters of Credit (or similar contingent obligations),
then the Borrowers shall from time to time, upon demand by such Lender
Party (with a copy of such demand to the Facilities Manager), pay to the
Facilities Manager for the account of such Lender Party, additional amounts
sufficient to compensate such Lender Party in the light of such
circumstances, to the extent that such Lender Party reasonably determines
such increase in capital to be allocable to the existence of such Lender
Party's commitment to lend or to issue Letters of Credit or to the issuance
or maintenance of any Letters of Credit. A certificate as to such amounts,
submitted to the Borrowers by such Lender Party, shall be conclusive and
binding for all purposes, absent manifest error.

(c) If, with respect to any Eurodollar Rate Advances, the
Required Lenders shall notify the Facilities Manager that the Eurodollar
Rate for any Interest Period for such Advances will not adequately reflect
the cost to such Lenders of making, funding or maintaining their Eurodollar
Rate Advances for such Interest Period, the Facilities Manager shall
forthwith so notify the Borrowers and the Lenders, whereupon (i) each such
Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Facilities Manager
shall notify the Borrowers that such Lenders have determined that the
circumstances causing such suspension no longer exist.

(d) Notwithstanding any other provision of this Agreement, if
the introduction of or any change in or change in the interpretation of any
law or regulation shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender or
its Eurodollar Lending Office to perform its obligations hereunder to make
Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate
Advances, then, upon notice thereof and demand therefor by such Lender to
the Borrowers through the Facilities Manager, (i) each Eurodollar Rate
Advance will automatically, upon such demand, Convert into a Base Rate
Advance and (ii) the obligation of the Lenders to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Facilities Manager shall notify the Borrowers that such Lender has
determined that the circumstances causing such suspension no longer exist.

(e) Each Lender agrees that, upon the occurrence of any
circumstances entitling such Lender to additional compensation (or to
deliver a demand therefor) under any of the foregoing provisions of this
Section 2.10, such Lender shall use reasonable efforts (consistent with its
internal policy and with applicable legal and regulatory restrictions) to
designate a different Applicable Lending Office for any Advances affected
by such circumstances if the making of such designation, in the case of
Section 2.10(a) or 2.10(b), would avoid the need for, or reduce the amount
of, such additional compensation or, in the case of Section 2.10(c) or
2.10(d), would allow the Lenders to continue to perform their obligations
to make Eurodollar Rate Advances or to continue to fund or to maintain
Eurodollar Rate Advances and, in

<PAGE>

any such case, would not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender. Nothing in this Section 2.10(e)
shall affect or postpone any of the rights of any Lender or any of the
obligations of any Borrower under any of the foregoing provisions of this
Section 2.10 in any manner.

SECTION 2.11. Payments and Computations. (a) Each Borrower
-------------------------
shall make each payment required to be made by it under this Agreement and
under the Notes, irrespective of any right of counterclaim or setoff
(except as otherwise provided in Section 2.14), not later than 12:00 Noon
(New York City time) on the day when due in Dollars to the Facilities
Manager at the Facilities Manager's Account in same day funds. The
Facilities Manager will promptly thereafter cause like funds to be
distributed (i) if such payment by such Borrower is in respect of
principal, interest, commitment fees or any other Obligation then payable
under this Agreement and under the Notes to more than one Lender Party, to
such Lender Parties for the account of their respective Applicable Lending
Offices ratably in accordance with the amounts of such respective
Obligations then payable to such Lender Parties and (ii) if such payment by
such Borrower is in respect of any Obligation then payable hereunder to one
Lender Party, to such Lender Party for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of
this Agreement. Upon its acceptance of an Assignment and Acceptance and
the recording of the information contained therein in the Register pursuant
to Section 9.07(e), from and after the effective date of such Assignment
and Acceptance, the Facilities Manager shall make all payments under this
Agreement and under the Notes in respect of the interest assigned thereby
to the Lender Party assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.

(b) Each of the Borrowers hereby authorizes each Lender Party
and each of its Affiliates, if and to the extent payment owed to such
Lender Party is not made when due under this Agreement or, in the case of a
Lender, under the Note held by such Lender, to charge from time to time
against any or all of such Borrower's accounts with such Lender Party or
with any such Affiliate any amount so due.

(c) All computations of interest, fees and Letter of Credit
commissions shall be made by the Facilities Manager on the basis of a year
of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which
such interest, fees or commissions are payable. Each determination by the
Facilities Manager of an interest rate, fee or commission under this
Agreement shall be conclusive and binding for all purposes, absent manifest
error.

(d) Whenever any payment under this Agreement or under the Notes
shall be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of
interest, fees or Letter of Credit commissions, as the case may be;
provided, however, that, if such extension would cause payment of interest
on or principal of Eurodollar Rate Advances to be made in the next
succeeding calendar month, such payment shall be made on the immediately
preceding Business Day.

(e) Unless the Facilities Manager shall have received notice
from the relevant Borrower prior to the date on which any payment is due to
any Lender Party under this Agreement that such Borrower will not make such
payment in full, the Facilities Manager may assume that such Borrower has
made such payment in full to the Facilities Manager on such date and the
Facilities

<PAGE>

Manager may, in reliance upon such assumption, cause to be distributed to
each such Lender Party on such due date an amount equal to the amount then
due such Lender Party. If and to the extent the relevant Borrower shall
not have so made such payment in full to the Facilities Manager, each such
Lender Party shall repay to the Facilities Manager forthwith on demand such
amount distributed to such Lender Party, together with interest thereon,
for each day from the date such amount is distributed to such Lender Party
until the date such Lender Party repays such amount to the Facilities
Manager, at the Federal Funds Rate.

SECTION 2.12. Taxes. (a) Any and all payments by the Borrowers
-----
under this Agreement or under the Notes shall be made, in accordance with
Section 2.11, free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the
case of (i) each Lender Party and the Facilities Manager, net income taxes
that are imposed by the United States and franchise taxes and net income
taxes (or other taxes that are based upon or determined by net income or
profits) that are imposed on such Lender Party or the Facilities Manager by
the state or foreign jurisdiction under the laws of which such Lender Party
or the Facilities Manager, as the case may be, is organized or has
qualified to do business, or any political subdivision thereof, and (ii)
the Facilities Manager and each Lender Party, franchise taxes and net
income taxes (or other taxes that are based upon or determined by net
income or profits) that are imposed on the Facilities Manager or such
Lender Party by the state or foreign jurisdiction of such Lender Party's
Applicable Lending Office or by the jurisdiction in which it has qualified
to do business, or any political subdivision thereof (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities
being, collectively, "Taxes"). If any Borrower (or any Person acting on
-----
behalf of any Borrower) shall be required by law to deduct any Taxes from
or in respect of any sum payable under this Agreement or under any Note to
any Lender Party or the Facilities Manager, (A) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 2.12) such Lender Party or the Facilities Manager, as the case may
be, receives an amount equal to the sum it would have received had no such
deductions been made, (B) such Borrower (or such Person acting on behalf of
such Borrower) shall make such deductions and (C) such Borrower (or such
Person acting on behalf of such Borrower) shall pay the full amount
deducted to the relevant taxation authority or other Governmental Authority
in accordance with applicable law.

(b) In addition, each Borrower hereby agrees to pay any present
or future stamp, documentary, excise, property or other similar taxes,
charges or levies that arise from any payment made under this Agreement or
under the Notes, or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or the Notes, except as may
result solely from entering into or consummating any assignment or
participation of any of the rights and obligations of any Lender Party
under this Agreement and the Notes (collectively, "Other Taxes").
-----------

(c) Except as otherwise provided in Section 2.12(f), each
Borrower hereby agrees to indemnify each Lender Party and the Facilities
Manager for the full amount of Taxes and Other Taxes, and for the full
amount of taxes imposed by any jurisdiction on amounts payable under this
Section 2.12, imposed on or paid by such Lender Party or the Facilities
Manager, as the case may be, and any liability (including penalties,
additions to tax, interest and expenses) arising therefrom or with respect
thereto. This indemnification shall be made within 30 days from the date
any Lender Party or the Facilities Manager, as the case may be, makes
demand therefor.

<PAGE>

(d) Within 30 days after the date of any payment of Taxes, the
Borrower making such payment or on behalf of whom such payment is made
shall furnish to the Facilities Manager, at its address referred to in
Section 9.02, the original receipt of payment thereof or a certified copy
of such receipt. In the case of any payment under this Agreement or under
the Notes by or on behalf of any Borrower through an account or branch
outside the United States or on behalf of any such Borrower by a payor that
is not a United States person, if such Borrower determines that no Taxes
are payable in respect thereof, such Borrower shall furnish, or shall cause
such payor to furnish, to the Facilities Manager, at such address, an
opinion of counsel acceptable to the Facilities Manager stating that such
payment is exempt from or not subject to Taxes. For purposes of this
Section 2.12(d) and Section 2.12(e), the terms "United States" and "United
------------- ------
States person" shall have the meanings specified in Section 7701 of the
-------------
Internal Revenue Code.

(e) Each Lender Party organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and
delivery of this Agreement in the case of each Initial Lender, each Initial
Issuing Bank or the Swing Line Bank, as the case may be, and on the date of
the Assignment and Acceptance pursuant to which it became a Lender Party in
the case of each other Lender Party, and from time to time thereafter if
requested in writing by the Borrowers or the Facilities Manager (but only
so long thereafter as such Lender Party remains lawfully able to do so
(although a change in Applicable Lending Office or a change in the
activities of an Applicable Lending Office shall not in and of itself
excuse any Lender Party from providing the requested form)), shall provide
the Facilities Manager and the Borrowers with Internal Revenue Service
form 1001 or 4224, as appropriate (or any successor form prescribed by the
Internal Revenue Service), certifying that such Lender Party is exempt from
or is entitled to a reduced rate of United States withholding tax on
payments under this Agreement or the Notes. Each Lender Party shall
provide the requested form or shall provide notice that it is not lawfully
able to do so within 20 days of receiving a request to do so from the
Borrowers or the Facilities Manager pursuant to the immediately preceding
sentence. To the extent permitted by law, as an alternative to form 1001
or 4224, each such Lender Party may provide the Facilities Manager and the
Swing Line Borrower with Internal Revenue Service form W-8 (or any
successor form prescribed by the Internal Revenue Service) certifying that
such Lender Party is exempt from United States federal withholding tax
pursuant to Section 871(h) or 881(c) of the Internal Revenue Code, together
with an annual certificate stating that such Lender Party is not a "person"
described in Section 871(h)(3) or 881(c)(3) of the Internal Revenue Code.
If the form provided by a Lender Party at the time such Lender Party first
becomes a party to this Agreement indicates a United States interest
withholding tax rate in excess of zero, withholding tax at such rate shall
be considered excluded from Taxes unless and until such Lender Party
provides the appropriate form certifying that a lesser rate applies,
whereupon withholding tax at such lesser rate only shall be considered
excluded from Taxes for periods governed by such form; provided, however,
that, if at the date of the Assignment and Acceptance pursuant to which a
Lender Party becomes a party to this Agreement, the Lender Party assignor
was entitled to payments under Section 2.12(a) in respect of United States
withholding tax with respect to interest paid at such date, then, to such
extent, the term "Taxes" shall include (in addition to withholding taxes
that may be imposed in the future or other amounts otherwise includable in
Taxes) United States withholding tax, if any, applicable with respect to
the Lender Party assignee on such date. If any form or document referred
to in this Section 2.12(e) requires the disclosure of information, other
than information necessary to compute the tax payable and information
required on the date hereof by Internal Revenue Service form 1001, 4224 or
W-8, that the Lender Party reasonably considers to be confidential, the
Lender Party shall give notice thereof to the Borrowers and shall not be
obligated to include in such form or document such confidential
information.

<PAGE>

(f) For any period with respect to which a Lender Party has
failed to provide the Borrowers with the appropriate form described in
Section 2.12(e) (other than if such failure is due to a change in law
occurring after the date on which a form originally was required to be
provided or if such form otherwise is not required under Section 2.12(e)
and appropriate notification has been given in accordance with Section
2.12(e)), such Lender Party shall not be entitled to indemnification under
Section 2.12(a) or 2.12(c) with respect to Taxes imposed by the United
States by reason of such failure; provided, however, that should a Lender
Party become subject to Taxes because of its failure to deliver a form
required hereunder, each Borrower hereby agrees to take such steps as such
Lender Party shall reasonably request to assist such Lender Party in
recovering such Taxes.

(g) Any Lender Party claiming any additional amounts payable
pursuant to this Section 2.12 shall use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Applicable Lending Office (including its Eurodollar
Lending Office) if the making of such a change would avoid the need for, or
reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender Party, be
otherwise disadvantageous to such Lender Party.

SECTION 2.13. Sharing of Payments, Etc. If any Lender Party
------------------------
shall obtain at any time any payment (whether voluntary, involuntary,
through the exercise of any right of setoff or otherwise) on account of
(a) Obligations due and payable to such Lender Party hereunder and under
the Notes at such time in excess of its ratable share (according to the
proportion of (i) the amount of such Obligations due and payable to such
Lender Party at such time to (ii) the aggregate amount of the Obligations
due and payable to all Lender Parties hereunder and under the Notes at such
time) of payments on account of the Obligations due and payable to all
Lender Parties hereunder and under the Notes at such time obtained by all
the Lender Parties at such time or (b) Obligations owing (but not due and
payable) to such Lender Party hereunder and under the Notes at such time in
excess of its ratable share (according to the proportion of (i) the amount
of such Obligations owing (but not due and payable) to such Lender Party at
such time to (ii) the aggregate amount of the Obligations owing (but not
due and payable) to all Lender Parties hereunder and under the Notes at
such time) of payments on account of the Obligations owing (but not due and
payable) to all Lender Parties hereunder and under the Notes at such time
obtained by all of the Lender Parties at such time, such Lender Party shall
forthwith purchase from the other Lender Parties such participations in the
Obligations due and payable or owing to them, as the case may be, as shall
be necessary to cause such purchasing Lender Party to share the excess
payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender Party, such purchase from each other Lender Party shall be rescinded
and such other Lender Party shall repay to the purchasing Lender Party the
purchase price to the extent of such Lender Party's ratable share
(according to the proportion of (A) the purchase price paid to such Lender
Party to (B) the aggregate purchase price paid to all Lender Parties) of
such recovery together with an amount equal to such Lender Party's ratable
share (according to the proportion of (1) the amount of such other Lender
Party's required repayment to (2) the total amount so recovered from the
purchasing Lender Party) of any interest or other amount paid or payable by
the purchasing Lender Party in respect of the total amount so recovered.
Each Borrower hereby agrees that any Lender Party so purchasing a
participation from another Lender Party pursuant to this Section 2.13 may,
to the fullest extent permitted by applicable law, exercise all of its
rights of payment (including, without limitation, the right of setoff) with
respect to such participation as fully as if such Lender Party were the
direct creditor of such Borrower in the amount of such participation.

<PAGE>

SECTION 2.14. Defaulting Lenders. (a) In the event that, at
------------------
any time, (i) any Lender Party shall be a Defaulting Lender, (ii) such
Defaulting Lender shall owe a Defaulted Advance to any Borrower and
(iii) any Borrower shall be required to make any payment under this
Agreement or under any other Loan Document to or for the account of such
Defaulting Lender, then the Borrowers may, so long as no Default under
Section 7.01(a) or 7.01(f) and no Event of Default shall have occurred and
be continuing at such time and to the fullest extent permitted by
applicable law, set off and otherwise apply the Obligation of any such
Borrower to make such payment to or for the account of such Defaulting
Lender against the obligation of such Defaulting Lender to make such
Defaulted Advance. In the event that, on any date, any Borrower shall so
set off and otherwise apply its Obligation to make any such payment against
the obligation of such Defaulting Lender to make any such Defaulted Advance
on or prior to such date, the amount so set off and otherwise applied by
such Borrower shall constitute for all purposes of this Agreement and the
other Loan Documents an Advance by such Defaulting Lender made on the date
such Defaulted Advance was originally required to have been made pursuant
to Section 2.01; provided, however, that interest on any such Defaulted
Advance shall accrue from the date of setoff by such Borrower and not from
the date such Defaulted Advance was originally required to have been made.
Such Advance shall be a Base Rate Advance and shall be considered, for all
purposes of this Agreement, to comprise part of the Borrowing or the
funding of a draw under an outstanding Letter of Credit, as the case may
be, in connection with which such Defaulted Advance was originally required
to have been made pursuant to Section 2.01, even if, in the case of any
such Working Capital Advances, the other Working Capital Advances
comprising such Borrowing shall be Eurodollar Rate Advances on the date
such Working Capital Advance is deemed to be made pursuant to this Section
2.14(a). Each Borrower shall promptly notify the Facilities Manager at any
time such Borrower exercises its right of setoff pursuant to this Section
2.14(a) and shall set forth in such notice (A) the name of the Defaulting
Lender and the Defaulted Advance required to be made by such Defaulting
Lender and (B) the amount set off and otherwise applied in respect of such
Defaulted Advance pursuant to this Section 2.14(a). Any portion of such
payment otherwise required to be made by any Borrower to or for the account
of such Defaulting Lender that is paid by such Borrower, after giving
effect to the amount set off and otherwise applied by the Borrowers
pursuant to this Section 2.14(a), shall be applied by the Facilities
Manager as specified in Section 2.14(b) or 2.14(c).

(b) In the event that, at any time, (i) any Lender Party shall
be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted
Amount to the Facilities Manager or any of the other Lender Parties and
(iii) any Borrower shall make any payment under this Agreement or under any
other Loan Document to the Facilities Manager for the account of such
Defaulting Lender, then the Facilities Manager may, on its behalf or on
behalf of such other Lender Parties and to the fullest extent permitted by
applicable law, apply at such time the amount so paid by such Borrower to
or for the account of such Defaulting Lender to the payment of each such
Defaulted Amount to the extent required to pay such Defaulted Amount. In
the event that the Facilities Manager shall so apply any such amount to the
payment of any such Defaulted Amount on any date, the amount so applied by
the Facilities Manager shall constitute for all purposes of this Agreement
and the other Loan Documents payment, to such extent, of such Defaulted
Amount on such date. Any such amount so applied by the Facilities Manager
shall be retained by the Facilities Manager or distributed by the
Facilities Manager to such other Lender Parties, ratably in accordance with
the respective portions of such Defaulted Amounts payable at such time to
the Facilities Manager and such other Lender Parties and, if the amount of
such payment made by such Borrower shall at such time be insufficient to
pay all Defaulted Amounts owing to the Facilities Manager and the other
Lender Parties at such time, in the following order of priority:

<PAGE>

(A) first, to the Facilities Manager for any Defaulted Amount
owing to the Facilities Manager (solely in its capacity as the
Facilities Manager) at such time;

(B) second, to the Issuing Banks for any Defaulted Amounts owing
to the Issuing Banks (solely in their capacity as Issuing Banks) at
such time, ratably in accordance with the respective Defaulted Amounts
owing to the Issuing Banks at such time;

(C) third, to the Swing Line Bank for any Defaulted Amounts
owing to the Swing Line Bank (solely in its capacity as Swing Line
Bank) at such time; and

(D) fourth, to the Lenders for any Defaulted Amounts owing to
the Lenders (solely in their capacity as Lenders) at such time,
ratably in accordance with the respective Defaulted Amounts owing to
the Lenders at such time.

Any portion of such amount paid by any Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by
the Facilities Manager pursuant to this Section 2.14(b), shall be applied
by the Facilities Manager as specified in Section 2.14(c).

(c) In the event that, at any time, (i) any Lender Party shall
be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a
Defaulted Advance or a Defaulted Amount and (iii) any Borrower, the
Facilities Manager or any other Lender Party shall be required to pay or to
distribute any amount under this Agreement (including, without limitation,
a Letter of Credit Advance to such Defaulting Lender in its capacity as an
Issuing Bank) or under any other Loan Document to or for the account of
such Defaulting Lender, then such Borrower or such other Lender Party shall
pay such amount to the Facilities Manager to be held by the Facilities
Manager, to the fullest extent permitted by applicable law, in escrow or
the Facilities Manager shall, to the fullest extent permitted by applicable
law, hold in escrow such amount otherwise held by it. Any funds held by
the Facilities Manager in escrow under this Section 2.14(c) shall be
deposited by the Facilities Manager into an account with Citibank, in the
name and under the control of the Facilities Manager, but subject to the
provisions of this Section 2.14(c). The terms applicable to such account,
including the rate of interest payable with respect to the credit balance
of such account from time to time, shall be Citibank's standard terms
applicable to escrow accounts maintained with it. Any interest credited to
such account from time to time shall be held by the Facilities Manager in
escrow under, and applied by the Facilities Manager from time to time in
accordance with the provisions of, this Section 2.14(c). The Facilities
Manager shall, to the fullest extent permitted by applicable law, apply all
funds so held in escrow from time to time to the extent necessary to make
any Advances required to be made by such Defaulting Lender and to pay any
amount payable by such Defaulting Lender under this Agreement and the other
Loan Documents to the Facilities Manager or any other Lender Party, as and
when such Advances or such amounts are required to be made or paid and, if
the amount so held in escrow shall at any time be insufficient to make and
pay all such Advances and all such amounts required to be made or paid at
such time, in the following order of priority:

(A) first, to the Facilities Manager for any amount due and
payable by such Defaulting Lender to the Facilities Manager (solely in
its capacity as the Facilities Manager) under this Agreement and under
the other Loan Documents at such time;

(B) second, to the Issuing Banks for any Advances and any
amounts due and payable by such Defaulting Lender to the Issuing Banks
(solely in their capacity as Issuing Banks) under

<PAGE>

this Agreement and the other Loan Documents at such time, ratably in
accordance with the respective Advances and amounts due and payable to
the Issuing Banks at such time;

(C) third, to the Swing Line Bank for any Advances and any
amounts due and payable by such Defaulting Lender to the Swing Line
Bank (solely in its capacity as Swing Line Bank) under this Agreement
and the other Loan Documents at such time;

(D) fourth, to the Lenders for any Advances and any amounts due
and payable by such Defaulting Lender to the Lenders (solely in their
capacity as Lenders) under this Agreement and the other Loan Documents
at such time, ratably in accordance with the respective Advances and
amounts due and payable to the Lenders at such time; and

(E) fifth, to the Borrowers for any Advance then required to be
made by such Defaulting Lender pursuant to a Commitment of such
Defaulting Lender.

In the event that any Lender Party that is a Defaulting Lender shall, at
any time, cease to be a Defaulting Lender, any funds held by the Facilities
Manager in escrow at such time with respect to such Lender Party shall be
distributed by the Facilities Manager to such Lender Party and applied by
such Lender Party to the Obligations owing by such Lender Party at such
time under this Agreement and the other Loan Documents ratably in
accordance with the respective amounts of such Obligations outstanding at
such time.

(d) The rights and remedies against a Defaulting Lender under
this Section 2.14 are in addition to other rights and remedies that any
Borrower may have against such Defaulting Lender with respect to any
Defaulted Advance and that the Facilities Manager or any Lender Party may
have against such Defaulting Lender with respect to any Defaulted Amount.

SECTION 2.15. Use of Proceeds and of Letters of Credit. The
----------------------------------------
proceeds of the Advances (other than Letter of Credit Advances) shall be
available, and each of the Borrowers hereby agrees that it shall use such
proceeds, solely to provide working capital for such Borrower and its
Included Subsidiaries. The issuance of Letters of Credit shall be
available, and each of the Working Capital Borrowers hereby agrees that it
shall request the issuance of such Letters of Credit, solely to support
workers' compensation, performance, trade and other obligations of such
Working Capital Borrower and its Included Subsidiaries incurred in the
ordinary course of business.

ARTICLE III

CONDITIONS OF LENDING

SECTION 3.01. Conditions Precedent to Initial Extension of
--------------------------------------------
Credit. The obligation of each Lender to make an Advance or of any Issuing
------
Bank to issue a Letter of Credit on the occasion of the Initial Extension
of Credit is subject to the satisfaction of the following conditions
precedent prior to or concurrently with the Initial Extension of Credit:

(a) The Lender Parties shall be reasonably satisfied with (i)
all material changes to the terms of the plan of reorganization
submitted to the creditors of the Debtors and their Subsidiaries for
acceptance from the Plan of Reorganization and (ii) all other final
terms and

<PAGE>

conditions of the Transaction (including, without limitation, all
legal and tax aspects thereof) to the extent such terms are
inconsistent in any material respect with, or were not otherwise
previously disclosed as part of, the terms expressly set forth in the
Disclosed Information. The Lender Parties shall be reasonably
satisfied with all material changes in any documentation relating to
the Transaction to the extent such documentation is inconsistent in
any material respect with, or was not otherwise previously disclosed
as part of, the documentation expressly set forth in the Disclosed
Information. The Confirmation Order shall have been entered, and
Substantial Consummation of the plan of reorganization approved in the
Confirmation Order shall have occurred.

(b) The Lender Parties shall be reasonably satisfied with the
corporate and legal structure and capitalization of each of the
Borrowers and each of their Subsidiaries (including, without
limitation, the charter and bylaws (or other similar organizational
documents) of each Borrower and each of its Subsidiaries and each
agreement or instrument relating thereto) to the extent any such
structure or capitalization is inconsistent in any material respect
with, or was not otherwise previously disclosed as part of, the
Disclosed Information.

(c) Before giving effect and immediately after giving pro forma
effect to the Transaction, there shall have occurred no Material
Adverse Change since November 30, 1994 (it being understood that the
existence of an appeal of the Confirmation Order so long as the
Confirmation Order remains unstayed does not, in and of itself,
constitute a Material Adverse Change).

(d) All of the Pre-Commitment Information shall be true and
correct in all material respects, and no additional information
relating to any Borrower or any of its Subsidiaries or to any aspect
of the Transaction shall have come to the attention of the Lender
Parties that is inconsistent in any material respect with the Pre-
Commitment Information and that could reasonably be expected to have a
Material Adverse Effect.

(e) There shall exist no action, suit, investigation, litigation
or proceeding affecting any Borrower or any of its Subsidiaries, or
any of their respective properties (including, without limitation, any
Environmental Action), pending or threatened in any court or before
any arbitrator or by or before any Governmental Authority that could
reasonably be expected to (i) have a Material Adverse Effect other
than the matters set forth on Schedule 3.01(e) hereto (the "Disclosed
---------
Litigation") or (ii) adversely affect the legality, validity or
----------
enforceability of any aspect of the Transaction, this Agreement, any
Note, any other Loan Document or any Related Document other than, in
the case of clause (i) or (ii) above, an appeal of the entry of the
Confirmation Order so long as the Confirmation Order remains unstayed;
and there shall have been no adverse change in the status, and no
materially adverse change in the financial effect on any Borrower or
any of its Subsidiaries, of the Disclosed Litigation from that
described on Schedule 3.01(e) hereto.

(f) All consents and approvals of any Governmental Authority and
any other third party necessary in connection with any aspect of the
Transaction and the Facilities (other than the Final Order) shall have
been obtained (without the imposition of any conditions that are not
acceptable to the Lender Parties) and shall remain in full force and
effect; all applicable waiting periods shall have expired without any
action being taken by any competent authority; and no law or
regulation shall be applicable in the judgment of the Lender Parties
that restrains, prevents or

<PAGE>

imposes materially adverse conditions (other than the requirement of
receipt of a Final Order) upon any aspect of the Transaction or the
Facilities.

(g) All of the Collateral shall be owned by one or more of the
Borrowers, in each case free and clear of any lien, charge or
encumbrance, and the Facilities Manager, on behalf of itself and the
other Secured Parties, shall have a valid and perfected first priority
(subject to Permitted Liens on Equipment and Inventory) lien and
security interest in all of the Collateral. All filings, recordations
and searches necessary or desirable in connection with such liens and
security interests shall have been duly made, and all filing and
recording fees and taxes shall have been duly paid.

(h) The Lender Parties shall be reasonably satisfied with all
changes in the amount and types, and all material changes in the terms
and conditions, of all insurance maintained by the Borrowers and their
Subsidiaries from the terms of such insurance set forth in the
Disclosed Information.

(i) The Lender Parties shall be reasonably satisfied with any
material changes from the information set forth in the Disclosed
Information in (i) the Consolidated opening balance sheet of the Swing
Line Borrower and its Included Subsidiaries after giving effect to the
consummation of the Transaction, (ii) the report of sources and uses
for the consummation of the Transaction, (iii) a Consolidated pro
forma balance sheet of the Swing Line Borrower and its Included
Subsidiaries and (iv) forecasts prepared by management of the
Borrowers, in a form reasonably satisfactory to the Lender Parties, of
EBIT, EBITDA and Capital Expenditures on a quarterly basis for the
first year following the date of the Initial Extension of Credit and
on an annual basis for each year thereafter through the Termination
Date.

(j) The Lender Parties shall be reasonably satisfied:

(i) with the terms and conditions of (A) the Senior Notes
and the other senior indebtedness to be incurred by the Swing
Line Borrower under the Plan of Reorganization and (B) the
Mortgage Warehousing Facility, in each case to the extent such
terms are inconsistent in any material respect with, or were not
otherwise previously disclosed as part of, the Disclosed
Information;

(ii) that the terms and conditions of the Mortgage-Backed
Securities do not restrict the actions or businesses of any
Borrower or any of its Subsidiaries (other than Mid-State) in any
manner and do not require any guarantee or other credit support
from any Borrower or any of its Subsidiaries, other than Jim
Walter Homes on the terms set forth in the Disclosed Information;

(iii) that the Mortgage Warehousing Facility shall have been
entered into by Mid-State;

(iv) that the interest rate on the Senior Notes shall not
exceed 15.00% per annum and that the collateral for the Senior
Notes shall be comprised solely of the shares of common stock of
the Subsidiaries of the Swing Line Borrower;

<PAGE>

(v) that (A) not more than $500,000,000 of creditors'
claims against the Debtors shall have been satisfied from the
issuance of the Senior Notes and (B) at least $900,000,000 in
gross proceeds shall have been received from the issuance and
sale of the Mortgage-Backed Securities; and

(vi) that the amount reasonably anticipated by the Lender
Parties to be required for the satisfaction of claims of the
Internal Revenue Service against the Borrowers and their
Subsidiaries does not exceed the estimate of management of the
Swing Line Borrower disclosed to the Lenders prior to the date of
the Commitment Letter.

(k) All of the Schedules and Exhibits to this Agreement and the
other Loan Documents, and any amendments and supplements thereto, in
each case to the extent not attached hereto or thereto on the date of
this Agreement, shall have been delivered and shall be in form and
substance reasonably satisfactory to the Lender Parties; provided that
the inclusion of the Disclosed Information in such Schedules shall be
deemed to be reasonably satisfactory to the Lender Parties.

(l) All accrued fees and expenses of the Agents and the Lender
Parties (including the fees and expenses of counsel for the Co-
Administrative Agents and the Co-Arrangers and local counsel for the
Borrowers) to be paid under or in accordance with the Commitment
Letter and the fee letters referred to therein shall have been paid.

(m) The Facilities Manager shall have received on or before
the date of the Initial Extension of Credit the following, each dated
such date (unless otherwise specified), in form and substance
reasonably satisfactory to the Lender Parties (unless otherwise
specified and which reasonable satisfaction may not require, directly
or indirectly, the Confirmation Order to have become a Final Order)
and (except for the Notes) in sufficient copies for each Lender Party:

(i) The Notes payable to the order of the Lenders.

(ii) Certified copies of the resolutions of the Board of
Directors of each Borrower approving each aspect of the
Transaction involving or affecting such Borrower, this Agreement,
the Notes, each other Loan Document and each Related Document to
which it is or is to be a party, and of all documents evidencing
other necessary corporate action and governmental approvals, if
any, with respect to each aspect of the Transaction involving or
affecting such Borrower, this Agreement, the Notes, each other
Loan Document and each Related Document.

(iii) A copy of the charter of each Borrower and each
amendment thereto, certified (as of a date reasonably near the
date of the Initial Extension of Credit) by the Secretary of
State of the jurisdiction of incorporation of such Borrower as
being a true and complete copy thereof.

(iv) A copy of a certificate of the Secretary of State of
the jurisdiction of incorporation of each Borrower, dated
reasonably near the date of the Initial Extension of Credit,
listing the charter of such Borrower and each amendment thereto
on file in the office of such Secretary of State, and certifying
that (A) such amendments are the only

<PAGE>

amendments to such Borrower's charter on file in his office,
(B) such Borrower has paid all franchise taxes (or the equivalent
thereof) to the date of such certificate and (C) such Borrower is
duly incorporated and in good standing under the laws of the
state of the jurisdiction of its incorporation.

(v) Copies of certificates of the Secretary of State of
each jurisdiction where each Borrower is qualified as a foreign
corporation, dated reasonably near the date of the Initial
Extension of Credit, in each case stating that such Borrower is
duly qualified and in good standing as a foreign corporation in
such state and has filed all annual reports required to be filed
to the date of such certificate.

(vi) A certificate of each Borrower, signed on behalf of
such Borrower by its President or a Vice President and its
Secretary or any Assistant Secretary, dated the date of the
Initial Extension of Credit (the statements made in which
certificate shall be true on and as of the date of the Initial
Extension of Credit), certifying as to:

(A) the absence of any amendments to the charter of
such Borrower since the date of the Secretary of State's
certificate referred to in Section 3.01(m)(iv),

(B) the accuracy and completeness of the bylaws of
such Borrower as in effect on the date of the Initial
Extension of Credit (a copy of which shall be attached to
such certificate),

(C) the due incorporation and good standing of such
Borrower as a corporation organized under the laws of the
jurisdiction of its incorporation, and the absence of any
proceeding for the dissolution or liquidation of such
Borrower,

(D) the accuracy and completeness of the
representations and warranties set forth in the Loan
Documents to which it is or is to be a party as though made
on and as of the date of the Initial Extension of Credit,
before and after giving effect to the Initial Extension of
Credit and to the application of proceeds, if any,
therefrom, and

(E) the absence of any event occurring and continuing,
or resulting from the Initial Extension of Credit or the
application of proceeds, if any, therefrom, that constitutes
a Default.

(vii) A certificate of the Secretary or an Assistant
Secretary of each Borrower certifying the names and true
signatures of the officers of such Borrower authorized to sign
this Agreement, the Notes, each other Loan Document and each
Related Document to which it is or is to be a party and the other
agreements, instruments and other documents to be delivered
hereunder and thereunder.

(viii) A security agreement, in substantially the form of
Exhibit D hereto (together with each other security agreement
delivered pursuant to Section 5.01(q) and each Security Agreement
Supplement delivered pursuant to Section 5.02(j), in each case

<PAGE>

as amended, supplemented or otherwise modified hereafter from
time to time in accordance with Section 9.01, the "Security
--------
Agreement"), duly executed by each Borrower, together with:
---------

(A) instruments evidencing the Initial Pledged
Indebtedness, duly endorsed in blank,

(B) proper termination statements (Form UCC-3 or a
comparable form) under the Uniform Commercial Code of all
jurisdictions that may be necessary or that the Facilities
Manager may deem desirable in order to terminate or amend
existing liens on and security interests in the Collateral,
in each case completed in a manner satisfactory to the
Lender Parties and duly executed by the appropriate secured
party,

(C) proper financing statements (Form UCC-1 or a
comparable form) under the Uniform Commercial Code of all
jurisdictions that may be necessary or that the Facilities
Manager may deem desirable in order to perfect and protect
the liens and security interests created under the Security
Agreement, covering the Collateral described therein, in
each case completed in a manner satisfactory to the Lender
Parties and duly executed by the relevant Borrower,

(D) the Cash Collateral Account Letter, the L/C Cash
Collateral Account Letter and each of the Blocked and
Collection Accounts Letters, in each case duly executed by
the Borrower and the bank referred to therein, and

(E) evidence that all other actions that may be
necessary or that the Facilities Manager may deem desirable
in order to perfect and protect the liens and security
interests created under the Security Agreement have been
taken or will be taken in accordance with the terms of the
Loan Documents.

(ix) A guarantee in substantially the form of Exhibit E
hereto (together with each Guarantee Supplement delivered
pursuant to Section 5.02(j), in each case as amended,
supplemented or otherwise modified hereafter from time to time in
accordance with Section 9.01, the "Subsidiaries Guarantee"), duly
----------------------
executed by each of the Working Capital Borrowers.

(x) Certified copies of each of the Related Documents, duly
executed by the parties thereto, together with all agreements,
instruments and other documents delivered in connection
therewith.

(xi) A letter from the Borrowers to Price Waterhouse, their
independent certified public accountants, advising such
accountants that the Facilities Manager, on behalf of the Lender
Parties, has been authorized to exercise all rights of the
Borrowers to require such accountants to disclose any and all
financial statements and any other information of any kind that
they may have with respect to the Borrowers and their
Subsidiaries and directing such accountants to comply with any
reasonable request of the Facilities Manager or any Lender Party
for such information.

<PAGE>

(xii) A consent and agreement executed by the lessor of each
leasehold on which the Collateral is located that is requested by
the Lender Parties, which provides, among other things, that such
lessor waives any lien it may now or hereafter have on the
Collateral located on the premises thereof and that the
Facilities Manager has the right to receive notice of any default
by any Borrower under the lease and to repossess the Collateral
located thereon upon the occurrence and during the continuance of
an Event of Default, and such other rights as may be reasonably
requested by the Lender Parties in any such consent and
agreement.

(xiii) An environmental assessment report on certain
properties of the Borrowers and their Subsidiaries conducted by
Geraghty & Miller, an independent environmental consulting firm,
to the extent such report contains information that is
inconsistent in any material respect with, or that was not
otherwise previously disclosed as part of, the oral reports made
by Geraghty & Miller on February 6 and 7, 1995 to the Co-
Administrative Agents and the Co-Arrangers.

(xiv) An evaluation of the mining businesses of Jim Walter
Resources performed by Anderson & Schwab, an independent mining
consulting firm, to the extent such evaluation contains
information that is inconsistent in any material respect with, or
that was not otherwise previously disclosed as part of, the oral
report made by Anderson & Schwab on February 7, 1995 to the Co-
Administrative Agents and the Co-Arrangers.

(xv) Evidence of insurance of the Borrowers (including,
without limitation, insurance referred to in the Security
Agreement), naming the Facilities Manager, on behalf of itself
and the other Secured Parties, as an additional insured and loss
payee under all insurance policies to be maintained with respect
to the Collateral.

(xvi) Any additional financial, business and other
information regarding any Borrower or any of its Subsidiaries, or
any of their respective assets or operations, as the Lender
Parties shall have reasonably requested.

(xvii) A borrowing base certificate, in substantially the form
of Exhibit F hereto (the "Borrowing Base Certificate"), duly
--------------------------
completed and executed by the chief financial officer of the
Swing Line Borrower and each other Borrower requesting a
Borrowing on the date of the Initial Extension of Credit.

(xviii) One or more duly completed and executed Notices of
Working Capital Borrowing or Notices of Swing Line Borrowing.

(xix) A favorable opinion of Shackleford, Farrior, Stallings
& Evans, special counsel for the Borrowers, in form and substance
reasonably satisfactory to the Lender Parties.

(xx) A favorable opinion of New York counsel for the
Borrowers reasonably acceptable to the Lender Parties, in form
and substance reasonably satisfactory to the Lender Parties.

<PAGE>

(xxi) A favorable opinion of local counsel for the Borrowers
in Alabama, South Carolina and New Jersey, in form and substance
reasonably satisfactory to the Lender Parties.

(xxii) A favorable opinion of Shearman & Sterling, counsel for
the Co-Administrative Agents and the Co-Arrangers, in form and
substance reasonably satisfactory to the Co-Administrative Agents
and the Co-Arrangers.

SECTION 3.02. Conditions Precedent to Each Borrowing, Issuance
------------------------------------------------
and Renewal. The obligation of each Lender to make an Advance (other than
-----------
a Letter of Credit Advance made by an Issuing Bank or a Lender pursuant to
Section 2.03(c) or a Swing Line Advance made by a Lender pursuant to
Section 2.02(b)) on the occasion of each Borrowing (including the Initial
Extension of Credit), the obligation of each Issuing Bank to issue a Letter
of Credit (including the initial issuance of a Letter of Credit) or to
renew a Standby Letter of Credit, and the right of the Swing Line Borrower
to request a Swing Line Borrowing, shall be subject to the further
conditions precedent that on the date of such Borrowing, issuance or
renewal (a) the following statements shall be true (and each of the giving
of the applicable Notice of Working Capital Borrowing, Notice of Swing Line
Borrowing, Notice of Issuance or Notice of Renewal and the acceptance by
the relevant Borrower of the proceeds of such Borrowing or of such Letter
of Credit or the renewal of such Letter of Credit, as the case may be,
shall constitute a representation and warranty by such Borrower that both
on the date of such notice and on the date of such Borrowing, issuance or
renewal, such statements are true):

(i) the representations and warranties set forth in each Loan
Document are correct in all material respects on and as of such date,
before and after giving effect to such Borrowing, issuance or renewal
and to the application of the proceeds, if any, therefrom, as though
made on and as of such date;

(ii) no event has occurred and is continuing, or would result
from such Borrowing, issuance or renewal or from the application of
the proceeds, if any, therefrom, that constitutes a Default; and

(iii) for each Working Capital Advance or each Swing Line Advance
made by the Swing Line Bank or each issuance or renewal of any Letter
of Credit, (A) the aggregate Loan Values of all Eligible Collateral
exceed (B) the sum of (1) the aggregate principal amount of all
Working Capital Advances, all Letter of Credit Advances and all Swing
Line Advances outstanding on such day and (2) the aggregate Available
Amount of all Letters of Credit outstanding on such day, after giving
effect to such Advance, issuance or renewal, respectively;

and (b) the Facilities Manager shall have received such other approvals,
opinions or documents as any Lender Party through the Facilities Manager
may reasonably request.

SECTION 3.03. Determinations Under Section 3.01. For purposes
---------------------------------
of determining compliance with the conditions specified in Section 3.01,
each Lender Party shall be deemed to have consented to, approved or
accepted or to be satisfied with each document or other matter required
thereunder to be consented to or approved by, or acceptable or satisfactory
to, the Lender Parties unless an officer of the Facilities Manager
responsible for the transactions contemplated by the Loan Documents shall
have received notice from such Lender Party prior to the Initial Extension
of Credit specifying its

<PAGE>

objection thereto and, if the Initial Extension of Credit consists of a
Borrowing, such Lender Party shall not have made available to the
Facilities Manager such Lender Party's Pro Rata Share of such Borrowing.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

SECTION 4.01. Representations and Warranties of the Borrowers.
-----------------------------------------------
Each of the Borrowers represents and warrants, as of the date of the
Initial Extension of Credit and from time to time thereafter, as follows:

(a) Each Loan Party (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation, (ii) is duly qualified and in good standing as a
foreign corporation in each other jurisdiction in which it owns or
leases property or in which the conduct of its business requires it to
so qualify or be licensed, except where the failure to so qualify or
be licensed, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, and
(iii) has all requisite corporate power and authority to own or lease
and operate its properties and to carry on its business as now
conducted and as proposed to be conducted. All of the outstanding
shares of capital stock of the Swing Line Borrower have been validly
issued, are fully paid and nonassessable. All of the outstanding
shares of capital stock of each Working Capital Borrower have been
validly issued, are fully paid and nonassessable and are owned,
directly or indirectly, by the Swing Line Borrower and one or more of
its wholly owned Subsidiaries free and clear of all Liens, except
those created under the Senior Notes Documents.

(b) Set forth on Schedule 4.01(b) hereto is a complete and
accurate list of all Subsidiaries of each Loan Party, showing as of
the date of the Initial Extension of Credit (as to each such
Subsidiary) the jurisdiction of its incorporation, the number of
shares of each class of capital stock authorized and the number
outstanding, and the percentage of the outstanding shares of each such
class owned, directly or indirectly, by such Loan Party and the number
of shares covered by all outstanding warrants, rights of conversion or
purchase, options and other similar rights. All of the outstanding
shares of capital stock of each Subsidiary of each Loan Party have
been validly issued, are fully paid and nonassessable and are owned by
such Loan Party and/or one or more of its Subsidiaries free and clear
of all Liens, except those created under the Senior Notes Documents.
Each Subsidiary of each Loan Party (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) is duly qualified and in good
standing as a foreign corporation in each other jurisdiction in which
it owns or leases property or in which the conduct of its business
requires it to so qualify or be licensed, except where the failure to
so qualify or be licensed, either individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect,
and (iii) has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted.

(c) The execution, delivery and performance by each Loan Party
of this Agreement, the Notes, each other Loan Document and each
Related Document to which it is or is to be a party, and the
consummation of the Transaction and the other transactions
contemplated hereby,

<PAGE>

are within such Loan Party's corporate powers, have been duly
authorized by all necessary corporate action, and do not:

(i) contravene such Loan Party's charter or bylaws;

(ii) violate (A) any law (including, without limitation, the
Exchange Act and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of
1970), statute, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal
Reserve System) or (B) any order, writ, judgment, injunction,
decree, determination or award;

(iii) conflict with or result in the breach of, or constitute
a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or
affecting such Loan Party, any of its Subsidiaries or any of
their properties; or

(iv) except for the Liens created under the Loan Documents,
result in or require the creation or imposition of any Lien upon
or with respect to any of the properties or assets of any Loan
Party or any of its Subsidiaries.

No Loan Party or any of its Subsidiaries is in violation of any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument referred
to in the immediately preceding sentence, the violation or breach of
which, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.

(d) No authorization, approval or other action by, and no notice
to or filing with, any Governmental Authority or any other third party
is required for:

(i) the due execution, delivery, recordation, filing or
performance by any Loan Party of this Agreement, the Notes, any
other Loan Document or any Related Document to which it is or is
to be a party, or for the consummation of any aspect of the
Transaction or the other transactions contemplated hereby;

(ii) the grant by any Loan Party of the Liens granted by it
pursuant to the Collateral Documents;

(iii) the perfection or maintenance of the Liens created
under the Collateral Documents (including the first priority
nature thereof); or

(iv) the exercise by the Facilities Manager or any Lender
Party of its rights under the Loan Documents or the remedies in
respect of the Collateral pursuant to the Collateral Documents,

except for the authorizations, approvals, actions, notices and filings
set forth on Schedule 4.01(d) hereto, all of which have been duly
obtained, taken, given or made and are in full force and effect or
will be duly obtained, taken, given or made on or immediately
following the date of the Initial Extension of Credit in accordance
with Schedule 4.01(d) hereto. All applicable waiting

<PAGE>

periods in connection with each aspect of the Transaction and the
other transactions contemplated hereby have expired without any action
having been taken by any competent authority restraining, preventing
or imposing materially adverse conditions upon the Transaction or the
rights of the Loan Parties or their Subsidiaries freely to transfer or
otherwise dispose of, or to create any Lien on, any properties or
assets now owned or hereafter acquired by any of them.

(e) This Agreement has been, and each of the Notes, each other
Loan Document and each Related Document when delivered hereunder will
have been, duly executed and delivered by each Loan Party intended to
be a party thereto. This Agreement is, and each of the Notes, each
other Loan Document and each Related Document when delivered hereunder
will be, the legal, valid and binding obligation of each Loan Party
intended to be a party thereto, enforceable against such Loan Party in
accordance with its terms.

(f) The Consolidated balance sheet of the Swing Line Borrower
and its Subsidiaries as at May 31, 1994, and the related Consolidated
statements of operations and retained earnings and Consolidated
statement of cash flows of the Swing Line Borrower and its
Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Price Waterhouse, their independent certified public accountants,
and the Consolidated balance sheet of the Swing Line Borrower and its
Subsidiaries as at November 30, 1994, and the related Consolidated
statements of operations and retained earnings and Consolidated
statement of cash flows of the Swing Line Borrower and its
Subsidiaries for the six months then ended, duly certified by the
chief financial officer of the Swing Line Borrower, copies of all of
which have been furnished to each Lender Party, fairly present the
Consolidated financial condition of the Swing Line Borrower and its
Subsidiaries as at such dates and the Consolidated results of the
operations of the Swing Line Borrower and its Subsidiaries for the
period ended on such dates, all in accordance with generally accepted
accounting principles applied on a consistent basis, subject, in the
case of such balance sheet as at November 30, 1994, and such
statements of operations and retained earnings and such statement of
cash flows for the six months then ended, to year-end audit
adjustments. Since November 30, 1994, there has been no Material
Adverse Change (it being understood that the existence of an appeal of
the Confirmation Order so long as the Confirmation Order remains
unstayed does not, in and of itself, constitute a Material Adverse
Change).

(g) The Consolidated pro forma balance sheet of the Swing Line
Borrower and its Included Subsidiaries as at March 31, 1995, duly
certified by the chief financial officer of the Swing Line Borrower, a
copy of which has been furnished to each Lender Party, fairly presents
the Consolidated pro forma financial condition of the Swing Line
Borrower and its Included Subsidiaries as at such date, after giving
effect to the Transaction and the other transactions contemplated
hereby.

(h) Each of (i) the Consolidated forecasted EBIT, EBITDA and
Capital Expenditures of the Swing Line Borrower and its Included
Subsidiaries delivered to the Lender Parties pursuant to
Section 3.01(i)(iv) and (ii) the Consolidated forecasted balance
sheets, operations and retained earnings statements and cash flows
statements of the Swing Line Borrower and its Included Subsidiaries
delivered to the Lender Parties pursuant to Section 5.03(d), if any,
were prepared in good faith on the basis of the assumptions stated
therein, which assumptions the Borrowers believed to be fair in the
light of conditions existing at the time of delivery of such
forecasts, and represented, at the time of delivery, the Borrowers'
best estimate of their future financial performance.

<PAGE>

(i) None of the information, exhibits or reports furnished by or
on behalf of any Loan Party to the Facilities Manager or any Lender
Party in connection with the negotiation of the Loan Documents or
pursuant to the terms of the Loan Documents contained any untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements made therein not misleading.

(j) There is no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries, or any
of their respective properties (including, without limitation, any
Environmental Action), pending or threatened in any court or before
any arbitrator or by or before any Governmental Authority that could
reasonably be expected to (i) have a Material Adverse Effect (other
than the Disclosed Litigation) or (ii) adversely affect the legality,
validity or enforceability of any aspect of the Transaction, this
Agreement, any Note, any other Loan Document or any Related Document,
or the consummation of the other transactions contemplated hereby,
other than, in the case of clause (i) or (ii) above, an appeal of the
entry of the Confirmation Order so long as the Confirmation Order
remains unstayed; and there has been no adverse change in the status,
and no materially adverse change in the financial effect on any Loan
Party or any of its Subsidiaries, of the Disclosed Litigation from
that described on Schedule 3.01(e) hereto.

(k) No proceeds of any Advance or of drawings under any Letter
of Credit will be used to acquire any equity security of a class that
is registered pursuant to Section 12 of the Exchange Act.

(l) None of the Borrowers is engaged in the business of
extending credit for the purpose of purchasing or carrying Margin
Stock, and no proceeds of any Advance or of drawings under any Letter
of Credit will be used to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying any
Margin Stock.

(m) All of the proceeds of the Advances made to any Borrower
will be used by such Borrower solely to provide working capital for
such Borrower and its Included Subsidiaries, and all Letters of Credit
issued to any Working Capital Borrower will be used solely to support
workers' compensation, performance, trade and other obligations of
such Working Capital Borrower and its Included Subsidiaries incurred
in the ordinary course of business.

(n) The Loan Parties are the legal and beneficial owners of the
Collateral free and clear of any Lien, except for the liens and
security interests created or permitted under the Loan Documents.

(o) The Collateral Documents create a valid and perfected first
priority (subject to Permitted Liens on Equipment and Inventory)
security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly
made or taken.

(p) Set forth on Schedule 4.01(p) hereto is a complete and
accurate list as of the date of the Initial Extension of Credit of all
Plans and Multiemployer Plans.

<PAGE>

(q) No ERISA Event has occurred or could reasonably be expected
to occur with respect to any Plan, except for the reportable event
described in Department of Labor Regulation Sec. 2615.21 with respect to
the Chapter 11 proceedings of the Debtors under the Bankruptcy Code.

(r) As of the last annual actuarial valuation date, the funded
current liability percentage (as defined in Section 302(d)(8) of
ERISA) of each Plan exceeds 90%, except with respect to Plans whose
unfunded current liability does not exceed $20,000,000 in the
aggregate; and there has been no material adverse change in the
funding status of any such Plan since such date.

(s) Neither any Loan Party nor any ERISA Affiliate has incurred
or could reasonably be expected to incur any Withdrawal Liability to
any Multiemployer Plan, except for an asserted claim for Withdrawal
Liability against U.S. Pipe in the amount of $1,306,838 filed by the
Construction Laborers Pension Trust for Southern California in the
Bankruptcy Court, which claim is being disputed by the Borrowers in
good faith as of the date of this Agreement.

(t) Neither any Loan Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or has been terminated, within
the meaning of Title IV of ERISA, and no such Multiemployer Plan could
reasonably be expected to be in reorganization or to be terminated,
within the meaning of Title IV of ERISA.

(u) Except as set forth in the financial statements referred to
in this Section 4.01 and in Section 5.03, the Loan Parties and their
Subsidiaries have no material liability with respect to "expected post
retirement benefit obligations" within the meaning of Statement of
Financial Accounting Standards No. 106.

(v) Neither the business nor the properties of any Loan Party or
any of its Subsidiaries have been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that, either
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect.

(w) Except as set forth on Schedule 4.01(w) hereto, the
operations and properties of each Loan Party and each of its
Subsidiaries comply in all material respects with all applicable
Environmental Laws and all Environmental Permits, and no circumstances
exist that could reasonably be expected to (i) form the basis of an
Environmental Action against any Loan Party or any of its Subsidiaries
or any of their properties that could have a Material Adverse Effect
or (ii) cause any such property to be subject to any restrictions on
ownership, occupancy, use or transferability under any applicable
Environmental Law.

(x) Except as set forth on Schedule 4.01(x) hereto, none of the
properties owned or operated by any Loan Party or any of its
Subsidiaries is listed or proposed for listing on the NPL or on the
CERCLIS, or on any analogous state or local list; no underground
storage tanks (as defined in 42 U.S.C.Sec. 6991) are located on any
property owned or operated by any Loan Party or any of its
Subsidiaries, except in compliance with all applicable Environmental
Laws and all Environmental Permits; and Hazardous Materials have not
been released or disposed of on, generated, used, treated, handled or
stored at, or transported to or from, any property currently

<PAGE>

or formerly owned or operated by any Loan Party or any of its
Subsidiaries in violation of any applicable Environmental Laws or in a
manner that, either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.

(y) Neither any Loan Party nor any of its Subsidiaries is a
party to any indenture, any loan or credit agreement, any lease or any
other agreement or instrument, or is subject to any charter or
corporate restriction that, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.

(z) Each Loan Party and each of its Subsidiaries and Affiliates
has filed, has caused to be filed or has been included in all tax
returns (federal, state, local and foreign) required to be filed and
has paid all taxes shown thereon to be due, together with applicable
interest and penalties, except for taxes that have not been paid as a
result of the filing of the Chapter 11 proceedings of the Debtors,
which taxes will be paid promptly upon consummation of the Plan of
Reorganization.

(aa) Set forth on Schedule 4.01(aa) hereto is a complete and
accurate list, as of the date of the Initial Extension of Credit, of
each taxable year of each Borrower and each of its Subsidiaries and
Affiliates for which federal income tax returns have been filed and
for which the expiration of the applicable statute of limitations for
assessment or collection has not occurred by reason of extension or
otherwise (an "Open Year").
---------

(bb) The aggregate unpaid amount, as of the date of the Initial
Extension of Credit, of adjustments to (i) the federal income tax
liability (including, without limitation, interest and penalties) of
each of the Borrowers and each of their Subsidiaries and Affiliates
proposed by the Internal Revenue Service with respect to Open Years
does not exceed $193,000,000 plus any interest that would accrue on a
portion of such claims that are post-petition administrative claims
and (ii) the state, local and foreign income tax and franchise tax
liability (including, without limitation, interest and penalties) of
each of the Borrowers and each of their Subsidiaries and Affiliates
proposed by all state, local and foreign taxing authorities (other
than amounts arising from adjustments to federal income tax returns)
does not exceed $6,000,000. No issues have been raised by the
Internal Revenue Service in respect of Open Years or by such federal,
state, local and foreign taxing authorities that, either individually
or in the aggregate, could reasonably be expected to have a Material
Adverse Effect.

(cc) Neither any Loan Party nor any of its Subsidiaries is an
"investment company", or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company" (each as defined
in the Investment Company Act of 1940, as amended). Neither the
making of any Advances, nor the issuance of any Letters of Credit, nor
the application of the proceeds or repayment thereof by any Borrower,
nor the consummation of the other transactions contemplated hereby,
will violate any provision of such Act or any rule, regulation or
order of the Securities and Exchange Commission thereunder.

(dd) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.

(ee) Set forth on Schedule 4.01(ee) hereto is a complete and
accurate list as of the date of the Initial Extension of Credit of all
Surviving Indebtedness, showing as of such date each

<PAGE>

Borrower and each of its Subsidiaries party thereto, the principal
amount outstanding thereunder and the scheduled maturity thereof.

(ff) Set forth on Schedule 4.01(ff) hereto is a complete and
accurate list as of the date of the Initial Extension of Credit of all
leases of real property under which any Loan Party or any of its
Included Subsidiaries is the lessee (other than mineral leases
constituting leases of real property), showing as of such date the
street address, county or other relevant jurisdiction, state, lessor,
lessee, expiration date and annual rental cost thereof. Each lease
referred to in the immediately preceding sentence is, to the best of
the Borrowers' knowledge, the legal, valid and binding obligation of
the lessor thereof, enforceable in accordance with its terms.

(gg) Set forth on Schedule 4.01(gg) hereto is a complete and
accurate list of all Material Contracts of each Loan Party and each of
its Included Subsidiaries, showing as of the date of delivery of such
Schedule or of the most recent amendment or supplement thereto
delivered pursuant to Section 5.03(f) the parties thereto, and the
subject matter and the term thereof. Each Material Contract has been
duly authorized, executed and delivered by all parties thereto, has
not been amended or otherwise modified in any material respect, is in
full force and effect, and is binding upon and enforceable against all
parties thereto in accordance with its terms. There exists no default
under any Material Contract by any party thereto.

(hh) Set forth on Schedule 4.01(hh) hereto is a complete and
accurate list of all Investments (other than Cash Equivalents and
loans and advances to employees otherwise permitted under Section
5.02(f)(viii)) held by any Loan Party or any of its Included
Subsidiaries, showing as of the date of delivery of such Schedule or
of the most recent amendment or supplement thereto delivered pursuant
to Section 5.03(f) the amount, obligor or issuer and maturity, if any,
thereof.

ARTICLE V

COVENANTS OF THE BORROWERS

SECTION 5.01. Affirmative Covenants. So long as any Advance
---------------------
shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender Party shall have any Commitment hereunder, each Borrower will:

(a) Compliance with Laws, Etc. (i) Comply, and cause each of
-------------------------
its Subsidiaries to comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to
include, without limitation, compliance with ERISA and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime
Control Act of 1970, and (ii) duly observe, and cause each of its
Subsidiaries to duly observe in all material respects all requirements
of all applicable Governmental Authorities (including, without
limitation, observance of all statutes, rules and regulations relating
to public and employee health, safety and welfare), except, in the
case of clause (i) or (ii) above, where such failure to comply or
observe, either individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect. This Section
5.01(a) shall not apply to compliance with Environmental Laws (which
is the subject of Section 5.01(c)).

<PAGE>

(b) Payment of Taxes, Etc. Pay and discharge, and cause each of
---------------------
its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property and (ii) all lawful claims
that, if unpaid, might by law become a Lien upon its property and
assets or any part thereof; provided, however, that neither any
Borrower nor any of its Subsidiaries shall be required to pay or to
discharge any such tax, assessment, charge, levy or claim that is
being contested in good faith and by proper proceedings and as to
which appropriate reserves are being maintained in accordance with
GAAP, unless and until any Lien resulting therefrom attaches to its
property and assets and becomes enforceable against its other
creditors.

(c) Compliance with Environmental Laws. Comply, and cause each
----------------------------------
of its Subsidiaries and all lessees and other Persons operating or
occupying its properties to comply in all material respects with all
applicable Environmental Laws and all Environmental Permits; obtain
and renew, and cause each of its Subsidiaries to obtain and renew, all
Environmental Permits necessary for its operations and properties,
except where the failure to renew such Environmental Permits, either
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect; and conduct, and cause each of its
Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up all Hazardous Materials from any of
its properties, in accordance with the requirements of all applicable
Environmental Laws, except where the failure to conduct any such
investigation, study, sampling and testing or to undertake any such
cleanup, removal, remedial or other action, either individually or in
the aggregate, could not reasonably be expected to have a Material
Adverse Effect and could not reasonably be expected to subject any
Loan Party or any of its Subsidiaries to any civil or criminal
penalties (other than nonmaterial fines) or the Facilities Manager or
any Lender Party to any civil or criminal penalties; provided,
however, that neither any Borrower nor any of its Subsidiaries shall
be required to undertake any cleanup, removal, remedial or other
action specified in this Section 5.01(c) to the extent that its
obligation to do so is being contested in good faith and by proper
proceedings and appropriate reserves are being maintained in
accordance with GAAP with respect to such circumstances.

(d) Maintenance of Insurance. Maintain, and cause each of its
------------------------
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations, or in a self-insurance program
to the extent consistent with prudent business practice and otherwise
customary in their respective industries, in such amounts and covering
such risks as are usually carried by companies engaged in similar
businesses and owning similar properties and assets in the same
general areas in which such Borrower or such Subsidiary operates.

(e) Preservation of Corporate Existence, Etc. Preserve and
----------------------------------------
maintain, and cause each of its Subsidiaries to preserve and maintain,
its corporate existence, rights (charter and statutory), Licenses,
privileges and franchises; provided, however, that the Borrowers and
their Subsidiaries may consummate any merger, consolidation or other
transaction otherwise permitted under Section 5.02(d); and provided
further, however, that neither any Borrower nor any of its
Subsidiaries shall be required to preserve any right, License,
privilege or franchise if the Board of Directors of such Borrower or
such Subsidiary shall determine in good faith that the preservation
thereof is no longer desirable in the conduct of the business of such
Borrower or such Subsidiary, as the case may be, and that the loss
thereof is not disadvantageous in any material respect to such
Borrower, such Subsidiary or the Lender Parties.

<PAGE>

(f) Inspection Rights. From time to time during normal business
-----------------
hours, upon reasonable notice, (i) permit the Facilities Manager or
any of the Lender Parties, or any agents or representatives thereof,
to examine and make copies of and abstracts from the records and books
of account of, and to visit the properties (including, without
limitation, to perform collateral valuation reviews from time to time
to assess the composition of the Eligible Collateral and the Loan
Values attributable thereto) of, any Borrower and any of its
Subsidiaries, and to discuss the affairs, finances and accounts of any
Borrower and any of its Subsidiaries with any of their officers or
directors and with their independent certified public accountants,
(ii) permit the Facilities Manager, on behalf of the Lender Parties,
to review copies of all Revenue Agency Reports and any other written
proposals of the Internal Revenue Service and to discuss with the
Swing Line Borrower the status of any of their discussions with the
Internal Revenue Service and (iii) take such further action as may be
necessary to authorize its independent certified public accountants to
disclose to the Facilities Manager, on behalf of the Lender Parties,
any and all financial statements and other information of any kind
(including, without limitation, copies of any management letter or the
substance of any information that such accountants may have with
respect to the business, financial condition or results of operations
of any Borrower or any of its Subsidiaries).

(g) Preparation of Environmental Reports. At the request of the
------------------------------------
Required Lenders from time to time but in any event not more than once
every two years for any such property, or upon the occurrence and
during the continuance of an Event of Default, provide to the Lender
Parties within 90 days after such request, at the expense of the
Borrower that owns such property, an environmental site assessment
report or update report for each of the properties of such Borrower or
any of its Subsidiaries described in such request, prepared by an
environmental consulting firm acceptable to the Facilities Manager,
indicating the presence or absence of Hazardous Materials and the
estimated cost of any compliance, removal or remedial action in
connection with any Hazardous Materials on such properties. Without
limiting the generality of the immediately preceding sentence, if the
Required Lenders determine at any time that a material risk exists
that any such report will not be provided within the time referred to
above, the Facilities Manager, on behalf of the Lender Parties, may
retain an environmental consulting firm to prepare such report at the
expense of the Borrowers, and such Borrower hereby grants and agrees
to cause any of its Subsidiaries that owns any property described in
such request to grant, at the time of such request, to the Facilities
Manager, the Lender Parties, such firm and any agents or
representatives thereof an irrevocable nonexclusive license, subject
to the rights of tenants, to enter onto their respective properties to
undertake such an assessment.

(h) Keeping of Books. Keep, and cause each of its Subsidiaries
----------------
to keep, proper books of record and account, in which full and correct
entries shall be made of all financial transactions and the assets and
business of such Borrower and each such Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.

(i) Maintenance of Properties, Etc. (i) Maintain and preserve,
------------------------------
and cause each of its Subsidiaries to maintain and preserve, all of
its properties that are used or useful in the conduct of its business
in good working order and condition, ordinary wear and tear excepted
and (ii) make, and cause each of its Subsidiaries to make, from time
to time, all necessary repairs, renewals, additions, replacements,
betterments and improvements of such properties in order to permit the
business and activities carried on in connection therewith to be
properly conducted at all times.

<PAGE>

(j) Compliance with Terms of Leaseholds. (i) Make all payments
-----------------------------------
and otherwise perform all obligations in respect of all leases of real
property to which such Borrower or any of its Subsidiaries is a party,
keep such leases in full force and effect and not allow such leases to
lapse or be terminated or any rights to renew such leases to be
forfeited or cancelled, in each case except to the extent that, in the
reasonable business judgment of such Borrower or any of its
Subsidiaries that is the lessee thereof, it is in the best interest of
such Borrower or such Subsidiary, as the case may be, to allow or to
cause such nonperformance, lapse, termination, forfeiture or
cancellation, and such nonperformance, lapse, termination, forfeiture
or cancellation, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect or to impair
the rights or interest of the Facilities Manager or any Lender Party
in any material manner, and (ii) promptly notify the Facilities
Manager of (A) any default by any party with respect to such leases
and cooperate with the Facilities Manager in all respects to cure any
such default and (B) any nonperformance, lapse, termination,
forfeiture or cancellation of any lease otherwise permitted under
clause (i) of this Section 5.01(j), and, in respect of each of the
foregoing provisions of this Section 5.01(j), cause each of its
Subsidiaries to do so.

(k) Performance of Related Documents and Material Contracts.
-------------------------------------------------------
(i) Perform and observe all of the terms and provisions of each
Related Document and each Material Contract to be performed or
observed by it, maintain each such Related Document and each such
Material Contract in full force and effect and enforce each such
Related Document and each such Material Contract in accordance with
its terms, in each case except to the extent as, either individually
or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect or to impair the rights or interest of the
Facilities Manager or any Lender Party in any material manner, and
take all such action to such end as may be reasonably requested from
time to time by the Facilities Manager, and (ii) promptly upon request
of the Facilities Manager, make to each other party to each such
Related Document and each such Material Contract such demands and
requests for information and reports or for action as any Borrower or
any of its Subsidiaries is entitled to make under such Related
Document or such Material Contract, and, in respect of each of the
foregoing provisions of this Section 5.01(k), cause each of its
Subsidiaries to do so.

(l) Maintenance of Mortgage Warehouse Facility. In the case of
------------------------------------------
the Swing Line Borrower, cause Mid-State to maintain a mortgage
warehousing program in an aggregate amount of at least $500,000,000
(the availability of which may be subject to substantially the same
criteria as those included in the documentation evidencing the
Mortgage Warehousing Facility on the date of this Agreement) and
otherwise on substantially the same terms as the terms of the Mortgage
Warehousing Facility.

(m) Transactions with Affiliates. Conduct, and cause each of
----------------------------
its Subsidiaries to conduct, directly or indirectly, all transactions
otherwise permitted under the Loan Documents with any of their
Affiliates on terms that are fair and reasonable and no less favorable
to such Borrower or such Subsidiary than it would obtain in a
comparable arm's-length transaction with a Person that is not an
Affiliate, other than:

(i) the consummation by the Borrowers and their
Subsidiaries of the Transaction;

<PAGE>

(ii) any employment arrangement entered into by such
Borrower or any of its Subsidiaries in the ordinary course of
business and consistent with the past practices of such Borrower
or such Subsidiary, as the case may be;

(iii) transactions between or among such Borrower and its
wholly owned Subsidiaries or between or among wholly owned
Subsidiaries of such Borrower, in each case to the extent
otherwise permitted under the terms of the Loan Documents; and

(iv) the declaration and payment of dividends and the making
of distributions to all holders of any class of capital stock of
such Borrower or any of its Subsidiaries to the extent otherwise
permitted under Section 5.02(g);

provided that, notwithstanding the foregoing provisions of this
Section 5.01(m), neither any Borrower nor any of its Subsidiaries
shall conduct any transaction or series of related transactions (other
than transactions or series of transactions between or among such
Borrower and its wholly owned Subsidiaries or between or among wholly
owned Subsidiaries of such Borrower otherwise permitted under clause
(iii) of this Section 5.01(m)), directly or indirectly, with any of
its Affiliates (1) having an aggregate value or resulting in aggregate
consideration of more than $1,000,000 unless such Borrower or such
Subsidiary has obtained the approval of the majority of the Board of
Directors of the Swing Line Borrower (including a majority of the
disinterested directors of such Board of Directors) for such
transaction or transactions and (2) having an aggregate value or
resulting in aggregate consideration of more than $5,000,000 (other
than any such transaction or series of transactions relating to the
rendering of services, including, without limitation, underwriting,
financial advisory and other similar services) unless such Borrower or
such Subsidiary has delivered to the Facilities Manager, on behalf of
the Lender Parties, an opinion of an independent investment banking
firm or appraisal firm of national standing stating that such
transaction or series of transactions are fair to such Borrower or
such Subsidiary, as the case may be, from a financial point of view.

(n) Cash Collateral Accounts. Maintain:
------------------------

(i) in the case of the Swing Line Borrower, the Cash
Collateral Account with Citibank or another bank selected by the
Swing Line Borrower and reasonably acceptable to the Facilities
Manager that has accepted the assignment of such account to the
Facilities Manager pursuant to the terms of the Security
Agreement and the Cash Collateral Account Letter; and

(ii) in the case of the Working Capital Borrowers, (A) the
L/C Cash Collateral Account with Citibank in accordance with the
terms of the Security Agreement and the L/C Cash Collateral
Account Letter and (B) the Blocked Accounts and the Collection
Accounts into which all proceeds of Collateral are paid at or
prior to the end of each Business Day with Citibank or one or
more banks selected by the Working Capital Borrowers and
reasonably acceptable to the Facilities Manager that have
accepted the assignment of such accounts to the Facilities
Manager pursuant to the terms of the Security Agreement and the
Blocked and Collection Accounts Letters.

<PAGE>

(o) UCC Financing Statements, Search Reports, Etc. As promptly
---------------------------------------------
as practicable after the date of the Initial Extension of Credit,
furnish to the Facilities Manager:

(i) acknowledgment copies or stamped receipt copies of all
termination statements referred to in Section 3.01(m)(viii)(B)
and of all financing statements referred to in Section
3.01(m)(viii)(C), and

(ii) completed requests for information listing the
financing statements referred to in Section 3.01(m)(viii)(C) and
all other effective financing statements filed in the
jurisdictions referred to in Section 3.01(m)(viii)(C) that name
any Borrower as debtor, together with copies of such other
financing statements.

(p) Further Assurances. (i) Promptly upon the request of the
------------------
Facilities Manager, or the Required Lenders through the Facilities
Manager, at any time and from time to time, correct, and cause each of
its Subsidiaries to correct, any defect or error that may be
discovered in any Loan Document or in the execution, acknowledgment,
filing or recordation thereof and (ii) promptly upon the request of
the Facilities Manager, or the Required Lenders through the Facilities
Manager, do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register, and cause each of its Subsidiaries
promptly to do, execute, acknowledge, deliver, record, re-record,
file, re-file, register and re-register, any and all further acts,
conveyances, pledge agreements, assignments, estoppel certificates,
financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates, assurances
and other instruments as the Facilities Manager, or the Required
Lenders through the Facilities Manager, may reasonably require from
time to time in order to (A) carry out more effectively the purposes
of this Agreement, the Notes or any other Loan Document, (B) subject
any of the properties, assets, rights or interests of any Borrower or
any of its Subsidiaries included or intended to be included in the
Collateral to the Liens created or now or hereafter intended to be
created under any of the Collateral Documents, (C) perfect and
maintain the validity, effectiveness and priority of any of the
Collateral Documents or any of the Liens created or intended to be
created thereunder and (D) assure, convey, grant, assign, transfer,
preserve, protect and confirm more effectively unto the Facilities
Manager and the Secured Parties the rights granted or now or hereafter
intended to be granted to the Facilities Manager and the Secured
Parties under any Loan Document or under any other instrument executed
in connection with any Loan Document to which any Loan Party or any of
its Subsidiaries is or is to be a party.

(q) Covenant to Give Security. Upon the reasonable request of
-------------------------
the Facilities Manager following the occurrence and during the
continuance of a Default under Section 7.01(a) or 7.01(f) or an Event
of Default, and at the expense of the Borrowers:

(i) within ten days after such request, furnish to the
Facilities Manager a description of the real and personal
properties of each Borrower and each of its Subsidiaries in
detail satisfactory to the Facilities Manager;

(ii) within 15 days after such request, duly execute and
deliver to the Facilities Manager mortgages, pledges, assignments
and other security agreements, as specified by and in form and
substance reasonably satisfactory to the Facilities Manager,
securing payment of all the Obligations of the Loan Parties under
the Loan Documents and constituting Liens on all such properties;

<PAGE>

(iii) within 30 days after such request, take whatever action
(including, without limitation, the recording of mortgages, the
filing of Uniform Commercial Code financing statements, the
giving of notices and the endorsement of notices on title
documents) may be necessary or advisable in the opinion of the
Facilities Manager to vest in the Facilities Manager (or in any
representative of the Facilities Manager designated by it) valid
and subsisting Liens on the properties purported to be subject to
the mortgages, pledges, assignments and other security agreements
delivered pursuant to this Section 5.01(q), enforceable against
all third parties in accordance with their terms;

(iv) within 60 days after such request, deliver to the
Facilities Manager a signed copy of a favorable opinion of
counsel for the Loan Parties, addressed to the Facilities Manager
and reasonably acceptable to the Facilities Manager, as to the
matters contained in clauses (ii) and (iii) of this Section
5.01(q), as to such mortgages, pledges, assignments and other
security agreements being legal, valid and binding obligations of
the Loan Parties intended to be party thereto, enforceable in
accordance with their terms, and as to such other matters as the
Facilities Manager may reasonably request; and

(v) at any time and from time to time, promptly execute and
deliver any and all further instruments and documents and take
all such other actions as the Facilities Manager may deem
desirable in obtaining the full benefits of, or in preserving the
Liens of, such mortgages, pledges, assignments or other security
agreements.

Notwithstanding the foregoing provisions of this Section 5.01(q), the
Lender Parties shall not be entitled to a pledge of the shares of
common stock of any Subsidiary of the Borrowers so long as the Senior
Notes or any Indebtedness refinancing or replacing the Senior Notes is
outstanding.

SECTION 5.02. Negative Covenants. So long as any Advance shall
------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, each Borrower will not, at any
time:

(a) Liens, Etc. Create, incur, assume or suffer to exist, or
----------
permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any Lien on or with respect to any of its properties of any
character (including, without limitation, accounts), whether now owned
or hereafter acquired, or sign or file or suffer to exist, or permit
any of its Subsidiaries to sign or file or suffer to exist, under the
Uniform Commercial Code of any jurisdiction, a financing statement
that names such Borrower or any of its Subsidiaries as debtor, or sign
or suffer to exist, or permit any of its Subsidiaries to sign or
suffer to exist, any security agreement authorizing any secured party
thereunder to file such financing statement, or assign, or permit any
of its Subsidiaries to assign, any accounts or other right to receive
income, excluding, however, from the operation of the foregoing
restrictions the following:

(i) Liens created under the Loan Documents;

(ii) Permitted Liens;

(iii) Liens existing on the date hereof and described on
Schedule 5.02(a) hereto;

<PAGE>

(iv) Liens on the shares of common stock of Subsidiaries of
the Swing Line Borrower in favor of the holders of the Senior
Notes pursuant to the terms set forth in the Senior Notes
Documents;

(v) Liens on certain property and assets of Jim Walter
Homes and Mid-State (i) pursuant to the terms of the
documentation evidencing the Mortgage-Backed Securities and the
Mortgage Warehousing Facility or (ii) securing Indebtedness
incurred under Section 5.02(b)(iii)(C);

(vi) the obligation of Mid-State or Jim Walter Homes (A) to
repurchase Accounts pursuant to Section 3(b) of the Depositor
Account Transfer Agreement and (B) to repurchase Foreclosure
Accounts pursuant to the terms of Section 4 of the Depositor
Account Transfer Agreement; provided that any Indebtedness
related to such obligation shall otherwise be permitted under the
Loan Documents;

(vii) purchase money Liens upon or in real property or
equipment acquired or held by such Borrower or any of its
Subsidiaries in the ordinary course of business to secure the
purchase price of such real property or equipment or to secure
Indebtedness incurred solely for the purpose of financing the
acquisition, construction or improvement of such real property or
equipment to be subject to such Liens, or Liens existing on any
such real property or equipment at the time of its acquisition
(other than any such Liens created in contemplation of such
acquisition that do not secure the purchase price of such real
property or equipment); provided, however, that no such Lien
shall extend to or cover any property other than the real
property or equipment being acquired, constructed or improved;
and provided further that any Indebtedness secured by such Liens
shall otherwise be permitted under the terms of the Loan
Documents;

(viii) Liens arising in connection with Capitalized Leases
permitted under Section 5.02(b)(vii)(C); provided that no such
Lien shall extend to or cover any Collateral or any property or
assets other than the assets subject to such Capitalized Leases;

(ix) deposits to secure the performance of leases of
property (whether real, personal or mixed) of the Borrowers and
their Subsidiaries (excluding Capitalized Leases) in the ordinary
course of business, provided that any such lease is permitted to
be maintained under Section 5.02(c); and

(x) the replacement, extension or renewal of any Lien
permitted under clauses (iii), (iv), (v), (vii) and (viii) of
this Section 5.02(a) solely upon or in the same property and
assets theretofore subject thereto; provided that any
Indebtedness secured by such Liens shall otherwise be permitted
under the terms of the Loan Documents.

(b) Indebtedness. Create, incur, assume or suffer to exist, or
------------
permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any Indebtedness other than:

(i) in the case of the Swing Line Borrower,

(A) Indebtedness evidenced by the Senior Notes, and

<PAGE>

(B) Indebtedness owed to one or more of its wholly
owned Subsidiaries (other than Mid-State or Cardem),
provided that any such Indebtedness shall be (1) incurred
in the ordinary course of the Swing Line Borrower's
business pursuant to and in accordance with the cash
management system of the Borrowers and their Subsidiaries
in effect on the date of this Agreement, (2) subordinated
to all Indebtedness of the Swing Line Borrower under the
Loan Documents on terms substantially in the form of
Exhibit G hereto and otherwise on terms reasonably
acceptable to the Facilities Manager and (3) evidenced by
a promissory note in form and substance reasonably
satisfactory to the Facilities Manager, which, if such
Indebtedness is owed to another Loan Party, shall be
pledged to the Facilities Manager, on behalf of the
Secured Parties, under the Collateral Documents
immediately upon its creation, provided, however, that at
the time any such Indebtedness is incurred, no Default
shall have occurred and be continuing or shall occur as a
consequence thereof;

(ii) in the case of the Working Capital Borrowers,
Indebtedness of any such Working Capital Borrower owed to one or
more other Borrowers or to one or more of their wholly owned
Subsidiaries (other than Mid-State or Cardem), provided that any
such Indebtedness shall be (1) incurred in the ordinary course of
such Working Capital Borrower's business pursuant to and in
accordance with the cash management system of the Borrowers and
their Subsidiaries in effect on the date of this Agreement, (2)
subordinated to all Indebtedness of such Working Capital Borrower
under the Loan Documents on terms substantially in the form of
Exhibit G hereto and otherwise on terms reasonably acceptable to
the Facilities Manager and (3) evidenced by a promissory note in
form and substance reasonably satisfactory to the Facilities
Manager, which, if such Indebtedness is owed to another Loan
Party, shall be pledged to the Facilities Manager, on behalf of
the Secured Parties, under the Collateral Documents immediately
upon its creation, provided, however, that at the time any such
Indebtedness is incurred, no Default shall have occurred and be
continuing or shall occur as a consequence thereof;

(iii) in the case of Mid-State,

(A) non-recourse Indebtedness evidenced by the
Mortgage-Backed Securities,

(B) limited recourse Indebtedness created under the
Mortgage Warehousing Facility,

(C) non-recourse Indebtedness resulting from the
issuance of additional securities by one or more special
purpose Subsidiaries of Mid-State, secured or otherwise
supported by certain building and installment contracts
and related mortgages and instruments of Jim Walter Homes,
which securities shall not restrict the actions or
businesses of any Borrower or any of its Subsidiaries
(other than Mid-State) in any manner and shall not require
any guarantee or other credit support from any Borrower or
any of its Subsidiaries; and

<PAGE>

(iv) in the case of Jim Walter Homes, (A) Indebtedness
resulting from the contingent obligations of Jim Walter Homes (1)
to repurchase Accounts pursuant to Section 3(b) of the Depositor
Account Transfer Agreement, (2) to repurchase Foreclosure
Accounts pursuant to the terms of Section 4 of the Depositor
Account Transfer Agreement and (3) to indemnify certain
Indemnitees referred to in the Depositor Account Transfer
Agreement for expenses incurred thereby on the terms set forth in
Section 6 of the Depositor Account Transfer Agreement; provided
that the aggregate amount of Indebtedness incurred under
subclauses (iv)(A)(1) and (iv)(B)(3) shall not exceed $5,000,000
at any time, and (B) Indebtedness owed to Mid-State resulting
from the receipt of proceeds from the issuance and sale of the
Mortgage-Backed Securities otherwise permitted under subclause
(iii)(A) of this Section 5.02(b) or the additional securities
otherwise permitted under subclause (iii)(C) of this Section
5.02(b);

(v) in the case of any Subsidiary of any Borrower (other
than another Borrower), Indebtedness owed to any Borrower,
provided that any such Indebtedness shall be evidenced by a
promissory note in form and substance reasonably satisfactory to
the Facilities Manager, which shall be pledged to the Facilities
Manager, on behalf of the Secured Parties, under the Collateral
Documents immediately upon its creation;

(vi) in the case of the Borrowers and the other Loan
Parties, if any, Indebtedness under the Loan Documents; and

(vii) in the case of any or all of the Borrowers and their
Subsidiaries,

(A) Surviving Indebtedness,

(B) Indebtedness secured by Liens permitted by
Section 5.02(a)(vii) in an aggregate principal amount not to
exceed the lesser of (1) 90% of the cost of such real
property, equipment, construction or improvement at the time
of acquisition, construction or improvement thereof or (2)
when aggregated with the principal amount of all other
Indebtedness incurred under this subclause (vii)(B) and
subclause (vii)(C) of this Section 5.02(b), $20,000,000 at
any time outstanding,

(C) (1) Capitalized Leases that, when aggregated with
the principal amount of all other Indebtedness incurred
under this subclause (vii)(C) and subclause (vii)(B) of this
Section 5.02(b), do not to exceed $20,000,000 at any time
outstanding and (2) in the case of Capitalized Leases to
which a Subsidiary of any Borrower is a party, Indebtedness
of such Borrower of the type described in clause (j) of the
definition of "Indebtedness" guaranteeing the Obligations of
such Subsidiary under such Capitalized Leases,

(D) Indebtedness in respect of interest rate Hedge
Agreements incurred in the ordinary course of business and
consistent with prudent business practice in an aggregate
notional amount not to exceed $200,000,000 at any time
outstanding less the aggregate notional amount of any Hedge
Agreements constituting an Investment made under Section
5.02(f)(iii), provided that such

<PAGE>

Hedge Agreements shall be nonspeculative in nature
(including, without limitation, with respect to the term and
purpose thereof),

(E) Indebtedness in respect of Hedge Agreements
comprised of commodity future or option contracts incurred
in the ordinary course of business, provided that such Hedge
Agreements shall be nonspeculative in nature (including,
without limitation, with respect to the term and purpose
thereof),

(F) unsecured Indebtedness not otherwise permitted
under this Section 5.02(b) incurred in the ordinary course
of business, maturing within one year from the date created,
and aggregating, on a Consolidated basis, not more than
$10,000,000 at any time outstanding,

(G) Indebtedness extending the maturity of, or
refunding or refinancing, in whole or in part, any
Indebtedness incurred under subclauses (i)(A), (iii)(B),
(vii)(A) through (vii)(C) and (vii)(F) of this Section
5.02(b), provided, however, that the terms of any such
extension, refunding or refinancing Indebtedness (and of any
agreement entered into and of any instrument issued in
connection therewith) are no less favorable to the
Facilities Manger and the Lender Parties than the terms of
the Indebtedness so extended, refunded or refinanced and are
otherwise expressly permitted under the terms of the Loan
Documents, and provided further, however, that (1) the
aggregate principal amount of such extended, refunding or
refinancing Indebtedness shall not be increased above the
outstanding principal amount thereof immediately prior to
such extension, refunding or refinancing, (2) the direct and
contingent obligors therefor shall not be changed as a
result of or in connection with such extension, refunding or
refinancing and (3) immediately before and immediately after
giving effect to any such extension, refunding or
refinancing, no Default shall have occurred and be
continuing, and

(H) endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course
of business.

(c) Lease Obligations. Create, incur, assume or suffer to
-----------------
exist, or permit any of its Subsidiaries to create, incur, assume or
suffer to exist, any obligations as lessee for the rental or hire of
(i) real or personal property in connection with any sale and
leaseback transaction or (ii) other real or personal property of any
kind under leases or agreements to lease (excluding Capitalized
Leases) having an original term of one year or more that would cause
the direct and contingent liabilities of the Borrowers and their
Subsidiaries, on a Consolidated basis, in respect of all such
obligations to exceed $30,000,000 payable in any period of 12
consecutive months.

(d) Mergers, Etc. Merge into or consolidate with any Person or
------------
permit any Person to merge into it, or permit any of its Subsidiaries
to do so, except that:

(i) any Included Subsidiary of the Borrowers may merge into
or consolidate with any other Included Subsidiary of the
Borrowers so long as, in the case of any such merger or
consolidation,

<PAGE>

(A) the Person formed by such merger or consolidation
shall be a wholly owned Subsidiary of the Borrowers and, if
only one of the Included Subsidiaries party to such merger
or consolidation is a Working Capital Borrower, the Included
Subsidiary that is a Working Capital Borrower shall be the
surviving corporation,

(B) the surviving corporation formed by such merger or
consolidation (A) shall assume all of the Obligations of the
Subsidiaries parties to such merger or consolidation under
the Loan Documents in a writing satisfactory in form and
substance to the Required Lenders and (B) shall take or have
taken all action required under Section 5.01(p) and
under Section 10 of the Security Agreement, and shall take
or have taken such other action as may be necessary or as
the Facilities Manager may deem desirable and may request,
in order to preserve the Liens, and continue the perfection
thereof with the same priority, as granted and provided for
or purported to be granted and provided for under the
Collateral Documents,

(C) such merger or consolidation shall be effected in
compliance with all applicable laws, and all necessary
consents and approvals shall have been obtained from, and
all necessary filings shall have been made with, all
applicable Governmental Authorities,

(D) the Included Subsidiaries parties to such merger
or consolidation shall be engaged in substantially the same
lines of business in the ordinary course, or in one or more
lines of business directly related thereto, prior to
effecting such merger or consolidation,

(E) immediately before and immediately after giving
effect thereto, no Default shall have occurred and be
continuing, and

(F) the Borrowers shall notify the Facilities Manager
of the proposed merger or consolidation at least five
Business Days prior to effecting such merger or
consolidation; and

(ii) any Working Capital Borrower or any of its Subsidiaries
may merge into or consolidate with any other Person (other than
the Swing Line Borrower or any Subsidiary of any Borrower) so
long as, in the case of any such merger or consolidation,

(A) the Person formed by such merger or consolidation
shall be a wholly owned Subsidiary of the Borrowers and, if
a Working Capital Borrower is a party to such merger or
consolidation, such Working Capital Borrower shall be the
surviving corporation,

(B) such merger or consolidation shall be effected in
compliance with all applicable laws, and all necessary
consents and approvals shall have been obtained from, and
all necessary filings shall have been made with, all
applicable Governmental Authorities,

<PAGE>

(C) the parties to such merger or consolidation shall
be engaged in substantially the same lines of business in
the ordinary course, or in one or more lines of business
directly related thereto, prior to effecting such merger or
consolidation,

(D) the Person with whom such Working Capital Borrower
or such Subsidiary is merging or consolidating shall have no
material contingent liabilities (as determined in good faith
by the Board of Directors of the Swing Line Borrower),

(E) immediately before and immediately after giving
effect thereto, no Default shall have occurred and be
continuing, and

(F) the Borrowers shall notify the Facilities Manager
of the proposed merger or consolidation at least five
Business Days prior to effecting such merger or
consolidation.

(e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
---------------------
dispose of, or permit any of its Subsidiaries to sell, lease, transfer
or otherwise dispose of, any property or assets (including, without
limitation, any shares of capital stock), or grant any option or other
right to purchase, lease or otherwise acquire any property or assets,
except:

(i) sales of Inventory in the ordinary course of its
business;

(ii) in a transaction otherwise permitted under
Section 5.02(a), 5.02(d), 5.02(f) or 5.02(g);

(iii) transfers and dispositions of property and assets made
as part of the consummation of the Transaction on the terms set
forth in the plan of reorganization approved in the Confirmation
Order;

(iv) sales of building and installment contracts and related
mortgages and instruments by Jim Walter Homes to Mid-State on
terms no less favorable to Jim Walter Homes than the terms for
such sales set forth in the Mortgage Warehousing Facility;

(v) sales for fair value of damaged, worn-out or obsolete
Equipment of the Borrowers and their Subsidiaries that is no
longer used or useful in the conduct of their business in an
aggregate amount not to exceed $2,000,000 in any Fiscal Year;

(vi) sales and transfers of all (but not less than all) of
the shares of capital stock of any of JW Window, Southern
Precision or Vestal, or of any other Subsidiary of any Borrower
that is not a Loan Party, so long as, in the case of any such
sale or transfer,

(A) the aggregate amount of proceeds received is at
least equal to the Fair Market Value of the property or
assets so sold or transferred, determined at the time of
such sale or transfer,

<PAGE>

(B) such sale or transfer is otherwise permitted under
the terms of the Loan Documents,

(D) the aggregate Loan Values of all Eligible
Collateral on the date of such sale or transfer shall exceed
the Working Capital Facility on such date (as evidenced by a
Borrowing Base Certificate delivered to the Lender Parties
on such date and calculated with respect to all categories
of Eligible Collateral as of the Business Day immediately
preceding such date),

(E) in the case of a sale or transfer of the shares of
capital stock of JW Window, Southern Precision or Vestal,
(1) all Advances made to such Borrower and outstanding on
the date of such sale or transfer shall be prepaid and all
Letters of Credit issued at the request of such Borrower and
outstanding on such date shall be cash collateralized in
accordance with, and to the extent required under, Section
2.06(b)(ii) and (2) all interest, fees and other amounts
owing by such Person under or in respect of the Loan
Documents shall be paid in full in cash,

(F) the Net Cash Proceeds of any such sale or transfer
shall be used to redeem or to repurchase Senior Notes in
accordance with Section 4.09 of the Senior Notes Indenture,
and

(G) immediately before and immediately after giving
effect to such sale or transfer, no Default shall have
occurred and be continuing; and

(vii) sales and transfers of property and assets of the
Borrowers and their Subsidiaries not otherwise permitted under
this Section 5.02(e) that are not and are not intended to be
Collateral and that are not comprised of shares of capital stock
of any Subsidiary of any Borrower so long as, in the case of any
such sale or transfer,

(A) the aggregate amount of proceeds received is at
least equal to the Fair Market Value of the property or
assets so sold or transferred, determined at the time of
such sale or transfer,

(B) such sale or transfer is otherwise permitted under
the terms of the Loan Documents,

(D) the Net Cash Proceeds of any such sale or transfer
shall be used to redeem or to repurchase Senior Notes in
accordance with Section 4.09 of the Senior Notes Indenture,
and

<PAGE>

(E) immediately before and immediately after giving
effect to such sale or transfers, no Default shall have
occurred and be continuing;

(viii) so long as no Default shall have occurred and be
continuing, the grant of any option or other right to purchase
any property or assets in a transaction that would otherwise be
permitted under clause (iv), (v), (vi) or (vii) of this Section
5.02(e).

(f) Investments in Other Persons. Make or hold, or permit any
----------------------------
of its Subsidiaries to make or hold, any Investment in any Person
other than:

(i) Investments existing on the date of the Initial
Extension of Credit and set forth on Schedule 4.01(hh) hereto;

(ii) Investments by the Borrowers and their Subsidiaries in
Cash Equivalents;

(iii) Investments in respect of interest rate Hedge
Agreements incurred in the ordinary course of business and
consistent with prudent business practice in an aggregate
notional amount not to exceed $200,000,000 at any time
outstanding less the aggregate notional amount of any Hedge
Agreements incurred under Section 5.02(b)(vii)(D), provided that
such Hedge Agreements shall be nonspeculative in nature
(including, without limitation, with respect to the term and
purpose thereof);

(iv) Investments in Hedge Agreements comprised of commodity
future or option contracts incurred in the ordinary course of
business, provided that such Hedge Agreements shall be
nonspeculative in nature (including, without limitation, with
respect to the term and purpose thereof);

(v) Investments by Cardem in the ordinary course of its
business and consistent with its past practices;

(vi) Investments consisting of intercompany Indebtedness
permitted under Section 5.02(b)(i)(B), 5.02(b)(ii) or 5.02(b)(v);

(vii) Investments by the Swing Line Borrower and its
Subsidiaries in Mid-State in an aggregate amount not to exceed
$20,000,000 at any time, which Investments may be made solely to
satisfy certain tax obligations of Mid-State and to satisfy
certain other administrative and operating expenses of Mid-State
incurred in the ordinary course of business, provided that,
immediately before and after giving effect thereto, no Default
shall have occurred and be continuing;

(viii) loans and advances to employees in the ordinary course
of the business of the Borrowers and their Subsidiaries as
presently conducted in an aggregate principal amount not to
exceed $500,000 at any time outstanding;

(ix) Investments in account debtors received in connection
with the bankruptcy or reorganization, or in settlement of
delinquent obligations, of customers in the ordinary

<PAGE>

course of business and in accordance with applicable collection
and credit policies established by such Borrower or such
Subsidiary, as the case may be;

(x) the acceptance of promissory notes received as partial
payment of the purchase price of any property or assets sold or
transferred in accordance with Section 5.02(e)(vi) or
5.02(e)(vii);

(xi) Investments by Mid-State in one or more special purpose
Subsidiaries (A) in connection with the issuance of additional
securities by any such Subsidiary pursuant to Section
5.02(b)(iii)(C) or (B) the refinancing of the Mortgage
Warehousing Facility pursuant to Section 5.02(b)(vii)(G); and

(xii) Investments not otherwise permitted under this Section
5.02(f) in an aggregate amount not to exceed $15,000,000 at any
time, provided that with respect to Investments made under this
clause (xii):

(A) any newly acquired or created Subsidiary of any
Borrower or any of its Subsidiaries shall be a wholly owned
Subsidiary thereof,

(B) any business acquired or invested in shall be
substantially the same line of business as the business of
such Borrower or such Subsidiary conducted at the time of
such Investment, or a line of business directly related
thereto, and

(g) Dividends, Repurchases, Etc. Declare or pay any dividends
---------------------------
on, purchase, redeem, retire, defease or otherwise acquire for value
any shares of its capital stock, or any warrants, rights or options to
acquire such shares, now or hereafter outstanding, return any capital
to its stockholders as such, make any distribution of assets, shares
of capital stock, warrants, rights, options, obligations or securities
to its stockholders as such, or issue or sell any shares of capital
stock, or any warrants, rights or options to acquire such shares, or
permit any of its Subsidiaries to do any of the foregoing or permit
any of its Subsidiaries to purchase, redeem, retire, defease or
otherwise acquire for value any shares of capital stock of any
Borrower, or any warrants, rights or options to acquire such shares,
or to issue or sell any shares of capital stock, or any warrants,
rights or options to acquire such capital stock, except that, so long
as no Default shall have occurred and be continuing at the time of any
action described in subclauses (i)(B) through (i)(F) and (ii)(B)(2)
below or would result therefrom:

(i) the Swing Line Borrower may

(A) declare and make dividends and distributions
payable only in shares of its common stock,

(B) purchase, redeem, retire, defease or otherwise
acquire shares of its capital stock with the proceeds
received from the issuance of new shares of

<PAGE>

its capital stock with equal or inferior voting powers,
designations, preferences and rights,

(C) issue and sell shares of its common stock, or
warrants, rights or options to acquire such shares, in
accordance with the terms of its 1995 Long Term Incentive
Stock Plan, so long as the aggregate number of shares
subject to such Plan does not exceed 10% of the outstanding
shares of its common stock (on a fully diluted basis) at the
time of such sale,

(D) issue and sell shares of its common stock to any
Person so long as (1) the aggregate amount of proceeds
received is at least equal to the Fair Market Value of the
shares sold, determined at the time of such sale, (2) such
issuance and sale would not result in a Change of Control
and (3) immediately before and immediately after giving
effect to such issuance and sale, no other Default shall
have occurred and be continuing, and

(E) commencing after the Fiscal Quarter ending August
31, 1995 and from time to time thereafter so long as the
Performance Level is Performance Level I, declare and pay
dividends in cash to its stockholders and purchase, redeem,
retire or otherwise acquire shares of its capital stock (or
warrants, rights or options to acquire such shares)
outstanding at such time for cash if, after giving effect
thereto, the aggregate amount of such dividends, purchases,
redemptions, retirements and acquisitions paid or made
during the immediately preceding twelve months would not
exceed the lesser of (1) $5,500,000 and (2) 50% of Available
Cash Flow for the most recently completed four consecutive
Fiscal Quarters prior to the date of such dividend,
purchase, redemption, retirement or acquisition, provided
that the Lender Parties shall have received a certificate
from the chief financial officer of the Swing Line Borrower
at least ten Business Days prior to the date of any such
declaration, purchase, redemption, retirement or
acquisition, setting forth in reasonable detail all of the
computations required to demonstrate compliance with the
terms of this clause (i)(F); and

(ii) any Subsidiary of any Borrower may

(A) declare and make dividends and distributions
payable only in shares of its common stock, and

(B) declare and pay dividends and distributions from
time to time in cash to the Swing Line Borrower so as to
enable it (1) to pay amounts owing under the Senior Notes
when the same become due and payable under the terms of
the Senior Notes Indenture, (2) to pay administrative and
operating expenses incurred in the ordinary course of
business and (3) to provide for the tax efficient use of
the resources of the Swing Line Borrower and its
Subsidiaries in the ordinary course of business.

(h) Prepayments, Etc. of Indebtedness. (i) Prepay, redeem,
---------------------------------
purchase, defease or otherwise satisfy prior to the scheduled maturity
thereof in any manner, or make any payment in violation of any
subordination terms of, any Indebtedness other than:

<PAGE>

(A) the prepayment of the Advances and the cash
collateralization of the Letters of Credit in accordance with the
terms of this Agreement,

(B) regularly scheduled or required repayments or
redemptions of Surviving Indebtedness,

(C) the satisfaction of any Indebtedness incurred under
Section 5.02(b)(vii)(B) and 5.02(b)(vii)(C) that is secured by a
Lien on the property or assets of the Borrower or the Subsidiary
of a Borrower that incurred such Indebtedness, which property or
assets are otherwise permitted to be disposed of under
Section 5.02(e), and

(D) so long as no Default shall have occurred and be
continuing or would result therefrom, (1) redemptions or
repurchases of the Senior Notes with the proceeds of the sale of
property or assets in accordance with Section 5.02(e)(vi) or
5.02(e)(vii) or with amounts otherwise available to the Swing
Line Borrower under Section 5.02(g)(i)(E) or (2) the regularly
scheduled payment or required prepayment of any Indebtedness that
is refunded or refinanced in accordance with
Section 5.02(b)(vii)(G);

(ii) amend, modify or change in any manner any term or condition
of (A) the Senior Notes, the Mortgage-Backed Securities or any
Surviving Indebtedness, or (B) the Mortgage Warehousing Facility so
that the terms and conditions thereof are less favorable to the
Facilities Manager and the Lender Parties than the terms of such
Facility on the date of this Agreement; or

(iii) permit any of its Subsidiaries to do any of the foregoing,
other than to prepay any Indebtedness payable to any Borrower.

(i) Capital Expenditures. Make, or permit any of its Included
--------------------
Subsidiaries to make, any Capital Expenditures that would cause the
aggregate amount of all Capital Expenditures made by the Borrowers and
their Included Subsidiaries in any Fiscal Year to exceed $80,000,000.

(j) New Subsidiaries. Create, organize, incorporate or acquire
----------------
any Subsidiary (such newly created, organized, incorporated or
acquired Subsidiary being a "New Subsidiary"), or permit any of its
---------------
Subsidiaries to create, organize, incorporate or acquire any New
Subsidiary, unless:

(i) such New Subsidiary is a wholly owned Subsidiary of the
Borrowers and their Included Subsidiaries;

(ii) the Facilities Manager approves the corporate and legal
structure and capitalization of such New Subsidiary, such
approval not to be unreasonably withheld or delayed;

(iii) such New Subsidiary executes and delivers to the
Facilities Manager, on behalf of the Secured Parties, promptly
following the date of its creation, organization, incorporation
or acquisition, (A) a Security Agreement Supplement, (B) a
Guarantee Supplement and (C) such other agreements, instruments,
certificates or documents as the Facilities Manager may
reasonably request, in each case in form and substance reasonably
satisfactory to the Required Lenders; and

<PAGE>

(iv) such New Subsidiary has taken or takes all other
actions that may be necessary or that the Facilities Manager may
deem reasonably desirable in order to perfect and protect any
Liens granted under the Security Agreement Supplement referred to
in clause (iii) above or to enable the Facilities Manager to
exercise and enforce its rights and remedies under the Loan
Documents;

provided, however, that no New Subsidiary shall be created, organized,
incorporated or acquired if such creation, organization, incorporation
or acquisition, or the transfer of assets to such New Subsidiary or
the other transactions contemplated to be engaged in with or by such
New Subsidiary, could reasonably be expected to have a Material
Adverse Effect.

(k) Change in Nature of Business. Make, or permit any of its
----------------------------
Subsidiaries to make, any material change in the nature of its
business as carried on at the date of this Agreement.

(l) Charter Amendments. Amend, or permit any of its
------------------
Subsidiaries to amend, (i) its certificate of incorporation or (ii)
its bylaws, except, in the case of the bylaws of such Borrower or such
Subsidiary where such amendment could not reasonably be expected to
have a Material Adverse Effect or to impair the rights or interests of
the Facilities Manager or any Lender Party in any material manner;
provided that copies of any amendment to the bylaws of such Borrower
or such Subsidiary shall be provided promptly to the Facilities
Manager.

(m) Accounting Changes. Make or permit, or permit any of its
------------------
Subsidiaries to make or permit, any change in (i) its accounting
policies or reporting practices, except as required by generally
accepted accounting principles in effect from time to time or (ii) the
Fiscal Year.

(n) Amendment, Etc. of Related Documents and Material Contracts.
-----------------------------------------------------------
Cancel or terminate any Related Document or any Material Contract or
consent to or accept any cancellation or termination thereof, amend,
modify or change in any manner any term or condition of any Related
Document or any Material Contract or give any consent, waiver or
approval thereunder, waive any default under or any breach of any term
or condition of any Related Document or any Material Contract, agree
in any manner to any other amendment, modification or change of any
term or condition of any Related Document or any Material Contract, or
take any other action in connection with any Related Document or any
Material Contract that, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect or to impair
the rights or interests of the Facilities Manager or any Lender Party
in any material manner, or permit any of its Subsidiaries to do any of
the foregoing.

(o) Restrictions in Other Agreements. Enter into, or permit any
--------------------------------
of its Subsidiaries to enter into, any agreement containing any term
or provision that:

(i) would be breached or otherwise contravened by the
performance of its Obligations under this Agreement or any other
Loan Document, or under any agreement, instrument or other
document delivered by it hereunder or in connection herewith;

(ii) prohibits or restricts the ability of any Subsidiary of
any Borrower to pay dividends or to make other distributions
(including, without limitation, advances or

<PAGE>

payments) to such Borrower other than any such prohibition or
restriction set forth in Section 4.10 of the Senior Notes
Indenture;

(iii) prohibits or restricts the ability of any Loan Party to
amend, modify or otherwise change this Agreement or any other
Loan Document, or any agreement, instrument or other document
delivered by it hereunder or in connection herewith; or

(iv) constitutes an agreement by it to any limitation or
restriction of the type set forth in clauses (i) through (iii) of
this Section 5.02(o) with respect to any other Indebtedness.

(p) Negative Pledge. Enter into or suffer to exist, or permit
---------------
any of its Subsidiaries to enter into or suffer to exist, any
agreement prohibiting or conditioning the creation or assumption of
any Lien upon any of its property or assets other than:

(i) any such agreement with or in favor of the Secured
Parties; or

(ii) in connection with (A) the Senior Notes on the terms
set forth in the Senior Notes Indenture on the date of the
Initial Extension of Credit, (B) any Surviving Indebtedness to
the extent such agreement is in effect on the date of the Initial
Extension of Credit, (C) any Indebtedness otherwise permitted to
be incurred under Section 5.02(b)(vii)(G) to the extent such
agreement is on terms that are no less favorable to the
Facilities Manager and the Lender Parties than the terms in
effect in the Indebtedness being refinanced or replaced
immediately prior to such refinancing or replacement and (D) any
Indebtedness outstanding on the date such Subsidiary first
becomes a Subsidiary of any Borrower or any of its Subsidiaries.

(q) Partnerships. Become a general partner in any general or
------------
limited partnership, or permit any of its Subsidiaries to do so.

(r) Speculative Transactions. Engage, or permit any of its
------------------------
Subsidiaries to engage, in any transaction involving commodity options
or futures contracts or any similar speculative transactions, except
for Hedge Agreements permitted under Section 5.02(b)(vii)(D),
5.02(b)(vii)(E), 5.02(f)(iii) and 5.02(f)(iv).

SECTION 5.03. Reporting Requirements. So long as any Advance
----------------------
shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender Party shall have any Commitment hereunder, the Borrowers will
furnish to the Lender Parties:

(a) Default Notices. As soon as possible and in any event
---------------
within two days after the occurrence of each Default or any event,
development or occurrence reasonably expected to have a Material
Adverse Effect continuing on the date of such statement, a statement
of the chief financial officer of the Swing Line Borrower setting
forth details of such Default, event, development or occurrence
(including, without limitation, the anticipated effect thereof) and
the action that the Borrowers (or any of them) have taken and propose
to take with respect thereto.

(b) Quarterly Financials. As soon as available and in any event
--------------------
within 45 days after the end of each of the first three Fiscal
Quarters of each Fiscal Year, commencing with the Fiscal

<PAGE>

Quarter ended August 31, 1995, a Consolidated balance sheet of the
Swing Line Borrower and its Subsidiaries and a consolidating balance
sheet of the Swing Line Borrower and its Included Subsidiaries, in
each case as of the end of such Fiscal Quarter, and Consolidated
statements of operations and retained earnings of the Swing Line
Borrower and its Subsidiaries and consolidating statements of
operations and retained earnings of the Swing Line Borrower and its
Included Subsidiaries, and a Consolidated statement of cash flows of
the Swing Line Borrower and its Subsidiaries and a schedule of the
total amount of Capital Expenditures, all Changes in Working Capital
and all FASB No. 106 Adjustments of the Swing Line Borrower and its
Included Subsidiaries, in each case for the period commencing at the
end of the previous Fiscal Quarter and ending with the end of such
Fiscal Quarter and for the period commencing at the end of the
previous Fiscal Year and ending with the end of such Fiscal Quarter,
setting forth in the case of each of the Consolidated financial
statements referred to above in comparative form the corresponding
figures for the corresponding period of the immediately preceding
Fiscal Year and the corresponding figures for the corresponding year-
to-date period in the immediately preceding Fiscal Year, all in
reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Swing Line Borrower
as having been prepared in accordance with GAAP and as fairly
presenting the Consolidated financial condition of the Swing Line
Borrower and its Subsidiaries and the consolidating financial
condition of the Swing Line Borrower and its Included Subsidiaries, as
the case may be, as at such dates, and the Consolidated results of
operations of the Swing Line Borrower and its Subsidiaries and the
consolidating results of operations of the Swing Line Borrower and its
Included Subsidiaries, as the case may be, for the periods ended on
such dates, together with:

(i) a certificate of such officer stating that no Default
has occurred and is continuing or, if a Default has occurred and
is continuing, a statement as to the nature thereof and the
action that the Borrowers (or any of them) have taken and propose
to take with respect thereto,

(ii) a schedule in form satisfactory to the Facilities
Manager of the computations used by the Borrowers in determining,
as of the end of such Fiscal Quarter, compliance with the
covenants contained in Sections 5.02(g)(i)(E), 5.02(i) and 5.04,

(iii) a certificate of such officer stating the aggregate
amount of the Holdback Reserves, if any, and the Tax Reserves, if
any, outstanding as of the end of such Fiscal Quarter, and

(iv) copies of the "aging" reports of all accounts
receivable of the Loan Parties for the period commencing at the
end of the previous Fiscal Quarter and ending with the end of
such Fiscal Quarter.

(c) Annual Financials. As soon as available and in any event
-----------------
within 90 days after the end of each Fiscal Year, commencing with the
Fiscal Year ended May 31, 1995, a copy of the annual audit report for
such year for the Swing Line Borrower and its Subsidiaries, including
therein a Consolidated balance sheet of the Swing Line Borrower and
its Subsidiaries and a consolidating balance sheet of the Swing Line
Borrower and its Included Subsidiaries, in each case as of the end of
such Fiscal Year, and Consolidated statements of operations and
retained earnings of the Swing Line Borrower and its Subsidiaries and
consolidating statements of operations and retained earnings of the
Swing Line Borrower and its Included Subsidiaries, and

<PAGE>

a Consolidated statement of cash flows of the Swing Line Borrower and
its Subsidiaries and a schedule of the total amount of Capital
Expenditures, all Changes in Working Capital and FASB No. 106
Adjustments of the Swing Line Borrower and its Included Subsidiaries,
in each case for such Fiscal Year, in each case accompanied by an
opinion acceptable to the Required Lenders of Price Waterhouse or
other independent certified public accountants of recognized standing
acceptable to the Required Lenders, together with:

(i) a certificate of such accounting firm to the Lender
Parties stating that in the course of the regular audit of the
business of the Swing Line Borrower and its Subsidiaries, which
audit was conducted by such accounting firm in accordance with
generally accepted auditing standards, such accounting firm has
obtained no knowledge that a Default has occurred and is
continuing, or if, in the opinion of such accounting firm, a
Default has occurred and is continuing, a statement as to the
nature thereof,

(ii) a schedule in form satisfactory to the Facilities
Manager of the computations used by such accountants in
determining, as of the end of such Fiscal Year, compliance with
the covenants contained in Sections 5.02(g)(i)(E), 5.02(i) and
5.04,

(iii) a certificate of the chief financial officer of the
Swing Line Borrower stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a
statement as to the nature thereof and the action that the
Borrowers (or any of them) have taken and propose to take with
respect thereto, and

(iv) a certificate of the chief financial officer of the
Swing Line Borrower stating the aggregate amount of the Holdback
Reserves, if any, and the Tax Reserves, if any, outstanding as of
the end of such Fiscal Year.

(d) Annual Forecasts. As soon as available and in any event no
----------------
later than 15 days before the end of each Fiscal Year, Consolidated
forecasts prepared by management of the Swing Line Borrower, in form
satisfactory to the Facilities Manager, of balance sheets, operations
and retained earnings statements and cash flow statements (and a
reasonably detailed explanation of any underlying assumptions with
respect thereto) on a quarterly basis for the Fiscal Year following
such Fiscal Year then ended and on an annual basis for each Fiscal
Year thereafter until the scheduled Termination Date; provided,
however, that, if at any time during such Fiscal Year, management of
the Swing Line Borrower determines that their interim forecasts
prepared at the end of either Fiscal Quarter ending August 31 or
November 30 reflect that the most recently delivered forecasts no
longer accurately reflect the projected financial results of the
Borrowers and their Included Subsidiaries for the Fiscal Year during
which such interim forecasts have been prepared, as promptly as
practicable after such determination and in any event within 60 days
of the end of the Fiscal Quarter for which such determination was
made, revised Consolidated forecasts of the financial statements for
which such determination was made relating to the Fiscal Year during
which such interim forecasts have been prepared.

(e) Borrowing Base Certificate. As soon as available and in any
--------------------------
event within ten Business Days after the end of each fiscal month,
commencing with the fiscal month ended March 31, 1995, and together
with any Notice of Working Capital Borrowing, Notice of Issuance or
Notice of Renewal delivered by any Working Capital Borrower, a
Borrowing Base Certificate calculated as of no earlier than the Friday
immediately preceding the date of such notice in the

<PAGE>

case of Eligible Receivables, and as of no earlier than the last day
of the immediately preceding fiscal month in the case of Eligible
Equipment and Eligible Inventory, in each case duly completed and
certified by the chief financial officer of the Swing Line Borrower
and each other Borrower delivering such notice.

(f) Schedule Updates. Promptly and in any event within 45 days
----------------
of the end of each Fiscal Quarter and together with any amendment,
waiver or other modification of any of the Loan Documents, amendments
and supplements to all of the Schedules to the Loan Documents (other
than Schedules 4.01(ee) and 4.01(ff) hereto) so as to ensure that, at
the time of the delivery of such amendments and supplements, such
Schedules are accurate and complete in all material respects as to the
subject matter thereof.

(g) Holdback Reserves and Tax Reserves. Promptly upon receipt
----------------------------------
thereof, copies of any demand for payment of or reimbursement for any
contingent liabilities for which any Working Capital Borrower has
established a Holdback Reserve or for any tax obligations for which
any Working Capital Borrower has established a Tax Reserve, together
with any documentation supporting such demand or claim received by
such Working Capital Borrower or any of its Subsidiaries.

(h) Accountants' Letters, Etc. Promptly upon receipt thereof,
-------------------------
copies of all reports submitted to any Borrower or any of its
Subsidiaries by Price Waterhouse or any other independent certified
public accountants of such Borrower or any such Subsidiary in
connection with each annual, interim or special audit of its financial
statements made by such accountants (including, without limitation,
any comment letter submitted by such accountants to management of such
Borrower or such Subsidiary in connection with their annual audit and
any reports addressing internal accounting controls of such Borrower
or such Subsidiary submitted by such accountants), and, promptly upon
completion thereof, copies of any response report from such Borrower
or such Subsidiary to such accountants.

(i) Litigation. Promptly after the commencement thereof, notice
----------
of all actions, suits, investigations, litigation and proceedings in
any court or before any arbitrator or by or before any Governmental
Authority binding on or affecting any Loan Party or any of its
Subsidiaries or any of their respective properties of the type
described in Section 4.01(j), and promptly after the occurrence
thereof, notice of any adverse change in the status, or in the
financial effect on any Loan Party or any of its Subsidiaries, of the
Disclosed Litigation from that described on Schedule 3.01(e) hereto
and, in each case, upon the reasonable request of the Facilities
Manager, any other information available to any Borrower or any of its
Subsidiaries with respect to any of the foregoing that would enable
the Facilities Manager and the Lender Parties to more fully evaluate
such action, suit, investigation, litigation or proceeding.

(j) Insurance. As soon as available and in any event within 30
---------
days after the end of each Fiscal Year, a report summarizing the
insurance coverage in effect for each Loan Party and its Subsidiaries,
specifying therein the type of such insurance and the amount and
carrier thereof, and containing such additional information as any
Lender Party, through the Facilities Manager, may reasonably request.

(k) Licenses, Etc. Promptly and in any event within three
-------------
Business Days after receipt thereof, notice of any actual, pending or
threatened suspension, termination, or revocation

<PAGE>

of any material License of any Borrower or any of its Subsidiaries, or
any enjoinment, barring or suspension of the ability of any Borrower
or any such Subsidiary to conduct its business in the ordinary course.
.
(l) ERISA Events and ERISA Reports. Promptly and in any event
------------------------------
(i) within ten days after any Loan Party or any ERISA Affiliate knows
or has reason to know that any ERISA Event has occurred, a statement
of the chief financial officer of such Loan Party or such ERISA
Affiliate, as the case may be, describing such ERISA Event and the
action, if any, that such Loan Party or such ERISA Affiliate has taken
and proposes to take with respect thereto and (ii) on the date any
records, documents or other information must be furnished to the PBGC
with respect to any Plan pursuant to Section 4010 of ERISA, a copy of
such records, documents and information.

(m) Actuarial Reports. Promptly upon receipt thereof, a copy of
-----------------
the annual actuarial valuation report of each Plan whose funded
current liability percentage (as defined in Section 302(d)(8) of
ERISA) is less than 65% or whose unfunded current liability exceeds
$1,000,000.

(n) Plan Terminations. Promptly and in any event within three
-----------------
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention
to terminate any Plan or to have a trustee appointed to administer any
Plan.

(o) Multiemployer Plan Notices. Promptly and in any event
--------------------------
within ten days after receipt thereof by any Loan Party or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, copies of each
notice concerning (i) the imposition of Withdrawal Liability by any
such Multiemployer Plan, (ii) the reorganization or termination,
within the meaning of Title IV of ERISA, of any such Multiemployer
Plan or (iii) the amount of liability incurred or that could
reasonably be expected to be incurred by such Loan Party or any ERISA
Affiliate in connection with any event described in clause (i) or (ii)
above.

(p) Environmental Conditions. Promptly after the assertion or
------------------------
occurrence thereof, notice of any Environmental Action or of any
noncompliance by any Loan Party or any of its Subsidiaries with any
applicable Environmental Law or any Environmental Permit that, either
individually or in the aggregate, could reasonably be expected to (i)
have a Material Adverse Effect or (ii) cause any property of any Loan
Party or any of its Subsidiaries to be subject to any material
restrictions on ownership, occupancy, use or transferability under any
applicable Environmental Law.

(q) Revenue Agent Reports. Within ten days after receipt
---------------------
thereof, a summary of all Revenue Agent Reports (Internal Revenue
Service form 886), or other written proposals of the Internal Revenue
Service, that propose, determine or otherwise set forth adjustments
(whether positive or negative) to the federal income tax liability of
the affiliated group (within the meaning of Section 1504(a)(1) of the
Internal Revenue Code) of which the Borrowers are members.

(r) Tax Certificates. Promptly upon request of any Lender Party
----------------
through the Facilities Manager, a certificate, signed by the president
or the chief financial officer of the Swing Line Borrower, stating
that the common parent of the affiliated group (within the meaning of
Section 1504(a)(1) of the Internal Revenue Code) of which the
Borrowers are members has paid to the Internal Revenue Service or
other taxing authority the full amount that such affiliated group is
required to pay in respect of federal income tax for such year and
that the Borrowers

<PAGE>

and their Subsidiaries have received any amounts payable to them to
such date, and have not paid amounts in respect of taxes (federal,
state, local or foreign) in excess of the amount they are required to
pay.

(s) Securities Reports. Promptly after the sending or filing
------------------
thereof, copies of all proxy statements, financial statements and
reports that any Loan Party sends to its stockholders, and copies of
all regular, periodic and special reports, and all registration
statements, that any Loan Party files with the Securities and Exchange
Commission or with any Governmental Authority that may be substituted
therefor, or with any national securities exchange.

(t) Creditor Reports. Promptly upon receipt or delivery
----------------
thereof, copies of any statement or report furnished to any other
holder of the securities of any Loan Party or of Mid-State pursuant to
the terms of any indenture, loan or credit agreement or similar
agreement evidencing Funded Indebtedness in an aggregate principal
amount of at least $5,000,000 and not otherwise required to be
furnished to the Lender Parties pursuant to any other clause of this
Section 5.03.

(u) Agreement Notices. Promptly upon receipt or delivery
-----------------
thereof, copies of all notices of breach or default and all other
material notices, requests and other documents received or given by
any Loan Party or any of its Subsidiaries or by Mid-State under or
pursuant to any Related Document, any Material Contract or any
indenture, loan or credit agreement or similar agreement evidencing
Funded Indebtedness in an aggregate principal amount of at least
$5,000,000 (including, without limitation, copies of any amendment,
modification or waiver of any provision of any of the foregoing) and,
from time to time upon request by the Facilities Manager, such
information and reports regarding the Related Documents and the
Material Contracts as the Facilities Manager may reasonably request.

(v) Other Information. Such other information respecting the
-----------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries
as any Lender Party, through the Facilities Manager, may from time to
time reasonably request.

SECTION 5.04. Financial Covenants. So long as any Advance shall
-------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Borrowers will:

(a) Minimum Consolidated EBITDA. Maintain Consolidated EBITDA
---------------------------
of the Borrowers and their Included Subsidiaries for each Measurement
Period of not less than the amount set forth below for each
Measurement Period set forth below:

<PAGE>

Measurement
Period Amount
Ending In

May, 1995 $ 45,000,000

August, 1995 85,000,000

November, 1995 125,000,000

February, 1996 165,000,000

May, 1996 175,000,000

August, 1996
and 180,000,000
thereafter

(b) Leverage Ratio. Maintain a Leverage Ratio at all times
--------------
during each Measurement Period of not more than the amount set forth
below for each Measurement Period set forth below:

Measurement
Period Ratio
Ending In

May, 1995 3.90:1

August, 1995 3.80:1

November, 1995 3.70:1

February, 1996 3.70:1

May, 1996 3.50:1

August, 1996 3.35:1

November, 1996 3.35:1

February, 1997 3.35:1

May, 1997 3.35:1

August, 1997
and 3.30:1
thereafter

(c) Fixed Charge Coverage Ratio. Maintain a Fixed Charge
---------------------------
Coverage Ratio for each Measurement Period of not less than the amount
set forth below for each Measurement Period set forth below:

<PAGE>

Measurement
Period Ratio
Ending In

May, 1995 1.00:1

August, 1995 1.10:1

November, 1995 1.10:1

February, 1996 1.10:1

May, 1996 1.10:1

August 1996
and 1.25:1
thereafter

(d) Interest Coverage Ratio. Maintain an Interest Coverage
-----------------------
Ratio for each Measurement Period of not less than 2.40:1.

ARTICLE VI

PARENT GUARANTEE

SECTION 6.01. Parent Guarantee. The Swing Line Borrower
----------------
unconditionally and irrevocably guarantees (the undertaking by the Swing
Line Borrower under this Article VI being the "Parent Guarantee") the
----------------
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations of each other Loan Party now or hereafter
existing under the Loan Documents, whether for principal, interest, fees,
commissions, expenses or otherwise (such Obligations being the "Guaranteed
----------
Obligations"), and agrees to pay any and all expenses (including, without
-----------
limitation, reasonable fees and expenses of counsel) incurred by the
Facilities Manager or any other Secured Party in enforcing any rights under
this Parent Guarantee. Without limiting the generality of the foregoing,
the Swing Line Borrower's liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by any
other Loan Party to the Facilities Manager or any other Secured Party under
the Loan Documents but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such other Loan Party.

SECTION 6.02. Guarantee Absolute. The Swing Line Borrower
------------------
guarantees that the Guaranteed Obligations will be paid strictly in
accordance with the terms of the Loan Documents, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Facilities Manager or any
other Secured Party with respect thereto. The Obligations of the Swing
Line Borrower under this Parent Guarantee are independent of the Guaranteed
Obligations or any other Obligations of any Loan Party under the Loan
Documents, and a separate action or actions may be brought and prosecuted
against the Swing Line Borrower to enforce this Parent Guarantee,
irrespective of whether any action is brought against any other Loan Party
or whether any other Loan Party is joined in any such action or actions.
The liability of the Swing Line Borrower under

<PAGE>

100

this Parent Guarantee shall be absolute, unconditional and irrevocable
irrespective of, and the Swing Line Borrower hereby irrevocably waives any
defenses it may now or hereafter have in any way relating to, any and all
of the following:

(a) any lack of validity or enforceability of any Loan Document
or any other agreement or instrument relating thereto;

(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Guaranteed Obligations or any
other Obligations of any Loan Party under the Loan Documents, or any
other amendment or waiver of or any consent to departure from any Loan
Document (including, without limitation, any increase in the
Guaranteed Obligations resulting from the extension of additional
credit to any Loan Party or any of its Subsidiaries or otherwise);

(c) any taking, exchange, release or nonperfection of any
Collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guarantee, for all or any of the
Guaranteed Obligations;

(d) any manner of application of Collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner of
sale or other disposition of any Collateral for all or any of the
Guaranteed Obligations or any other Obligations of any Loan Party
under the Loan Documents, or any other property and assets of any
other Loan Party or any of its Subsidiaries;

(e) any change, restructuring or termination of the corporate
structure or existence of any other Loan Party or any of its
Subsidiaries;

(f) any failure of any Secured Party to disclose to any Loan
Party any information relating to the financial condition, operations,
properties or prospects of any other Loan Party now or hereafter known
to such Secured Party; or

(g) any other circumstance (including, without limitation, any
statute of limitations or any existence of or reliance on any
representation by the Facilities Manager or any other Secured Party)
that might otherwise constitute a defense available to, or a discharge
of, any other Loan Party, the Swing Line Borrower or any other
guarantor or surety.

This Parent Guarantee shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by the Facilities
Manager or any other Secured Party or by any other Person upon the
insolvency, bankruptcy or reorganization of any other Loan Party or
otherwise, all as though such payment had not been made.

SECTION 6.03. Waivers and Acknowledgments. (a) The Swing Line
---------------------------
Borrower hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance and any other notice with respect to any of
the Guaranteed Obligations and this Parent Guarantee, and any requirement
that the Facilities Manager or any other Secured Party protect, secure,
perfect or insure any Lien or any property or assets subject thereto or
exhaust any right or take any action against any other Loan Party or any
other Person or any Collateral.

<PAGE>

101

(b) The Swing Line Borrower hereby unconditionally and
irrevocably waives any duty on the part of the Facilities Manager or any
other Secured Party to disclose to the Swing Line Borrower any matter, fact
or thing relating to the business, operation or condition of any other Loan
Party or any of its Subsidiaries or its property and assets now or
hereafter known by the Facilities Manager or such Secured Party.

(c) The Swing Line Borrower hereby unconditionally waives any
right to revoke this Parent Guarantee, and acknowledges that this Parent
Guarantee is continuing in nature and applies to all Guaranteed
Obligations, whether existing now or in the future.

(d) The Swing Line Borrower acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in this
Section 6.03 are knowingly made in contemplation of such benefits.

SECTION 6.04. Subrogation. The Swing Line Borrower hereby
-----------
unconditionally and irrevocably agrees not to exercise any rights that it
may now have or may hereafter acquire against any other Loan Party or any
other insider guarantor that arise from the existence, payment, performance
or enforcement of the Obligations of the Swing Line Borrower under this
Parent Guarantee or, except in order to enable the Swing Line Borrower to
pay amounts owing under the Senior Notes in accordance with Section
5.02(g)(ii)(B)(1), so long as no Default under Section 7.01(a) or 7.01(f)
or Event of Default shall have occurred and be continuing, under any other
Loan Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right
to participate in any claim or remedy of the Facilities Manager or any
other Secured Party against such other Loan Party or any other insider
guarantor or any Collateral, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from such other Loan Party
or any other insider guarantor, directly or indirectly, in cash or other
property or by setoff or in any other manner, payment or security on
account of such claim, remedy or right, until such time as all of the
Guaranteed Obligations and all other amounts payable under this Parent
Guarantee shall have been paid in full in cash, all of the Letters of
Credit shall have expired, terminated or been cancelled and the Commitments
shall have expired or terminated. If any amount shall be paid to the Swing
Line Borrower in violation of the immediately preceding sentence at any
time prior to the latest of (a) the payment in full in cash of all of the
Guaranteed Obligations and all other amounts payable under this Parent
Guarantee, (b) the full drawing, termination, expiration or cancellation of
all Letters of Credit and (c) the Termination Date, such amount shall be
held in trust for the benefit of the Facilities Manager and the other
Secured Parties and shall forthwith be paid to the Facilities Manager to be
credited and applied to the Guaranteed Obligations and all other amounts
payable under this Parent Guarantee, whether matured or unmatured, in
accordance with the terms of the Loan Documents, or to be held as
Collateral for any Guaranteed Obligations or other amounts payable under
this Parent Guarantee thereafter arising. If (i) the Swing Line Borrower
shall pay to the Facilities Manager all or any part of the Guaranteed
Obligations, (ii) all of the Guaranteed Obligations and all other amounts
payable under this Parent Guarantee shall have been paid in full in cash,
(iii) all of the Letters of Credit shall have expired, terminated or been
cancelled and (iv) the Termination Date shall have occurred, the Facilities
Manager and the other Secured Parties will, at the Swing Line Borrower's
request and expense, execute and deliver to the Swing Line Borrower
appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer of subrogation to the Swing
Line Borrower of an interest in the Guaranteed Obligations resulting from
the payment made by the Swing Line Borrower.

<PAGE>

102

SECTION 6.05. Continuing Guarantee; Assignments. This Parent
---------------------------------
Guarantee is a continuing guarantee and shall (a) remain in full force and
effect until the latest of (i) the payment in full in cash of all of the
Guaranteed Obligations and all other amounts payable under this Parent
Guarantee, (ii) the full drawing, termination, expiration or cancellation
of all Letters of Credit and (iii) the Termination Date, (b) be binding
upon the Swing Line Borrower, its successors and assigns and (c) inure to
the benefit of, and be enforceable by, the Facilities Manager and the other
Secured Parties and their respective successors, transferees and assigns.
Without limiting the generality of clause (c) of the immediately preceding
sentence, any Lender Party may assign or otherwise transfer all or any
portion of its rights and obligations under this Agreement (including,
without limitation, all or any portion of its Commitment or Commitments,
the Advances owing to it and the Notes held by it) to any other Person, and
such other Person shall thereupon become vested with all the benefits in
respect thereof granted to such Lender Party under this Article VI or
otherwise, in each case as provided in Section 9.07.

ARTICLE VII

EVENTS OF DEFAULT

SECTION 7.01. Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
-----------------

(a) (i) any Borrower shall fail to pay any principal of any
Advance made to it when the same shall become due and payable or (ii)
any Borrower shall fail to pay any interest on any Advance made to it,
or any Loan Party shall fail to make any other payment under any Loan
Document, in each case under this clause (ii) within two Business Days
after the same becomes due and payable; or

(b) any representation or warranty made by any Loan Party (or
any of its officers) under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when made;
or

(c) any Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 2.15, 5.01(a), 5.01(b),
5.01(e), 5.01(f) or any of 5.01(l) through 5.01(r), 5.02, 5.03 or
5.04, Section 5 or 6 of the Security Agreement or Section 6 of the
Subsidiaries Guarantee; or

(d) any Loan Party shall fail to perform any term, covenant or
agreement contained in any Loan Document that is not referred to in
Section 7.01(c) on its part to be performed or observed if such
failure shall remain unremedied for 20 days after the earlier of the
date on which (i) a Responsible Officer of the Swing Line Borrower
becomes aware of such failure or (ii) written notice thereof shall
have been given to any Borrower by the Facilities Manager or any
Lender Party; or

(e) any Loan Party or any of its Subsidiaries shall fail to pay
any principal of, premium or interest on, or any other amount payable
in respect of, any Indebtedness that is outstanding in a principal or
notional amount of at least $5,000,000, individually, or $10,000,000,
in the aggregate (but excluding Indebtedness outstanding hereunder),
of such Loan Party or such Subsidiary, as the case may be, when the
same becomes due and payable (whether

<PAGE>

103

by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Indebtedness; or any other event shall occur or condition shall
exist under any agreement or instrument relating to any such
Indebtedness and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Indebtedness or otherwise to cause, or to permit
the holder thereof to cause, such Indebtedness to mature; or any such
Indebtedness shall be declared to be due and payable or required to be
prepaid or redeemed (other than by a regularly scheduled required
prepayment or redemption), purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Indebtedness shall be
required to be made, in each case prior to the stated maturity
thereof; or

(f) any Loan Party or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against any Loan Party or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and assets
and, in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good
faith, either such proceeding shall remain undismissed or unstayed for
a period of 30 days or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or any substantial part of its property and
assets) shall occur; or any Loan Party or any of its Subsidiaries
shall take any corporate action to authorize any of the actions set
forth above in this Section 7.01(f); or

(g) one or more judgments or orders for the payment of money in
excess of $10,000,000 shall be rendered against any Loan Party or any
of its Subsidiaries and either (i) enforcement proceedings shall have
been commenced by any creditor upon any such judgment or order and
remain unstayed or (ii) there shall be any period of 20 consecutive
days during which a stay of enforcement of any such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or

(h) one or more nonmonetary judgments or orders shall be
rendered against any Loan Party or any of its Subsidiaries that,
either individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect, and there shall be any period of
20 consecutive days during which a stay of enforcement of any such
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or

(i) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01, 5.01(q) or 5.02(j) shall for any reason
cease to be valid and binding on or enforceable against any Loan Party
intended to be a party to it, or any such Loan Party shall so state in
writing; or

(j) any Collateral Document after delivery thereof pursuant to
Section 3.01, 5.01(q) or 5.02(j) shall for any reason (other than
pursuant to the terms thereof) cease to create a valid

<PAGE>

104

and perfected first priority lien on and security interest in the
Collateral purported to be covered thereby; or

(k) any ERISA Event shall have occurred and the sum (determined
as of the date of occurrence of such ERISA Event) of the Insufficiency
of such Plan and the Insufficiency of any and all other Plans with
respect to which an ERISA Event shall have occurred and then exist (or
the liability of the Loan Parties and the ERISA Affiliates related to
such ERISA Event) exceeds an aggregate amount of $15,000,000; or

(l) (i) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan that requires annual
payment of an amount that, when aggregated with all other amounts
required to be paid annually to Multiemployer Plans by the Loan
Parties and the ERISA Affiliates as Withdrawal Liability (determined
as of the date of such notification), exceeds $5,000,000 per annum; or
(ii) with respect to any Withdrawal Liability to a Multiemployer Plan
exceeding $10,000,000, any Loan Party or any ERISA Affiliate shall
fail to pay any amount when the same becomes due and payable; or

(m) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within
the meaning of Title IV of ERISA, and as a result of such
reorganization or termination the aggregate annual contributions of
the Loan Parties and the ERISA Affiliates to all Multiemployer Plans
that are in reorganization or being terminated at such time have been
or will be increased over the amounts contributed to such
Multiemployer Plans for the plan years of such Multiemployer Plans
immediately preceding the plan year in which such reorganization or
termination occurs by an amount exceeding $2,000,000; or

(n) there shall be any difference in the plan of reorganization
approved in the Confirmation Order from the Plan of Reorganization,
which difference, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect or to impair
the rights or interests of the Facilities Manager or any Lender Party
in any material manner; or

(o) the Chapter 11 proceedings of the Debtors in the Bankruptcy
Court shall be dismissed or converted to a case under Chapter 7 of the
Bankruptcy Code; or

(p) a stay of the Confirmation Order shall be entered or the
Confirmation Order shall otherwise be revoked or reversed; or

(q) Mid-State shall cease to be the "servicer" or Jim Walter
Homes shall cease to be the "subservicer" on any of the financings
contemplated under Section 5.02(b)(iii); or

(r) a Change of Control shall occur; or

(s) there shall occur in the judgment of the Required Lenders
any Material Adverse Change;

then, and in any such event, the Facilities Manager (i) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrowers, declare the obligation of each Lender to make

<PAGE>

105

Advances (other than Letter of Credit Advances by an Issuing Bank or a
Lender pursuant to Section 2.03(c) and Swing Line Advances by a Lender
pursuant to Section 2.02(b)) and of each Issuing Bank to issue Letters of
Credit to be terminated, whereupon the same shall forthwith terminate, and
(ii) shall at the request, or may with the consent, of the Required
Lenders, by notice to the Borrowers, declare the Notes, all interest
thereon and all other amounts payable under this Agreement and under the
other Loan Documents to be forthwith due and payable, whereupon the Notes,
all such interest and all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by each of the Borrowers;
provided, however, that in the event of an actual or deemed entry of an
order for relief with respect to any Loan Party or any of its Subsidiaries
under the Bankruptcy Code, (A) the obligation of each Lender to make
Advances (other than Letter of Credit Advances by an Issuing Bank or a
Lender pursuant to Section 2.03(c) and Swing Line Advances by a Lender
pursuant to Section 2.02(b)) and of each Issuing Bank to issue Letters of
Credit shall automatically be terminated and (B) the Notes, all such
interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by each of the Borrowers.

SECTION 7.02. Actions in Respect of the Letters of Credit upon
------------------------------------------------
Default. If any Event of Default shall have occurred and be continuing,
-------
the Facilities Manager may, irrespective of whether it is taking any of the
actions described in Section 7.01 or otherwise, make demand upon the
Borrowers (or any of them) to, and forthwith upon such demand the Borrowers
upon whom such demand is made will, pay to the Facilities Manager on behalf
of the Lender Parties in same day funds at the Facilities Manager's office
designated in such demand, for deposit in the L/C Cash Collateral Account,
an amount equal to the aggregate Available Amount of all Letters of Credit
then outstanding. If at any time the Facilities Manager determines that
any funds held in the L/C Cash Collateral Account are subject to any right
or claim of any Person other than the Facilities Manager and the Lender
Parties or that the total amount of such funds is less than the aggregate
Available Amount of all Letters of Credit, the Borrowers will, forthwith
upon demand by the Facilities Manager, pay to the Facilities Manager, as
additional funds to be deposited and held in the L/C Cash Collateral
Account, an amount equal to the excess of (a) such aggregate Available
Amount over (b) the total amount of funds, if any, held in the L/C Cash
Collateral Account at such time that the Facilities Manager determines to
be free and clear of any such right and claim.

ARTICLE VIII

THE AGENTS

SECTION 8.01. Authorization and Action. (a) Each Lender Party
------------------------
(in its capacities as a Lender, if applicable, the Swing Line Bank, if
applicable, and an Issuing Bank, if applicable) hereby appoints and
authorizes the Facilities Manager to take such action as agent on its
behalf and to exercise such powers and discretion under this Agreement and
under the other Loan Documents as are delegated to the Facilities Manager
by the terms hereof and thereof, together with such powers and discretion
as are reasonably incidental thereto. As to any matters not expressly
provided for by the Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Facilities Manager shall not
be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding upon all Lender Parties and
all holders of Notes; provided, however, that the Facilities Manager shall
not be required to take any action that exposes the

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106

Facilities Manager to personal liability or that is contrary to this
Agreement or to applicable law. The Facilities Manager agrees to give to
each Lender Party prompt notice of each notice given to it by the Borrowers
pursuant to the terms of this Agreement.

(b) The Facilities Manager shall also act as the "collateral
agent" under the Loan Documents, and each Lender Party (in its capacity as
a Secured Party) hereby appoints and authorizes the Facilities Manager
(acting as the collateral agent) to act as the agent of such Lender for
purposes of acquiring, holding and enforcing any and all Liens on
Collateral granted by any Loan Party to secure any of the Secured
Obligations, together with such powers and discretion as are reasonably
incidental thereto. The Facilities Manager may from time to time in its
discretion appoint any other Lender Party or any Affiliate of any Lender
Party to act as its co-agent or sub-agent for purposes of holding or
enforcing any Lien on Collateral granted under the Collateral Documents or
of exercising any rights and remedies thereunder at the direction of the
Facilities Manager. In this connection, the Facilities Manager, as
"collateral agent", and such co-agents and sub-agents shall be entitled to
the benefits of all provisions of this Article VIII (including, without
limitation, Section 8.05, as though such co-agents or sub-agents were the
"collateral agent" under the Loan Documents) as if set forth in full herein
with respect thereto.

(c) Each of the Co-Administrative Agents, each of the Co-
Arrangers and the Co-Agent shall have no powers or discretion under this
Agreement or under any of the other Loan Documents other than those
afforded to it in its capacity as a Lender Party or those bestowed upon it
as a co-agent or sub-agent from time to time by the Facilities Manager
pursuant to Section 8.01(b), and each Lender Party hereby acknowledges that
each such Co-Administrative Agent, each such Co-Arranger and the Co-Agent
has no liability under this Agreement or under any other Loan Document
other than those assumed by it in its capacity as a Lender Party.

SECTION 8.02. Facilities Manager's Reliance, Etc. Neither the
----------------------------------
Facilities Manager nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them
under or in connection with the Loan Documents, except for its or their own
gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Facilities Manager:

(a) may treat the payee of any Note as the holder thereof until
the Facilities Manager receives and accepts an Assignment and
Acceptance entered into by the Lender that is the payee of such Note,
as assignor, and an Eligible Assignee, as assignee, as provided in
Section 9.07;

(b) may consult with legal counsel (including counsel for any
Loan Party), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such
counsel, accountants or experts;

(c) makes no representation or warranty to any Lender Party and
shall not be responsible to any Lender Party for any statements,
representations or warranties (whether written or oral) made in or in
connection with the Loan Documents;

(d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions
of any Loan Document on the part of any Loan Party or to inspect the
property and assets (including the books and records) of any Loan
Party;

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107

(e) shall not be responsible to any Lender Party for the due
execution, legality, validity, enforceability, genuineness,
sufficiency or value of, or the perfection or priority of any lien or
security interest created or purported to be created under or in
connection with, any Loan Document or any other instrument or document
furnished pursuant thereto; and

(f) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or
parties.

SECTION 8.03. Citicorp, Merrill Lynch, NationsBank and Bank of
------------------------------------------------
Boston and Affiliates. With respect to its Commitment or Commitments, the
---------------------
Advances made by it and the Notes issued to it, each of Citicorp, Merrill
Lynch, NationsBank and Bank of Boston and their respective Affiliates
parties hereto shall have the same rights and powers under the Loan
Documents as any other Lender Party and may exercise the same as though it
were not an Agent; and the term "Lender Party" or "Lender Parties" shall,
unless otherwise expressly indicated, include each of Citicorp, Merrill
Lynch, NationsBank and Bank of Boston and their respective Affiliates
parties hereto in their respective individual capacities. Each of Citicorp,
Merrill Lynch, NationsBank and Bank of Boston and their respective
Affiliates (whether or not parties hereto) may accept deposits from, lend
money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, any
Loan Party, any of its Subsidiaries and any Person who may do business with
or own securities of any Loan Party or any such Subsidiary, all as if
Citicorp, Merrill Lynch, NationsBank and Bank of Boston and their
respective Affiliates parties hereto were not the Agents and without any
duty to account therefor to the Lender Parties.

SECTION 8.04. Lender Party Credit Decision. Each Lender Party
----------------------------
acknowledges that it has, independently and without reliance upon the
Facilities Manager, any other Agent or any other Lender Party and based on
the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender Party also
acknowledges that it will, independently and without reliance upon the
Facilities Manager, any other Agent or any other Lender Party and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement.

SECTION 8.05. Indemnification. (a) Each Lender Party severally
---------------
agrees to indemnify the Facilities Manager and each other Agent (to the
extent not promptly reimbursed by the Borrowers) from and against such
Lender Party's Pro Rata Share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
that may be imposed on, incurred by, or asserted against the Facilities
Manager or such other Agent, as the case may be, in any way relating to or
arising out of the Loan Documents or any action taken or omitted by the
Facilities Manager or such other Agent under the Loan Documents; provided,
however, that no Lender Party shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Facilities
Manager's or such other Agent's gross negligence or willful misconduct.
Without limitation of the foregoing, each Lender Party agrees to reimburse
the Facilities Manager and such other Agent promptly upon demand for its
Pro Rata Share of any costs and expenses (including, without limitation,
fees and expenses of counsel) payable by the Borrowers under Section 9.04,
to the extent that the Facilities Manager is not promptly reimbursed for
such costs and expenses by the Borrowers. For purposes of this
Section 8.05, the Lender Parties' respective Pro Rata Share of

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108

any amount shall be determined, at any time, according to their respective
Pro Rata Share of the Working Capital Facility. In the event that any
Defaulted Advance shall be owing by any Defaulting Lender at any time, such
Lender Party's Working Capital Commitment, if any, shall be considered to
be deducted from the Working Capital Facility for purposes of this
Section 8.05(a). The failure of any Lender Party to reimburse the
Facilities Manager or any other Agent promptly upon demand for its Pro Rata
Share of any amount required to be paid by the Lender Parties to the
Facilities Manager or such other Agent as provided in this Section 8.05(a)
shall not relieve any other Lender Party of its obligation hereunder to
reimburse the Facilities Manager or such other Agent for its Pro Rata Share
of such amount, but no Lender Party shall be responsible for the failure of
any other Lender Party to reimburse the Facilities Manager or such other
Agent for such other Lender Party's Pro Rata Share of such amount. Without
prejudice to the survival of any other agreement of any Lender Party
hereunder, the agreement and obligations of each Lender Party contained in
this Section 8.05(a) shall survive the payment in full of all principal,
interest and other amounts payable under this Agreement and under the other
Loan Documents.

(b) Each Lender severally agrees to indemnify each Issuing Bank
(to the extent not promptly reimbursed by the Borrowers) from and against
such Lender's Pro Rata Share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
that may be imposed on, incurred by, or asserted against such Issuing Bank
in any way relating to or arising out of the Loan Documents or any action
taken or omitted by such Issuing Bank under the Loan Documents; provided,
however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from such Issuing Bank's
gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse each Issuing Bank promptly upon
demand for its Pro Rata Share of any costs and expenses (including, without
limitation, fees and expenses of counsel) payable by the Borrowers under
Section 9.04, to the extent that such Issuing Bank is not promptly
reimbursed for such costs and expenses by the Borrowers. For purposes of
this Section 8.05(b), the Lenders' respective Pro Rata Share of any amount
shall be determined, at any time, according to their respective Pro Rata
Share of the Working Capital Facility. In the event that any Defaulted
Advance shall be owing by any Defaulting Lender at any time, such Lender's
Working Capital Commitment shall be considered to be deducted from the
Working Capital Facility for purposes of this Section 8.05(b). The failure
of any Lender to reimburse any Issuing Bank promptly upon demand for its
Pro Rata Share of any amount required to be paid by the Lenders to such
Issuing Bank as provided in this Section 8.05(b) shall not relieve any
other Lender of its obligation hereunder to reimburse such Issuing Bank for
its Pro Rata Share of such amount, but no Lender shall be responsible for
the failure of any other Lender to reimburse such Issuing Bank for such
other Lender's Pro Rata Share of such amount. Without prejudice to the
survival of any other agreement of any Lender hereunder, the agreement and
obligations of each Lender contained in this Section 8.05(b) shall survive
the payment in full of principal, interest and all other amounts payable
under this Agreement and under the other Loan Documents.

SECTION 8.06. Successor Facilities Managers. The Facilities
-----------------------------
Manager may resign at any time by giving written notice thereof to the
Lender Parties and the Borrowers and may be removed at any time with or
without cause by the Required Lenders. Upon any such resignation or
removal, the Required Lenders shall have the right to appoint a successor
Facilities Manager; provided that, so long as no Default under Section
7.01(a) or 7.01(f) and no Event of Default shall have occurred and be
continuing, the Swing Line Borrower shall have the right to propose a
successor Facilities Manager to the Lender Parties and shall have the right
to consent to any such successor Facilities Manager, such consent not to be
unreasonably withheld or delayed and to be deemed to have been given if the
Swing

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109

Line Borrower does not object to the proposed successor Facilities Manager
within five Business Days of notice thereof. If no successor Facilities
Manager shall have been so appointed by the Required Lenders (and, if
required, consented to by the Swing Line Borrower), and shall have accepted
such appointment, within 30 days after the retiring Facilities Manager's
giving of notice of resignation or the Required Lenders' removal of the
retiring Facilities Manager, then the retiring Facilities Manager may, on
behalf of the Lender Parties and the Secured Parties, appoint a successor
Facilities Manager, which shall be a commercial bank organized under the
laws of the United States or of any state thereof and having a combined
capital and surplus of at least $250,000,000. Upon the acceptance of any
appointment as Facilities Manager hereunder by a successor Facilities
Manager and upon the execution and filing or recording of such financing
statements, or amendments thereto, and such other instruments or notices,
as may be necessary or desirable, or as the Required Lenders may request,
in order to continue the perfection of the Liens granted or purported to be
granted under the Collateral Documents, such successor Facilities Manager
shall succeed to and become vested with all the rights, powers, discretion,
privileges and duties of the retiring Facilities Manager, and the retiring
Facilities Manager shall be discharged from its duties and obligations
under the Loan Documents. After any retiring Facilities Manager's
resignation or removal hereunder as Facilities Manager, the provisions of
this Article VIII shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Facilities Manager under this
Agreement.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Agreement or the Notes or, to the extent not otherwise
provided for therein, any other Loan Document, and no consent to any
departure by any of the Loan Paries therefrom, shall in any event be
effective unless the same shall be in writing and signed (or, in the case
of the Collateral Documents, consented to) by the Required Lenders, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however,
that (a) no amendment, waiver or consent shall, unless in writing and
signed by all of the Lender Parties (other than any Lender Party that is,
at such time, a Defaulting Lender), do any of the following at any time:

(i) waive any of the conditions specified in Section 3.01 or, in
the case of the Initial Extension of Credit, Section 3.02;

(ii) change the number of Lenders or the percentage of (A) the
Commitments, (B) the aggregate unpaid principal amount of the Advances
or (C) the aggregate Available Amount of outstanding Letters of Credit
that, in each case, shall be required for the Lenders or any of them
to take any action hereunder;

(iii) reduce or limit the obligations of the Swing Line
Borrower under Section 6.01 of this Agreement or of the Working
Capital Borrowers under Section 1 of the Subsidiaries Guarantee or
otherwise limit any Borrower's liability with respect to the
Obligations owing to the Facilities Manager and the Lender Parties;

(iv) release all or substantially all of the Collateral in any
transaction or any series of related transactions;

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110

(v) permit the creation, incurrence, assumption or existence of
any Lien on all or substantially all of the Collateral in any
transaction or any series of related transactions to secure any
Obligations other than Obligations owing to the Secured Parties under
the Loan Documents, on a basis subordinate to the Liens under the
Collateral Documents, and other than Indebtedness owing to any other
Person, provided that, in the case of any Lien on all or substantially
all of the Collateral to secure Indebtedness owing to any other
Person, (A) the Borrowers shall, on the date such Indebtedness shall
be incurred or issued, reduce the Commitments pursuant to, and in the
order of priority set forth in, Section 2.05(b)(i) in an aggregate
principal amount equal to the amount of such Net Cash Proceeds to the
extent required to do so under Section 2.05(b)(i) on the date of this
Agreement and (B) the Required Lenders shall otherwise permit the
creation, incurrence, assumption or existence of such Lien and, to the
extent not otherwise permitted under Section 5.02(b), of such
Indebtedness; or

(vi) amend this Section 9.01; and

(b) no amendment, waiver or consent shall, unless in writing and
signed by the Required Lenders and each Lender Party that has a Commitment
under the Working Capital Facility if affected by such amendment, waiver or
consent:

(i) increase the Commitments of such Lender or subject such
Lender to any additional obligations;

(ii) reduce the principal of, or interest on, the Notes held by
such Lender or any fees or other amounts payable hereunder to such
Lender;

(iii) postpone any date fixed for any payment of principal
of, or interest on, the Notes held by such Lender or any fees or other
amounts payable hereunder to such Lender; or

(iv) change the order of application of any prepayment set forth
in Section 2.06(c) in any manner that materially affects such Lender;

provided further that no amendment, waiver or consent shall, unless in
writing and signed by the Swing Line Bank or each Issuing Bank, as the case
may be, in addition to the Lenders required above to take such action,
affect the rights or obligations of the Swing Line Bank or of the Issuing
Banks, as the case may be, under this Agreement; and provided further that
no amendment, waiver or consent shall, unless in writing and signed by the
Facilities Manager in addition to the Lender Parties required above to take
such action, affect the rights or duties of the Facilities Manager under
this Agreement. Notwithstanding any of the foregoing provisions of this
Section 9.01, none of the defined terms set forth in Section 1.01 shall be
amended, supplemented or otherwise modified in any manner that would change
the meaning, purpose or effect of this Section 9.01 or any section referred
to herein unless such amendment or modification is agreed to in writing by
the percentage of Lender Parties (and the Facilities Manager, if
applicable) otherwise required to amend such section under the terms of
this Section 9.01.

SECTION 9.02. Notices, Etc. (a) All notices and other
------------
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to any of the Borrowers, at its
address set forth below its name on the signature pages of this Agreement;
if to any Initial Lender or any Initial Issuing Bank, at its Domestic
Lending Office set forth opposite its name on Part A of Schedule I hereto;
if to any other

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111

Lender Party, at its Domestic Lending Office specified in the Assignment
and Acceptance pursuant to which it became a Lender Party; and if to the
Facilities Manager, at its address at 399 Park Avenue, New York, New York
10043 (Telecopier No. (212) 758-6278), Attention: Douglas P. Fletcher,
Vice President; or, as to any Borrower or the Facilities Manager, at such
other address as shall be designated by such party in a written notice to
the other parties and, as to each other party, at such other address as
shall be designated by such party in a written notice to the Borrowers and
the Facilities Manager. All such notices and communications shall, when
mailed, telegraphed, telecopied or telexed, be effective when deposited in
the mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively, addressed as aforesaid, except
that notices and communications to the Facilities Manager pursuant to
Article II, III or VIII shall not be effective until received by the
Facilities Manager. Notwithstanding any other provisions of the Loan
Documents, any notice to the Borrowers or to any one of them required under
this Agreement or under any other Loan Document that is delivered to the
Swing Line Borrower in accordance with this Section 9.02 shall constitute
effective notice to the Borrowers or to any such Borrower. Delivery of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes, or of any Exhibit hereto to be executed and
delivered hereunder, by telecopier shall be effective as delivery of a
manually executed counterpart thereof.

(b) If any notice required under this Agreement is permitted to
be made, and is made, by telephone, actions taken or omitted to be taken in
reliance thereon by the Facilities Manager or by any Lender Party shall be
binding upon each of the Borrowers notwithstanding any inconsistency
between the notice provided by telephone and any subsequent writing in
confirmation thereof provided to the Facilities Manager or such Lender
Party; provided that any such action taken or omitted to be taken by the
Facilities Manager or such Lender Party shall have been in good faith and
in accordance with the terms of this Agreement.

SECTION 9.03. No Waiver; Remedies. No failure on the part of
-------------------
the Facilities Manager or any Lender Party to exercise, and no delay in
exercising, any right, power or privilege hereunder or under the Notes
shall operate as a waiver thereof or consent thereto; nor shall any single
or partial exercise of any such right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. The remedies herein provided are cumulative and not
exclusive of any remedies provided by applicable law.

SECTION 9.04. Costs and Expenses. (a) Each Borrower agrees to
------------------
pay, upon demand, (i) all reasonable and documented costs and expenses of
the Facilities Manager and the other Agents in connection with the
preparation, execution, delivery, administration, modification and
amendment of the Loan Documents (including, without limitation, (A) all due
diligence, collateral review, transportation, computer, duplication,
appraisal, audit, insurance, consultant, search, filing and recording fees
and expenses of the Facilities Manager, (B) all syndication (including
printing, distribution and bank meetings), transportation, computer and
duplication expenses of the Co-Arrangers and (C) the reasonable fees and
expenses of one counsel for the Co-Administrative Agents and the Co-
Arrangers with respect thereto, with respect to advising the Facilities
Manager as to its rights and responsibilities, or the perfection,
protection or preservation of rights or interests, under the Loan
Documents, with respect to negotiations with any Loan Party or with other
creditors of any Loan Party or any of its Subsidiaries arising out of any
Default or any events or circumstances that may give rise to a Default and
with respect to presenting claims in or otherwise participating in or
monitoring any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto) and (ii)
all reasonable and documented costs and expenses of the Facilities Manager,
the other Agents and the Lender Parties in connection with the enforcement
of the Loan Documents, whether in any action, suit or

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112

litigation, any bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally or otherwise (including, without
limitation, the reasonable fees and expenses of counsel for the Facilities
Manager, each other Agent and each Lender Party with respect thereto).
Notwithstanding the inclusion of the costs and expenses referred to in the
immediately preceding sentence in the Guaranteed Obligations, the Swing
Line Borrower agrees to pay, upon demand, the amount of any and all
reasonable and documented costs and expenses (including, without
limitation, the reasonable fees and expenses of counsel) that the
Facilities Manager may incur in connection with (1) the exercise or
enforcement of any rights of any Lender Party under Articles IV, V, VII and
IX as they apply directly to the Swing Line Borrower and under Article VI
or (2) the failure of the Swing Line Borrower to perform or observe any of
the provisions of this Agreement to be performed or observed by it.

(b) Each Loan Party agrees to indemnify and hold harmless the
Facilities Manager, each other Agent, each Lender Party and each of their
Affiliates and their officers, directors, employees, agents, advisors and
representatives (each, an "Indemnified Party") from, and hold each of them
-----------------
harmless against, any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and expenses of
counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with (i) the Facilities or any other financings, or the actual
or proposed use of the proceeds thereof or of drawings under the Letters of
Credit, (ii) any aspect of the Transaction or any similar transaction of
the Swing Line Borrower or any of its Subsidiaries and any of the other
transactions contemplated in the Loan Documents, (iii) any acquisition or
proposed acquisition by the Swing Line Borrower or any of its Subsidiaries
or Affiliates of all or any portion of the capital stock or substantially
all the assets of any other Person, (iv) any case or proceeding involving
the Swing Line Borrower or any of its Subsidiaries or Affiliates pursuant
to any bankruptcy, insolvency, reorganization, moratorium or similar law,
or (v) the actual or alleged presence of Hazardous Materials on any
property of any Loan Party or any of its Subsidiaries or any Environmental
Action relating in any way to any Loan Party or any of its Subsidiaries, in
each case whether or not such investigation, litigation or proceeding is
brought by any Loan Party, its directors, shareholders or creditors or an
Indemnified Party or any Indemnified Party is otherwise a party thereto and
whether or not the Transaction (or any part thereof) is consummated, except
to the extent such claim, damage, loss, liability or expense (A) is found
in a final, nonappealable judgment by a court of competent jurisdiction to
have resulted from such Indemnified Party's gross negligence or willful
misconduct or (B) is the sole result of such Indemnified Party's election
to participate directly in an appeal from the Confirmation Order (which
participation shall not have resulted from a request from any of the
Debtors or any of their respective creditors for such Indemnified Party to
participate in such appeal, from the joinder of or the service of process
upon such Indemnified Party in connection with such appeal, or from any
other participation by such Indemnified Party in any such appeal that is
not solely within their discretion and control).

(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by any Borrower to or for the account of a
Lender other than on the last day of the Interest Period for such Advance,
as a result of a payment or Conversion pursuant to Section 2.09(b)(i) or
2.10(d), acceleration of the maturity of the Notes pursuant to Section 7.01
or for any other reason, such Borrower shall, upon demand by such Lender
(with a copy of such demand to the Facilities Manager), pay to the
Facilities Manager for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it
may reasonably incur as a result of such payment, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by any Lender to fund
or maintain such Advance.

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113

(d) If any Loan Party fails to pay when due any costs, expenses
or other amounts payable by it under any Loan Document (including, without
limitation, any fees and expenses of counsel or any indemnities), such
amount may be paid on behalf of such Loan Party by the Facilities Manager
or any Lender Party, in its sole discretion.

(e) Without prejudice to the survival of any other agreement of
any Loan Party hereunder or under any other Loan Document, the agreements
and obligations of each Borrower contained in Sections 2.10 and 2.12 and
this Section 9.04 shall survive the payment in full of all principal,
interest and other amounts payable under this Agreement and under any of
the other Loan Documents.

SECTION 9.05. Right of Setoff. Upon (a) the occurrence and
---------------
during the continuance of any Event of Default and (b) the making of the
request or the granting of the consent specified by Section 7.01 to
authorize the Facilities Manager to declare the Notes due and payable
pursuant to the provisions of Section 7.01, each Lender Party and each of
its Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by applicable law, to set off and otherwise
apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender Party or such Affiliate to or for the credit or the account of the
Borrowers against any and all of the Obligations of the Borrowers now or
hereafter existing under this Agreement and the Note (if any) held by such
Lender Party, irrespective of whether such Lender Party shall have made any
demand under this Agreement or such Note and although such obligations may
be unmatured. Each Lender Party agrees promptly to notify the Borrowers
after any such setoff and application shall be made by such Lender Party or
any of its Affiliates; provided, however, that the failure to give such
notice shall not affect the validity of such setoff and application. The
rights of each Lender Party and its Affiliates under this Section 9.05 are
in addition to other rights and remedies (including, without limitation,
other rights of setoff) that such Lender Party and its Affiliates may have.

SECTION 9.06. Binding Effect. This Agreement shall become
--------------
effective when it shall have been executed by each Borrower and the
Facilities Manager and when the Facilities Manager shall have been notified
by each Initial Lender, each Initial Issuing Bank and the Swing Line Bank
that such Initial Lender, such Initial Issuing Bank or the Swing Line Bank,
as the case may be, has executed it and, thereafter, shall be binding upon
and inure to the benefit of, and be enforceable by each Borrower, the
Facilities Manager, each other Agent and each Lender Party and their
respective successors and assigns, except that none of the Borrowers shall
have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Facilities Manager and the Lender
Parties.

SECTION 9.07. Assignments and Participations. (a) Each Lender
------------------------------
may assign to one or more Eligible Assignees all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or
a portion of its Commitment or Commitments, the Advances owing to it and
the Notes held by it); provided, however, that:

(i) each such assignment shall be of a uniform, and not a
varying, percentage of all rights and obligations under this
Agreement;

(ii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender or an assignment of
all of a Lender's rights and obligations under this Agreement, the
amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the
Assignment and Acceptance with respect

<PAGE>

114

to such assignment) shall in no event be less than $5,000,000 and
shall be in an integral multiple of $1,000,000 in excess thereof;

(iii) until the Facilities Manager shall have notified the Lender
Parties that syndication of the Commitments hereunder has been
completed, no such assignments shall be permitted without the consent
of the Facilities Manager; and

(iv) the parties to each such assignment shall execute and
deliver to the Facilities Manager, for its acceptance and recording in
the Register, an Assignment and Acceptance, together with any Note
subject to such assignment and a processing and recordation fee of
$2,500.

(b) Each Issuing Bank may assign to one or more Eligible
Assignees all or a portion of its rights and obligations under the undrawn
portion of its Letter of Credit Commitment at any time; provided, however,
that:

(i) except in the case of an assignment to a Person that
immediately prior to such assignment was an Issuing Bank or an
assignment of all of an Issuing Bank's rights and obligations under
this Agreement, the amount of the Letter of Credit Commitment of the
assigning Issuing Bank being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000
and shall be in an integral multiple of $1,000,000 in excess thereof;
and

(ii) the parties to each such assignment shall execute and
deliver to the Facilities Manager, for its acceptance and recording in
the Register, an Assignment and Acceptance, together with a processing
and recordation fee of $2,500.

(c) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and
Acceptance, (i) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender or an Issuing Bank, as the case may be, hereunder and (ii) the
Lender or the Issuing Bank assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
or an assigning Issuing Bank's rights and obligations under this Agreement,
such Lender or such Issuing Bank shall cease to be a party hereto).

(d) By executing and delivering an Assignment and Acceptance,
the Lender Party assignor thereunder and the assignee thereunder confirm to
and agree with each other and the other parties hereto as follows:

(i) other than as provided in such Assignment and Acceptance,
such assigning Lender Party makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties
or representations made in or in connection with this Agreement or any
other Loan Document, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or
purported to

<PAGE>

115

be created under or in connection with, this Agreement or any other
Loan Document, or any other instrument or document furnished pursuant
hereto or thereto;

(ii) such assigning Lender Party makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of any Loan Party or the performance or observance by any
Loan Party of any of its obligations under any Loan Document, or any
other instrument or document furnished pursuant thereto;

(iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred
to in Section 4.01 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance;

(iv) such assignee will, independently and without reliance upon
the Facilities Manager, any other Agent, such assigning Lender Party
or any other Lender Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement;

(v) such assignee confirms that it is an Eligible Assignee and
that it has attached any Internal Revenue Service form required under
Section 2.12 to the Assignment and Acceptance executed and delivered
by it and agrees to provide from time to time any Internal Revenue
Service form required to be provided by it under Section 2.12;

(vi) such assignee appoints and authorizes the Facilities Manager
to take such action as agent on its behalf and to exercise such powers
and discretion under the Loan Documents as are delegated to the
Facilities Manager by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and

(vii) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender or an Issuing
Bank, as the case may be.

(e) The Facilities Manager, acting solely for this purpose as
the agent of each Borrower, shall maintain at its address set forth in
Section 9.02 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Lender Parties and the Commitment of, and principal amount
of the Advances owing to, each Lender Party from time to time (the
"Register"). The entries in the Register shall be conclusive and binding
--------
for all purposes, absent manifest error, and the Borrowers, the Facilities
Manager, the other Agents and the Lender Parties shall treat each Person
whose name is recorded in the Register as a Lender Party for all purposes
of this Agreement. The Register shall be available for inspection by any
Borrower, any Agent or any Lender Party at any reasonable time and from
time to time upon reasonable prior notice.

(f) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender Party and an assignee, together with any Note subject
to such assignment, the Facilities Manager shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrowers. In the case of any

<PAGE>

116

assignment by a Lender, within five Business Days after its receipt of such
notice, each Working Capital Borrower, at its own expense, shall execute
and deliver to the Facilities Manager in exchange for the surrendered Notes
a new Note from such Working Capital Borrower to the order of such Eligible
Assignee in an amount equal to the Working Capital Commitment assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Working Capital Commitment hereunder, a new Note from such
Working Capital Borrower to the order of the assigning Lender in an amount
equal to the Working Capital Commitment retained by it hereunder. Each new
Note shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note, shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit A hereto.

(g) Each Lender Party may sell participations in or to all or a
portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment or Commitments, the
Advances owing to it and the Note held by it); provided, however, that:

(i) such Lender Party's obligations under this Agreement
(including, without limitation, its Commitment or Commitments) shall
remain unchanged;

(ii) such Lender Party shall remain solely responsible to the
other parties hereto for the performance of such obligations;

(iii) such Lender Party shall remain the holder of any such Note
for all purposes of this Agreement;

(iv) the Borrowers, the Facilities Manager and the other Lender
Parties shall continue to deal solely and directly with such Lender
Party in connection with such Lender Party's rights and obligations
under this Agreement; and

(v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of any Loan
Document, or any consent to any departure by any Loan Party therefrom,
except to the extent that such amendment, waiver or consent would
reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, in each case to the extent subject to
such participation, postpone any date scheduled for any payment of
principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, in each case to the extent subject to such
participation, or release all or substantially all of the Collateral.

(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 9.07, disclose to the assignee or participant or proposed assignee
or participant, any information relating to any Borrower or any of its
Subsidiaries, or relating to any aspect of the Transaction, furnished to
such Lender Party by or on behalf of any Borrower; provided, however, that,
prior to any such disclosure, the assignee or participant or proposed
assignee or participant shall agree to preserve the confidentiality of any
Confidential Information received by it from such Lender Party.

(i) Any Lender Party may at any time create a security interest
in all or any portion of its rights under this Agreement (including,
without limitation, the Advances owing to it and the Note

<PAGE>

117

held by it) in favor of any Federal Reserve Bank in accordance with
Regulation A of the Board of Governors of the Federal Reserve System.

SECTION 9.08. No Liability of the Issuing Banks. Each Working
---------------------------------
Capital Borrower assumes all risks of the acts or omissions of any
beneficiary or transferee of any Letter of Credit with respect to its use
of any Letter of Credit issued at the request of such Borrower. Neither
any Issuing Bank nor any of its officers or directors shall be liable or
responsible for:

(a) the use that may be made of any Letter of Credit or any acts
or omissions of any beneficiary or transferee in connection therewith;

(b) the validity, sufficiency or genuineness of documents, or of
any endorsement thereon, even if such documents should prove to be in
any or all respects invalid, insufficient, fraudulent or forged;

(c) payment by such Issuing Bank against presentation of
documents that do not comply with the terms of a Letter of Credit,
including failure of any documents to bear any reference or adequate
reference to the Letter of Credit, unless such documents are
substantially different from the applicable form specified by such
Letter of Credit; or

(d) any other circumstances whatsoever in making or failing to
make payment under any Letter of Credit;

except that any Borrower for whom a Letter of Credit was issued by such
Issuing Bank shall have a claim against such Issuing Bank, and such Issuing
Bank shall be liable to such Borrower, to the extent of any direct, but not
consequential, damages suffered by such Borrower that such Borrower proves
were caused by (i) such Issuing Bank's gross negligence or willful
misconduct in determining whether documents presented under such Letter of
Credit comply with the terms of the Letter of Credit or (ii) such Issuing
Bank's willful failure to make lawful payment under a Letter of Credit
after the presentation to it of a draft and certificates strictly complying
with the terms and conditions of the Letter of Credit. In furtherance and
not in limitation of the foregoing provisions of this Section 9.08, such
Issuing Bank may accept documents that appear on their face to be in order
without responsibility for further investigation, regardless of any notice
or information to the contrary.

SECTION 9.09. Confidentiality. None of the Facilities Manager,
---------------
any other Agent or any Lender Party shall disclose any Confidential
Information to any Person without the consent of the Borrowers, other than
(a) to the Facilities Manager's, such other Agent's or such Lender Party's
respective Affiliates and their officers, directors, employees, agents and
advisors and to actual or prospective Eligible Assignees and participants,
and then only on a confidential basis, (b) as required by any law, rule or
regulation or any judicial process and (c) as requested or required by any
state, federal or foreign authority or examiner regulating banks or
banking.

SECTION 9.10. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.

<PAGE>

118

SECTION 9.11. Governing Law, Submission to Jurisdiction, Etc.
----------------------------------------------
(a) This Agreement and the Notes shall be governed by, and construed in
accordance with, the laws of the State of New York.

(b) Each of the parties hereto hereby irrevocably and
unconditionally submits itself and its properties to the nonexclusive
jurisdiction of any New York state court or any federal court of the United
States sitting in New York City, New York, and any appellate court of any
of the foregoing, for any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such suit, action
or proceeding may be heard and determined in any such New York state court
or, to the fullest extent permitted by applicable law, in any such United
States federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent it may effectively do so, any objection or
defense that it may now or hereafter have to the laying of venue of any
suit, action or proceeding in the State of New York and to any defense of
such jurisdiction as an inconvenient forum for the maintenance of any such
suit, action or proceeding in any such court. Nothing herein shall affect
the rights of the Facilities Manager or any Lender Party to commence or
participate in any suit, action or proceeding or otherwise to proceed
against any Borrower in any other jurisdiction.

(c) Each of the parties hereto hereby irrevocably consents to
the service of any and all process in any such suit, action or proceeding
by personal service of a copy of the summons and complaint or other legal
process in any such suit, action or proceeding, or by the mailing of copies
of such legal process to such party at its address set forth in
Section 9.02, or by any other method of service provided for under
applicable law. Each of the parties hereto hereby agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by applicable law.

<PAGE>

119

(d) To the extent that any Borrower has or hereafter may acquire
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with respect to itself or its
property, such Borrower hereby irrevocably waives such immunity in respect
of its Obligations under this Agreement and the other Loan Documents.

SECTION 9.12. Waiver of Jury Trial. Each of the Borrowers, the
--------------------
Facilities Manager, the other Agents and the Lender Parties irrevocably
waives all right to trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) arising out of or relating
to any of the Loan Documents, the Advances or the actions of the Facilities
Manager, any other Agent or any Lender Party in the negotiation,
administration, performance or enforcement thereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as
of the date first above written.

The Swing Line Borrower
-----------------------

WALTER INDUSTRIES, INC.

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President and Treasurer

Address: 1500 North Dale Mabry Highway
Tampa, FL 33607

The Working Capital Borrowers
-----------------------------

JIM WALTER HOMES, INC.

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President and Treasurer

Address: 1500 North Dale Mabry Highway
Tampa, FL 33607

<PAGE>

120

JIM WALTER RESOURCES, INC.

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President

Address: Route 1, Highway 216
Brookwood, AL 35444

JW ALUMINUM COMPANY

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President

Address: 435 Old Mt. Holly Road
Mt. Holly, S.C. 29445

JW WINDOW COMPONENTS, INC.

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President

Address: 1500 North Dale Mabry Highway
Tampa, FL 33607

SLOSS INDUSTRIES CORPORATION

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President

Address: 3500 35th Avenue North
Birmingham, AL 35207

<PAGE>

121

SOUTHERN PRECISION CORPORATION

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President

Address: 1500 Georgia Road
Birmingham, AL 35210

UNITED STATES PIPE AND FOUNDRY
COMPANY

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President

Address: 3300 First Avenue North
Birmingham, AL 35222

VESTAL MANUFACTURING COMPANY

By /s/ Donald M. Kurucz
------------------------------------
Name: Donald M. Kurucz
Title: Vice President

Address: South Main
Sweetwater, TN 37874

The Facilities Manager
----------------------

CITICORP USA, INC., as Facilities Manager

By /s/ Townsend U. Weekes, Jr.
------------------------------------
Name: Townsend U. Weekes, Jr.
Title: Attorney-In-Fact

<PAGE>

122

The Co-Administrative Agents
----------------------------

By /s/ Townsend U. Weekes, Jr.
------------------------------------
Name: Townsend U. Weekes, Jr.
Title: Attorney-In-Fact

MERRILL LYNCH CAPITAL CORPORATION,
as Co-Administrative Agent

By /s/ Charles L. Wickham III
------------------------------------
Name: Charles L. Wickham III
Title: Vice President

NATIONSBANK OF FLORIDA, N.A., as
Co-Administrative Agent

By /s/ Joseph J. Troy
------------------------------------
Name: Joseph J. Troy
Title: Vice President

The Co-Arrangers
----------------

CITICORP SECURITIES, INC., as Co-Arranger

By /s/ Judith C. Fishlow
------------------------------------
Name: Judith C. Fishlow
Title: Vice President

MERRILL LYNCH CAPITAL CORPORATION,
as Co-Arranger

By /s/ Charles L. Wickham III
------------------------------------
Name: Charles L. Wickham III
Title: Vice President

<PAGE>

123

NATIONSBANC CAPITAL MARKETS, INC.,
as Co-Arranger

By /s/ John N. Gregg, Jr.
------------------------------------
Name: John N. Gregg, Jr.
Title: Vice President

The Co-Agent
------------

THE FIRST NATIONAL BANK OF BOSTON,
as Co-Agent

By /s/ Steven Atwater
------------------------------------
Name: Steven Atwater
Title: Vice President

The Initial Lenders
-------------------

CITICORP USA, INC., as Initial Lender

By /s/ Townsend U. Weekes, Jr.
------------------------------------
Name: Townsend U. Weekes, Jr.
Title: Attorney-In-Fact

MERRILL LYNCH CAPITAL CORPORATION,
as Initial Lender

By /s/ Charles L. Wickham III
------------------------------------
Name: Charles L. Wickham III
Title: Vice President

NATIONSBANK OF FLORIDA, N.A., as
Initial Lender

By /s/ Joseph J. Troy
------------------------------------
Name: Joseph J. Troy
Title: Vice President

<PAGE>

124

THE FIRST NATIONAL BANK OF BOSTON, as
Initial Lender

By /s/ Steven Atwater
------------------------------------
Name: Steven Atwater
Title: Vice President

The Initial Issuing Banks
-------------------------

CITIBANK, N.A., as Issuing Bank

By /s/ Timothy J. Conway
------------------------------------
Name: Timothy J. Conway
Title: Attorney-In-Fact

NATIONSBANK OF FLORIDA, N.A.,
as Issuing Bank

By /s/ Joseph J. Troy
------------------------------------
Name: Joseph J. Troy
Title: Vice President

<PAGE>
<TABLE><CAPTION>
SCHEDULE I
TO THE CREDIT AGREEMENT*

COMMITMENTS, APPLICABLE LENDING OFFICES AND BORROWERS' ACCOUNTS

PART A: COMMITMENTS AND APPLICABLE LENDING OFFICES

Name of Initial Working Capital Letter of Credit Domestic Lending Eurodollar Lending
Lender Commitment Commitment Office Office

<S> <C> <C> <C> <C>
Citicorp USA, Inc. $37,500,000.00 $0 Credit and Credit and
---------- ----------
Relationship Matters: Relationship Matters:
--------------------- ---------------------
399 Park Avenue 399 Park Avenue
6th Floor, Zone 4 6th Floor, Zone 4
New York, NY 10043 New York, NY 10043
Attn: Michael D. Mahre Attn: Michael D. Mahre
Phone: (212) 559-5208 Phone: (212) 559-5208
Fax: (212) 758-6278 Fax: (212) 758-6278

Operations: Operations:
----------- -----------
399 Park Avenue 399 Park Avenue
10th Floor, Zone 3 10th Floor, Zone 3
New York, NY 10043 New York, NY 10043
Attn: Hein Nugent Attn: Hein Nugent
Phone: (212) 559-4571 Phone: (212) 559-4571
Fax: (212) 793-1384 or Fax: (212) 793-1384 or
(212) 793-4806 (212) 793-4806

Citibank, N.A. $0 $20,000,000.00
</TABLE>

----------------------
* Letter of Credit Commitments are commitments under the Letter of Credit
facility which is a sub-facility of the Working Capital Facility.

<PAGE>
2

<TABLE><CAPTION>
Name of Initial Working Capital Letter of Credit Domestic Lending Eurodollar Lending
Lender Commitment Commitment Office Office

<S> <C> <C> <C> <C>
Merrill Lynch Capital $37,500,000.00 $0 Credit and Credit and
Corporation ---------- ----------
Relationship Matters: Relationship Matters:
--------------------- ---------------------
World Financial Center World Financial Center
North Tower North Tower
250 Vesey Street 250 Vesey Street
New York, NY 10281 New York, NY 10281
Attn: Christopher J. Attn: Christopher J.
Birosak Birosak
Phone: (212) 449-8221 Phone: (212) 449-8221
Fax: (212) 449-8230 Fax: (212) 449-8230

Operations: Operations:
----------- -----------
World Financial Center World Financial Center
North Tower North Tower
250 Vesey Street 250 Vesey Street
New York, NY 10281 New York, NY 10281
Attn: Neil Parachini Attn: Neil Parachini
Phone: (212) 449-6228 Phone: (212) 449-6228
Fax: (212) 449-3976 Fax: (212) 449-3976
ABA # 021-000-128 ABA # 021-000-128
Reference: Walter Reference: Walter
</TABLE>

<PAGE>
3

<TABLE><CAPTION>
Name of Initial Working Capital Letter of Credit Domestic Lending Eurodollar Lending
Lender Commitment Commitment Office Office

<S> <C> <C> <C> <C>
NationsBank of $37,500,000.00 $20,000,000.00 Credit and Credit and
Florida, N.A. ---------- ----------
Relationship Matters: Relationship Matters:
--------------------- ---------------------
400 N. Ashley Drive 400 N. Ashley Drive
Tampa, FL 33602-4318 Tampa, FL 33602-4318
Attn: Joseph J. Troy Attn: Joseph J. Troy
Phone: (813) 224-5242 Phone: (813) 224-5242
Fax: (813) 224-5948 Fax: (813) 224-5948

Operations: Operations:
----------- -----------
One Independence Center One Independence Center
NC1-001-15-03 NC1-001-15-03
Charlotte, NC 28255 Charlotte, NC 28255
Attn: Sandy Service Attn: Sandy Service
Phone: (704) 388-2374 Phone: (704) 388-2374
Fax: (704) 386-9923 Fax: (704) 386-9923
ABA # 063100277 ABA # 063100277
Ref: Walter Industries, Ref: Walter Industries,
Inc. Inc.
Acct. # 136621-2163 Acct. # 136621-2163
</TABLE>

<PAGE>
4

<TABLE><CAPTION>
Name of Initial Working Capital Letter of Credit Domestic Lending Eurodollar Lending
Lender Commitment Commitment Office Office

<S> <C> <C> <C> <C>
The First National Bank $37,500,000.00 $0 Credit Matters: Credit Matters:
of Boston --------------- ---------------
100 Federal Street 100 Federal Street
01-22-08 01-22-08
Boston, MA 02110 Boston, MA 02110
Attn: Elizabeth A. Ratto Attn: Elizabeth A. Ratto
Phone: (617) 434-8890 Phone: (617) 434-8890
Fax: (617) 434-2309 Fax: (617) 434-2309

Operations: Operations:
----------- -----------
100 Rustcraft Road 100 Rustcraft Road
Dedham, MA 02026 Dedham, MA 02026
Attn: Betty Drake Attn: Betty Drake
Commercial Loan Services Commercial Loan Services
Phone: (617) 467-2166 Phone: (617) 467-2166
Fax: (617) 467-2167 Fax: (617) 467-2167
ABA # 011-000-390 ABA # 011-000-390
Reference: Walter Reference: Walter

Relationship Matters: Relationship Matters:
--------------------- ---------------------
100 Federal Street 100 Federal Street
01-22-08 01-22-08
Boston, MA 02110 Boston, MA 02110
Attn: Elizabeth A. Ratto Attn: Elizabeth A. Ratto
Phone: (617) 434-8890 Phone: (617) 434-8890
Fax: (617) 434-2309 Fax: (617) 434-2309
</TABLE>
<PAGE>
5

<TABLE><CAPTION>
PART B: BORROWERS' ACCOUNTS

Name of Borrower Account Number Name of Account Bank At Which Maintained

<S> <C> <C> <C>
Walter Industries, Inc.

Jim Walter Homes, Inc.

Jim Walter Resources, Inc.

JW Aluminum Company

JW Window Components, Inc.

Sloss Industries Corporation

Southern Precision Corporation

United States Pipe and Foundry Company

Vestal Manufacturing Company

</TABLE>

<PAGE>

EXHIBIT A TO THE
CREDIT AGREEMENT
----------------

FORM OF NOTE

$_____________ Dated: _______, 199
--

FOR VALUE RECEIVED, the undersigned, [NAME OF WORKING CAPITAL
BORROWER], a __________ corporation (the "Working Capital Borrower"),
------------------------
HEREBY PROMISES TO PAY to the order of [NAME OF LENDER] or its registered
assigns (the "Lender") for the account of its Applicable Lending Office (as
------
defined in the Credit Agreement referred to below) the aggregate principal
amount of the Working Capital Advances (as defined below) owing to the
Lender by the Borrower pursuant to the Credit Agreement dated as of
February 27, 1995 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"; terms defined therein unless otherwise
----------------
defined herein being used herein as therein defined) among Walter
Industries, Inc., as Swing Line Borrower, Jim Walter Homes, Inc., Jim
Walter Resources, Inc., JW Aluminum Company, JW Window Components, Inc.,
Sloss Industries Corporation, Southern Precision Corporation, United States
Pipe and Foundry Company and Vestal Manufacturing Company, as Working
Capital Borrowers, the Lender and certain other Lender Parties parties
thereto, Citicorp USA, Inc., Merrill Lynch Capital Corporation and
NationsBank of Florida, N.A., as Co-Administrative Agents, Citicorp
Securities, Inc., Merrill Lynch Capital Corporation and NationsBanc Capital
Markets, Inc., as Co-Arrangers, The First National Bank of Boston, as Co-
Agent, and Citicorp USA, Inc., as Facilities Manager for the Secured
Parties, on the Termination Date.

The Borrower promises to pay the Lender interest on the unpaid
principal amount of each Working Capital Advance from the date of such
Working Capital Advance until such principal amount is paid in full, at
such interest rates, and payable at such times, as are specified in the
Credit Agreement.

Both principal and interest are payable in lawful money of the
United States of America to Citicorp USA, Inc., as Facilities Manager, at
399 Park Avenue, New York, New York 10043, in same day funds. Each Working
Capital Advance owing to the Lender by the Working Capital Borrower and the
maturity thereof, and all payments made on account of principal thereof,
shall be recorded by the Lender and, prior to any transfer hereof, endorsed
on the grid attached hereto, which is part of this Note.

This Note is one of the Notes referred to in, and is entitled to
the benefits of, the Credit Agreement. The Credit Agreement, among other
things, (a) provides for the making of working capital advances (the
"Working Capital Advances") by the Lender to the Working Capital Borrower
------------------------
from time to time in an aggregate amount not to exceed at any time
outstanding the Dollar amount first above mentioned, the indebtedness of
the Working Capital Borrower resulting from each such Working Capital
Advance being evidenced by this Note, and (b) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.

<PAGE>

The Obligations of the Working Capital Borrower under this Note
and under the other Loan Documents, and the Obligations of the other Loan
Parties under the Loan Documents, are secured by the Collateral referred
to, and as provided in, the Collateral Documents.

This Note shall be governed by, and construed in accordance with,
the laws of the State of New York.

[NAME OF WORKING CAPITAL BORROWER]

By
_____________________________________

Name:
Title:

<PAGE>
<TABLE><CAPTION>
ADVANCES AND PAYMENTS OF PRINCIPAL

Amount of Working Capital
Advance

Amount of
Eurodollar Principal Unpaid
Base Rate Rate Paid Principal Notation
Date Advances Advances or Prepaid Balance Made By

</TABLE>
<PAGE>

EXHIBIT B TO THE
CREDIT AGREEMENT
----------------

FORM OF NOTICE OF WORKING CAPITAL BORROWING

Citicorp USA, Inc., as Facilities Manager [Date]
under the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043

Attention: ________________________

Ladies and Gentlemen:

The undersigned, [NAME OF WORKING CAPITAL BORROWER], refers to
the Credit Agreement dated as of February 27, 1995 (as amended,
supplemented or otherwise modified from time to time, the "Credit
------
Agreement"; terms defined therein unless otherwise defined herein being
---------
used herein as therein defined) among Walter Industries, Inc., as Swing
Line Borrower, Jim Walter Homes, Inc., Jim Walter Resources, Inc., JW
Aluminum Company, JW Window Components, Inc., Sloss Industries Corporation,
Southern Precision Corporation, United States Pipe and Foundry Company and
Vestal Manufacturing Company, as Working Capital Borrowers, certain Lender
Parties parties thereto, Citicorp USA, Inc., Merrill Lynch Capital
Corporation and NationsBank of Florida, N.A., as Co-Administrative Agents,
Citicorp Securities, Inc., Merrill Lynch Capital Corporation and
NationsBanc Capital Markets, Inc., as Co-Arrangers, The First National Bank
of Boston, as Co-Agent, and Citicorp USA, Inc., as Facilities Manager for
the Secured Parties, and hereby gives you notice, irrevocably, pursuant to
Section 2.02 of the Credit Agreement that the undersigned hereby requests a
Working Capital Borrowing under the Credit Agreement and, in that
connection, sets forth below the information relating to such Working
Capital Borrowing (the "Proposed Working Capital Borrowing") as required by
----------------------------------
Section 2.02(a) of the Credit Agreement:

(i) The Business Day of the Proposed Working Capital Borrowing
is ___________, 199_.

(ii) The Type of Advances comprising the Proposed Working Capital
Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].

(iii) The aggregate amount of the Proposed Working Capital
Borrowing is $__________.

<PAGE>

[(iv) The initial Interest Period for each Eurodollar Rate
Advance made as part of the Proposed Working Capital Borrowing is
[one] [two] [three] [six] month[s].]*

(v) The amount of proceeds of the Proposed Working Capital
Borrowing, if any, that are to be applied to pay, or to reimburse the
undersigned for, contingent liabilities for which a Holdback Reserve
was established is $_____________.

(vi) The amount of proceeds of the Proposed Working Capital
Borrowing, if any, that are to be applied to pay, or to reimburse the
undersigned for, tax obligations for which a Tax Reserve was
established is $_____________.

The undersigned hereby certifies that the following statements
are true on the date of this Notice of Working Capital Borrowing and will
be true on the date of the Proposed Working Capital Borrowing:

(A) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of the date of
the Proposed Working Capital Borrowing, immediately before and
immediately after giving effect to such Proposed Working Capital
Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date;

(B) no event has occurred and is continuing, or would result
from the Proposed Working Capital Borrowing or from the application of
the proceeds therefrom, that constitutes a Default; and

(C) the aggregate Loan Values of all Eligible Collateral exceed
the sum of (1) the aggregate principal amount of all Working Capital
Advances, all Swing Line Advances and all Letter of Credit Advances
outstanding on such date and (2) the aggregate Available Amount of all
Letters of Credit outstanding on such date, after giving effect to the
Proposed Working Capital Borrowing.

Very truly yours,

[NAME OF WORKING CAPITAL BORROWER]

By _______________________________________
Name:
Title:

--------------------
* To be included in each Notice of Working Capital Borrowing for a
Working Capital Borrowing comprised of Eurodollar Rate Advances.

<PAGE>

EXHIBIT C TO THE
CREDIT AGREEMENT
----------------

FORM OF ASSIGNMENT AND ACCEPTANCE

Reference is made to the Credit Agreement dated as of February
27, 1995 (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement") among Walter Industries, Inc., as Swing Line
----------------
Borrower, Jim Walter Homes, Inc., Jim Walter Resources, Inc., JW Aluminum
Company, JW Window Components, Inc., Sloss Industries Corporation, Southern
Precision Corporation, United States Pipe and Foundry Company and Vestal
Manufacturing Company, as Working Capital Borrowers, the Lender Parties
parties thereto, Citicorp USA, Inc., Merrill Lynch Capital Corporation and
NationsBank of Florida, N.A., as Co-Administrative Agents, Citicorp
Securities, Inc., Merrill Lynch Capital Corporation and NationsBanc Capital
Markets, Inc., as Co-Arrangers, The First National Bank of Boston, as Co-
Agent, and Citicorp USA, Inc., as Facilities Manager for the Secured
Parties. Terms defined in the Credit Agreement are used herein with the
same meaning.

The "Assignor" and the "Assignee" referred to on Schedule 1
hereto agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, an interest in
and to the Assignor's rights and obligations under the Credit Agreement as
of the date hereof equal to the percentage interest specified on Schedule 1
hereto of all outstanding rights and obligations under the Credit Agreement
Facility or Facilities specified on Schedule 1 hereto. After giving effect
to such sale and assignment, the Assignee's Commitments [and the amount of
the Advances owing to the Assignee]** will be as set forth on Schedule 1
hereto.

2. The Assignor (a) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder
and that such interest is free and clear of any adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
the Credit Agreement or any other Loan Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or
purported to be created under or in connection with, the Loan Documents or
any other instrument or document furnished pursuant thereto; (c) makes no
representation or warranty and assumes no responsibility with respect to
the financial condition of any Loan Party or the performance or observance
by any Loan Party of any of its obligations under any Loan Document or any
other instrument or document furnished pursuant thereto[; and (d) if the
Assignor has assigned all or a portion of its Working Capital Commitment,
attaches the Notes held by the Assignor and requests that the Facilities
Manager exchange such Notes for new Notes from each Working Capital
Borrower payable to the order of the Assignee in an amount equal to the
Working Capital Commitment assumed by the Assignee pursuant hereto or, if
the Assignor has retained any portion of its

--------------------
** To be excluded if the Assignment and Acceptance refers only to an
assignment, in whole or in part, of the Assignor's Letter of Credit
Commitment.

<PAGE>

Working Capital Commitment, new Notes from each Working Capital Borrower
payable to the order of the Assignee in an amount equal to the Working
Capital Commitment assumed by the Assignee pursuant hereto and to the
Assignor in an amount equal to the Working Capital Commitment retained by
the Assignor under the Credit Agreement, respectively, as specified on
Schedule 1 hereto]1.

3. The Assignee (a) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred
to in Section 4.01 thereof and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
enter into this Assignment and Acceptance; (b) agrees that it will,
independently and without reliance upon the Facilities Manager, any other
Agent, the Assignor or any other Lender Party and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the Credit
Agreement; (c) confirms that it is an Eligible Assignee [and is a
commercial bank acting through a domestic branch]2 (subject to obtaining
the approvals required under the Credit Agreement, if any, from the Swing
Line Borrower, the Facilities Manager and the Issuing Banks); (d) appoints
and authorizes the Facilities Manager to take such action as agent on its
behalf and to exercise such powers and discretion under the Loan Documents
as are delegated to the Facilities Manager by the terms thereof, together
with such powers and discretion as are reasonably incidental thereto;
(e) agrees that it will perform in accordance with their terms all of the
obligations that by the terms of the Credit Agreement are required to be
performed by it as a Lender Party, as the case may be; and (f) attaches any
Internal Revenue Service form required under Section 2.12 of the Credit
Agreement and agrees to provide from time to time any Internal Revenue
Service form required to be provided by it under Section 2.12 of the
Credit Agreement.

4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Facilities Manager for acceptance and recording
by the Facilities Manager. The effective date for this Assignment and
Acceptance (the "Effective Date") shall be the date of acceptance hereof by
--------------
the Facilities Manager, unless otherwise specified on Schedule 1 hereto.

5. Upon such acceptance and recording by the Facilities
Manager, as of the Effective Date, (a) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender Party thereunder
and (b) the Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations
under the Credit Agreement and, if this Assignment and Acceptance covers
all of or the remaining portion of the Assignor's rights and obligations
under the Credit Agreement, the Assignor shall cease to be a party thereto.

6. Upon such acceptance and recording by the Facilities
Manager, from and after the Effective Date, the Facilities Manager shall
make all payments under the Credit Agreement and the Notes in respect of
the interest assigned hereby (including, without limitation, all payments
of principal, interest, commitment and utilization fees and Letter of
Credit Commissions and fronting fees, if any, with respect

--------------------
1 To be excluded if the Assignment and Acceptance refers only to an
assignment, in whole or in part, of the Assignor's Letter of Credit
Commitment.

2 To be included if the Assignment and Acceptance includes an assignment
of all or a portion of the Assignor's Letter of Credit Commitment.

<PAGE>

thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement and the
Notes for periods prior to the Effective Date directly between themselves.

7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.

8. This Assignment and Acceptance may be executed in any number
of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery
of an executed counterpart of Schedule 1 to this Assignment and Acceptance
by telecopier shall be effective as delivery of a manually executed
counterpart of this Assignment and Acceptance.

IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their
officers thereunto duly authorized as of the date specified thereon.

<PAGE>

SCHEDULE 1
TO
ASSIGNMENT AND ACCEPTANCE

As to each Facility in respect of which an interest is being assigned:
Percentage interest assigned: __________%

Assignee's Commitment: $__________

Aggregate outstanding principal amount of Advances assigned: $__________

[Principal amount of Note payable to Assignee: $__________

Principal amount of Note payable to Assignor: $__________]1

Effective Date (if other than date of acceptance by Facilities Manager):
______ _, 199_2

[NAME OF ASSIGNOR], as
Assignor

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

Dated: _________ __, 199_

[NAME OF ASSIGNEE], as Assignee

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

Dated: _________ __, 199_

Domestic Lending Office:

Eurodollar Lending Office:

--------------------
1 To be excluded if the Assignment and Acceptance refers only to an
assignment, in whole or in part, of the Assignor's Letter of Credit
Commitment.

2 This date should be no earlier than five Business Days after the delivery
of this Assignment and Acceptance to the Facilities Manager.

<PAGE>

1[Approved this _____ day
of _________, 199_

WALTER INDUSTRIES, INC.

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

2[Approved this ____ day
of _________, 199_

[NAME OF ISSUING BANK], as Issuing Bank

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

3[Approved this ____ day
of _________, 199_

[NAME OF ISSUING BANK], as Issuing Bank

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

--------------------
1 Required so long as no Default shall have occurred and be continuing, if
the Assignee is an Eligible Assignee by reason of clauses (a)(iii) through
(a)(viii) or clause (b) of the definition of "Eligible Assignee" contained
in the Credit Agreement.

2 Required if the Assignee is an Eligible Assignee by reason of clauses
(a)(iii) through (a)(viii) of the definition of "Eligible Assignee"
contained in the Credit Agreement.

3 Required if the Assignee is an Eligible Assignee by reason of clauses
(a)(iii) through (a)(viii) of the definition of "Eligible Assignee"
contained in the Credit Agreement.

<PAGE>

Accepted 1[and Approved] this ____ day
of _________, 199_

CITICORP USA, INC., as Facilities Manager

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

--------------------
1 Required if the Assignee is an Eligible Assignee by reason of clause (b) of
the definition of "Eligible Assignee" contained in the Credit Agreement.

<PAGE>

EXHIBIT D TO THE
CREDIT AGREEMENT
----------------

================================================================================

FORM OF SECURITY AGREEMENT

Dated March ___, 1995

From

WALTER INDUSTRIES, INC.,
JIM WALTER HOMES, INC.,
JIM WALTER RESOURCES, INC.,
JW ALUMINUM COMPANY,
JW WINDOW COMPONENTS, INC.,
SLOSS INDUSTRIES CORPORATION,
SOUTHERN PRECISION CORPORATION,
UNITED STATES PIPE AND FOUNDRY COMPANY and
VESTAL MANUFACTURING COMPANY
as Grantors
-----------

CITICORP USA, INC.,
as Facilities Manager
---------------------

================================================================================

<PAGE>

T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -

Section Page

SECTION 1. Grant of Security . . . . . . . . . . . . . . . . . . . . . . . 2

SECTION 2. Security for Obligations . . . . . . . . . . . . . . . . . . . 4

SECTION 3. The Grantors Remain Liable . . . . . . . . . . . . . . . . . . 4

SECTION 4. Delivery of Security Collateral and Account Collateral . . . . 5

SECTION 5. Maintaining the Cash Collateral Account and the L/C Cash
Collateral Account . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 6. Maintaining the Blocked Accounts and Collection Accounts . . . 5

SECTION 7. Investing of Amounts in the Cash Collateral Account and the L/C
Cash Collateral Account . . . . . . . . . . . . . . . . . . . . 6

SECTION 8. Release and Application of Amounts . . . . . . . . . . . . . . 7

SECTION 9. Representations and Warranties . . . . . . . . . . . . . . . . 8

SECTION 10. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 10

SECTION 11. As to Equipment and Inventory . . . . . . . . . . . . . . . . 11

SECTION 12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 11

SECTION 13. As to Receivables and Related Contracts . . . . . . . . . . . 12

SECTION 14. As to Security Collateral . . . . . . . . . . . . . . . . . . 13

SECTION 15. Transfers and Other Liens . . . . . . . . . . . . . . . . . . 14

SECTION 16. The Facilities Manager Appointed Attorney-in-Fact . . . . . . 14

SECTION 17. The Facilities Manager May Perform . . . . . . . . . . . . . . 15

SECTION 18. The Facilities Manager's Duties . . . . . . . . . . . . . . . 15

SECTION 19. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 20. Indemnity and Expenses . . . . . . . . . . . . . . . . . . . . 16

SECTION 21. Amendments; Waivers; Supplements; Etc . . . . . . . . . . . . 16

SECTION 22. Addresses for Notices . . . . . . . . . . . . . . . . . . . . 17

<PAGE>

Section Page

SECTION 23. Continuing Security Interest; Assignments under the Credit
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 17

SECTION 24. Security Interest Absolute . . . . . . . . . . . . . . . . . . 17

SECTION 25. Release and Termination . . . . . . . . . . . . . . . . . . . 18

SECTION 26. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 18

SECTION 27. Governing Law; Terms . . . . . . . . . . . . . . . . . . . . . 19

SECTION 28. Execution in Counterparts . . . . . . . . . . . . . . . . . . 19

SCHEDULES

Schedule I - Pledged Indebtedness

Schedule II - Blocked Accounts and Collection Accounts

Schedule III - Permitted Unblocked Accounts

Schedule IV - Locations of Equipment and Inventory

Schedule V - Trade Names

EXHIBITS

Exhibit A - Form of Cash Collateral Account Letter

Exhibit B - Form of L/C Cash Collateral Account Letter

Exhibit C - Form of Blocked and Collection Accounts Letters

Exhibit D - Form of Security Agreement Supplement

<PAGE>

SECURITY AGREEMENT

SECURITY AGREEMENT dated March 27, 1995 made by WALTER
INDUSTRIES, INC., a Delaware corporation (the "Swing Line Borrower"), JIM
-------------------
WALTER HOMES, INC., a Florida corporation ("Jim Walter Homes"), JIM WALTER
----------------
RESOURCES, INC., an Alabama corporation ("Jim Walter Resources"), JW
--------------------
ALUMINUM COMPANY, a Delaware corporation ("JW Aluminum"), JW WINDOW
-----------
COMPONENTS, INC., a Delaware corporation ("JW Window"), SLOSS INDUSTRIES
---------
CORPORATION, a Delaware corporation ("Sloss"), SOUTHERN PRECISION
-----
CORPORATION, a Delaware corporation ("Southern Precision"), UNITED STATES
------------------
PIPE AND FOUNDRY COMPANY, a Delaware corporation ("U.S. Pipe"), and VESTAL
---------
MANUFACTURING COMPANY, a Delaware corporation ("Vestal" and, together with
------
Jim Walter Homes, Jim Walter Resources, JW Aluminum, JW Window, Sloss,
Southern Precision and U.S. Pipe, the "Working Capital Borrowers"; and the
-------------------------
Working Capital Borrowers, together with the Swing Line Borrower and the
Additional Grantors (as defined in Section 21(c)), being, collectively, the
"Grantors") to CITICORP USA, INC. ("Citicorp"), as the facilities manager
-------- --------
and as the collateral agent (together with any successor appointed pursuant
to Article VIII of the Credit Agreement (as defined below), the "Facilities
----------
Manager") for the Secured Parties (as defined in the Credit Agreement
-------
referred to below) parties to the Credit Agreement.

PRELIMINARY STATEMENTS.

(1) The Grantors have entered into a Credit
Agreement dated as of February 27, 1995 (as such agreement may be amended,
supplemented or otherwise modified hereafter from time to time, the "Credit
------
Agreement") with the Lender Parties thereto, Citicorp, Merrill Lynch
---------
Capital Corporation ("Merrill Lynch") and NationsBank of Florida, N.A., as
-------------
Co-Administrative Agents, Citicorp Securities, Inc., Merrill Lynch and
NationsBanc Capital Markets, Inc., as Co-Arrangers, The First National Bank
of Boston, as Co-Agent and the Facilities Manager. Unless otherwise
defined herein, capitalized terms used herein shall have the same meanings
as set forth in the Credit Agreement and, unless otherwise defined in this
Agreement or in the Credit Agreement, terms used in Article 9 of the N.Y.
Uniform Commercial Code (as defined in Section 19(a)) are used herein as
therein defined.

(2) Each Grantor is the owner of all of the
indebtedness set forth opposite such Grantor's name on Schedule I hereto
and issued by the obligors named therein.

(3) The Swing Line Borrower has a non-interest
bearing cash collateral account (the "Cash Collateral Account") with Mellon
-----------------------
Bank, N.A. ("Mellon") at its office at One Mellon Bank Center, Pittsburgh,
------
Pennsylvania 15258, Account No. 192-8329, in the name of the Swing Line
Borrower but under the sole control and dominion of the Facilities Manager
and subject to the terms of this Agreement.

(4) The Working Capital Borrowers have opened a
non-interest bearing cash collateral account (the "L/C Cash Collateral
-------------------
Account") with Citibank, N.A. ("Citibank") at its office at 399 Park
------- --------
Avenue, New York, New York 10043, Account No. 40669593, in the name of such
Working Capital Borrowers but under the sole control and dominion of the
Facilities Manager and subject to the terms of this Agreement.

(5) It is a condition precedent to the making of
Advances by the Lender Parties and the issuance of Letters of Credit by the
Issuing Banks under the Credit Agreement that each Grantor shall have
granted the assignment and security interest and made the pledge and
assignment contemplated by this Agreement.

<PAGE>

NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender Parties to make Advances and the Issuing Banks to issue
Letters of Credit under the Credit Agreement, each Grantor hereby agrees
with the Facilities Manager for its benefit and the ratable benefit of the
Secured Parties as follows:

SECTION 1. Grant of Security. (a) The Swing Line Borrower
-----------------
hereby assigns and pledges to the Facilities Manager for its benefit and
the ratable benefit of the Secured Parties, and hereby grants to the
Facilities Manager for its benefit and the ratable benefit of the Secured
Parties a lien on and a security interest in, the collateral described in
the following clauses (ii), (iii), (iv) and (v) and, to the extent that the
proceeds, payments and cash referred to in clause (vi) below are proceeds,
payments and cash of, from or in respect of the collateral described in
such clauses (ii), (iii), (iv) and (v), the following clause (vi); (b) Jim
Walter Homes hereby assigns and pledges to the Facilities Manager for its
benefit and the ratable benefit of the Secured Parties, and hereby grants
to the Facilities Manager for its benefit and the ratable benefit of the
Secured Parties a lien on and a security interest in, the collateral
described in the following clauses (iv) and (v) and, to the extent that the
proceeds, payments and cash referred to in clause (vi) below are proceeds,
payments and cash of, from or in respect of the collateral described in
such clauses (iv) and (v), the following clause (vi); (c) each of Jim
Walter Resources, JW Aluminum and U.S. Pipe hereby assign and pledge to the
Facilities Manager for its benefit and the ratable benefit of the Secured
Parties, and hereby grants to the Facilities Manager for its benefit and
the ratable benefit of the Secured Parties a lien on and security interest
in, the collateral described in the following clauses (i), (ii), (iii),
(iv) and (v) and, to the extent that the proceeds, payments and cash
referred to in clause (vi) below are proceeds, payments and cash of, from
or in respect of the collateral described in such clauses (i), (ii), (iii),
(iv) and (v), the following clause (vi); and (d) each of JW Windows, Sloss,
Southern Precision and Vestal hereby assign and pledge to the Facilities
Manager for its benefit and the ratable benefit of the Secured Parties, and
hereby grant to the Facilities Manager for its benefit and the ratable
benefit of the Secured Parties a lien on and security interest in, the
collateral described in the following clauses (ii), (iii), (iv) and (v)
and, to the extent that the proceeds, payments and cash referred to in
clause (vi) below are proceeds, payments and cash of, from or in respect of
the collateral described in such clauses (ii), (iii), (iv) and (v), the
following clause (vi) (collectively, the "Collateral"):
----------

(i) all of such Grantor's right, title and interest,
whether now owned or hereafter acquired, in and to all equipment in
all of its forms, wherever located, now or hereafter existing
(including, but not limited to, (A) all machinery, hoists, earth-
moving equipment, drills, well-head and mine-head equipment, (B) all
manufacturing, selling, distribution, data processing and office
equipment, (C) all tools, tooling, molds and dies and (D) all trucks
and other vehicles), all fixtures and all parts thereof and all
accessions and additions thereto (any and all such equipment,
fixtures, parts, accessions and additions being the "Equipment");
---------

(ii) all of such Grantor's right, title and interest,
whether now owned or hereafter acquired, in and to all inventory in
all of its forms, wherever located, now or hereafter existing
(including, but not limited to, (A) all coal, aluminum sheet and foil
products, coils, cable wrap, pressure pipes, valves, castings,
hydrants, foundry and furnace coke, mineral wool, specialty chemicals,
window components, weather stripping, patio door components, resin
coated sand, metal and wood plastic tooling, plastic and rubber mold
tooling, fireplaces, fireplace inserts and accessories and woodburning
stoves and raw materials and works in process therefor, finished goods
thereof and materials used or consumed in the manufacture or
production thereof, (B) goods in which such Grantor has an interest in
mass or a joint or other interest or right of any kind (including,
without limitation, goods in which such Grantor has an interest or
right as consignee) and (C) goods that are returned to or repossessed
by such Grantor), and all accessions

<PAGE>

thereto and products thereof and documents therefor (any and all such
inventory, accessions, products and documents being the "Inventory");
---------

(iii) all of such Grantor's right, title and interest,
whether now owned or hereafter acquired, in and to all accounts,
chattel paper, instruments, deposit accounts, general intangibles for
money due or to become due and other rights and obligations of any
kind (other than any shares of capital stock of any Person), now or
hereafter existing, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements,
leases and other contracts securing or otherwise relating to any such
accounts, chattel paper, instruments, deposit accounts, general
intangibles or other rights and obligations (any and all such
accounts, chattel paper, instruments, deposit accounts, general
intangibles and other rights and obligations, to the extent not
referred to in clauses (iv) and (v) below, being the "Receivables",
-----------
and any and all such leases, security agreements and other contracts
being the "Related Contracts");
-----------------

(iv) all of the following (the "Security
--------
Collateral"):
----------

(A) the indebtedness set forth opposite such
Grantor's name on Schedule I hereto and issued by the Persons
named therein (collectively, the "Initial Pledged Indebtedness"
----------------------------
and, together with the indebtedness referred to in clause (B)
below, the "Pledged Indebtedness") and the instruments, if any,
--------------------
evidencing such Initial Pledged Indebtedness, all security
therefor and all interest, cash, instruments and other property
and assets from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the
Initial Pledged Indebtedness; and

(B) all additional indebtedness from time to time
owed to such Grantor by any obligor of the Initial Pledged
Indebtedness (whether or not evidenced by instruments) and the
instruments, if any, evidencing such indebtedness, and all
additional indebtedness owed to such Grantor by any other obligor
to the extent required pursuant to Sections 5.02(b)(i)(B),
5.02(b)(ii) and 5.02(b)(v) of the Credit Agreement, all security
therefor and all interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such indebtedness;

(v) all of the following (collectively, the "Account
-------
Collateral"):
----------

(A) the Cash Collateral Account, all funds held
therein and all certificates and instruments, if any, from time
to time representing or evidencing the Cash Collateral Account;

(B) the L/C Cash Collateral Account, all funds held
therein and all certificates and instruments, if any, from time
to time representing or evidencing the L/C Cash Collateral
Account;

(C) all of the lockboxes and blocked deposit
accounts set forth opposite such Grantor's name on Part A of
Schedule II hereto (collectively, the "Blocked Accounts") and all
----------------
blocked deposit accounts set forth opposite such Grantor's name
on Part B of Schedule II hereto (collectively, the "Collection
----------
Accounts"), all funds held
--------

<PAGE>

therein and all certificates and instruments, if any, from time
to time representing or evidencing the Blocked Accounts and the
Collection Accounts of such Grantor;

(D) all other accounts of such Grantor (except for
the accounts set forth opposite such Grantor's name on Schedule
III hereto (collectively, the "Permitted Unblocked Accounts")),
----------------------------
all funds held therein and all certificates and instruments, if
any, from time to time representing or evidencing such accounts;

(E) all Collateral Investments (as defined in
Section 7(a)) of such Grantor from time to time and all
certificates and instruments, if any, from time to time
representing or evidencing the Collateral Investments of such
Grantor;

(F) all notes, certificates of deposit, deposit
accounts, checks and other instruments from time to time
hereafter delivered to or otherwise possessed by the Facilities
Manager for or on behalf of such Grantor in substitution for or
in addition to any or all of the then existing Account
Collateral; and

(G) all interest, dividends, cash, instruments and
other property and assets from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or
all of the then existing Account Collateral; and

(vi) all proceeds of any and all of the foregoing
Collateral (including, without limitation, proceeds that constitute
property and assets of the types described in clauses (i) through (v)
of this Section 1) and, to the extent not otherwise included, all
(A) payments under insurance (whether or not the Facilities Manager is
the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral and (B) cash.

SECTION 2. Security for Obligations. The pledge and assignment
------------------------
of and the grant of a lien on and security interest in the Collateral by
each Grantor under this Agreement secures the payment of all Obligations of
such Grantor now or hereafter existing under the Loan Documents, whether
direct or indirect, absolute or contingent (including any amendments,
modifications, extensions, substitutions and renewals thereof), and whether
for principal, interest, fees, commissions, expenses or otherwise (all such
Obligations being the "Secured Obligations"). Without limiting the
-------------------
generality of the foregoing, this Agreement secures, in the case of each
Grantor, the payment of all amounts that constitute part of the Secured
Obligations of such Grantor and would be owed by such Grantor to the
Facilities Manager or any other Secured Party under the Loan Documents but
for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving
such Grantor.

SECTION 3. The Grantors Remain Liable. Anything herein to the
--------------------------
contrary notwithstanding, (a) each of the Grantors shall remain liable
under the contracts and agreements included in the Collateral to which it
is a party to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Facilities Manager of any of the rights
hereunder shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral
and (c) neither the Facilities Manager nor any Secured Party shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Facilities Manager or
any Secured

<PAGE>

Party be obligated to perform any of the obligations or duties of any
Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.

SECTION 4. Delivery of Security Collateral and Account
-------------------------------------------
Collateral. All certificates or instruments representing or evidencing
----------
Security Collateral or Account Collateral shall be delivered to and held by
or on behalf of the Facilities Manager pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to the Facilities Manager. The
Facilities Manager shall have the right, at any time and from time to time
upon the occurrence and during the continuance of a Default under Section
7.01(a) or 7.01(f) of the Credit Agreement or an Event of Default, to
transfer to or register in the name of the Facilities Manager or any of its
nominees any or all of the Security Collateral or the Account Collateral.
The Facilities Manager shall give notice to the relevant Grantor promptly
after any such transfer or registration; provided that the failure to give
such notice shall not affect the validity of any such transfer or
registration. In addition, the Facilities Manager shall have the right at
any time and from time to time to exchange certificates or instruments
representing or evidencing Security Collateral or Account Collateral for
certificates or instruments of smaller or larger denominations.

SECTION 5. Maintaining the Cash Collateral Account and the L/C
---------------------------------------------------
Cash Collateral Account. So long as any Advance shall remain unpaid, any
-----------------------
Letter of Credit shall be outstanding or any Lender Party shall have any
Commitment:

(a) The Swing Line Borrower will maintain the Cash
Collateral Account with Mellon in accordance with the terms of this
Agreement and the letter agreement dated the date hereof (the "Cash
----
Collateral Account Letter") among the Swing Line Borrower, Mellon and
-------------------------
the Facilities Manager, which agreement shall be in substantially the
form of Exhibit A hereto or in such other form as is reasonably
acceptable to the Facilities Manager.

(b) The Working Capital Borrowers will maintain the
L/C Cash Collateral Account with Citibank in accordance with the terms
of this Agreement and the letter agreement dated the date hereof (the
"L/C Cash Collateral Account Letter") among the Working Capital
----------------------------------
Borrowers, Citibank and the Facilities Manager, which agreement shall
be in substantially the form of Exhibit B hereto or in such other form
as is reasonably acceptable to the Facilities Manager.

(c) It shall be a term and condition of each of the
Cash Collateral Account and the L/C Cash Collateral Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Cash Collateral Account or the L/C Cash
Collateral Account, as the case may be, and except as otherwise
provided in Sections 8 and 19, that no amount (including, without
limitation, interest on Collateral Investments related thereto) shall
be paid or released to or for the account of, or withdrawn by or for
the account of, any Grantor or any other Person from the Cash
Collateral Account or the L/C Cash Collateral Account, as the case may
be.

The Cash Collateral Account and the L/C Cash Collateral Account shall be
subject to such applicable laws, and such applicable regulations of the
Board of Governors of the Federal Reserve System and of any other
appropriate banking or Governmental Authority, as are in effect from time
to time.

SECTION 6. Maintaining the Blocked Accounts and Collection
-----------------------------------------------
Accounts. So long as any Advance shall remain unpaid, any Letter of Credit
--------
shall be outstanding or any Lender Party shall have any Commitment, each of
the Grantors shall:

<PAGE>

(a) maintain the Blocked Accounts and the Collection
Accounts of such Grantor only with banks ("Blocked and Collection
----------------------
Accounts Banks") that have entered into letter agreements, in
--------------
substantially the form of Exhibit C hereto or in such other form as is
reasonably acceptable to the Facilities Manager, with such Grantor and
the Facilities Manager (the "Blocked and Collection Accounts
-------------------------------
Letters");
-------

(b) immediately instruct each Person obligated at
any time to make any payment to such Grantor for any reason (an
"Obligor") to make such payment to a Blocked Account of such Grantor
-------
or to the Cash Collateral Account;

(c) instruct each Blocked and Collection Accounts
Bank accepting funds on behalf of such Grantor (i) to transfer to the
Collection Account with such Blocked and Collection Accounts Bank, at
the end of each Business Day, in same day funds, an amount equal to
the credit balance of each Blocked Account with such Blocked and
Collection Accounts Bank and (ii) to transfer to the Cash Collateral
Account, by 10:00 A.M. of each Business Day, in same day funds, an
amount equal to the available and collected credit balance of the
Collection Account with such Blocked and Collection Accounts Bank as
at the end of the immediately preceding Business Day; provided,
however, that so long as no Default under Section 7.01(a) or 7.01(f)
of the Credit Agreement or Event of Default has occurred and is
continuing, each Blocked and Collection Accounts Bank may transfer
amounts on deposit in the Collection Account with such Blocked and
Collection Accounts Bank to one or more Permitted Unblocked Accounts
identified as zero balance accounts on Schedule III hereto (the
"Permitted Disbursement Accounts") for the payment of ordinary course
-------------------------------
administrative and operating expenses of the Grantors; provided that
the aggregate amount transferred to all of the Permitted Disbursement
Accounts on any Business Day from all of the Collection Accounts of
the Grantors shall not exceed $5,000,000; and

(d) upon any termination of any Blocked and
Collection Accounts Letter or any other agreement with respect to the
maintenance of a Blocked Account by any Grantor or by any Blocked and
Collection Accounts Bank, immediately notify all Obligors that were
making payments to such Blocked Account to make all future payments to
another Blocked Account or to the Cash Collateral Account.

Each of the Grantors shall pay to Mellon for deposit into the Cash
Collateral Account, at the end of each Business Day, all other proceeds of
Collateral. In addition, each of the Grantors agrees to terminate any or
all Blocked Accounts, Collection Accounts and Blocked and Collection
Accounts Letters upon request by the Facilities Manager.

SECTION 7. Investing of Amounts in the Cash Collateral Account
---------------------------------------------------
and the L/C Cash Collateral Account. (a) If requested by the Swing Line
-----------------------------------
Borrower, the Facilities Manager will promptly, subject to the provisions
of Section 8 and Section 19, from time to time (i) invest amounts on
deposit in the Cash Collateral Account and the L/C Cash Collateral Account
in such Cash Equivalents as the Swing Line Borrower may select, in each
case which investments shall be made in the name of the Facilities Manager,
on behalf of the relevant Grantor, and (ii) invest interest paid on the
Cash Equivalents referred to in clause (i) above, and reinvest other
proceeds of any such Cash Equivalents that may mature or be sold, in each
case in such Cash Equivalents as the Swing Line Borrower may select, in
each case which investments shall be made in the name of the Facilities
Manager, on behalf of the relevant Grantor (the Cash Equivalents referred
to in clauses (i) and (ii) above being collectively "Collateral
----------
Investments"). Interest and proceeds that are not invested or reinvested
-----------
in Collateral Investments as provided in the

<PAGE>

immediately preceding sentence shall be deposited and held in the Cash
Collateral Account or the L/C Cash Collateral Account, as applicable.

(b) Upon the occurrence and during the continuance
of a Default under Section 7.01(a) or 7.01(f) of the Credit Agreement or an
Event of Default, the Facilities Manager may, subject to the provisions of
Section 8 and Section 19, from time to time (i) invest amounts on deposit
in each of the Cash Collateral Account and the L/C Cash Collateral Account,
and any cash proceeds collected by the Facilities Manager and held pursuant
to Section 19(b), in such Cash Equivalents as the Required Lenders
may select, in each case which investments shall be made in the name of the
Facilities Manager, on behalf of the relevant Grantor, and (ii) invest
interest paid on the Cash Equivalents referred to in clause (i) above, and
reinvest other proceeds of any such Cash Equivalents that may mature or be
sold, in such Cash Equivalents as the Required Lenders may select, in each
case which investments shall be made in the name of the Facilities Manager,
on behalf of the relevant Grantor.

(c) All Collateral Investments made in respect of
the Cash Collateral Account or the L/C Cash Collateral Account and all
interest and income received thereon and therefrom, and the net proceeds
realized upon the maturity or sale thereof, shall be held in the Cash
Collateral Account or the L/C Cash Collateral Account, as the case may be,
as Account Collateral, which amount may be released in accordance with the
provisions of Section 8.

SECTION 8. Release and Application of Amounts. (a) The
----------------------------------
Facilities Manager is hereby authorized, without any further action by any
of the Grantors, to maintain until the end of an Interest Period under the
Credit Agreement, and to pay and release at the end of each Interest
Period, any amounts deposited into and maintained in the Cash Collateral
Account until the end of such Interest Period pursuant to Section 2.06(b)
of the Credit Agreement, which amounts shall be forthwith applied by the
Facilities Manager in accordance with Section 2.06(b) of the Credit
Agreement.

(b) The Facilities Manager shall apply the available
funds on deposit in the Cash Collateral Account on each Business Day,
subject to the last sentence of this Section 8(b), in the following order:

(i) first, to the payment of interest, fees,
commissions, expenses and other amounts (other than principal) due and
payable under the Loan Documents on such date; and

(ii) second, to the payment of the aggregate
principal amount of Advances and to the cash collateralization of the
Letters of Credit outstanding on such date in accordance with Section
2.06(c) of the Credit Agreement; provided that if any such payment of
Advances would occur other than on the last day of an Interest Period
therefor, such funds shall be held and maintained in the Cash
Collateral Account in accordance with Section 2.06(b)(iv) of the
Credit Agreement.

After applying the funds on deposit in the Cash Collateral Account on any
Business Day in accordance with the immediately preceding sentence, so long
as no Default has occurred and is continuing, the Swing Line Borrower may,
with the consent of the Facilities Manager (which consent shall be deemed
to have been given if the Facilities Manager shall not have responded to a
request for such consent within one hour after receiving such request, if
the Facilities Manager shall have received such request no later than 3:00
P.M. (New York City time) on any Business Day, or by 10:00 A.M. (New York
City time) on the Business Day immediately following receipt of such
request, if the Facilities Manager shall have received such request later
than 3:00 P.M. (New York City time) on any Business Day or at any time on a
day which is not a Business Day), have released and transferred to one or
more Permitted Unblocked

<PAGE>

Accounts or any other Person that is not an Affiliate of any Borrower or
any of its Subsidiaries designated by the Swing Line Borrower any amounts
remaining on deposit in the Cash Collateral Account after applying the
funds therein in accordance with clause (i) and (ii) of this Section 8(b)
that are required for the conduct of the business of the Borrowers and
their Subsidiaries in the ordinary course; provided, however, that the
Swing Line Borrower shall provide the Facilities Manager, by the end of
each Business Day, written confirmation of all such transfers made to
Permitted Unblocked Accounts from the Cash Collateral Account on such
Business Day, together with a certificate of the Swing Line Borrower
stating that the following representations and warranties were true at the
time such transfers were made:

(i) all of the Obligations owing by any Grantor to
any Secured Party on such day have been paid in accordance with
Section 8;

(ii) the Swing Line Borrower has requested, and the
Facilities Manager has consented to, the release of all or a portion
of the amounts on deposit in the Cash Collateral Account that are not
required to be maintained in such account under Section 8(a) and
Section 8(b) on such day in order to satisfy its ordinary course
administrative and operating expenses; and

(iii) no Default has occurred and is continuing.

Any funds remaining in the Cash Collateral Account after effecting the
release of funds set forth in the immediately preceding sentence shall be
held in the Cash Collateral Account as Collateral for the Secured
Obligations.

(c) Upon the drawing of any Letter of Credit for
which funds are on deposit in the L/C Cash Collateral Account, such funds
shall be applied to reimburse the relevant Issuing Bank or the Lenders, as
applicable. If an Event of Default has occurred and is continuing, the
Facilities Manager will first release any funds from the Cash Collateral
Account to make the deposit into the L/C Cash Collateral Account required
by Section 7.02 of the Credit Agreement.

(d) Each Grantor shall be deemed, to the extent that
funds on deposit in the Cash Collateral Account are applied to the payment
of the principal amount of Advances made to any other Borrower pursuant to
Section 8(b), to have made an intercompany loan to such Borrower, which
loan shall be evidenced by a promissory note subordinated in right of
payment to all Obligations under the Loan Documents, on terms substantially
in the form of Exhibit G to the Credit Agreement, and shall constitute
Pledged Indebtedness.

(e) At any time and from time to time after the
Termination Date, the Facilities Manager shall apply the funds on deposit
in the L/C Cash Collateral Account at such time pursuant to Section
2.06(b)(iv) of the Credit Agreement to repay any amount owing to any
Issuing Bank for drafts drawn on any Standby Letters of Credit issued
thereby and to pay all fees, commissions and expenses owing on or in
respect of such Standby Letters of Credit.

SECTION 9. Representations and Warranties. Each of the Grantors
------------------------------
represents and warrants as to itself and its Collateral as follows:

(a) All of the Equipment and Inventory are located at the places
specified for such Grantor on Schedule IV hereto. The place of
business of such Grantor or, if such Grantor has more than one place
of business, the chief executive office of such Grantor, and the
office where such Grantor keeps its records concerning the
Receivables, and all originals of all chattel paper

<PAGE>

that evidence Receivables, if any, and all Related Contracts, is
located at the address set forth below the name of such Grantor on the
signature pages of the Credit Agreement (or, in the case of any
Additional Grantor, at the address listed below the name of such
Additional Grantor on the signature page of the Security Agreement
Supplement (as defined in Section 21(c)) executed and delivered by
such Additional Grantor). None of the Receivables is evidenced by a
promissory note or other instrument.

(b) Such Grantor is the legal and beneficial owner of its
Collateral free and clear of any Lien, except for the liens and
security interests created under or permitted under the Loan
Documents. No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral of such
Grantor is on file in any recording office, except (A) such as may
have been filed in favor of the Facilities Manager relating to this
Agreement, (B) for which the Facilities Manager has received the
termination statements required under Section 3.01(m)(viii)(B) of the
Credit Agreement, which termination statements shall be properly filed
on or immediately following the date of the Initial Extension of
Credit, or (C) for other financing statements that are filed solely to
evidence Liens expressly permitted under clause (vii) or (x) of
Section 5.02(a) of the Credit Agreement.

(c) Set forth below each Grantors name on Schedule V hereto is a
complete and accurate list of (i) all names under which such Grantor
is or has been doing business within the last five years (including,
without limitation, all trade names, division names and fictitious
names), (ii) all trade names that such Grantor owns or is licensed to
use (including the expiration date of such license) and (iii) all
trade names that such Grantor has established the right to use
(collectively, the "Trade Names"). Such Grantor has not changed
-----------
within the past four months its name or identity, by reorganization or
otherwise, or its address set forth below the name of such Grantor on
the signature pages of the Credit Agreement or the Security Agreement
Supplement executed and delivered by it, as the case may be, except as
set forth on Schedule V hereto.

(d) Such Grantor has exclusive possession and control of its
Equipment and Inventory.

(e) The Pledged Indebtedness held by such Grantor (i) has been
duly authorized, authenticated or issued and delivered, (ii) is the
legal, valid and binding obligation of the issuers thereof and (iii)
is evidenced by one or more promissory notes (which notes have been
delivered to the Facilities Manager). No party to any Pledged
Indebtedness held by such Grantor is in default thereunder.

(f) The Pledged Indebtedness owed to such Grantor constitutes
all of the outstanding indebtedness owed to such Grantor by any of the
other Loan Parties or any of their Subsidiaries.

(g) Such Grantor has no Blocked Accounts or Collection Accounts
other than the Blocked Accounts and Collection Accounts listed on
Schedule II hereto, and has no other accounts other than the Cash
Collateral Account, the L/C Cash Collateral Account and the Permitted
Unblocked Accounts. Such Grantor has instructed all existing Obligors
to make all payments to a Blocked Account or the Cash Collateral
Account. Such Grantor has instructed each Blocked and Collection
Accounts Bank at which it maintains a Blocked Account or Collection
Account to transfer all amounts on deposit in such Blocked Account or
such Collection Account to the Cash Collateral Account in accordance
with Section 6(c).

<PAGE>

(h) This Agreement, the pledge of the Security Collateral
pursuant hereto and the pledge and assignment of the Account
Collateral pursuant hereto create a valid and perfected first priority
(subject to Permitted Liens on the Equipment and Inventory) lien on
and security interest in the Collateral of such Grantor, securing the
payment of all of the Secured Obligations of such Grantor, and all
filings and other actions necessary or desirable to perfect and
protect such pledge, assignment and security interest have been duly
made or taken or, in the case of the filing of the financing
statements required under Section 3.01(m)(viii)(C) of the Credit
Agreement, will be duly made on or immediately following the date of
the Initial Extension of Credit.

(i) The Inventory has been produced by such Grantor in
compliance with all requirements of the Fair Labor Standards Act.

(j) There are no conditions precedent to this Agreement that
have not been satisfied or waived.

SECTION 10. Further Assurances. (a) Each of the Grantors
------------------
hereby agrees that from time to time, at its own expense, such Grantor
shall promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the Facilities
Manager may deem desirable and may reasonably request in order to perfect
and protect any pledge, assignment or security interest granted or
purported to be granted by such Grantor under this Agreement (including,
without limitation, the first priority nature thereof (subject to Permitted
Liens on the Equipment and Inventory)) or to enable the Facilities Manager
to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, each of
the Grantors shall promptly:

(i) at the request of the Facilities Manager, mark conspicuously
each of its records pertaining to its Collateral with a legend, in
form and substance satisfactory to the Facilities Manager, indicating
that such Collateral is subject to the security interest granted
hereby;

(ii) if any Collateral shall be evidenced by a certificate,
promissory note or other instrument or by chattel paper, deliver and
pledge to the Facilities Manager hereunder such certificate, note,
instrument or chattel paper duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and
substance satisfactory to the Facilities Manager; and

(iii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may
be necessary or as the Facilities Manager may deem desirable and may
reasonably request in order to perfect and preserve the pledge,
assignment and security interest granted or purported to be granted by
such Grantor under this Agreement.

(b) Each Grantor hereby authorizes the Facilities Manager to
file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of its Collateral without the
signature of such Grantor where permitted by applicable law. A photocopy
or other reproduction of this Agreement or any financing statement covering
the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by applicable law.

<PAGE>

(c) Each Grantor will furnish to the Facilities Manager from
time to time statements and schedules further identifying and describing
its Collateral and such other reports in connection with its Collateral as
the Facilities Manager may reasonably request, all in reasonable detail.

SECTION 11. As to Equipment and Inventory. So long as any
-----------------------------
Advance shall remain unpaid, any Letter of Credit shall be outstanding or
any Lender Party shall have any Commitment, each of the Grantors shall:

(a) Keep the Equipment and Inventory in which such Grantor has
granted a lien and security interest (other than Inventory sold in the
ordinary course of business) at the locations specified therefor in
Section 9(a) or, upon 30 days' prior notice to the Facilities Manager,
at such other locations in a jurisdiction where all action required by
Section 10 shall have been taken with respect to such Equipment and
Inventory.

(b) Cause the Equipment to be maintained and preserved in good
working order and condition, ordinary wear and tear excepted (other
than damaged, worn-out or obsolete Equipment that will be disposed of
in accordance with Section 5.02(e)(v) of the Credit Agreement), and
shall forthwith, or in the case of any loss or damage to any of the
Equipment, as soon as practicable after the occurrence thereof, make
or cause to be made all repairs, replacements and other improvements
in connection therewith that are necessary or desirable to such end in
accordance with Section 12(b).

(c) Furnish promptly to the Facilities Manager a statement
respecting any loss or damage to any of the Equipment that could be
reasonably expected to impair the aggregate value of the Collateral.

(d) Furnish, promptly upon the reasonable request of the
Facilities Manager, to the Facilities Manager such warehouse receipts,
bills of lading and other documents of title with respect to Inventory
and Equipment as are requested, together with copies of all invoices
with respect to the Inventory and Equipment.

(e) Pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including, without limitation, claims for labor, materials and
supplies) against, the Equipment and Inventory, except to the extent
not required to be paid under Section 5.01(b) of the Credit Agreement.

(f) Comply with all applicable requirements of the Fair Labor
Standards Act in producing the Inventory.

SECTION 12. Insurance. (a) Each Grantor shall, at its own
---------
expense, maintain insurance with respect to its Equipment and Inventory in
such amounts, against such risks, in such form and with such insurers as
shall be reasonably satisfactory to the Facilities Manager from time to
time. Each policy for liability insurance shall provide for all losses to
be paid on behalf of the Facilities Manager and such Grantor as their
interests may appear in such policy, and each policy for property damage
insurance shall provide for all losses after the date of this Agreement
(except for losses of less than $15,000,000 per occurrence) to be paid
directly to the Facilities Manager, on behalf of each of the Facilities
Manager and the other Secured Parties and the Grantor. Each such policy
shall in addition:

<PAGE>

(i) name such Grantor and the Facilities Manager as insured
parties thereunder (without any representation or warranty by or any
obligation upon the Facilities Manager) as their interests may appear,

(ii) contain the agreement by the insurer that any loss
thereunder shall be payable to the Facilities Manager and the Grantor
will use its best efforts to ensure that such policy will contain the
agreement by the insurer that such loss shall be payable
notwithstanding any action, inaction or breach of representation or
warranty by such Grantor,

(iii) provide that there shall be no recourse against the
Facilities Manager for payment of premiums or other amounts with
respect thereto, and

(iv) provide that at least ten days' prior written notice of
cancellation or of lapse shall be given to the Facilities Manager by
the insurer.

Each Grantor shall, if so requested by the Facilities Manager, deliver to
the Facilities Manager original or duplicate policies of such insurance and
will otherwise comply with the requirements of Section 5.03(j) of the
Credit Agreement. Furthermore, each Grantor shall, at the request of the
Facilities Manager, duly exercise and deliver instruments of assignment of
such insurance policies to comply with the requirements of Section 10 and
shall cause the insurers to acknowledge notice of such assignment.

(b) Reimbursement under any liability insurance maintained by
any Grantor pursuant to this Section 12 may be paid directly to the Person
who shall have incurred liability covered by such insurance. In case of
any loss involving damage to any Equipment or any Inventory when Section
12(c) is not applicable, the Grantor that owns such Equipment or Inventory
shall make or cause to be made the necessary repairs to or replacements of
such Equipment or Inventory, and any proceeds of insurance properly
received and maintained by such Grantor pursuant to this Section 12 shall
be paid to such Grantor as reimbursement for the costs of such repairs or
replacements.

(c) Upon the occurrence and during the continuance of any
Default under Section 7.01(a) or Section 7.01(f) of the Credit Agreement or
any Event of Default or the actual or constructive total loss (in excess of
$15,000,000 in the aggregate) of any Equipment or Inventory, all insurance
payments in respect of such Equipment or Inventory shall be paid to and
applied by the Facilities Manager as specified in Section 19(b).

SECTION 13. As to Receivables and Related Contracts. (a) Each
---------------------------------------
of the Grantors shall keep its principal place of business and chief
executive office and the office where it keeps its records concerning the
Collateral, and all originals of all Related Contracts and all chattel
paper, if any, that evidence Receivables, at the location therefor
specified in Section 9(a) or, upon 30 days' prior written notice to the
Facilities Manager, at such other locations in a jurisdiction where all
actions required by Section 10 shall have been taken with respect to the
Collateral. Each Grantor will hold and preserve such records and chattel
paper and will permit representatives of the Facilities Manager from time
to time during normal business hours, upon reasonable notice, to inspect
and make abstracts from such records and chattel paper in accordance with
Section 5.01(f) of the Credit Agreement.

(b) Except as otherwise provided in this Section 13(b), each of
the Grantors that has granted a lien on and security interest in its
Receivables hereunder shall continue to collect, at its own expense, all
amounts due or to become due such Grantor under the Receivables and the
Related Contracts. In connection with such collections, each Grantor that
has granted a lien on and security

<PAGE>

interest in its Receivables hereunder may take, and, at the Facilities
Manager's direction upon the occurrence and during the continuance of a
Default under Section 7.01(a) or 7.01(f) of the Credit Agreement or an
Event of Default, shall take, such action as such Grantor or the Facilities
Manager may deem necessary or advisable to enforce collection of the
Receivables and the Related Contracts; provided, however, that the
Facilities Manager shall have the right at any time and from time to time,
upon the occurrence and during the continuance of a Default under Section
7.01(a) or 7.01(f) of the Credit Agreement or an Event of Default and upon
written notice to the Grantor that has granted a lien on and security
interest in its Receivables hereunder of its intention to do so, to notify
the Obligors under any Receivables and any Related Contracts of the
assignment of such Receivables or such Related Contracts to the Facilities
Manager and to direct such Obligors to make payment of all amounts due or
to become due to such Grantor thereunder directly to the Facilities Manager
and, upon such notification and at the expense of such Grantor, to enforce
collection of any such Receivables or any such Related Contracts, and to
adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done. After
receipt by any Grantor of the notice from the Facilities Manager referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by such Grantor in respect of the
Receivables and the Related Contracts shall be received in trust for the
benefit of the Facilities Manager hereunder, shall be segregated from other
property and funds of such Grantor and shall be forthwith paid over to the
Facilities Manager in the same form as so received (with any necessary
endorsement or assignment) to be deposited into the Cash Collateral Account
and either (A) released to such Grantor in accordance with, and to the
extent permitted under, Section 8 so long as no Default shall have occurred
and be continuing or (B) if any Event of Default shall have occurred and be
continuing, applied as provided by Section 19(b) and (ii) such Grantor
shall not adjust, settle or compromise the amount or payment of any
Receivables or any Related Contracts, release any Obligor thereof, in whole
or in part, or allow any credit or discount thereon.

SECTION 14. As to Security Collateral. (a) So long as no
-------------------------
Default under Section 7.01(a) or 7.01(f) of the Credit Agreement or Event
of Default shall have occurred and be continuing:

(i) the Grantors shall be entitled to receive and retain any and
all interest paid or other amounts received in respect of the Security
Collateral; provided, however, that any and all:

(A) interest paid or payable other than in cash in respect
of, and instruments and other property and assets received or
receivable in respect of, or in exchange for, any Security
Collateral,

(B) other distributions paid in cash in respect of any
Security Collateral in connection with a partial or total
liquidation or dissolution, and

shall be, and shall be forthwith delivered to the Facilities Manager
to hold as, Security Collateral and, if received by any of the
Grantors, shall be received in trust for the benefit of the Facilities
Manager, shall be segregated from other property and funds of such
Grantor and shall be forthwith delivered to the Facilities Manager as
Security Collateral in the same form as so received (with any
necessary endorsement or assignment). Each Grantor, promptly upon the
request of the Facilities Manager, shall execute such documents and do
such acts as may be

<PAGE>

necessary or desirable in the reasonable judgment of the Facilities
Manger to give effect to this clause (i); and

(ii) the Facilities Manager shall execute and deliver (or cause
to be executed and delivered) to such Grantors all instruments as such
Grantor may reasonably request for the purpose of enabling such
Grantor to receive the interest payments and other amounts that it is
authorized to receive and retain pursuant to Section 14(a)(i).

(b) Upon the occurrence and during the continuance of a Default
under Section 7.01(a) or 7.01(f) of the Credit Agreement or an Event of
Default:

(i) all rights of the Grantors to receive the interest payments
and other amounts that it would otherwise be authorized to receive and
retain pursuant to Section 14(a)(i) shall automatically cease, and all
such rights shall thereupon become vested in the Facilities Manager,
which shall thereupon have the sole right to receive and retain as
Security Collateral such interest payments and other distributions;
and

(ii) all interest payments and other distributions that are
received by any of the Grantors contrary to the provisions of
clause (i) of this Section 14(b) shall be received in trust for the
benefit of the Facilities Manager, shall be segregated from other
property and funds of such Grantor and shall be forthwith paid over to
the Facilities Manager as Security Collateral in the same form as so
received (with any necessary endorsement or assignment).

SECTION 15. Transfers and Other Liens. Each Grantor agrees that
-------------------------
it shall not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, except for the sale, lease, transfer or other disposition of
any Collateral otherwise expressly permitted under Section 5.02(e) of the
Credit Agreement, or (ii) create or suffer to exist any Lien upon or with
respect to any of the Collateral, except for (A) the pledge, assignment and
security interest created by this Agreement and (B) any other Liens
otherwise expressly permitted under Section 5.02(a) of the Credit
Agreement.

SECTION 16. The Facilities Manager Appointed Attorney-in-Fact.
-------------------------------------------------
Each of the Grantors hereby irrevocably appoints the Facilities Manager as
such Grantor's attorney-in-fact, with full authority in the place and stead
of such Grantor and in the name of such Grantor or otherwise, from time to
time upon the occurrence and during the continuance of a Default under
Section 7.01(a) or 7.01(f) of the Credit Agreement or an Event of Default,
to take any action and to execute any and all instruments and other
documents that may be necessary or that the Facilities Manager may deem
desirable to accomplish the purposes of this Agreement, including, without
limitation:

(a) to obtain and adjust insurance required to be paid to the
Facilities Manager pursuant to Section 12;

(b) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;

(c) to receive, endorse, assign and collect any and all drafts,
acceptances, chattel paper, instruments and other documents in
connection with this Agreement (including, without

<PAGE>

limitation, all instruments representing or evidencing any interest
payment or other distribution in respect of the Security Collateral or
any part thereof) and to give full discharge for the same;

(d) to sell, transfer, assign or otherwise deal with the
Collateral or any part thereof in the same manner and to the same
extent as if the Facilities Manager were the absolute owner thereof;
and

(e) to file any claims, to institute any proceedings or to take
any other action, at the expense and for the account of such Grantor,
that may be necessary or that the Facilities Manager may deem
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of the Facilities Manager with respect to any of
the Collateral.

SECTION 17. The Facilities Manager May Perform. If any of the
----------------------------------
Grantors fails to perform any agreement contained herein, the Facilities
Manager may (but shall not be obligated to) itself perform, or cause
performance of, such agreement, and the expenses of the Facilities Manager
incurred in connection therewith shall be payable by such Grantor under
Section 20(b).

SECTION 18. The Facilities Manager's Duties. The powers
-------------------------------
conferred on the Facilities Manager hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it
hereunder, the Facilities Manager shall have no duty as to any Collateral
or as to the taking of any steps necessary to preserve rights against any
parties or any other rights pertaining to any Collateral, whether or not
the Facilities Manager has or is deemed to have knowledge or such rights.
The Facilities Manager shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which Citicorp
accords its own property of like tenor.

SECTION 19. Remedies. If any Event of Default shall have
--------
occurred and be continuing:

(a) The Facilities Manager may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the Uniform Commercial Code in effect
in the State of New York at such time (the "N.Y. Uniform Commercial
-----------------------
Code"), whether or not the N.Y. Uniform Commercial Code applies to the
----
affected Collateral, and also may:

(i) require any or all of the Grantors to, and each Grantor
hereby agrees that it will at its own expense and upon request of
the Facilities Manager forthwith, assemble all or part of the
Collateral as directed by the Facilities Manager and make it
available to the Facilities Manager at a place to be designated
by the Facilities Manager that is reasonably convenient to both
parties;

(ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public
or private sale, at any of the Facilities Manager's offices or
elsewhere, for cash, on credit or for future delivery, and upon
such other terms as the Facilities Manager may deem commercially
reasonable; and

(iii) exercise all rights and remedies of such Grantor
under or in connection with the Receivables and the Related
Contracts, or otherwise in respect of the Collateral (including,
without limitation, any and all rights of such Grantor to demand
or otherwise

<PAGE>

require payment of any amount under, or performance of any
provision of, the Receivables and the Related Contracts). Each
of the Grantors hereby agrees that, to the extent notice of sale
shall be required by applicable law, at least ten days' notice to
such Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute
reasonable notification. The Facilities Manager shall not be
obligated to make any sale of Collateral regardless of notice of
sale having been given. The Facilities Manager may adjourn any
public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale, without further
notice, may be made at the time and place to which it was so
adjourned.

(b) Any cash held by the Facilities Manager as Collateral and
all cash proceeds received by the Facilities Manager in respect of any
sale of, collection from, or other realization upon, all or any part
of the Collateral may, in the discretion of the Facilities Manager, be
held by the Facilities Manager as collateral for, and/or then or at
any time thereafter applied (after payment of any amounts payable to
the Facilities Manager pursuant to Section 20) in whole or in part by
the Facilities Manager for the ratable benefit of the Secured Parties
against, all or any part of the Secured Obligations in such order as
the Facilities Manager shall elect. Any surplus of cash or cash
proceeds held by the Facilities Manager in accordance with this
Section 19(b) and remaining after payment in full in cash of all the
Secured Obligations (including, without limitation, the cash
collateralization of all Letters of Credit outstanding at such time in
a manner satisfactory to the Facilities Manager) shall be paid over to
the applicable Grantors or to whomsoever may be lawfully entitled to
receive such surplus.

(c) The Facilities Manager may exercise any and all rights and
remedies of any of the Grantors in respect of the Collateral.

(d) All payments received by any Grantor under, in connection
with or in respect of any Collateral shall be received in trust for
the benefit of the Facilities Manager, shall be segregated from other
property and funds of such Grantor and shall be forthwith paid over to
the Facilities Manager in the same form as so received (with any
necessary endorsement or assignment).

(e) The Facilities Manager may, without notice to any of the
Grantors except as required by applicable law and at any time or from
time to time, charge, set off and otherwise apply all or any part of
the Secured Obligations against the Cash Collateral Account or the L/C
Cash Collateral Account, or any part thereof.

SECTION 20. Indemnity and Expenses. (a) Each of the Grantors
----------------------
hereby agrees to indemnify and hold harmless the Facilities Manager and
each of the other Secured Parties from, and hold each of them harmless
against, any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel)
arising out of or in connection with or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except to
the extent that such claims, damages, losses, liabilities or expenses are
found in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from the Facilities Manager's or such other
Secured Party's gross negligence or willful misconduct.

(b) Each of the Grantors shall, upon demand, pay to the
Facilities Manager the amount of any and all reasonable expenses
(including, without limitation, the reasonable fees and expenses of its
counsel and of any experts and agents) that the Facilities Manager may
incur in connection

<PAGE>

with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from or other
realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Facilities Manager or any other Secured Party
hereunder or (iv) the failure by such Grantor to perform or observe any of
the provisions of this Agreement.

SECTION 21. Amendments; Waivers; Supplements; Etc. (a) No
-------------------------------------
amendment or waiver of any provision of this Agreement, and no consent to
any departure by any of the Grantors herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Facilities
Manager, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by applicable law.

(b) No failure on the part of the Facilities Manager to
exercise, and no delay in exercising any right, power or privilege
hereunder, shall operate as a waiver thereof or consent thereto; nor shall
any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies herein provided are cumulative and
not exclusive of any remedy provided by applicable law.

(c) Upon the execution and delivery by any Person of a
supplement to this Agreement, in each case in substantially the form of
Exhibit D hereto (each a "Security Agreement Supplement"), (i) such Person
-----------------------------
shall be referred to as an "Additional Grantor" and shall be and become a
Grantor, and each reference in this Agreement to an "Additional Grantor" or
a "Grantor" shall also mean and be a reference to such Additional Grantor
and each reference in any other Loan Document to a "Grantor" or a "Loan
Party" shall also mean and be a reference to such Additional Grantor, and
(ii) the supplements attached to each Security Agreement Supplement shall
be incorporated into and become a part of and supplement the Schedules to
this Agreement, as appropriate, and the Facilities Manager may attach such
supplements to such Schedules, and each reference to such Schedules shall
mean and be a reference to such Schedules, as supplemented pursuant hereto.

SECTION 22. Addresses for Notices. All notices and other
---------------------
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and, mailed, telegraphed,
telecopied, telexed or delivered if to any Grantor addressed to it at the
address set forth below is name of the signature pages to the Credit
Agreement; if to any Additional Grantor, addressed to it at the address set
forth below its name on the signature pages to the Security Agreement
Supplement executed and delivered by such Additional Grantor; if to the
Facilities Manager, addressed to it at its address set forth in Section
9.02 of the Credit Agreement or, as to each other party, at such other
address as shall be designated by such party in a written notice to the
Grantors and the Facilities Manager. All such notices and communications
shall, when mailed, telegraphed, telecopied, telexed, be effective when
deposited in the mails, delivered to the telegraph company or transmitted
by telecopier, confirmed by telex answerback, respectively, addressed as
aforesaid.

SECTION 23. Continuing Security Interest; Assignments under the
---------------------------------------------------
Credit Agreement. This Agreement shall create a continuing security
----------------
interest in the Collateral and shall (a) remain in full force and effect
until the latest of (i) the payment in full in cash of all of the Secured
Obligations, (ii) the expiration, termination or cancellation of all of the
Letters of Credit, and (iii) the Termination Date, (b) be binding upon each
Grantor, its successors and assigns and (c) inure, together with the rights
and remedies of the Facilities Manager hereunder, to the benefit of, and be
enforceable by, the Facilities Manager and the other Secured Parties and
their respective successors, transferees and assigns. Without limiting the
generality of clause (c) of the immediately preceding sentence, any Lender
Party may assign

<PAGE>

or otherwise transfer all or any portion of its rights and obligations
under the Credit Agreement (including, without limitation, all or any
portion of its Commitment or Commitments, the Advances owing to it and the
Notes held by it) to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
such Lender Party under this Agreement or otherwise, in each case as
provided in Section 9.07 of the Credit Agreement.

SECTION 24. Security Interest Absolute. (a) The Obligations of
--------------------------
each Grantor hereunder are independent of the Obligations of any other Loan
Party under the Loan Documents, and a separate action or actions may be
brought or prosecuted against each Grantor, irrespective of whether any
action is brought against any other Loan Party or whether any other Loan
Party is joined in any such action or actions. All rights of the
Facilities Manager and the security interests hereunder, and all
obligations of each Grantor hereunder, shall be absolute and unconditional,
irrespective of, and each Grantor hereby irrevocably waives any defenses it
may now or hereafter have in any way relating to, any or all of the
circumstances described in the Subsidiaries Guarantee or any other
circumstance that might constitute a defense available to, or a discharge
of, any Grantor or any guarantor or surety.

(b) This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Secured Obligations is rescinded or must otherwise be returned by the
Facilities Manager or any other Secured Party or by any other Person upon
the insolvency, bankruptcy or reorganization of any Loan Party or
otherwise, all as though such payment had not been made.

SECTION 25. Release and Termination. (a) Upon the sale, lease,
-----------------------
transfer or other disposition of any item of Collateral in accordance with
Section 5.02(e) of the Credit Agreement, the Facilities Manager will, at
the Grantors' expense, execute and deliver to each Grantor such documents
as such Grantor shall reasonably request to evidence the release of such
item of Collateral from the assignment and security interest granted
hereby; provided, however, that:

(i) at the time of such request and release, no Default shall
have occurred and be continuing;

(ii) such Grantor shall have delivered to the Facilities Manager,
at least ten Business Days prior to the date of the proposed release,
a written request for release describing the item of Collateral and
the terms of the sale, lease, transfer or other disposition in
reasonable detail, including the price thereof and any expenses in
connection therewith, together with a form of release for execution by
the Facilities Manager and a certification by such Grantor to the
effect that the transaction is in compliance with the Loan Documents
and as to such other matters as the Facilities Manager may request;
and

(iii) the Net Cash Proceeds of any such sale, lease, transfer or
other disposition required to be applied in accordance with
Section 2.06 of the Credit Agreement shall be paid to, or in
accordance with the instructions of, the Facilities Manager when and
as required under Section 2.06 of the Credit Agreement.

(b) Upon the latest of (i) the payment in full in cash of all of
the Secured Obligations, (ii) the expiration, termination or cancellation
of all of the Letters of Credit and (iii) the Termination Date, the pledge,
assignment and security interest of each of the Grantors under this
Agreement shall terminate and all rights in and to the Collateral shall
revert to the appropriate Grantor. Upon any such termination, the
Facilities Manager will, at the Grantors' expense, return to the
appropriate Grantor such

<PAGE>

of the Collateral of such Grantor in its possession as shall not have been
sold or otherwise applied pursuant to the terms of the Loan Documents, and
shall execute and deliver to such Grantor such documents as such Grantor
shall reasonably request to evidence such termination and reversion.

SECTION 26. Severability. The provisions of this Agreement are
------------
severable, and if any term or provision shall be held illegal, invalid or
unenforceable in whole or in part in any jurisdiction, then such
illegality, invalidity or unenforceability shall affect only such term or
provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such term or provision in any other jurisdiction, or any
other term or provision of this Agreement in any jurisdiction.

SECTION 27. Governing Law; Terms. This Agreement shall be
--------------------
governed by, and construed in accordance with, the laws of the State of New
York, except to the extent that the validity or perfection of the security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State
of New York.

SECTION 28. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.

IN WITNESS WHEREOF, each of the Grantors has caused this
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.

WALTER INDUSTRIES, INC.

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

JIM WALTER HOMES, INC.

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

JIM WALTER RESOURCES, INC.

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

JW ALUMINUM COMPANY

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

<PAGE>

JW WINDOW COMPONENTS, INC.

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

SLOSS INDUSTRIES CORPORATION

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

SOUTHERN PRECISION CORPORATION

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

UNITED STATES PIPE AND FOUNDRY
COMPANY

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

VESTAL MANUFACTURING COMPANY

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

<PAGE>

EXHIBIT A TO THE
SECURITY AGREEMENT
------------------

FORM OF CASH COLLATERAL ACCOUNT LETTER

, 199
---------- -- -

Mellon Bank, N.A.
[ADDRESS]
Attention:
-------------------------------

Walter Industries, Inc.
-----------------------

Ladies and Gentlemen:

Reference is made to deposit account no. (the "Cash
------------- ----
Collateral Account") maintained with you by Walter Industries, Inc., a
------------------
Delaware corporation (the "Grantor"). Pursuant to the Security Agreement
-------
dated March , 1995 (as amended, supplemented or otherwise modified from
--
time to time, the "Security Agreement"; terms defined therein unless
------------------
otherwise defined herein being used herein as therein defined), the Grantor
has granted to Citicorp USA, Inc., as facilities manager and as collateral
agent (together with any successor appointed pursuant to Article VIII of
the Credit Agreement (as hereinafter defined), the "Facilities Manager")
------------------
for the Secured Parties referred to in the Credit Agreement dated as of
February 27, 1995 (as such agreement may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement") with the
----------------
Grantor, certain Subsidiaries of the Grantor parties thereto, the Secured
Parties named therein and the Facilities Manager, a security interest in
certain property and assets of the Grantor, including, among other things,
the following (the "Account Collateral"): (a) the Cash Collateral
------------------
Account, all funds held therein and all certificates and instruments, if
any, from time to time representing or evidencing the Cash Collateral
Account; (b) all interest, dividends, cash, instruments and other property
and assets from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the then existing Account
Collateral; and (c) all proceeds of any and all of the foregoing Account
Collateral and, to the extent not otherwise included, all (i) payments
under insurance (whether or not the Facilities Manager is the loss payee
thereof), or any indemnity, warranty or guarantee, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing Account
Collateral and (ii) cash. It is a condition to the continued maintenance
of the Cash Collateral Account with you that you agree to this letter
agreement.

By signing this letter agreement, you acknowledge notice of, and
consent to the terms and provisions of, the Security Agreement and confirm
to the Facilities Manager that the description of the Cash Collateral
Account set forth in the Preliminary Statements to the Security Agreement
is correct and that you have received no notice of any other pledge or
assignment of, or lien on or security interest in, the Cash Collateral
Account. Further, you hereby agree with the Facilities Manager that:

(a) Notwithstanding anything to the contrary in any other
agreement relating to the Cash Collateral Account, the Cash Collateral
Account is and will be subject to the terms and conditions of the
Security Agreement, will be maintained solely for the benefit of the
Facilities Manager, on behalf of itself and the other Secured Parties,
will be entitled "Citicorp USA, Inc., as Facilities Manager, Re:
Walter Industries, Inc." and will be subject to written instructions
only from an officer of the Facilities Manager or, so long as no
Default has occurred and is

<PAGE>

continuing, an officer of the Swing Line Borrower, as agent for, and
with the consent of, the Facilities Manager.

(b) In accordance with written instructions received from the
Facilities Manager, you will, subject to the provisions hereof, from
time to time (i) invest amounts on deposit in the Cash Collateral
Account in such investments as are set forth in such instructions of
the Facilities Manager in the name of the Facilities Manager, on
behalf of the Grantor and (ii) invest interest paid on the investments
referred to in clause (i) above, and reinvest other proceeds of any
such investments that my mature or be sold, in each case in such
investments in the name of the Facilities Manager as are set forth in
the instructions of the Facilities Manager, on behalf of the Grantor
(the investments referred to in clauses (i) and (ii) above being
collectively "Collateral Investments"). Interest and proceeds that
----------------------
are not invested or reinvested in Collateral Investments as provided
above shall be deposited and held in the Cash Collateral Account.

(c) You will follow your usual operating procedures for the
handling of any remittance received in the Cash Collateral Account
that contains restrictive endorsements, irregularities (such as a
variance between the written and numerical amounts), undated or
postdated items, missing signatures, incorrect payees, etc.

(d) You will process all eligible checks and other remittance
items not covered by subsection (c) above and deposit such checks and
remittance items in the Cash Collateral Account.

(e) You will maintain a record of all checks and other
remittance items received in the Cash Collateral Account and, in
addition to providing the Grantor with photostats, vouchers,
enclosures, records and other documents in accordance with the
arrangements in effect between you and the Grantor on the date hereof,
of such checks and remittance items on a daily basis, furnish to the
Facilities Manager (i) a monthly statement of the Cash Collateral
Account and (ii) daily collection and check float report, to be
transmitted electronically to the Facilities Manager at 399 Park
Avenue, New York, New York 10043, Attention: .
-------------------------

(f) You will transfer, in same day funds, on each of your
business days, all amounts to be applied by the Facilities Manager on
such day pursuant to Section 8 of the Security Agreement to the
following account (the "Facilities Manager's Account"):
----------------------------

Citicorp USA, Inc., as Facilities Manager
Account No. 40585488
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Ms. Hein Nugent

Upon receipt of instructions from the Grantor, acting as agent for the
Facilities Manager, you will transfer all or a portion of the amounts
on deposit in the Cash Collateral Account specified by the Grantor to
the Grantor, at the account specified in such instructions of the
Grantor. Except as provided in this paragraph (f), upon no event
shall you release any amounts on deposit in the Cash Collateral
Account at the request of any Person other than the Facilities Manager
or,

<PAGE>

so long as no Default has occurred and is continuing, the Grantor,
acting as agent for, and with the consent of, the Facilities Manager.
Each such transfer of funds shall neither compromise only part of a
remittance nor reflect the rounding off of any funds so transferred.

(g) All transfers from the Cash Collateral Account referred to
in subsection (f) above shall be made by you irrespective of, and
without deduction for, any counterclaim, defense, recoupment or setoff
and shall be final, and you will not seek to recover from the
Facilities Manager for any reason any such payment once made.

(h) All service charges and fees with respect to the Cash
Collateral Account shall be payable by the Grantor, but may be charged
to another account maintained by the Grantor with you (other than any
Blocked Account or Collection Account maintained with you).

(i) The Facilities Manager shall be entitled to exercise any and
all rights of the Grantor in respect of the Cash Collateral Account in
accordance with the terms of the Security Agreement, and you shall
comply in all respects with such exercise.

This letter agreement shall be binding upon you and your
successors and assigns and shall inure to the benefit of, and be
enforceable by, the Facilities Manager and the other Secured Parties and
their respective successors, transferees and assigns. You may terminate
this letter agreement only upon 30 days' prior written notice to the
Grantor and the Facilities Manager. Upon such termination, you shall close
the Cash Collateral Account and transfer all funds in the Cash Collateral
Account in accordance with the instructions of the Facilities Manager.
Upon such termination, you shall nonetheless remain obligated to transfer
promptly to the Facilities Manager, at the account designated by the
Facilities Manager at such time, all funds and other property received in
respect of the Cash Collateral Account.

This letter agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery
of an executed counterpart of a signature page to this letter agreement
shall be effective as delivery of a manually executed counterpart of this
letter agreement.

This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.

Very truly yours,

CITICORP USA, INC., as Facilities Manager

By
---------------------------------------
Attorney-in-Fact

<PAGE>

WALTER INDUSTRIES, INC., as Grantor

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

Acknowledged and agreed to as
of the date first above written:

MELLON BANK, N.A.

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

<PAGE>

EXHIBIT B TO THE
SECURITY AGREEMENT
------------------

FORM OF L/C CASH COLLATERAL ACCOUNT LETTER

, 199
----------- -- -

Citibank, N.A.
399 Park Avenue
New York, NY 10043
Attention: Ms. Hein Nugent

Walter Industries, Inc.
-----------------------

Ladies and Gentlemen:

Reference is made to deposit account no. 40669593 (the "L/C Cash
--------
Collateral Account") maintained with you by Jim Walter Homes, Inc., a
------------------
Florida corporation, Jim Walter Resources, Inc., an Alabama Corporation, JW
Aluminum Company, a Delaware corporation, JW Window Components, Inc., a
Delaware corporation, Sloss Industries Corporation, a Delaware corporation,
Southern Precision Corporation, a Delaware corporation, United States Pipe
and Foundry Company, a Delaware corporation and Vestal Manufacturing
Company, a Delaware corporation (collectively, the "Grantors"). Pursuant
--------
to the Security Agreement dated March __, 1995 (as amended, supplemented or
otherwise modified from time to time, the "Security Agreement"; terms
------------------
defined therein unless otherwise defined herein being used herein as
therein defined), the Grantors have granted to Citicorp USA, Inc., as
facilities manager and as collateral agent (together with any successor
appointed pursuant to Article VIII of the Credit Agreement (as hereinafter
defined), the "Facilities Manager") for the Secured Parties referred to in
------------------
the Credit Agreement dated as of February 27, 1995 (as such agreement may
be amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") with the Grantors and Walter Industries, Inc., the
----------------
Secured Parties named therein and the Facilities Manager, a security
interest in certain property and assets of the Grantors, including, among
other things, the following (the "Account Collateral"): (a) the L/C Cash
------------------
Collateral Account, all funds held therein and all certificates and
instruments, if any, from time to time representing or evidencing the L/C
Cash Collateral Account; (b) all interest, dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Account Collateral; and (c) all proceeds of any and all of the
foregoing Account Collateral and, to the extent not otherwise included, all
(i) payments under insurance (whether or not the Facilities Manager is the
loss payee thereof), or any indemnity, warranty or guarantee, payable by
reason of loss or damage to or otherwise with respect to any of the
foregoing Account Collateral and (ii) cash. It is a condition to the
continued maintenance of the L/C Cash Collateral Account with you that you
agree to this letter agreement.

By signing this letter agreement, you acknowledge notice of, and
consent to the terms and provisions of, the Security Agreement and confirm
to the Facilities Manager that the description of the L/C Cash Collateral
Account set forth in the Preliminary Statements to the Security Agreement
is correct and that you have received no notice of any other pledge or
assignment of, or lien on or security interest in, the L/C Cash Collateral
Account. Furthermore, you hereby agree with the Facilities Manager that:

<PAGE>

(a) Notwithstanding anything to the contrary in any other
agreement relating to the L/C Cash Collateral Account, the L/C Cash
Collateral Account is and will be subject to the terms and conditions
of the Security Agreement, will be maintained solely for the benefit
of the Facilities Manager, on behalf of itself and the other Secured
Parties, will be entitled "Citicorp USA, Inc., as Facilities Manager,
Re: Walter Industries, Inc." and will be subject to written
instructions only from an officer of the Facilities Manager.

(b) In accordance with written instructions received from the
Facilities Manager, you will, subject to the provisions hereof, from
time to time (i) invest amounts on deposit to the L/C Cash Collateral
Account in such investments as are set forth in such instructions of
the Facilities Manager in the name of the Facilities Manager, on
behalf of the Grantor, and (ii) invest interest paid on the
investments referred to in clause (i) above, and reinvest other
proceeds of any such investments that may mature or be sold, in each
case in such investments in the name of the Facilities Manager as are
set forth in the instructions of the Facilities Manager in the name of
the Facilities Manager, on behalf of the Grantor (the investments
referred to in clauses (i) and (ii) above being collectively
"Collateral Investments"). Interest and proceeds that are not
----------------------
invested or reinvested in Collateral Investments as provided above
shall be deposited and held in the L/C Cash Collateral Account.

(c) Upon receipt of written instructions from the Facilities
Manager, you will transfer all or a portion of the amounts on deposit
in the L/C Cash Collateral Account specified by the Facilities
Manager, and that are not required to be maintained in such account
under Section 8 of the Security Agreement on such day, to the relevant
Grantor, at the account specified in such instructions of the
Facilities Manager. Upon no event shall you release any amounts on
deposit in the L/C Cash Collateral Account at the request of any
Grantor or any Person other than the Facilities Manager. Each such
transfer of funds shall neither comprise only part of the remittance
nor reflect the rounding off of any funds so transferred.

(d) All transfers from the L/C Cash Collateral Account shall be
made by you irrespective of, and without deduction for, any
counterclaim, defense, recoupment or set-off and shall be final, and
you will not seek to recover from the Facilities Manager for any
reason any such payment once made.

(e) All service charges and fees with respect to the L/C Cash
Collateral Account shall be payable by the Grantors and shall not be
charged to the L/C Cash Collateral Account, but may be charged to
another account maintained by the Grantors with you (other than any
Blocked Account or Collection Account maintained with you).

(f) The Facilities Manager shall be entitled to exercise any and
all rights of the Grantors in respect of the L/C Cash Collateral
Account in accordance with the terms of the Security Agreement, and
you shall comply in all respects with such exercise.

<PAGE>

in the L/C Cash Collateral Account in accordance with the instructions
of the Facilities Manager. Upon any such termination, you shall
nonetheless remain obligated to transfer promptly to the Cash
Collateral Account, or another account designated by the Facilities
Manager at such time, all funds and other property received in respect
of the L/C Cash Collateral Account.

This letter agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to
this letter agreement shall be effective as delivery of a manually
executed counterpart of this letter agreement.

This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.

Very truly yours,

CITICORP USA, INC., as Facilities Manager

By
---------------------------------------
Attorney-in-Fact

JIM WALTER HOMES, INC., as Grantor

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

JIM WALTER RESOURCES, INC., as
Grantor

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

JW ALUMINUM COMPANY, as Grantor

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

<PAGE>

JW WINDOW COMPONENTS, INC., as
Grantor

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

SLOSS INDUSTRIES CORPORATION, as
Grantor

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

SOUTHERN PRECISION CORPORATION,
as Grantor

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

UNITED STATES PIPE AND FOUNDRY
COMPANY, as Grantor

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

VESTAL MANUFACTURING COMPANY,
as Grantor

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

<PAGE>

Acknowledged and agreed
to as of the date first
above written:

CITIBANK, N.A.

By
-----------------------------------
Vice President

<PAGE>

EXHIBIT C TO THE
SECURITY AGREEMENT
------------------

FORM OF BLOCKED AND COLLECTION ACCOUNTS LETTER

, 199
-------------- -- -

[Name and Address of Blocked
and Collection Accounts Bank]
Attention:
--------------------------

[Name of the Borrower]
--------------------

Gentlemen/women:

Reference is made to [lockbox no. into which
---------------
certain monies, instruments and other property and assets are deposited
from time to time and deposit account nos. and
-------------------- --------
] (collectively, the "Blocked Account") and deposit account
--------------- ---------------
no. (the "Collection Account") maintained with you by
----------------- ------------------ ----
(the "Grantor"). Pursuant to the Security Agreement dated
--------------
March ___, 1995 (as amended, supplemented or otherwise modified from time
to time, the "Security Agreement"; terms defined therein unless otherwise
------------------
defined herein being used herein as therein defined), the Grantor has
granted to Citicorp, USA, Inc., as facilities manager and as collateral
agent (together with any successor appointed pursuant to Article VIII of
the Credit Agreement (as hereinafter defined), the "Facilities Manager")
------------------
for the Secured Parties referred to in the Credit Agreement dated as of
February 27, 1995 (as such agreement may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement") with the
----------------
Grantor, Walter Industries, Inc., certain other Subsidiaries of Walter
Industries, Inc. parties thereto, the Secured Parties named therein and the
Facilities Manager, a security interest in certain property and assets of
the Grantor, including, among other things, the following (the "Account
-------
Collateral"): (a) the Blocked Account, all funds held therein and all
----------
certificates and instruments, if any, from time to time representing or
evidencing the Blocked Account; (b) the Collection Account, all funds held
therein and all certificates and instruments, if any, from time to time
representing or evidencing the Collection Account; (c) all interest,
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of the then existing Account Collateral; and (d) all proceeds of any
and all of the foregoing Account Collateral and, to the extent not
otherwise included, all (i) payments under insurance (whether or not the
Facilities Manager is the loss payee thereof), or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Account Collateral and (ii) cash. It is a
condition to the continued maintenance of the Blocked Account and the
Collection Account with you that you agree to this letter agreement.

By signing this letter agreement, you acknowledge notice of, and
consent to the terms and provisions of, the Security Agreement and confirm
to the Facilities Manager that the description of each of the Blocked
Account and the Collection Account set forth on Schedule II of the Security
Agreement is correct and that you have received no notice of any other
pledge or assignment of either the Blocked Account or the Collection
Account. Further, you hereby agree with the Facilities Manager that:

(a) Notwithstanding anything to the contrary in any other
agreement relating to the Blocked Account or the Collection
Account, each of the Blocked Account and the
Collection

<PAGE>

Account are and will be subject to the terms and conditions of the
Security Agreement, will be maintained solely for the benefit of the
Facilities Manager, on its behalf and on behalf of the Secured
Parties, will be entitled "Citicorp, USA, Inc., as Facilities Manager,
Re: [Name of Grantor]" and will be subject to written instructions
only from an officer of the Facilities Manager.

(b) You will collect mail from the Blocked Account on each of
your business days at times that coincide with the delivery of mail
thereto.

(c) You will follow your usual operating procedures for the
handling of any remittance received in the Blocked Account that
contains restrictive endorsements, irregularities (such as a variance
between the written and numerical amounts), undated or postdated
items, missing signatures, incorrect payees, etc.

(d) You will endorse and process all eligible checks and other
remittance items not covered by paragraph (c) and deposit such checks
and remittance items in the Blocked Account.

(e) You will maintain a record of all checks and other
remittance items received in the Blocked Account and, in addition to
providing the Grantor with photostats, vouchers, enclosures, records
and other documents in accordance with the arrangements in effect
between you and the Grantor on the date hereof, of such checks and
remittance items on a daily basis, furnish to the Facilities Manager
(i) a monthly statement of the Blocked Account and the Collection
Account and (ii) a daily collection and check float report, to be
transmitted electronically to the Facilities Manager at 399 Park
Avenue, New York, New York 10043, Attention: ___________________.

(f) You will transfer, in same day funds, at the end of each of
your business days, the credit balance of the Blocked Account to the
Collection Account maintained by the Grantor with you.

(g) Unless you have received from the Facilities Manager notice
of the occurrence and continuance of a Default under Section 7.01(a)
or 7.01(f) of the Credit Agreement or an Event of Default, you will
transfer, in same day funds, at the end of each of your business days,
to each Permitted Disbursement Account maintained by the Grantor with
you from the Collection Account, an amount equal to the debit balance
of such Permitted Disbursement Account.

(h) You will transfer, in same day funds, not later than 10:00
A.M. (New York City time) on each of your business days, the available
and collected credit balance of the Collection Account as at the end
of the immediately preceding business day (less any amounts specified
in paragraph (g) above) to the following account (the "Cash Collateral
---------------
Account"):
-------

Citicorp USA, Inc., as Facilities Manager
Re: Walter Industries, Inc.
Account No.
-----------------
Mellon Bank, N.A.
[Address]
Attention:
-------------------

<PAGE>

(i) All transfers referred to in paragraphs (f), (g) and (h)
above shall be made by the undersigned irrespective of, and without
deduction for, any counterclaim, defense, recoupment or setoff and
shall be final, and the undersigned will not seek to recover from the
Facilities Manager for any reason any such payment once made. Each
such transfer of funds shall neither comprise only part of a
remittance nor reflect the rounding off of any funds so transferred.

(j) All service charges and fees with respect to the Blocked
Account or the Collection Account shall be payable by the Grantor, but
may be charged to another account maintained by the Grantor with you
(other than any other Blocked Account or Collection Account maintained
with you).

(k) The Facilities Manager shall be entitled to exercise any and
all rights of the Grantor in respect of the Blocked Account and the
Collection Account in accordance with the terms of the Security
Agreement, and the undersigned shall comply in all respects with such
exercise.

This letter agreement shall be binding upon you and your
successors and assigns and shall inure to the benefit of the Facilities
Manager, the other Secured Parties and their successors, transferees and
assigns. You may terminate this letter agreement only upon 30 days' prior
written notice to the Borrower and the Facilities Manager. Upon such
termination, you shall close the Blocked Account and the Collection Account
and transfer all funds in the Blocked Account and the Collection Account to
the Cash Collection Account. After any such termination, you shall
nonetheless remain obligated promptly to transfer to the Cash Collateral
Account all funds and other property received in respect of the Blocked
Account.

This letter agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this letter
agreement shall be effective as delivery of a manually executed counterpart
of this letter agreement.

This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.

Very truly yours,

CITICORP USA, INC., as Facilities Manager

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

<PAGE>

[NAME OF BORROWER], as Grantor

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

Acknowledged and agreed to as of
the date first above written:

[NAME OF BLOCKED AND
COLLECTION ACCOUNTS BANK]

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

<PAGE>

EXHIBIT D TO THE
SECURITY AGREEMENT
------------------

FORM OF SECURITY AGREEMENT SUPPLEMENT

________, 19__

Citicorp USA, Inc., as Facilities Manager
399 Park Avenue
New York, New York 10043
Attention: __________________________________________

Security Agreement dated March __, 1995 made by
Walter Industries, Inc. and the other Grantors named therein to
Citicorp USA, Inc., as Facilities Manager
-------------------------------------------------------------------------

Ladies and Gentlemen:

Reference is made to the above-captioned Security Agreement (as
amended, supplemented or otherwise modified from time to time, the
"Security Agreement"). Capitalized terms not otherwise defined herein are
------------------
used herein as defined in the Security Agreement.

The undersigned hereby assigns and pledges to the Facilities
Manager for its benefit and the ratable benefit of the Secured Parties, and
hereby grants to the Facilities Manager for its benefit and the ratable
benefit of the Secured Parties, as security for the Secured Obligations, a
pledge and assignment of, and a lien on and security interest in, all of
the right, title and interest of the undersigned, whether now owned or
hereafter acquired, in and to the Collateral owned by the undersigned
(other than any property and assets of the types referred to in Section
1(__) of the Security Agreement), including, but not limited to, the
property and assets of the undersigned set forth on the attached
supplements to the Schedules to the Security Agreement.

The undersigned hereby agrees, as of the date first above
written, to be bound as a Grantor by all of the terms and provisions of the
Security Agreement to the same extent as each other Grantor and agrees that
each reference in the Security Agreement to a "Grantor" shall also mean and
be a reference to the undersigned, and each reference in any other Loan
Document to a "Grantor" or a "Loan Party" shall also mean and be a
reference to the undersigned.

The undersigned has attached hereto supplements to each of the
Schedules to the Security Agreement, and the undersigned hereby certifies,
as of the date first above written, that such supplements have been
prepared by the undersigned in substantially the form of the Schedules to
the Security Agreement and are accurate and complete.

<PAGE>

This Security Agreement Supplement shall be governed by, and
construed in accordance with, the laws of the State of New York.

The undersigned hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of the Loan Documents, the transactions
contemplated thereby or the actions of the Facilities Manager or any
Secured Party in the negotiation, administration, performance or
enforcement thereof.

Very truly yours,

[NAME OF ADDITIONAL GRANTOR]

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

Address:

<PAGE>

EXHIBIT E TO THE
CREDIT AGREEMENT
----------------

===========================================================================

FORM OF SUBSIDIARIES GUARANTEE

Dated March ___, 1995

From

THE PERSONS SET FORTH ON THE SIGNATURE PAGES HEREOF

as Guarantors
-- ----------

in favor of

THE SECURED PARTIES TO
THE CREDIT AGREEMENT REFERRED TO HEREIN

and

CITICORP USA, INC.

as Facilities Manager
-- ---------- -------

===========================================================================

<PAGE>

T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -

Section Page

SECTION 1. Guarantee; Limitation of Liability . . . . . . . . . . . . 1

SECTION 2. Guarantee Absolute . . . . . . . . . . . . . . . . . . . . 2

SECTION 3. Waivers and Acknowledgments . . . . . . . . . . . . . . . . 3

SECTION 4. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 3

SECTION 5. Representations and Warranties . . . . . . . . . . . . . . 4

SECTION 6. Confirmation of Certain Provisions of the Credit
Agreement . . . . . . . . . . . . . . . . . . . . . . . . 4

SECTION 7. Amendments; Supplements; Etc. . . . . . . . . . . . . . . . 4

SECTION 8. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION 9. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . 5

SECTION 10. Right of Setoff . . . . . . . . . . . . . . . . . . . . . 5

SECTION 11. Indemnification . . . . . . . . . . . . . . . . . . . . . 5

SECTION 12. Continuing Guarantee; Assignments under the Credit
Agreement . . . . . . . . . . . . . . . . . . . . . . . . 6

SECTION 13. Governing Law . . . . . . . . . . . . . . . . . . . . . . 6

EXHIBIT

Exhibit A - Form of Supplemental Guarantee

<PAGE>

SUBSIDIARIES GUARANTEE

GUARANTEE dated March __, 1995 made by each of the Persons set
forth on the signature pages hereof (collectively, the "Working Capital
---------------
Borrowers" and, together with the Additional Guarantors (as defined in
---------
Section 7(b)), the "Guarantors"), in favor of the Secured Parties (as
----------
defined in the Credit Agreement referred to below) and Citicorp USA, Inc.,
as the facilities manager and the collateral agent (together with any
successor appointed pursuant to Article VIII of the Credit Agreement, the
"Facilities Manager") for the Secured Parties.
------------------

PRELIMINARY STATEMENT. The Lender Parties, Citicorp USA, Inc.
("Citicorp"), Merrill Lynch Capital Corporation ("Merrill Lynch") and
-------- -------------
NationsBank of Florida, N.A., as Co-Administrative Agents, Citicorp
Securities, Inc., Merrill Lynch and NationsBank Capital Markets, Inc., as
Co-Arrangers, The First National Bank of Boston, as Co-Agent, and Citicorp,
as Facilities Manager, are parties to a Credit Agreement dated as of
February 27, 1995 (such agreement, as it may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"; terms defined
----------------
therein unless otherwise defined herein being used herein as therein
defined) with Walter Industries, Inc., a Delaware corporation (the "Swing
-----
Line Borrower"), and each of the Guarantors. It is a condition precedent
-------------
to the making of Advances by the Lender Parties and the issuance of Letters
of Credit by the Issuing Banks under the Credit Agreement that each of the
Guarantors shall have executed and delivered this Subsidiaries Guarantee.

NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender Parties to make Advances and the Issuing Banks to issue
Letters of Credit under the Credit Agreement from time to time, each of the
Guarantors hereby agrees as follows:

SECTION 1. Guarantee; Limitation of Liability. (a) Each of
----------------------------------
the Guarantors hereby unconditionally and irrevocably guarantees the
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations of each other Loan Party now or hereafter
existing under the Loan Documents, whether for principal, interest, fees,
commissions, expenses or otherwise (such Obligations being the "Guaranteed
----------
Obligations"), and agrees to pay any and all expenses (including, without
-----------
limitation, reasonable fees and expenses of counsel) incurred by the
Facilities Manager or any other Secured Party in enforcing any rights under
this Subsidiaries Guarantee. Without limiting the generality of the
foregoing, each of the Guarantors' liability shall extend to all amounts
that constitute part of the Guaranteed Obligations and would be owed by any
other Loan Party to the Facilities Manager or any other Secured Party under
the Loan Documents but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such other Loan Party.

(b) The liability of each of the Guarantors under this
Subsidiaries Guarantee shall not exceed the greater of (i) the sum of (A)
such Guarantor's net intercompany obligations arising after the Effective
Date (as defined in the Plan of Reorganization) owed to any other Loan
Party, (B) the amount of capital contributed to such Guarantor, directly or
indirectly, by any other Loan Party on or after the Effective Date and (C)
the net benefit realized by such Guarantor from the proceeds of Advances
made from time to time to such Guarantor and (ii) the greater of (A) 95% of
the Adjusted Net Assets of such Guarantor on the date of this Subsidiaries
Guarantee and (B) 95% of the Adjusted Net Assets of such Guarantor on the
date of any payment hereunder. For purposes of this Subsidiaries
Guarantee, the term "Adjusted Net Assets" means, with respect to each of
-------------------
the Guarantors at any date of determination, the lesser of (1) the amount
by which the fair value of the property and assets of each of the
Guarantors

<PAGE>

exceeds the total amount of liabilities (including, without limitation,
contingent liabilities but excluding liabilities under the Loan Documents)
of such Guarantor at such date and (2) the amount by which the present fair
salable value of the property and assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (excluding debt in respect of the Loan
Documents), as they become absolute and matured.

SECTION 2. Guarantee Absolute. Each of the Guarantors
------------------
guarantees that the Guaranteed Obligations will be paid strictly in
accordance with the terms of the Loan Documents, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Facilities Manager or any
other Secured Party with respect thereto. The Obligations of each of the
Guarantors under this Subsidiaries Guarantee are independent of the
Guaranteed Obligations or any other Obligations of any other Loan Party
under the Loan Documents, and a separate action or actions may be brought
and prosecuted against each of the Guarantors to enforce this Subsidiaries
Guarantee, irrespective of whether any action is brought against any other
Loan Party or whether any other Loan Party is joined in any such action or
actions. The liability of each of the Guarantors under this Subsidiaries
Guarantee shall be absolute, unconditional and irrevocable irrespective of,
and each of the Guarantors hereby irrevocably waives any defenses it may
now or hereafter have in any way relating to, any and all of the following:

(a) any lack of validity or enforceability of any Loan Document
or any other agreement or instrument relating thereto;

(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations or any
other Obligations of any Loan Party under the Loan Documents, or any
other amendment or waiver of or any consent to departure from any
Loan Document (including, without limitation, any increase in the
Guaranteed Obligations resulting from the extension of additional
credit to any Loan Party or any of its Subsidiaries or otherwise);

(d) any manner of application of Collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner
of sale or other disposition of any Collateral for all or any of the
Guaranteed Obligations or any other Obligations of any other Loan
Party under the Loan Documents, or any other property and assets of
any other Loan Party or any of its Subsidiaries;

(e) any change, restructuring or termination of the corporate
structure or existence of any other Loan Party or any of its
Subsidiaries;

(f) any failure of any Secured Party to disclose to any Loan
Party any information relating to the financial condition,
operations, properties or prospects of any other Loan Party now or
hereafter known to such Secured Party; or

<PAGE>

(g) any other circumstance (including, without limitation, any
statute of limitations or any existence of or reliance on any
representation by the Facilities Manager or any other Secured Party)
that might otherwise constitute a defense available to, or a
discharge of, such Guarantor, any other Loan Party or any other
guarantor or surety.

This Subsidiaries Guarantee shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Guaranteed Obligations is rescinded or must otherwise be returned by the
Facilities Manager or any other Secured Party or by any other Person upon
the insolvency, bankruptcy or reorganization of any Guarantor or any other
Loan Party or otherwise, all as though such payment had not been made.

SECTION 3. Waivers and Acknowledgments. (a) Each of the
---------------------------
Guarantors hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance and any other notice with respect to any of
the Guaranteed Obligations and this Subsidiaries Guarantee, and any
requirement that the Facilities Manager or any other Secured Party protect,
secure, perfect or insure any Lien or any property or assets subject
thereto or exhaust any right or take any action against any other Loan
Party or any other Person or any Collateral.

(b) Each of the Guarantors hereby unconditionally and
irrevocably waives any duty on the part of the Facilities Manager or any
other Secured Party to disclose to such Guarantor any matter, fact or thing
relating to the business, operation or condition of any other Loan Party or
any of its Subsidiaries or to its property and assets now or hereafter
known by the Facilities Manager or such Secured Party.

(c) Each of the Guarantors hereby unconditionally waives any
right to revoke this Subsidiaries Guarantee, and acknowledges that this
Subsidiaries Guarantee is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.

(d) Each of the Guarantors acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents, and that the waivers set forth in this
Section 3 are knowingly made in contemplation of such benefits.

SECTION 4. Subrogation. Each of the Guarantors hereby
-----------
unconditionally and irrevocably agrees not to exercise any rights that it
may now have or may hereafter acquire against any other Loan Party or any
other insider guarantor that arise from the existence, payment, performance
or enforcement of the Obligations of such Guarantor under this Subsidiaries
Guarantee or under any other Loan Document, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Facilities Manager or any other Secured Party against such other Loan Party
or any other insider guarantor or any Collateral, whether or not such
claim, remedy or right arises in equity or under contract, statute or
common law, including, without limitation, the right to take or receive
from such other Loan Party or any other insider guarantor, directly or
indirectly, in cash or other property or by setoff or in any other manner,
payment or security on account of such claim, remedy or right, until such
time as all of the Guaranteed Obligations and all other amounts payable
under this Subsidiaries Guarantee shall have been paid in full in cash, all
of the Letters of Credit shall have expired, terminated or been cancelled
and the Commitments shall have expired or terminated. If any amount shall
be paid to any Guarantor in violation of the immediately preceding sentence
at any time prior to the latest of (a) the payment in full

<PAGE>

in cash of all of the Guaranteed Obligations and all other amounts payable
under this Subsidiaries Guarantee, (b) the full drawing, termination,
expiration or cancellation of all Letters of Credit and (c) the Termination
Date, such amount shall be held in trust for the benefit of the Facilities
Manager and the other Secured Parties and shall forthwith be paid to the
Facilities Manager to be credited and applied to the Guaranteed Obligations
and all other amounts payable under this Subsidiaries Guarantee, whether
matured or unmatured, in accordance with the terms of the Loan Documents,
or to be held as Collateral for any Guaranteed Obligations or other amounts
payable under this Subsidiaries Guarantee thereafter arising. If (i) any
Guarantor shall pay to the Facilities Manager all or any part of the
Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all
other amounts payable under this Subsidiaries Guarantee shall have been
paid in full in cash, (iii) all of the Letters of Credit shall have
expired, terminated or been cancelled and (iv) the Termination Date shall
have occurred, the Facilities Manager and the other Secured Parties will,
at such Guarantor's request and expense, execute and deliver to such
Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer of
subrogation to such Guarantor of an interest in the Guaranteed Obligations
resulting from the payment made by such Guarantor.

SECTION 5. Representations and Warranties. (a) There are no
------------------------------
conditions precedent to the effectiveness of this Subsidiaries Guarantee
that have not been satisfied or waived.

(b) Each Guarantor has, independently and without reliance upon
the Facilities Manager or any other Secured Party and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Subsidiaries Guarantee, and each
Guarantor has established adequate means of obtaining from each other Loan
Party on a continuing basis information pertaining to, and is now and on a
continuing basis will be completely familiar with, the financial condition,
operations, properties and prospects of such other Loan Party.

SECTION 6. Confirmation of Certain Provisions of the Credit
------------------------------------------------
Agreement. Each of the Guarantors hereby confirms to the Facilities
---------
Manager and the other Secured Parties that each of the representations and
warranties set forth in the Loan Documents that are made by such Guarantor
or on behalf of such Guarantor by any Borrower are true and correct. Each
of the Guarantors hereby confirms and agrees that, so long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender Party shall have any Commitment, such Guarantor will perform and
observe all of the terms, covenants and agreements set forth in the Loan
Documents on its part to be performed or observed or that any Borrower is
to cause such Guarantor to perform or observe.

SECTION 7. Amendments; Supplements; Etc. (a) No amendment or
-----------------------------
waiver of any provision of this Subsidiaries Guarantee and no consent to
any departure by any Guarantor therefrom shall in any event be effective
unless the same shall be in writing and signed by the Facilities Manager
and the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Secured Parties (other than any
Lender Party that is, at such time, a Defaulting Lender), do any of the
following: (i) reduce or limit the liability of any Guarantor hereunder,
(ii) postpone any date fixed for payment hereunder, (iii) change the number
of Secured Parties required to take any action hereunder or (iv) amend this
Section 7.

(b) Upon the execution and delivery by any Person of a
supplement to this Subsidiaries Guarantee, in each case in substantially
the form of Exhibit A hereto (each a "Guarantee
----------

<PAGE>

Supplement"), such Person shall be referred to as an "Additional Guarantor"
----------
and shall be and become a Guarantor, and each reference in this
Subsidiaries Guarantee to a "Guarantor" shall also mean and be a reference
to such Additional Guarantor and each reference in any other Loan Document
to a "Guarantor" or a "Loan Party" shall also mean and be a reference to
such Additional Guarantor.

SECTION 8. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall be in writing (including telegraphic, telecopy
or telex communication) and mailed, telegraphed, telecopied, telexed or
delivered, if to any of the Working Capital Borrowers at its address set
forth in Section 9.02 of the Credit Agreement; if to any Additional
Guarantor, at its address set forth below its name on the signature page to
the Guarantee Supplement executed and delivered by it; if to the Facilities
Manager or any other Secured Party, at its address set forth in Section
9.02 of the Credit Agreement; or as to any Borrower or the Facilities
Manager, at such other address as shall be designated by such party in a
written notice to the other parties or, as to any other party, at such
other address as shall be designated by such party in a written notice to
the Guarantors and the Facilities Manager. All such notices and other
communications shall, when mailed, telegraphed, telecopied or telexed, be
effective when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier or confirmed by telex answerback, respectively
addressed as aforesaid.

SECTION 9. No Waiver; Remedies. No failure on the part of the
-------------------
Facilities Manager or any other Secured Party to exercise, and no delay in
exercising, any right, power or privilege hereunder shall operate as a
waiver thereof or consent thereto; nor shall any single or partial exercise
of any right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by applicable law.

SECTION 10. Right of Setoff. Upon (a) the occurrence and
---------------
during the continuance of any Event of Default and (b) the making of the
request or the granting of the consent specified by Section 7.01 of the
Credit Agreement to authorize the Facilities Manager to declare the Notes
due and payable pursuant to the provisions of such Section 7.01, each
Lender Party and each of its Affiliates are hereby authorized at any time
and from time to time, to the fullest extent permitted by applicable law,
to set off and otherwise apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender Party or such Affiliate to or
for the credit or the account of any Guarantor against any and all of the
Obligations of such Guarantor now or hereafter existing under this
Subsidiaries Guarantee, irrespective whether such Lender Party shall have
made any demand under this Subsidiaries Guarantee and although such
Obligations may be unmatured. Each Lender Party agrees promptly to notify
the applicable Guarantor after any such setoff and application shall be
made by such Lender Party or any of its Affiliates; provided, however, that
the failure to give such notice shall not affect the validity of such
setoff and application. The rights of each Lender Party and its Affiliates
under this Section 10 are in addition to other rights and remedies
(including, without limitation, other rights of setoff) that such Lender
Party and its Affiliates may have.

SECTION 11. Indemnification. (a) Without limiting any other
---------------
Obligations of any Guarantor or any remedies of the Secured Parties under
this Subsidiaries Guarantee, each of the Guarantors agrees to indemnify and
hold harmless the Facilities Manager and each of the other Secured Parties
from, and hold each of them harmless against, any and all claims, damages,
losses, liabilities and expenses (including, without limitation, reasonable
fees and expenses of such Secured Party's counsel) suffered or incurred as
a result of or in connection with (i) the failure of any of the Guaranteed

<PAGE>

Obligations to be the legal, valid and binding obligations of any Loan
Party, enforceable against such Loan Party in accordance with its terms, or
(ii) the failure of any Loan Party to pay or perform any of the Guaranteed
Obligations in accordance with its terms.

(b) Without prejudice to the survival of any other agreement of
the Guarantors under this Subsidiaries Guarantee, the agreement and
obligations of each of the Guarantors contained in this Section 11 shall
survive the payment in full of all of the Guaranteed Obligations and all of
the other amounts payable under this Subsidiaries Guarantee.

SECTION 12. Continuing Guarantee; Assignments under the Credit
--------------------------------------------------
Agreement. This Subsidiaries Guarantee is a continuing guarantee and shall
---------
(a) remain in full force and effect until the latest of (i) the payment in
full in cash of all of the Guaranteed Obligations and all other amounts
payable under this Subsidiaries Guarantee, (ii) the full drawing,
termination, expiration or cancellation of all of the Letters of Credit and
(iii) the Termination Date, (b) be binding upon each of the Guarantors, its
successors and assigns and (c) inure to the benefit of, and be enforceable
by, the Facilities Manager and the other Secured Parties and their
respective successors, transferees and assigns. Without limiting the
generality of clause (c) of the immediately preceding sentence, any Lender
Party may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation, all
or any portion of its Commitment or Commitments, the Advances owing to it
and the Notes held by it) to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
such Lender Party under this Subsidiaries Guarantee or otherwise, in each
case as provided in Section 9.07 of the Credit Agreement.

SECTION 13. Governing Law. This Subsidiaries Guarantee shall
-------------
be governed by, and construed in accordance with, the laws of the State of
New York.

IN WITNESS WHEREOF, each of the Guarantors has caused this
Subsidiaries Guarantee to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.

JIM WALTER HOMES, INC.

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

JIM WALTER RESOURCES, INC.

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

<PAGE>

JW ALUMINUM COMPANY

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

JW WINDOW COMPONENTS, INC.

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

SLOSS INDUSTRIES CORPORATION

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

SOUTHERN PRECISION CORPORATION

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

UNITED STATES PIPE AND FOUNDRY
COMPANY

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

VESTAL MANUFACTURING COMPANY

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

<PAGE>

EXHIBIT A TO THE
SUBSIDIARIES GUARANTEE
----------------------

FORM OF GUARANTEE SUPPLEMENT

, 19
----------------- ---

Citicorp USA, Inc., as Facilities Manager
399 Park Avenue
New York, New York 10043
Attention: __________________

Credit Agreement dated as of February 27, 1995 among Walter Industries,
Inc.,
each of the Working Capital Borrowers referred to in the Credit Agreement,
the
Lender Parties parties thereto, Citicorp USA, Inc. ("Citicorp"), Merrill
--------
Lynch Capital
Corporation ("Merrill Lynch") and NationsBank of Florida, N.A., as Co-
-------------
Administrative
Agents, Citicorp Securities Inc., Merrill Lynch and NationsBanc Capital
Markets, Inc.,
as Co-Arrangers, The First National Bank of Boston, as Co-Agent, and
Citicorp, as the Facilities Manager for the Secured Parties
-----------------------------------------------------------

Ladies and Gentlemen:

Reference is made to the above-captioned Credit Agreement and to the
Subsidiaries Guarantee referred to therein (such Subsidiaries Guarantee, as
in effect on the date hereof and as it may be amended, supplemented or
otherwise modified hereafter from time to time, the "Subsidiaries
------------
Guarantee"). Capitalized terms not otherwise defined herein shall have the
---------
same meanings as specified in the Credit Agreement and in the Subsidiaries
Guarantee.

The undersigned hereby agrees as follows:

1. The undersigned hereby unconditionally and irrevocably
guarantees the punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of all Obligations of each other Loan
Party now and hereafter existing under the Loan Documents, whether for
principal, interest, fees, expenses or otherwise (such Obligations
being the "Guaranteed Obligations"), and agrees to pay any and all
----------------------
expenses (including, without limitation, reasonable fees and expenses
of counsel) incurred by the Facilities Manager or any other Secured
Party in enforcing any rights under the Subsidiaries Guarantee, on the
terms and subject to the limitations set forth in the Subsidiaries
Guarantee, as if it were an original party thereto. Without limiting
the generality of the foregoing, the undersigned's liability shall
extend to all amounts that constitute part of the Guaranteed
Obligations and would be owed by any other Loan Party to the
Facilities Manager or any other Secured Party under the Loan Documents
but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding
involving such other Loan Party.

2. The undersigned hereby agrees, as of the date first above
written, to be bound as a Guarantor by all of the terms and conditions
of the Subsidiaries Guarantee to the same extent as each of the other
Guarantors. The undersigned further agrees, as of the date first
above written, that each reference in the Subsidiaries Guarantee to a
"Guarantor" shall also mean and

<PAGE>

be a reference to the undersigned, and each reference in any other
Loan Document to a "Guarantor" or a "Loan Party" shall also mean and
be a reference to the undersigned.

3. The undersigned agrees that (a) any and all payments made by
the undersigned under the Subsidiaries Guarantee shall be made in
accordance with Section 2.12 of the Credit Agreement free and clear of
and without deduction for any and all present or future Taxes and as
further provided in this paragraph 3. If the undersigned (or any
Person acting on behalf of the undersigned) shall be required by law
to deduct any Taxes from or in respect of any sum payable under the
Subsidiaries Guarantee to the Facilities Manager or any other Secured
Party, (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions
applicable to additional sums payable under this paragraph 3) the
Facilities Manager or such other Secured Party, as the case may be,
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the undersigned (or such Person acting on
behalf of the undersigned) shall make such deductions and (iii) the
undersigned (or such Person acting on behalf of the undersigned) shall
pay the full amount deducted to the relevant taxation authority or
other Governmental Authority in accordance with applicable law.

(b) In addition, the undersigned agrees to pay any present
or future Other Taxes.

(c) Except as otherwise provided in clause (f) below, the
undersigned hereby agrees to indemnify the Facilities Manager and
each other Secured Party for the full amount of Taxes and Other
Taxes, and for the full amount of taxes imposed by any
jurisdiction on amounts payable under this paragraph 3 imposed on
or paid by the Facilities Manager or such other Secured Party, as
the case may be, and any liability (including penalties,
additions to tax, interest and expenses) arising therefrom or
with respect thereto. This indemnification shall be made within
30 days from the date any Secured Party or the Facilities
Manager, as the case may be, makes demand therefor.

(d) Within 30 days after the date of any payment of Taxes,
the undersigned making such payment or on behalf of whom such
payment is made shall furnish to the Facilities Manager, at its
address set forth in Section 9.02 of the Credit Agreement, the
original receipt of payment thereof or a certified copy of such
receipt. In the case of any payment hereunder by or on behalf of
the undersigned through an account or branch outside the United
States or on behalf of the undersigned by a payor that is not a
United States person, if the undersigned determines that no Taxes
are payable in respect thereof, the undersigned shall furnish, or
shall cause such payor to furnish, to the Facilities Manager, at
such address, an opinion of counsel acceptable to the Facilities
Manager stating that such payment is exempt from or not subject
to Taxes. For purposes of this clause (d) and clause (e) below,
the terms "United States" and "United States person" shall have
------------- --------------------
the meanings specified in Section 7701 of the Internal Revenue
Code.

(e) Upon the reasonable request in writing of the
undersigned, each Secured Party organized under the laws of a
jurisdiction outside the United States shall, on or prior to the
date of its execution and delivery of the Credit Agreement, in
the case of each Initial Lender, each Initial Issuing Bank or the
Swing Line Bank, as the case may

<PAGE>

be, and on the date of the Assignment and Acceptance or other
agreement pursuant to which it became a Secured Party, and from
time to time thereafter if requested in writing by the
undersigned or the Facilities Manager (but only so long
thereafter as such Secured Party remains lawfully able to do so
(although a change in Applicable Lending Office or a change in
the activities of an Applicable Lending Office shall not in and
of itself excuse any Secured Party from providing the requested
form)), provide the Facilities Manager and the undersigned with
Internal Revenue Service form 1001 or 4224, as appropriate, (or
any successor or other form prescribed by the Internal Revenue
Service), certifying that such Secured Party is exempt from or is
entitled to a reduced rate of United States withholding tax on
payments under the Credit Agreement or the Notes. Each Secured
Party shall provide the requested form or shall provide notice
that it is not lawfully able to do so within 20 days of receiving
a request to do so from the undersigned or the Facilities Manager
pursuant to the immediately preceding sentence. To the extent
permitted by law, as an alternative to form 1001 or 4224, each
Secured Party may provide the Facilities Manager and the
undersigned with two duly completed copies of Internal Revenue
Service form W-8, or any successor form prescribed by the
Internal Revenue Service, certifying that such Secured Party is
exempt from United States federal withholding tax pursuant to
Section 871(h) or 881(c) of the Internal Revenue Code, together
with an annual certificate stating that such Secured Party is not
a "person" described in Section 871(h)(3) or 881(c)(3) of the
Internal Revenue Code. If the form provided by a Secured Party
at the time such Secured Party first becomes a party to the
Credit Agreement indicates a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be
considered excluded from Taxes unless and until such Secured
Party provides the appropriate form certifying that a lesser rate
applies, whereupon withholding tax at such lesser rate only shall
be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date of the Assignment
and Acceptance pursuant to which a Secured Party assignee becomes
a party to the Credit Agreement, the Secured Party assignor was
entitled to payments under clause (a) above in respect of United
States withholding tax with respect to interest paid at such
date, then, to such extent, the term "Taxes" shall include (in
addition to withholding taxes that may be imposed in the future
or other amounts otherwise includable in Taxes) United States
withholding tax, if any, applicable with respect to the Secured
Party assignee on such date. If any form or document referred to
in this clause (e) and requested by the undersigned pursuant to
this clause (e) requires the disclosure of information, other
than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue
Service form 1001, 4224 or W-8, that the Secured Party reasonably
considers to be confidential, the Secured Party shall give notice
thereof to the undersigned and shall not be obligated to include
in such form or document such confidential information.

(f) For any period with respect to which a Secured Party
has failed to provide the undersigned following the undersigned's
request therefor pursuant to clause (e) above with the
appropriate form described in clause (e) above (other than if
such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or if such
form otherwise is not required under clause (e) above and
appropriate notification has been given in accordance with
Section (e) above), such Secured Party shall not be entitled to
indemnification under clause (a) or (c) above

<PAGE>

with respect to Taxes imposed by the United States by reason of
such failure; provided, however, that should a Secured Party
become subject to Taxes because of its failure to deliver a form
required hereunder, the undersigned hereby agrees to take such
steps as such Secured Party shall reasonably request to assist
such Secured Party in recovering such Taxes.

(g) Any Secured Party claiming any additional amounts
payable pursuant to this paragraph 3 shall use reasonable efforts
(consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of its Applicable
Lending Office (including its Eurodollar Lending Office) if the
making of such a change would avoid the need for, or reduce the
amount of, any such additional amounts that may thereafter accrue
and would not, in the reasonable judgment of such Secured Party,
be otherwise disadvantageous to such Secured Party.

(h) Without prejudice to the survival of any other
agreement of the undersigned hereunder or under any other Loan
Document, the agreements and obligations of the undersigned
contained in this paragraph 3 shall survive the payment in full
of all of the Guaranteed Obligations and all other amounts
payable under this Guarantee Supplement.

4. (a) This Guarantee Supplement shall be governed by, and
construed in accordance with, the laws of the State of New York.

(b) The undersigned hereby irrevocably and unconditionally
submits itself and its properties to the nonexclusive
jurisdiction of any New York state court or any federal court of
the United States sitting in New York City, New York, and any
appellate court of any of the foregoing, for any suit, action or
proceeding arising out of or relating to this Guarantee
Supplement or any of the other Loan Documents to which it is a
party, or for recognition and enforcement of any judgment in
respect thereof, and the undersigned hereby irrevocably and
unconditionally agrees that all claims in respect of any such
suit, action or proceeding may be heard and determined in any
such New York state court or, to the fullest extent permitted by
applicable law, in any such United States federal court. The
undersigned hereby irrevocably waives, to the fullest extent it
may effectively do so, any objection or defense that it may now
or hereafter have to the laying of venue of any suit, action or
proceeding in the State of New York and to any defense of such
jurisdiction as an inconvenient forum for the maintenance of any
such action or proceeding in any such court. Nothing herein
shall affect the rights of the Facilities Manager or any Secured
Party to commence or participate in any suit, action or
proceeding or otherwise to proceed against the undersigned in any
other jurisdiction.

(c) The undersigned irrevocably consents to the service of
any and all process in any such suit, action or proceeding by
personal service of a copy of the summons and complaint or other
legal process in any such suit, action or proceeding, or by the
mailing of copies of such legal process to the undersigned, as
appropriate, at its address set forth below its name on the
signature page hereof, or by any other method of service provided
for under applicable law. The undersigned agrees that a final
judgment in any such suit,

<PAGE>

action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner provided by applicable law.

(d) To the extent that the undersigned has or hereafter may
acquire immunity from jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise)
with respect to itself or its property, the undersigned hereby
irrevocably waives such immunity in respect of its Obligations
under this Guarantee Supplement and the other Loan Documents.

5. The undersigned hereby irrevocably waives all right to trial
by jury in any suit, action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of any Loan Document, the
transactions contemplated thereby or the actions of the Facilities Manager
or any other Secured Party in the negotiation, administration, performance
or enforcement thereof.

Very truly yours,

[NAME OF ADDITIONAL GUARANTOR]

By _______________________________
Name:
Title:

Address:

<PAGE>

EXHIBIT F TO THE
CREDIT AGREEMENT
----------------

FORM OF BORROWING BASE CERTIFICATE

[Date]

Citicorp USA, Inc., as Facilities Manager
under the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043

Attention: ____________________

Ladies and Gentlemen:

Each of the undersigned refers to the Credit Agreement dated as
of February 27, 1995 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement") among Walter Industries, Inc.
----------------
("Walter Industries"), as the Swing Line Borrower, Jim Walter Homes, Inc.,
-----------------
Jim Walter Resources, Inc. ("Jim Walter Resources"), JW Aluminum Company
--------------------
("JW Aluminum"), JW Window Components, Inc., Sloss Industries Corporation,
-----------
Southern Precision Corporation, United States Pipe and Foundry Company
("U.S. Pipe") and Vestal Manufacturing Company, as the Working Capital
---------
Borrowers, the Lender Parties parties thereto, Citicorp USA, Inc.
("Citicorp"), Merrill Lynch Capital Corporation ("Merrill Lynch") and
-------- -------------
NationsBank of Florida, N.A., as Co-Administrative Agents, Citicorp
Securities, Inc., Merrill Lynch and NationsBanc Capital Markets, Inc., as
Co-Arrangers, The First National Bank of Boston, as Co-Agent, and Citicorp,
as Facilities Manager for the Secured Parties. Capitalized terms not
otherwise defined herein have the same meaning as specified in the Credit
Agreement.

Each of the undersigned hereby certifies to the Facilities
Manager on the date hereof as follows:

1. The Facilities Manager has been granted a valid and
perfected first priority (subject to Permitted Liens) lien on and
security interest in all of the Equipment of Jim Walter Resources, JW
Aluminum [and][,] U.S. Pipe [and] [NAME OF ANY OTHER LOAN PARTY THAT
HAS GRANTED A LIEN ON AND SECURITY INTEREST IN ALL OF ITS EQUIPMENT TO
THE FACILITIES MANAGER, ON BEHALF OF THE SECURED PARTIES, PURSUANT TO
SECTION 5.01(q) OR 5.02(j) OF THE CREDIT AGREEMENT], under the Loan
Documents.

2. The Facilities Manager has been granted a valid and
perfected first priority (subject to Permitted Liens) lien on and
security interest in all of the Inventory of Walter Industries, Jim
Walter Resources, JW Aluminum, JW Window, Sloss, Southern Precision,
U.S. Pipe [and][,] Vestal [and] [NAME OF ANY OTHER LOAN PARTY THAT HAS
GRANTED A LIEN ON AND SECURITY INTEREST IN ALL OF ITS INVENTORY TO THE
FACILITIES MANAGER,

<PAGE>

ON BEHALF OF THE SECURED PARTIES, PURSUANT TO SECTION 5.01(q) OR
5.02(j) OF THE CREDIT AGREEMENT], under the Loan Documents.

3. All of the Receivables of Walter Industries, Jim Walter
Resources, JW Aluminum, JW Window, Sloss, Southern Precision, U.S.
Pipe [and][,] Vestal [and] [NAME OF ANY OTHER LOAN PARTY THAT HAS
GRANTED A LIEN ON AND SECURITY INTEREST IN ALL OF ITS RECEIVABLES TO
THE FACILITIES MANAGER, ON BEHALF OF THE SECURED PARTIES, PURSUANT TO
SECTION 5.01(q) OR 5.02(j) OF THE CREDIT AGREEMENT] have been assigned
to the Facilities Manager, on behalf of the Secured Parties, and the
Facilities Manager has been granted a valid and perfected first
priority lien on and security interest in such Receivables, under the
Loan Documents.

4. The calculation of the Borrowing Base set forth on Annex A
hereto is complete and correct.

IN WITNESS WHEREOF, each of the undersigned has signed this
Certificate on this ____ day of _______, 199_.

WALTER INDUSTRIES, INC.

By
--------------------------------------
Name:
Chief Financial Officer

*[[NAME OF WORKING CAPITAL
BORROWER]

By
--------------------------------------
Name:
Chief Financial Officer]

--------------------
* Required for each Working Capital Borrower requesting a Borrowing on
the date of the Initial Extension of Credit pursuant to Section
3.01(m)(xviii) of the Credit Agreement and for each Working Capital
Borrower that delivers a Notice of Working Capital Borrowing, a Notice
of Issuance or a Notice of Renewal after such date pursuant to Section
5.03(e) of the Credit Agreement.

<PAGE>
<TABLE><CAPTION>
ANNEX A

CALCULATION OF BORROWING BASE

Summary

<S> <C> <C>
PART A

(1) Eligible Equipment Net Availability as of
[Date of Calculation]*
(Schedule I - line (g))

(a) Jim Walter Resources $
--------------------
(b) JW Aluminum $
--------------------
(c) U.S. Pipe $
--------------------

Total Eligible Equipment Net Availability
as of [Date of Calculation] (sum of (a), (b) and (c)) $
--------------------

(2) Eligible Inventory Net Availability as of
[Date of Calculation]**
(Schedule II - line (g))

(a) Walter Industries $
--------------------
(b) Jim Walter Resources $
--------------------
(c) JW Aluminum $
--------------------
(d) JW Windows $
--------------------
(e) Sloss $
--------------------
(f) Southern Precision $
--------------------
(g) U.S. Pipe $
--------------------
(h) Vestal $
--------------------

Total Eligible Inventory Net Availability
as of [Date of Calculation] (sum of (a) through (h)) $
--------------------

(3) Eligible Receivables Net Availability as of
[Date of Calculation]***
(Schedule III - line (l))

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

* This date may be no earlier than the last Business Day of the most
recently completed calendar month immediately preceding the date of
this Borrowing Base Certificate.

** This date may be no earlier than the last Business Day of the most
recently completed calendar month immediately preceding the date of
this Borrowing Base Certificate.

*** This date may be no earlier than the Friday immediately preceding
the date of this Borrowing Base Certificate.

<PAGE>
2

<TABLE>
<S> <C> <C>
(f) Southern Precision $
--------------------
(g) U.S. Pipe $
--------------------
(h) Vestal $
--------------------

Total Eligible Receivables Net Availability
as of [Date of Calculation] (sum of (a) through (h)) $
--------------------

(4) Total Eligible Collateral Availability
(sum of (1), (2) and (3)) $
====================

PART B

(5) Amount of Working Capital Facility Available on
[Date of Certificate]* $
--------------------

Less:
(a) Working Capital Advances Outstanding $
--------------------
(b) Letter of Credit Advances Outstanding $
--------------------
(c) Swing Line Advances Outstanding $
--------------------
(d) Available Amount of Letters of Credit Outstanding $
--------------------

(6) Working Capital Facility Availability ((5) less sum
of (a), (b), (c) and (d)) $
====================

PART C

(7) Available Amount of Working Capital Facility
on [Date of Certificate] (lesser of (5) and (6)) $
====================
</TABLE>

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

* Total Commitments after giving effect to any termination or reduction
pursuant to Section 2.05 of the Credit Agreement.

<PAGE>
SCHEDULE I

<TABLE><CAPTION>
Calculation of Eligible Equipment as of [Date of Calculation] for [Name of Borrower]*

<S> <C> <C>
(a) Total Value** of all Equipment as of
[Date of Calculation]*** $
---------------

Less: Ineligible Equipment

(i) Equipment located on leaseholds as to
which the lessor has not entered into a
consent and agreement providing the
Facilities Manager with the right to receive
notices of default, the right to repossess
such Equipment at any time and such other
rights as may be reasonably requested by
the Facilities Manager $
---------------

(ii) Equipment for which appraisals have not
been completed by the Facilities Manager
or an independent qualified appraiser
acceptable to the Facilities Manager $
---------------

(iii) Equipment with respect to which the
representations and warranties set forth in
Section 9 of the Security Agreement are
not true and correct $
---------------

(iv) Equipment in which there is no valid and
perfected first priority (subject to
Permitted Liens) lien and security
interest $
---------------

(b) Sub-total of Ineligible Equipment (sum of
(i) through (iv)) $
---------------

(c) Less Other Equipment that does not constitute
Eligible Equipment (as determined by the
Facilities Manager in its reasonable
discretion) $
---------------

(d) Total Ineligible Equipment ((b) plus (c)) $
---------------

(e) Total Eligible Equipment ((a) minus (d)) $
---------------
</TABLE>

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

* Calculation to be completed for each relevant Borrower.

** Pursuant to the definition of "Eligible Equipment" contained in the
Credit Agreement, determined by taking into consideration, among
other factors, the orderly liquidation value of such Equipment.

*** This date may be no earlier than the last Business Day of the most
recently completed calendar month immediately preceding the date
of this Borrowing Base Certificate.
<PAGE>
2

<TABLE>
<S> <C>
(f) Advance Rate
X %
-----
(g) NET AVAILABILITY IN RESPECT OF ELIGIBLE
EQUIPMENT ((e) multiplied by (f)) $
---------------
</TABLE>

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

* Apply the Advance Rate applicable to Equipment for the relevant
Borrower as provided in Annex B hereto.

<PAGE>

SCHEDULE II

<TABLE><CAPTION>
Calculation of Eligible Inventory as of [Date of Calculation] for [Name of Borrower]*

<S> <C>
(a) Value of:

(A) Raw Materials $
---------------

(B) Works in Process $
---------------

(D) Stores & Supplies $
---------------

(b) Total Value** of all Inventory as of
[Date of Calculation]***
((A) plus (B) plus (C)) $
---------------

Less: Ineligible Inventory

(i) Inventory located on leaseholds as to
which the lessor has not entered into a
consent and agreement providing the
Facilities Manager with the right to receive
notices of default, the right to repossess
such Inventory at any time and such other
rights as may be reasonably requested by
the Facilities Manager $
---------------

(ii) Obsolete or unusable Inventory $
---------------

(iii) Inventory consisting of promotional,
marketing, packaging or shipping materials
and supplies $
---------------

(iv) Inventory failing to meet all standards
imposed by any Governmental Authority
having regulatory authority over it or its
use or sale $
---------------
</TABLE>

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

* Calculation to be completed for each relevant Borrower.

** Pursuant to the definition of "Eligible Inventory" contained in the
Credit Agreement, determined by taking into consideration, among
other factors, the lowest of cost, book value determined in
accordance with GAAP and the orderly liquidation value of such
Inventory.

*** This date may be no earlier than the last Business Day of the most
recently completed calendar month immediately preceding the date of
this Borrowing Base Certificate.

<PAGE>
2

<TABLE>
<S> <C> <C>
(v) Inventory subject to any intellectual
property agreement with any third party
from whom any Borrower has received
notice of a dispute in respect of such
agreement $
---------------

(vi) Inventory located outside the United
States $
---------------

(vii) Inventory not in the possession of
or under the sole control of a Borrower $
---------------

(viii)Inventory consisting of works in process
(except for any such Inventory of JW
Aluminum and U.S. Pipe) $
---------------

(ix) Inventory with respect to which the
representations and warranties set forth in
Section 9 of the Security Agreement are
not true and correct $
---------------

(x) Inventory in which there is no valid and
perfected first priority (subject to
Permitted Liens) lien and security
interest $
---------------

(b) Sub-total of Ineligible Inventory (sum of
(i) through (x)) $
---------------

(c) Less Other Inventory that does not constitute
Eligible Inventory (as determined by the
Facilities Manager in its reasonable
discretion) $
---------------

(d) Total Ineligible Inventory ((b) plus (c)) $
---------------

(e) Total Eligible Inventory ((a) minus (d)) $
---------------

(f) Advance Rate* X %
-----

(g) NET AVAILABILITY IN RESPECT OF ELIGIBLE
INVENTORY ((e) multiplied by (f)) $
---------------
</TABLE>

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

* Apply a weighted average of the Advance Rates applicable to each
category of Eligible Inventory for the relevant Borrower as
provided in Annex B herto, such weighted average to be based on
the proportionate amount of each category of Eligible Inventory
to the total value of all Eligible Inventory.

<PAGE>
SCHEDULE III

<TABLE><CAPTION>
Calculation of Eligible Receivables as of [Date of Calculation]* for [Name of Borrower]**

<S> <C> <C>
(a) Balance of Total Receivables as of Previous
Borrowing Base Certificate (Beginning Balance) $
---------------

(b) Plus Sales $
---------------

(d) Less Credits to Receivables (other than Cash) $
---------------

(e) Total*** ((c) plus (d)) $
---------------

(f) Ending Balance ((a) plus (b) less (e)) $
---------------

Less:

(i) Receivables from sales of goods or
services rendered outside the ordinary
course of the relevant Borrower's
business $
---------------

(ii) Receivables on other than normal or
customary terms in the relevant
Borrower's business $
---------------

(iii) Affiliate Receivables $
---------------

(iv) Receivables more than 90 days past the
original invoice date or more than 60
days past the date due $
---------------

(v) Receivables owing from any Person more
than 50% of which is more than 60 days
past the date due $
---------------

(vi) Receivables owing from any Person that
(i) has disputed liability for such
</TABLE>

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

* This date may be no earlier than the Friday immediately preceding the
date of this Borrowing Base Certificate.

** Calculation to be completed for each relevant Borrower.

*** Pursuant to the definition of "Eligible Receivables" contained in
the Credit Agreement, determined by taking into consideration,
among other factors, their book value determined in accordance
with GAAP.

<PAGE>
2

<TABLE>
<S> <C> <C>
Receivable to the extent of such disputed
liability or (ii) has asserted any claim,
demand or liability $
---------------

(vii) Receivables owing from any Person that
shall take or be the subject of any action
or proceeding of a type described in
Section 7.01(f) of the Credit Agreement $
---------------

(viii) Receivables (A) owing from a supplier to
or creditor of any Borrower, to the extent
of amounts owing from such supplier or
creditor, unless such Person has waived
any right of setoff or (B) representing any
manufacturer's or supplier's credits,
discounts, incentive plans or similar
arrangements entitling any Borrower to
discounts on future purchases therefrom $
---------------

(ix) Receivables from sales to account debtors
outside the United States unless backed by
an irrevocable letter of credit in the
possession of the Facilities Manager $
---------------

(x) Receivables arising out of sales on a
bill-and-hold, guaranteed sales,
sales-or-return, sales on approval or on a
consignment basis or sales subject to any
right of return, setoff or chargeback $
---------------

(xi) Receivables owing from an account debtor
that is an agency, department or
instrumentality of the United States unless
the relevant Borrower shall have satisfied
the requirements of the Assignment of
Claims Act of 1940 $
---------------

(xii) Receivables with respect to which the
representations and warranties set forth in
Section 9 of the Security Agreement are
not true and correct $
---------------

(xiii) Receivables in which there is no valid and
perfected first priority lien and security
interest $
---------------

(g) Sub-total of Ineligible Receivables (sum of
(i) through (xiii)) $
---------------

(h) Less Other Receivables that do not constitute
Eligible Receivables (as determined by
the Facilities Manager in its reasonable
</TABLE>
<PAGE>
3

<TABLE>
<S> <C> <C>
discretion) $
---------------

(i) Total Ineligible Receivables ((g) plus (h)) $
---------------

(j) Total Eligible Receivables ((f) minus (i)) $
---------------

(k) Advance Rate* X %
-----

(l) NET AVAILABILITY IN RESPECT OF ELIGIBLE
RECEIVABLES ((j) multiplied by (k)) $
---------------

</TABLE>

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

* Apply the Advance Rate applicable to Receivables for the relevant
Borrower as provided in Annex B hereto.

<PAGE>
<TABLE><CAPTION>
ANNEX B

ADVANCE RATES

BORROWER
TYPE OF Jim Jim Walter JW Aluminum JW Southern U.S.
COLLATERAL Walter Resources Window Sloss Industries Precision Pipe
Homes
<S> <C> <C> <C> <C> <C> <C> <C>
Equipment N/A TBD* TBD* N/A N/A N/A TBD*

Inventory:

Aluminum 60% Coal 60%
Raw Materials N/A 0% Other 0% 25% Other 30% N/A 60%

Work in Process N/A 0% 50% 0% 0% N/A 20%

Coke 60%
Finished Goods N/A 75% 60% 25% Slag Wool 50% N/A 45%
Chemicals 40%
Other 0%

Stores & Supplies N/A 10% 10% 25% 0% N/A 10%

Receivables N/A 85% 85% 80% 85% N/A 85%

<CAPTION>
TYPE OF Vestal Walter
COLLATERAL Manufacturing Industries

<S> <C> <C>
Equipment N/A N/A

Inventory:

Raw Materials N/A N/A

Work in Process N/A N/A

Finished Goods N/A N/A

Stores & Supplies N/A N/A

Receivables N/A N/A
</TABLE>

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

* To be determined
<PAGE>

EXHIBIT G TO THE
CREDIT AGREEMENT
----------------

TERMS OF SUBORDINATION

1. Reference is made to (a) the Credit Agreement dated as of
February 27, 1995 (the "Credit Agreement"; terms defined therein unless
----------------
otherwise defined herein being used herein as therein defined) among Walter
Industries, Inc., a Florida corporation [(the "Payor")], Jim Walter Homes,
-----
Inc., a Florida corporation [(the "Payor")], Jim Walter Resources, Inc., an
-----
Alabama corporation [(the "Payor")], JW Aluminum Company, a Delaware
-----
corporation [(the "Payor")], JW Window Components, Inc., a Delaware
-----
corporation [(the "Payor")], Sloss Industries Corporation, a Delaware
-----
corporation [(the "Payor")], Southern Precision Corporation, a Delaware
-----
corporation [(the "Payor")], United States Pipe and Foundry Company, a
-----
Delaware corporation [(the "Payor")], Vestal Manufacturing Company, a
-----
Delaware corporation [(the "Payor")], the Lender Parties parties thereto,
-----
Citicorp USA, Inc. ("Citicorp"), Merrill Lynch Capital Corporation
--------
("Merrill Lynch") and NationsBank of Florida, N.A., as Co-Administrative
-------------
Agents, Citicorp Securities, Inc., Merrill Lynch and NationsBank Capital
Markets, Inc., as Co-Arrangers, The First National Bank of Boston, as Co-
Agent, and Citicorp, as Facilities Manager for the Lender Parties and the
other Secured Parties, and (b) the loans and advances made by [NAME OF
OTHER BORROWER OR WHOLLY OWNED SUBSIDIARY] (the "Subordinated Creditor") to
---------------------
the Payor (such loans and advances being, collectively, the "Subordinated
------------
Indebtedness").
------------

2. The Subordinated Indebtedness is, and shall be, subordinate
and subject in right of payment, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all obligations of
the Payor now or hereafter existing under or in respect of (a) the Loan
Documents, whether for principal, interest (including, without limitation,
interest accruing after the filing of a petition initiating any proceeding
referred to in paragraph 5 below, whether or not such interest accrues
after the filing of such petition for purposes of the Bankruptcy Code or is
an allowed claim in such proceeding), fees, commissions, expenses or
otherwise and (b) any and all amendments, modifications, extensions,
refinancings, renewals and refundings of the obligations referred to in
clause (a) of this paragraph 2 that are made in accordance with the
applicable terms thereof (all such obligations under clauses (a) and (b) of
this paragraph 2 being, collectively, the "Senior Indebtedness"). For the
-------------------
purposes of the provisions hereof, the Senior Indebtedness shall not be
deemed to have been paid in full until the latest of (i) the date of
payment in full in cash of all of the outstanding Advances and all interest
accrued thereon, all fees and expenses then due and payable in connection
therewith and all other Senior Indebtedness then due and payable, (ii) the
termination, expiration or cancellation of all Letters of Credit and (iii)
the Termination Date; provided, however, that on such date neither the
Facilities Manager nor any other Secured Party shall have made any claim
against the Subordinated Creditor or any other Loan Party under any
provision of any of the Loan Documents that has not been cash
collateralized by an amount sufficient in the reasonable judgment of the
Facilities Manager, the Required Lenders and any such other Secured Party
(if such other Secured Party is not one of the Lender Parties constituting
the Required Lenders) to secure such claim.

3. So long as the Senior Indebtedness shall not have been paid
in full, the Subordinated Creditor shall not (a) ask, demand, sue for, take
or receive from the Payor [(except, so long as no Default under Section
7.01(a) or 7.01(f) of the Credit Agreement or Event of Default shall have
occurred and be continuing, in order to enable the Subordinated Creditor to
pay amounts owing under the Senior Notes in accordance with Section
5.02(g)(ii)(B) of the Credit Agreement)]**, directly or

--------------------
** The parenthetical shall be included if the Subordinated Creditor is
the Swing Line Borrower.

<PAGE>

indirectly, in cash or other property or by setoff or in any manner
(including, without limitation, from or by way of Collateral), payment of
all or any of the Subordinated Indebtedness or (b) commence, or join with
any creditor other than the Facilities Manager or any Secured Party in
commencing, or directly or indirectly cause the Payor to commence, or
assist the Payor in commencing, any proceeding referred to in paragraph 5
below.

[4. Upon the occurrence and during the continuance of a Default
under Section 7.01(a) or 7.01(f) of the Credit Agreement or an Event of
Default, no payment or distribution of any assets of the Payor of any kind
or character (including, without limitation, any payment that may be
payable by reason of any other Indebtedness of the Payor being subordinated
to payment of the Subordinated Indebtedness) shall be made by or on behalf
of the Payor for or on account of any Subordinated Indebtedness, and the
Subordinated Creditor shall not ask, demand, sue for, take or receive from
the Payor, directly or indirectly, in cash or other property or by setoff
or in any other manner (including, without limitation, from or by way of
Collateral), payment of all or any of the Subordinated Indebtedness, unless
and until such Default or Event of Default shall have been cured or waived
in writing or such Senior Indebtedness shall have been paid in full, after
which the Payor may resume making any and all required payments in respect
of the Subordinated Indebtedness (including any missed payments).]***

5. In the event of any dissolution, winding up, liquidation,
arrangement, reorganization, adjustment, protection, relief or composition
of the Payor or its debts, whether voluntary or involuntary, in any
bankruptcy, insolvency, arrangement, reorganization, receivership, relief
or other similar case or proceeding under any federal or state bankruptcy
or similar law or upon an assignment for the benefit of creditors or any
other marshalling of the assets and liabilities of the Payor or otherwise,
the Facilities Manager, for its benefit and for the ratable benefit of the
other Secured Parties, shall be entitled to receive payment in full of all
of the Senior Indebtedness before the Subordinated Creditor is entitled to
receive any payment or distribution of any kind or character on account of
all or any of the Subordinated Indebtedness, and, to that end, any payment
or distribution of any kind (whether in cash, property or securities) that
otherwise would be payable or deliverable upon or with respect to the
Subordinated Indebtedness in any such dissolution, winding up, liquidation,
case, proceeding, assignment, marshalling or otherwise (including, without
limitation, any payment that may be payable by reason of any other
Indebtedness of the Payor being subordinated to payment of the Subordinated
Indebtedness) shall be paid or delivered directly to the Facilities
Manager, for its benefit and for the ratable benefit of the other Secured
Parties, for application (in the case of cash) to, or as collateral (in the
case of noncash property or securities) for, the payment or prepayment of
the Senior Indebtedness until all of the Senior Indebtedness shall have
been paid in full.

6. In the event that any Subordinated Indebtedness is declared
due and payable before its stated maturity, if any, the Facilities Manager,
for its benefit and for the ratable benefit of the other Secured Parties,
shall be entitled to receive payment in full of all amounts due or to
become due on or in respect of all of the Senior Indebtedness before the
Subordinated Creditor is entitled to receive any payment (including,
without limitation, any payment that may be payable by reason of the
payment of any other Indebtedness of the Payor being subordinated to the
payment of the Subordinated Indebtedness) by the Payor on account of the
Subordinated Indebtedness.

--------------------
*** Paragraph 4 shall not be included if the Payor is the Swing Line
Borrower and the Subordinated Creditor is a Working Capital Borrower.

<PAGE>

7. Until such time as the Senior Indebtedness has been paid in
full, if any proceeding referred to in paragraph 5 above is commenced by or
against the Payor,

(a) the Facilities Manager is hereby irrevocably authorized and
empowered (in its own name or in the name of the Subordinated Creditor
or otherwise), but shall have no obligation, to demand, sue for,
collect and receive every payment or distribution referred to in
paragraph 5 above and give acquittance therefor, and to file claims
and proofs of claim and take such other action (including, without
limitation, voting the Subordinated Indebtedness or enforcing any
security interest or other lien securing payment of the Subordinated
Indebtedness) as it may deem necessary or advisable for the exercise
or enforcement of any of the rights or interests of the Facilities
Manager and the other Secured Parties hereunder; and

(b) the Subordinated Creditor shall duly and promptly take such
action as the Facilities Manager may request (i) to collect the
Subordinated Indebtedness for the account of the Facilities Manager,
for its benefit and for the ratable benefit of the other Secured
Parties, and to file appropriate claims or proofs of claim in respect
of the Subordinated Indebtedness, (ii) to execute and deliver to the
Facilities Manager such powers of attorney, assignments or other
instruments as the Facilities Manager may request in order to enable
the Facilities Manager to enforce any and all claims with respect to,
and any security interests and other liens securing payment of, the
Subordinated Indebtedness, and (iii) to collect and receive any and
all payments or distributions that may be payable or deliverable upon
or with respect to the Subordinated Indebtedness.

8. All payments or distributions upon or with respect to the
Subordinated Indebtedness that are received by the Subordinated Creditor
contrary to the provisions of this Agreement shall be received in trust for
the benefit of the Facilities Manager, for its benefit and for the ratable
benefit of the other Secured Parties, shall be segregated from other
property or funds held by the Subordinated Creditor and shall be forthwith
paid over or delivered directly to the Facilities Manager, for its benefit
and for the ratable benefit of the other Secured Parties, in the same form
as so received (with any necessary endorsement) to be applied (in the case
of cash) to, or held as collateral (in the case of noncash property or
securities) for, the payment or prepayment of the Senior Indebtedness in
accordance with the terms of the Loan Documents.

9. The Facilities Manager is hereby authorized to demand
specific performance of these provisions, whether or not the Payor shall
have complied with any of the provisions hereof applicable to it, at any
time when the Subordinated Creditor shall have failed to comply with any of
these provisions. The Subordinated Creditor hereby irrevocably waives any
defense based on the adequacy of a remedy at law, which might be asserted
as a bar to such remedy of specific performance.

10. The Subordinated Creditor will not:

(a) (i) Cancel or otherwise discharge any of the Subordinated
Indebtedness (except upon payment in full of the Senior Indebtedness);
(ii) convert or exchange any of the Subordinated Indebtedness into or
for any other Indebtedness or equity interest; or (iii) subordinate
any of the Subordinated Indebtedness to any Indebtedness of the Payor
other than the Senior Indebtedness;

(b) Sell, assign, pledge, encumber or otherwise dispose of any
of the Subordinated Indebtedness other than the pledge of the
instruments evidencing the Subordinated Indebtedness

<PAGE>

to the Facilities Manager, on behalf of the Secured Parties, under the
applicable Collateral Documents; or

(c) Permit the terms of any of the Subordinated Indebtedness to
be changed in such a manner as to have an adverse effect upon the
rights or interests of the Secured Parties hereunder.

11. No payment or distribution to the Facilities Manager or any
other Secured Party pursuant to the provisions hereof shall entitle the
Subordinated Creditor to exercise any rights of subrogation in respect
thereof until the Senior Indebtedness shall have been paid in full.

12. The holders of the Senior Indebtedness may, at any time and
from time to time, without any consent of or notice to the Subordinated
Creditor or any other holder of the Subordinated Indebtedness and without
impairing or releasing the obligations of the Subordinated Creditor
hereunder:

(a) change the manner, place or terms of payment, or change or
extend the time of payment of, or renew payment or change or
extend the time or payment of, or renew or alter, the Senior
Indebtedness (including any change in the rate of interest
thereon), or amend in any manner any agreement under which
any of the Senior Indebtedness is outstanding;

(b) sell, exchange, release, not perfect and otherwise deal with
any property at any time pledged, assigned or mortgaged to secure the
Senior Indebtedness;

(d) exercise or refrain from exercising any rights against the
Payor, any other Loan Party or any other Person; and

(e) apply to the Senior Indebtedness any sums from time to time
received.

13. The foregoing provisions regarding subordination are and are
intended solely for the purpose of defining the relative rights of the
holders of the Senior Indebtedness on the one hand and the holders of the
Subordinated Indebtedness on the other hand. Such provisions are for the
benefit of the holders of the Senior Indebtedness and shall inure to the
benefit of, and shall be enforceable by, the Facilities Manager, on behalf
of itself and the other Secured Parties, directly against the holders of
the Subordinated Indebtedness, and no holder of the Senior Indebtedness
shall be prejudiced in its right to enforce subordination of any of the
Subordinated Indebtedness by any act or failure to act by the Payor or
anyone in custody of its property or assets. Nothing contained in the
foregoing provisions is intended to or shall impair, as between the Payor
and the holders of the Subordinated Indebtedness, the obligations of the
Payor to such holders.

14. The Payor agrees to pay on demand all costs and expenses
(including, without limitation, reasonable fees and expenses of counsel)
incurred by the Facilities Manager or any other Secured Party in enforcing
the provisions hereof.

15. The intercompany note incorporating the foregoing provisions
will be governed by, and construed in accordance with, the laws of the
State of New York.

EXHIBIT 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

WALTER INDUSTRIES, INC.

For the years ended May 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ---------- ----------- -------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Earnings
Income from continuing
operations . . . . . $ 20,632 $ 22,342 $ 46,594 $ 7,175 $(358,645)
Add or (deduct)
Fixed charges as set
forth below . . . . . 212,107 185,443 180,458 159,305 309,124
Interest capitalized (703) (735) (933) (1,253) (1,216)
Income tax expense
(benefit) . . . . . . 19,454 12,463 24,328 28,917 (170,450)
-------- -------- -------- -------- ---------
Earnings as defined . . $251,490 $219,513 $250,447 $194,144 $(221,187)
======== ======== ======== ======== =========

Fixed charges
One-third rental
expense . . . . . . . $ 1,893 $ 7,648 $ 7,944 $ 2,582 $ 3,360
Interest incurred . . . 210,214 177,795 172,514 156,723 305,764
-------- -------- -------- -------- ---------
Fixed charges as
defined . . . . . . . $212,107 $185,443 $180,458 $159,305 $ 309,124
======== ======== ======== ======== =========

Ratio of earnings to
fixed charges . . . . . 1.19 1.18 1.39 1.22 (A)

</TABLE>

(A) As a result of the loss incurred for the year ended May 31, 1995,
the Company was unable to fully cover the indicated fixed charges. The
coverage deficiency was $530,311.

COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED MAY 31, 1995 AFTER EFFECTS OF
EMERGENCE FROM CHAPTER 11 PROCEEDINGS

For the year ended
May 31, 1995
--------------------
($ in thousands)
Earnings
Income from continuing
operations . . . . . . . . . $(38,277)
Add or (deduct)
Fixed charges as set forth
below . . . . . . . . . . . 227,760
Interest capitalized . . . . . (1,216)
Income tax expense . . . . . 25,280
--------
Earnings as defined . . . . . $213,547
========

Fixed charges
One-third rental expense . . . $ 3,360
Interest incurred . . . . . . 224,400
--------
Fixed charges as defined . . . $227,760
========
Ratio of earnings to fixed
charges . . . . . . . . . . . (A)

(A) As a result of the pro forma loss for the year
ended May 31, 1995, the Company would have
been unable to fully cover the indicated
fixed charges. The coverage deficiency would
have been $14,213.

EXHIBIT 23(a)

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 12, 1995, relating
to the consolidated financial statements of Walter Industries, Inc. and its
subsidiaries, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedules for the three
years ended May 31, 1995 listed under Item 16(b) of this Registration Statement
when such schedules are read in conjunction with the financial statements
referred to in our report. The audits referred to in such report also included
these schedules. We also consent to the reference to us under the heading
"Experts" in such Prospectus.

/s/ Price Waterhouse LLP
-----------------------------
Price Waterhouse LLP
Tampa, Florida
August 9, 1995

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and related notes thereto and is qualified in
its entirety by reference to such financial statements and related notes.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 128,007
<SECURITIES> 128,002
<RECEIVABLES> 1,678,279
<ALLOWANCES> (34,554)
<INVENTORY> 196,437
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,186,407
<DEPRECIATION> 523,615
<TOTAL-ASSETS> 3,245,153
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,220,370
<COMMON> 505
0<F1>
0<F1>
<OTHER-SE> 360,269
<TOTAL-LIABILITY-AND-EQUITY> 3,245,153
<SALES> 1,181,635
<TOTAL-REVENUES> 1,442,322
<CGS> 951,381
<TOTAL-COSTS> 202,653
<OTHER-EXPENSES> 508,350
<LOSS-PROVISION> 4,485
<INTEREST-EXPENSE> 304,548
<INCOME-PRETAX> (529,095)
<INCOME-TAX> (170,450)
<INCOME-CONTINUING> (358,645)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (358,645)
<EPS-PRIMARY> (7.10)
<EPS-DILUTED> 0<F1>
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>

</TABLE>